entry and expansion chapter 13 copyright © 2011 john wiley & sons visit for the latest in...

ENTRY AND EXPANSION

CHAPTER 13

Copyright © 2011 John Wiley & Sons

Visit http://wileymanagementupdates.com/ for the latest in business news stories.

Chapter 13

Learning Objectives

1. Learn how firms gradually progress through an internationalization process

2. Understand the strategic affects of internationalization of the firm

3. Study the various modes of entering international markets

4. Understand the role and functions of international intermediaries

5. Learn about the opportunities and challenges of cooperative market development

6. Understand how firms can overcome market barriers by either building competitive capabilities from scratch or through acquisition

7. Observe a model linking managerial commitment, international expansion, and corporate concerns

2 Czinkota: International Business, 8eChapter 13

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Dynamism and commitment of managers are essential for international operations

The issue of managerial commitment is a critical one because foreign market penetration requires:

Going international means that a fundamental strategic change is taking place

3 Czinkota: International Business, 8e

The Role of Management

Sensitivity Toward Foreign Environments

Market Development

Activity

InnovationResearch

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Steps in developing international commitment1. Become aware of international business opportunities2. Determine the degree and timing of the firm’s

internationalizationInternational orientation grows over timeManagement is often too preoccupied with

short-term issues to engage in long-term planning Unsolicited orders – Unplanned business opportunities

that arise as a result of another firm’s activities Accidental exporters – Firms which participate in

international trade due to active outside demand rather than inside planning


The Role of Management

Proactive MotivationsProactive Motivations Reactive MotivationsReactive Motivations

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Profit advantageUnique productsTechnological

advantageExclusive

informationTax benefitEconomies of scale

Competitive pressuresOverproductionDeclining domestic salesExcess capacitySaturated domestic

marketsProximity to customers

and ports (physical and psychological distance)

Motivations to Go Abroad


Tierra Dynamic, a Phoenix-based environmental cleanup company, has successfully entered world markets. First, the company developed a bacteria that eats spilled hydrocarbons at an accelerated rate and then discovered a void in the world market for the bacteria. Next the company identified locations needing cleanup and found local partners in those locations. The company then set up shop on foreign soil to take advantage of these market opportunities.

Focus on Entrepreneurship: An International Bug

6Chapter 13 Czinkota: International Business, 8e

Strategic Affects of Going International

Chapter 13

Wide range of Issues to Consider: Service delivery Strategic considerations such as government regulation

compliance Start-up issues such as communication with customers Operational matters such as information flows and mechanics

Companies must determine their preparedness for internationalization by assessing strengths and weaknesses

Understanding the changes in risk and profitability can help management overcome the cost of going international


Telecom Companies Find New Revenue in Global Markets

Chapter 13

As the nation’s economy has faltered in 2008 and 2009, many U.S. companies have started looking overseas both to cut costs and to increase growth. While the downturn has had an impact beyond our borders, surveys of U.S.-based multinationals indicate only a slowing of the meteoric pace of globalization that has characterized this decade to date. In other words, their overseas expansion continues in earnest.

For telecom agents feeling the squeeze on domestic business, helping more U.S. companies go global or improve their global operations by supporting their telecommunications infrastructure requirements may be an opportunity they can no longer afford to ignore.

Source: Phone Plus Magazine: http://www.phoneplusmag.com/articles/2009/08/going-global-agents-find-new-revenue-selling-inte.aspx


Entry Development Strategies for Exporting and Importing

Chapter 13

Indirect involvement – Use of an intermediary to deal with foreign customers or firms

Direct involvement – Working with foreign customers or markets with the opportunity to develop a relationship

Transaction cost theory – Firms will evaluate and compare the costs of integrating an operation internally as compared to the cost of going global

Some firms are born global, starting out with an international orientation or quickly developing one


How a Trade Intermediary Can Offer Assistance

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1. Knows foreign market competitive conditions

2. Has personal contacts with potential foreign buyers

3. Evaluates credit risk associated with foreign buyers

4. Has sales staff to call on current foreign customers in person

5. Assumes responsibility for physical delivery of product to foreign buyer


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EMCs specialize in performing services as commission representatives or distributors

EMC Roles: Agent – Developing foreign business and sales strategies Distributor – Purchasing products and assuming trading

riskCompensation of EMCs

Fee for activities performed as a retainer Price break for international sales

Power Conflicts Between EMCs and Clients Once a foreign market is penetrated, the EMC faces the

continuous problem of retaining a client Clear arrangements must be made to avoid or minimize

conflict11 Czinkota: International Business, 8e

Export Management Companies

Tradewinds Global

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Tradewinds Global is an export management company representing the export sales of North American manufacturers into international markets. The company serves as a liaison and consultant between the manufacturer who is looking to expand into foreign markets and foreign buyers seeking to purchase consumer goods from U.S. and Canadian manufacturers.

Located in Oahu, Hawaii, Tradewinds is ideally situated to facilitate trade between North American firms and those within the emerging economies in Southeast Asia.

Source: Tradewinds Web Site: http://www.tradewinds-global.com/


Chapter 13

Concept made popular by the European trading houses from earlier centuries

Japanese sogoshosha is the most successful trading company

Expansion of Trading Companies An export trading company allows businesses to band

together to export or offer export services Export trading company legislation is designed to improve

the export performance of small and medium-sized firms Banks can participate in ETCs, allowing better access to

capital and making trading transactions easier to accomplish


Trading Companies

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Supply knowledge and information, but do not participate in the transaction

Come from both the private and public sectorPrivate sector facilitators include:


Private-Sector Facilitators

DistributorsOther Firms in the

Industry

Other Business

Associations

Chambers of Commerce

Banks and Other Service

Firms

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Public-Sector Facilitators

Small Business

Administration

U.S. Department

of Commerce

Educational Institutions

State and Local

Organizations

Export-Import Bank

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International Licensing: A firm permits another to use its intellectual property for a

royalty Does not require capital investment or detailed involvement Exploits research and development that has already been

conducted Avoids host-country regulations and cultural problems Allows a company to test the market

Trademark licensing – Permits the names or logos to be used on products in exchange for payment

Disadvantages: Limited form of foreign market participation May actually hinder future expansion A company could create its own future competitor


Licensing

With the privatization of many state-run television enterprises during the 1980s, most markets abroad have relied on American-produced TV shows to fill their airtime because of a lack of knowledge and skills to create television programs independently. Over time, the situation abroad has changed, and local stations have become more adept at developing and producing their own programming.

Focus on Culture:TV Program Licenses are International

17Chapter 13 Czinkota: International Business, 8e

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Granting the right by a parent company (the franchisor) to an independent entity (the franchisee) to do business

Major forms of franchising: Manufacturer-retailer systems (e.g. car dealerships) Manufacturer wholesaler systems (e.g. soft drink companies) Service-firm retailer systems (e.g. fast-food outlets)

Keys to Success Offer unique products or selling propositions Offer a high degree of standardization Be adaptable to local circumstances

Reasons for the international expansion: Market potential Financial gain Saturated domestic markets


Franchising

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Strategic Alliances with suppliers, customers, competitors, and companies in other industries

Reasons for Interfirm Cooperation Market development To share risks To share resource requirements To block and co-opt competitors

Types of Interfirm Cooperation Informal Cooperation – Partners work together

without a binding agreement Contractual Agreements – Joint efforts in specific

areas or for outsourcing19 Czinkota: International Business, 8e

Inter-firm Cooperation

Types of Inter-firm Cooperation

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Informal Cooperatio

n

Equity Participatio

n

Contractual Agreements

Joint Venture

Consortia

Stateless Corporations

Chapter 13

In the 1990s, a new type of company emerged in global business: The stateless corporation developed products in several countries, practiced diversity, and had shareholders on numerous continents long before traditional companies adopted these practices. These companies established joint ventures, partnerships, and other significant changes in operations to take advantages of the benefits of going global. These benefits include:•Solving trade problems•Avoiding political problems•Side-stepping regulatory hurdles•Winning technology breakthroughs

By taking advantage of the benefits of global operations, these companies set the stage for today’s multinational corporations. Source: AllBusiness: http://www.allbusiness.com/management/453036-1.html


Chapter 13

Find the right partner firstThe more formal the arrangement, the

greater the care that needs to be taken in negotiating the agreement

The cultures of the two parties must be blended

Must be able to adjust to changing market conditions

Must consider government attitudes and policies


Managerial Considerations

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Company may believe that no outside entity should have an impact on corporate decision making (ethnocentric view)

Ownership decision could be based on financial concerns

Consider how important total control is to success

Increasingly, the international environment is hostile to full ownership by MNCs


Full Ownership

A Comprehensive View of International Expansion

Chapter 13

Alternate Strategies•Trading •Export/ Import•Licensing/ Franchising•Local Presence •Alliances•Ownership

Concerns•Information•Mechanics•Communication•Sales Effort•Service•Regulations

Motivation

•Proactive•Reactive

Stages of Managemen

t Commitmen

t•Aware•Interested•Trial•Evaluation•Adaptation


DomesticFocus

Multi-National

Focus

Intermediaries•EMC•Trading Companies•Facilitators

entry and expansion chapter 13 copyright © 2011 john wiley & sons visit for the latest in...

Documents

international chapter

international markets

international commitment

international expansion

international operations

international trade

international means

international bug