Beruflich Dokumente
Kultur Dokumente
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Location advantages
Factors that provide locational advantage : -- Customer needs, -- Logistic requirements preferences & tastes -- Cheap land acquisition cost -- Cheap labour -- Political stability -- Low cost raw materials -- Climatic conditions e.g. Siam Cement locating its factory in Thailand and exporting to Vietnam, Cambodia and Laotia
Internationalization advantages
--- Are those benefits that a company gets by manufacturing goods or rendering service in the host country by itself rather than contract arrangements with companies in the host country . --- Sometimes the cost of negotiating, monitoring, and enforcing an agreement with the host country would be difficult and costly . In such case the Company enters the host country through Direct Investment
--- If the company thinks that the transaction costs are low, and local companies in the host country can produce efficiently, without jeopardizing its interests, the company can enter the foreign market through contract Manufacturing, Franchising or Licensing e.g. Toyota enters foreign markets through direct investment and joint-ventures as the local companies in foreign countries cannot produce as efficiently as Toyota
Exporting
Decision Factors: Ownership advantages Location advantages Internalization advantages Other factors Need for control Resource availability Global strategy
Exporting
Exports
EXPORT INVOLVEMENT
DIRECT EXPORTERS
Own name and beneficiary
INDIRECT EXPORTERS
Not on their own name, but supply direct to exporters
Forms of Exporting
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Indirect Exporting
Exporting the products either in their original form or in the modified form to a foreign country through another domestic company
E.g. --- Various publishers in India including Himalaya Publishing House sell their products, i.e., books to various exporter in India, who in turn export these books to various foreign countries
Direct Exporting
Selling the products in a foreign country directly through its distribution arrangements or through a host countrys company
E.g. --- Baskin Robins initially exported its ice-cream to Russia in 1990 and later opened 74 outlets with Russian partners. Finally it established its ice-cream factory in Russia
Intracorporate Transfers
Selling of products by a company to its affiliated company in the host country (another country) E.g. --- Selling products by Hindustan Lever in India to Unilever in USA --- This transaction is treated as exports in India and imports in USA
CLASSIFICATIONS OF EXPORTERS
SIZE
PRODUCT LINE
LEGAL STATUS
DESTINATION
FREQUENCY
SMALL LARGE PARTNERSHIP PROPRIETY SINGLE SINGLE PRODUCT MULTIPLE PRODUCTS PUB. LTD PVT. LTD
OCCASIONAL BRISK
MULTIPLE
Governmental policies
Marketing concerns
Logistical considerations
Distribution issues
Co-operative Society
The domestic companies desire to export the goods from a cooperative society, which undertakes exporting operation of its members
Manufacturers Agents
They work on commission basis. They solicit domestic orders for foreign companies
Freight Forwarders
Freight Forwarders help the domestic manufacturer in exporting their goods by performing various functions like physical transportation of goods , arranging customs documents and arranging transportation services
Advantages/Disadvantages of Exporting
Advantages Relatively low financial exposure Permit gradual market entry Acquire knowledge about local market Avoid restrictions on foreign investment Disadvantages Vulnerability to tariffs and NTBs Logistical complexities Potential conflicts with distributors
International Licensing
--- The IFB washing machine was manufactured in India under license from Bosch of Germany --- The US multinational General Electric (GE) has licensed it patented technology to a small scale unit in India, established for the manufacture of high density discharge (HID) fittings --- Nike International Ltd. , the worlds largest sports shoe and apparel company entered the Indian market in mid-1990s by licensing. Sierra Industrial Enterprises Ltd. The licensee was to invest in setting up the complete quality control, marketing and distribution operations and will pay Nike 5 per cent royalty on exfactory price of footwear and apparel for the use of brand name --- Arvind brands (Arvind Mills)owns the marketing rights for the leading US brands like Arrow, Lee and Wrangler
Licensing Licensing is when a firm, called the licensor, leases the right to use its intellectual propertytechnology, work methods, patents, copyrights, brand names, or trademarksto another firm, called the licensee, in return for a fee.
Xerox, inventor of the photocopier , licensed its xerographic know-how to Fuji-Xerox. In return, Fuji-Xerox paid Xerox, a royalty fee equal to 5% of net sales revenue that Fuji-Xerox earned from the sale photocopiers based on Xeroxs patented know-how
Trademark licensing
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--- names or logo of designers --- literary characters --- sports teams --- movies & stars
Appear on clothing, games, food & beverages gifts & novelties, toys & home furnishings
Licensor
Country A
License Fee
Country B
Licensing Process
LICENSOR
LICENSEE
USES THE INTELLECTUAL PROPERTY TO PRODUCE PRODUCTS FOR SALE IN HIS COUNTRY AND BRAND NAME
PAYS ROYALTIES TO THE LICENSOR FOR USING THE INTELLECTUAL PROPERTY AND BRAND NAME
Specifying the boundaries of the agreement Determining compensation Establishing rights, privileges, and constraints Specifying the duration of the contract
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Determination of Royalty
The most important factor in deciding the license is the payment of royalty by the licensee to the licensor.
The licensor and licensee should clearly mention the mechanism to settle disputes. E.g. -- Settlement of disputes in courts is costly time consuming and hinders business interests
The two parties of the agreement specify the duration of the agreement. .
Agreement Duration
E.g. -- Tokyo Disneyland demanded a 100 year licensing agreement with The Walt Disney Company
Advantages Low financial risks Low-cost way to assess market potential Avoid tariffs, NTBs, restrictions on foreign investment Licensee provides knowledge of local markets Reduces risk of exposure to government intervention
Disadvantages Limited market opportunities/profits Dependence on licensee Potential conflicts with licensee Possibility of creating future competitor
FRANCHISING
Well known creator with brand command can become strong franchisor Encashes on past and present effort
FRANCHISOR
FRANCHISEE FEE
SELECT
FRANCHISEE
Franchising
A franchising agreement allows an independent entrepreneur or organization, called the franchisee, to operate a business under the name of another, called the franchisor, in return for a fee.
The franchisor provides the following service to the franchisee --- trade mark --- operating systems --- continuous support systems like, advertising employee training reservation services quality assurance programmes
Franchising
Franchising is a form of in which a parent company (the franchisor) grants another independent identity (the franchisee) the right to do business in a prescribed manner . This can take the form of selling the franchisors products, using its name, production and marketing techniques, or general business approach. One of the common forms of franchising involves the franchisor supplying an important ingredient ( part, material, etc.) for the finished product. E.g. --- Coca Cola supplying the syrup to the bottlers.
Automobile dealership
ITC hotels franchised two of its hotels in Bangkok and Hongkong, to ITT Sheraton Holding, in exchange the franchise for Sheraton in India
Has franchising been a successful domestic strategy? --- The franchisor may have been successful in home country before going for international franchising . Foreign investors should come forward for introducing the product on franchising basis
Franchising Advantages
Low financial risks Low-cost way to assess market potential Avoid tariffs, NTBs, restrictions on foreign investment Maintain more control than with licensing Franchisee provides knowledge of local market
Disadvantages
Limited market opportunities/profits Dependence on franchisee Potential conflicts with franchisee Possibility of creating future competitor
Contract manufacturing
CONTRACT MANUFACTURING
Under contract manufacturing, a company doing international marketing contracts with firms in foreign companies to manufacture or assemble the products while retaining the responsibility of marketing the product. There are a number of multinationals and affiliates of multinationals which employ this strategy in India in respect of some of the products they market, like, Park Davis, Hindustan Unilever, Ponds, etc.
CONTRACT MANUFACTURING
Some companies outsource their part or entire production and concentrate on marketing
--- Nike has contracted with a number of factories in South East Asia to produce its athletic footwear and it concentrates on marketing. --- Bata Shoe also contracted with a number of cobblers to produce its footwear and it concentrated on marketing --- Mega Toys --- a Los Angeles Company contracts with Chinese plants to produce toys and mega Toys concentrates on marketing
CONTRACT MANUFACTURING
Supply
Selects
Manufacturers China/India/ASEAN
--- In some cases, there will be loss of potential profits from manufacturing --- Reduced control over manufacturing process (may affect quality, delivery schedules, etc.) --- Contract manufacturing also has the risk of developing potential competitors. --- It would not be suitable in cases of high tech products and cases which involve technical secrets --- Reduce learning potential
Conclusion
Contract manufacturing is an opportunity for developing country firms to increase their business by manufacturing products for sale in foreign markets , by the contracting firm. India has enormous potential to benefit from the global outsourcing trend. More and more foreign firms are entering into contract manufacturing agreements with Indian Firms, particularly for marketing products abroad.
MANAGEMENT CONTRACTS
--- A Management Contract is an agreement between two companies, whereby one company provides managerial assistance technical expertise specialized services --- To the second company of the agreement for a certain period in return for monetary compensation in the form of : A flat fees Percentage over sales Performance bonus based on based on profitability, sales growth, production or quality measures --- Management contracts are mostly due to government intervention
e.g. Saudi Arabian Govt. requesting former owners to manage Armco Delta (USA) , Air France and KLM (Dutch) often provide technical and managerial assistance to small airlines companies owned by Governments
Advantages
Focus firms resources on its area of contracts Minimal financial exposure
Disadvantages
Potential returns limited by contract expertise May unintentionally transfer proprietary knowledge and techniques to contractee
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TURNKEY PROJECTS
--- A turnkey project is a contract under which a firm agrees to fully design, construct and equip a manufacturing/business/service facility and turn the project over to the purchaser when it is ready for operation, for a remuneration --- The forms of remuneration includes : a fixed price payment on cost plus basis e.g. Indonesian turnkey project for construction of a sugar factory to a Japanese firm
Advantages
Focus firms resources on its area of expertise Avoid all long-term operational risks
Disadvantages
Financial risks Cost overruns Construction risks Delays Problems with suppliers
Any country
Investor
Money
Project/Technology/ Trade
Short term/ Long term
ROI
Greenfield Strategy
Starting the operations of the company from scratch in foreign country --- market survey --- selection the location ---buys or lease land --- creates new facilities --- erects the machinery --- remits or transfers human resources --- starts the operations and marketing activities e.g. Fuji in South Carolina, Mercedes-Benz in Alabama, Nissan in England
Greenfield Venture
Most costly & complex of entry alternatives. Achieves greatest degree of control. Potentially most profitable, if successful. Maintain control over technology, marketing and
distribution. May need to acquire expertise & knowledge that is relevant to host country.
Could require hiring host country nationals or consultants at high cost.
STRATEGIC ALLIANCES
Strategic Alliances PHARMACEUTICALS INDUSTRY Ranbaxy & Glaxo SmithKline Syneron Medical (Israel) & Suchita Numed Have a strategic alliance for R & D
Strategic Alliances
COMPUTER INDUSTRY
Apple Computer & IBM IBM & STET (Italy) & Nippon Telegraph & Telephone (Japan) Have formed an alliance for development of software and hardware technology for a new generation of desktop computers
Strategic Alliances
AUTOMOBILE INDUSTRY
Isuzu Motors Ltd & Fuji Heavy Industries Ltd. Have set up a joint plant in the US which can build cars for Fuji and trucks for Isuzu in the same line
-- Some Japanese automakers have joined forces with foreign big names like General Motors and Chrysler -- The European car manufacturers are also teaming up to enhance their competitiveness , often in one-off projects to produce, say, an engine of transmission.
Strategic Alliances
Tatas & TFR , a leading French leather finisher and European marketer for Tatas to integrate with the exact colour, texture, and other requirements of large European buyers, while TFR will provide the existing marketing network, links to key buyers, its name and reputation and knowledge of the latest fashion trends.
BEVERAGE INDUSTRY
Strategic Alliance refers to any type of cooperative agreements between two or more firms who are potential or actual competitors. Can take multiple forms including: JVs, R&D collaborations, piggy backing, sourcing relationships, etc.
It differs from traditional JVs in that: strategic alliances are increasingly between firms in the industrialized nations the focus is on creation of new products and technologies rather than the distribution of existing ones
Why Strategic Alliances? Rising R&D Costs Shortening Product Life Cycles Growing Barriers to Market Entry
Identifying when, where, and why to collaborate An alliance is usually one of several options for pursuing a strategic goal; it is never an end in itself Strategic Goals: Product Exchange; Corporate Learning & Market Positioning Cost-Benefit Tradeoffs Alternatives to Collaboration: Self-Sufficiency; Buying the Inputs or Skills; Full Acquisition.
Selecting Partners Knowing how to maximize benefits and minimize risks of partnerships Complementary needs and assets Structuring Alliances Choosing organizational forms that provide incentives for success Contracts vs. Equity Relationships
Building Alliance Networks Creating a system of reinforcing alliances, and avoiding chaos Network Design: Is the whole greater than the sum of the parts? Who controls the network? & Where is competitive advantage created? Alliance Dynamics Managing with an eye to the forces for change in a relationship
Limits to Alliances Recognizing the constraints on collaborative strategies Organizational Constraints; Strategic Gridlock; Dependence The Role of Governments Antitrust laws Host government intervention
CONCLUSION
It has been pointed out that as the business environment both locally and internationally, becomes increasingly competitive, companies will have more reasons and will find more ways to form strategic alliances . As that happens, strategic alliances will not only be a logical alternative but a key to survival in business. Management experts predict that in the not too distant future, alliances will be a necessity not only of individual companies but also for orderly development of entire industries and that companies in mature slow growth industries will increasingly look for strategic alliances for survival
Advantages
High profit potential Maintain control over operations Acquire knowledge of local market Avoid tariffs and NTBs
Disadvantages
High financial and managerial investments Higher exposure to political risk Vulnerability to restrictions on foreign investment Greater managerial complexity
JOINT VENTURE
New Venture
Joint commitment
TAKE-OVERS
COUNTER TRADE
Counter Trade
Pure Barter
Product-to-product exchange
Buy Back
Buy the end product from the host partner
Counter Purchase
Exchange of goods in various countries until foreign exchange is found
Lack of money Lack of value of money Nonconvertibility of currency Offset financial risk
Other factors that make it more efficient to exchange goods directly than to use money as an intermediary As a competitive strategy Excellent mechanism to get a foothold into foreign markets
Major Drawbacks
Instead of there being a double coincidence of wants, there is likely to be a want of coincidence; so that, unless a hungry tailor happens to find an undraped farmer, who has both food and a desire for a pair of pants, neither can make a trade. Paul Samuelson
Transactions purely bilateral in nature and thus are not competitive Trade is formulated on the basis of the willingness to countertrade and not on economic considerations Creates economic inefficiencies
Types of Countertrade
Counter purchase or parallel barter (46%) Involves both cash & kind transactions Parallel reciprocity (a special case) Buyback (11%) Technology in return for finished goods Levi Strauss in Hungary Offset (27.5%) Cost offsets through investments Can be in multiple forms Common in high cost deals (defense) Swaps (11%) Debt for debt swaps Debt for equity swaps Debt for product swaps Debt for education swaps
Clearing Arrangements
Extend over long period Involve basket of goods Held as deposits representing purchasing power (credit - debit account)
Entry Mode Advantage Exporting Ability to realize location and experience curve economies Ability to earn returns from process technology skills in countries where FDI is restricted Low development costs and risks
Disadvantage High transport costs Trade barriers Problems with local marketing agents Creating efficient competitors Lack of long-term market presence
Turnkey contracts
Licensing
Lack of control over technology Inability to realize location and experience curve economies Inability to engage in global strategic coordination
Joint ventures
Access to local partners Lack of control over technology knowledge Inability to engage in global strategic Sharing development costs and coordination risks Inability to realize location and Politically acceptable experience economies Protection of technology Ability to engage in global strategic coordination Ability to realize location and experience economies High costs and risks
Chapter Objectives 1
Discuss how firms analyze foreign markets Outline the process by which firms choose their mode of entry into a foreign market Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods
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Chapter Objectives 2
Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing Identify the basic issues in international franchising and discuss the advantages and disadvantages of franchising
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Chapter Objectives 3
Analyze contract manufacturing, management contracts, and turnkey projects as specialized entry modes for international business Characterize the greenfield and acquisition forms of FDI
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Contractual Agreements
Licensing, Franchising, etc.
Equity Based
Joint Ventures Wholly Owned Subsidiary
Strategic Alliance
Competitiveness
Outcomes
International
Strategies Increased Market Size Return on Investment Economies of Scale and Learning International Bus.-Level Strategy Multidomestic Strategy Global Strategy
Modes of Entry
Exporting Licensing Strategic Alliances Acquisition
Innovation
Location Advantage
Transnational Strategy
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CONTRACT MANUFACTURING