» Grampil, Vience
» Rejuso, Lorry Ann
» Miguel, Mary Rose
• Explore the many types of indirect exporting possible, including export
management companies, trading companies and piggybacking.
• Explain how cooperation among companies wishing to export can
increase effectiveness and offer cost economies.
• Discuss the challenges, problems and rewards of do-it-yourself, direct
• Give reasons for assembling products abroad as a way to enter the
• Discuss the advantages and disadvantages of contract manufacturing,
licensing, joint ventures, and wholly owned operations as a ways of
entering foreign markets.
Decision criteria for entry method
The selection of the method of the foreign markets
depends on some peculiar to the firm and its industry.
1.Company goals regarding the volume of international
business desired, geographic coverage, and the time span of
the foreign involvement.
2.The size of the company in sales and assets.
3.The company’s product line and nature of its products
Number of markets
Companies differ as to the number of countries they want to
Penetration within markets
An export management
company might claim to give
access to 60 countries.
If the firm wants to know
what is going in its foreign market,
it must choose an entry method
that will provide this feedback.
Learning by experience
The firm with international ambitions should choose an entry
method to help it gain experience and realize these ambitions.
Management control over foreign marketing ranges none at all.
Incremental marketing costs
There are costs associated with the international marketing, no
matter who does it.
In evaluating profit potential of
different entry methods, the long term
sales and costs associated with each
entry method must be estimated.
Investment requirements are
highest in wholly owned foreign
The administrative burdens and
costs of international marketing vary by
Personnel needs also vary by
entry of method. The more direct
kinds of involvement require a number
of skilled international personnel.
Exposure to foreign problems
The more directly the firm is
involved in foreign markets, the more
management must deal with new
kinds of legislation, regulation, taxes,
labor problems and other foreign
The firm must have the ability
to change to meet new conditions.
Foreign markets are
usually perceived as riskier than
the domestic market.
The firm is an indirect
exporter when its products are
sold in foreign market but no
special activity for this purpose is
carried on within the firm.
Export management companies
Another form of
indirect exporting is the
company often considered
as constituting the export
department of the producer.
That is, the producer gets
the performance of an
export department without
Cooperation in exporting
Cooperation in exporting is
another way to enter foreign
markets without bearing the costs
and burdens of an in house export
department. Among the forms of
cooperation in exporting are webb-
pomerene association’s export
trading companies (ETCs) and
Webb-Pomerene association – can act as the exporting arm of all
member companies, representing a united front to world markets and
gaining significant economies of scale.
Its major functions are as follows:
1. Exporting in the name of the association
2. Consolidating freight, negotiating rates, and chartering ships
3. Performing market research
4. Appointing selling agents in the US or abroad
5. Obtaining credit information and collecting debts
6. Setting prices for export
7. Allowing uniform contracts and terms of sale
8. Allowing cooperative bids and sales negotiation
In piggyback exporting, one manufacturer uses its overseas
distribution to sell another company’s product along with its own. Two
parties with different interests-the carrier and the rider-make up the
piggy back operation.
Piggyback decisions: the carrier. A firm that has a gap in
its export operation has two options. One is to develop
internally the products necessary to round out its line and
fill up its exporting capacity.
The rider: for the rider or company using an export
company “to carry” to carry its products to foreign markets,
piggy backing is one alternative route to foreign markets.
• In indirect exporting, the tasks of
market contract, market research,
physical distribution, export
documentation, pricing and so on fall
on the firm.
•Direct exporting, usually results in
more sales than does in indirect
• Choosing representatives in the target
• Physical distribution and export
This task differs from the same task
in the domestic market. Different shipping
companies and modes of transportation are
Other marketing task
Additional responsibilities of export
management include market intelligence,
pricing and promotion. In indirect exporting,
marketing information is gathered by the
firm selling abroad.
Marketing through foreign distributors
The major marketing tasks the exporter must perform from its home
country base. The actual marketing to final consumers abroad must be done
by the firms distributor in the market.
Foreign manufacturing as foreign market entry
Several factors may encourage, or force, the firm to produce in
foreign markets if it wishes to sell in them. Tariffs or quotas can prevent entry
of exporter’s products.
Contract manufacturing abroad is foreign manufacturing by proxy.
That is, the firms product is produced in the foreign market by another
producer under contract with the firm. Because the contract covers only
manufacturing, marketing is handled by the firm.
Licensing is another way the firm can establish local
production in foreign markets without capital investment it
differs from contract manufacturing in that is usually for a
longer term and involves much greater responsibilities for the
The licensor (the international company) may give the
licensee (the national firm) one or more the following things:
2.Trade mark rights.
4.Know-how on products or processes.
MANAGING AND LICENSING
Firms that are successful in licensing have developed
certain techniques for minimizing the pitfalls of licensing and
accentuating its potential benefits.
1.Have a deliberate policy and plan for licensing; that is, give it
2.Fix licensing responsibility in the firm by means of a licensing
manager or department
3.Select licensees carefully
4.Draft a careful agreement and review it with the licensee. Some
items to include are territorial coverage, duration, royalties, trade
secrets, quality control, and a minimum performance clause.
5. Supply the licensee with critical ingredients
6. Obtain equity in the licensee
7. Limit product and territorial coverage
8. Keep patent and trademark registrations in the licensor’s
9. Be a reasonably important part of the licensee’s business.
MANAGING AND LICENSING
International licensing can be an important part of company
strategy; US firms receive over $10billion a year from
licensing agreements. It should be noted that licensing
income in not limited to royalties but includes such items
1.Technical assistance fees
2.Sale of materials or components to licensee
3.Lump-sum payments for transfer of rights or technology
5. Reciprocal license rights
6. Fees for engineering services
7. Sales of machinery or equipment and,
8. Management fees
9. Be reasonably important part of the licensees
An exporter may find tariffs or other trade restrictions have taken away
of its export markets. If it is not feasible or desirable for the firm to set up
a local production in that market, the firm could maintain a position
there by licensing.
Joint ventures in foreign markets
Foreign joint ventures in manufacturing have something common in
foreign licensing. Both involve foreign manufacturing and distribution by
a foreign firm. The major difference is that joint venture, the
international firm has equity and a management voice in the foreign firm.
The equity share of the international company generally is between 25
and 75 percent.
Licensing as a fallback strategy
Advantages of joint ventures
1.Potentially greater returns from equity participation as
opposed to royalties.
2.Greater control over production and marketing
3.Better market feedback
4.More experience in international marketing
TO JOIN OR NOT TO JOIN
The joint venture approach must be compared with both the lesser
commitment of contract manufacturing and licensing and the
greater commitment of wholly owned foreign production.
Disadvantages include a need for greater investment of capital and
management resources, and a potentially greater risk than with a
non equity approach.
When joint venture compared with wholly owned foreign production
a different picture emerges:
1.Joint venture requires less capital and fewer management
resources and thus is more open to smaller companies.
2.A given amount of capital can cover more countries.
3.The danger of expropriation is less when a firm has a national
partner than when the international firm is sole owner.
Marketing considerations play a primary role when international
firms evaluate the joint venture approach. Local market
knowledge is usually the foreign firm’s major lack when entering a
Strategic alliance covers a variety of usually no equity contractual
relationships, frequently between competitors and frequently
between competitors in different countries.
Why would a firm help a competitor enter
its home market?
•Because the local firm is getting a new product,
one that is complimentary rather than directly
Wholly owned foreign production –
Wholly owned foreign represents the greatest
commitment to foreign markets. wholly owned means 100 percent
ownership by the international firm.
MAKE OR BUY
The firm can obtain wholly owned foreign production
facilities in two ways
1.Buy out a foreign producer
2.The acquisition route -
3.Develop its own facilities from the ground up.
Deciding on wholly owned operations
The advantages of wholly owned ventures are few but
powerful. Ownership of 100 percent means 100 percent of
the profits go to the international firm, eliminating the
possibility that a national partner gets a “free ride”.
Complete ownership also gives the firm greater experience
and better market contact.