288 33 powerpoint-slides_chapter-11-modes-international-business-expansion

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288 33 powerpoint-slides_chapter-11-modes-international-business-expansion

  1. 1. 1 International Business Rakesh Mohan Joshi Professor & Chairperson, IIFT New Delhi Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  2. 2. Chapter 11 MODES OF INTERNATIONAL BUSINESS EXPANSION Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  3. 3. Learning Objectives        To explain the concept of expansion modes for international business To examine strategic trade-offs in selecting expansion modes To discuss trade-related expansion modes To evaluate contractual expansion modes To elucidate investment modes of expansion To explicate strategy for selecting the expansion modes To elaborate the decision making process for selecting the expansion modes Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  4. 4. Modes of International Business Expansion These are specific forms of entering a foreign country so as to have international presence and achieve firm’s strategic goals. Mode of international business expansion is an institutional mechanism by which a firm expands its operations overseas. Modes of expansion have also been referred to as entry modes in the international business literature. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  5. 5. Factors Affecting Strategic Trade-offs in Selecting an Expansion Mode       Ability and willingness to commit resources in the target country Magnitude of risk the firm is willing to take in its international expansion Types of return anticipated from overseas operations Extent of control to be exerted in firm’s foreign operations Level of externalisation of firm’s resources including its intellectual property Desired flexibility of expansion modes Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  6. 6. Trade Related Modes Expansion modes that employ some form of trade to expand business in foreign countries. Trade related modes are low- risk expansion modes, highly suitable for simultaneous expansion in geographically diverse countries. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  7. 7. Exports Manufacturing the goods in the home country or a third country and shipping them for sales to a country other than the country of production. Export is the most common initial mode of entry into foreign markets as it involves much lower risks and is a low cost and simple mode of entry. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  8. 8. Indirect Exports Selling through an export intermediary based in its home country and does not take care of export activity. In indirect exports, the firm is not required to deal with hassles of export operations, it need little international experience, and much less resource commitment. Indirect exports may take place either through home based agents or through merchant intermediaries. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  9. 9. Agents Agents do not take the title of the goods and operate on behalf of principal firms, rather than themselves on commission basis. Types of Export Agents  Importer’s buying agents  Country-controlled buying agents  Buying offices Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  10. 10. Merchant Intermediaries Exports intermediaries that buy and sell goods for a profit and take title of the goods and assume risks thereof. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  11. 11. Merchant Exporters They collect manufacturers produce or from producers, several export directly in their own name and work on profit margins. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  12. 12. International Trading Companies Generally large companies that accumulate, transport, and distribute goods in various markets. Trading companies have been operating for centuries as pioneers of international trade. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  13. 13. Trading/Export Houses Home-country based firms involved in international trading activities that serve as merchant intermediary for exports. As a part of export development strategies, most countries facilitate such trading/exports houses. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  14. 14. Direct Exports Making domestically available in foreign produced markets products without employing any market intermediary in the home county. It does not mean that the goods are sold directly to foreign-based end customers. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  15. 15. Manufacturers’ Export Agents or Sales Representatives The individual intermediaries who operate on a commission basis and travel frequently to overseas markets and carry out business in the name of the firm rather than in their own name. These agents specialize in one or a few countries and offer their services to a number of manufacturers for non-competing products. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  16. 16. Overseas-based Buying Agents Foreign based agents that contract arrangements to have exclusive perform the exporting firm’s business, generally paid on the basis of a specific percentage of profit and the cost incurred. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  17. 17. Merchant importers An overseas-based trader who imports products and further sells these to a wholesaler or a retailer for a profit. Merchant importers take possession and title of the goods, therefore assuming risks and responsibilities thereof.. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  18. 18. Distributors The overseas distributors purchase the goods and subsequently sell them either to a market intermediary or to the ultimate customer. The distributors have contractual agreements with the exporting manufacturers and deal with them on a long-term basis. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  19. 19. Piggybacking (Complementary Exports) Use of well-established distribution network of another company in foreign country. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  20. 20. Counter-Trade Various forms of trade arrangements wherein the payment is in form of reciprocal commitments for other goods or services rather than an exclusive cash transaction. In addition, trade financing and price-setting are tied together in a single transaction. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  21. 21. Forms of Counter-Trade  Simple barter:  Clearing arrangement: The transaction of Direct and simultaneous exchange of goods without use of money. goods and services that extends an agreed period of time.  Switch trading: Trading involving a third party, known as switch trader in the transaction to facilitate buying of unwanted goods from the importer and make payment by cash or barter to the exporter. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  22. 22.  Counter purchase: A deal involving two separate transactions payable in currency, each with its own cash value. hard  Buyback: Often used as a marketing tool to  sell plant and equipment wherein the payment is recovered by way of output from plant and equipment sold. Offset: Partial payment is made by the importer in hard currency, besides promising to source inputs from the importing country and also make investment to facilitate production of such goods. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  23. 23. e-Modes of Business Expansion Use of information and communication technology for expanding business internationally. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  24. 24. Contractual Modes of Business Expansion Making use of strategic strengths and resources of a foreign-based partner company for international business expansion. In contractual expansion modes, the partner firms complement each other with one or more of their strategic strengths, such as superior technology, strong brand equity, manufacturing facilities, well-established distribution network, etc. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  25. 25. International Strategic Alliance Cooperation with one or more than one firm overseas to carry out a business activity wherein each one contributes its different capabilities and strengths to the alliance. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  26. 26. International Contract Manufacturing A contractual arrangement under which a firm’s manufacturing operations are carried out in foreign countries. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  27. 27. International Management Contracts Providing managerial and technical expertise to an overseas firm on contractual basis. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  28. 28. International Turnkey Project Conceptualizing, installing, testing and of designing, carrying constructing, out manufacturing preliminary facilities or engineering projects at overseas locations for a client organization. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  29. 29. International Leasing Making available new and used equipment through a foreign-based firm for use, in return of a fee called leasing fee. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  30. 30. International Licensing Making available intangible assets to a foreign company, such as patents, trademarks and copyrights, technical knowhow and skills (technical guidance, feasibility and product studies, manuals) engineering, designs, etc., for a fee termed as royalty. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  31. 31. Major Types of Licensing Arrangements    Process licensing Trade-mark licensing Cross-licensing Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  32. 32. International Franchising A special form of licensing in which intangible assets are transferred to a foreign firm alongwith methods of doing business in a prescribed manner and other assistance over an extended period of time in return for a franchising fee. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  33. 33. Investment Modes of Business Expansion If a country is found attractive enough to justify a firm’s long-term commitment, investment modes of expansion are often adopted. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  34. 34. Overseas Assembly Exports of components, parts or machinery in CKD condition and assembling these parts at a site in a foreign country. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  35. 35. International Joint Venture Equity participation of two or more firms resulting in formation of a new entity. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  36. 36. Wholly Owned Subsidiary Setting up a fully owned new entity in a foreign country. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  37. 37. Greenfield Operations Creating production and marketing facilities on a firm’s own from scratch. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  38. 38. Mergers and Acquisitions Transfer of existing assets of a domestic firm to a foreign firm lead to mergers and acquisitions. Cross-border mergers: emerges by way of a new legal entity merging assets and operations of firms from more than one country. Cross-border acquisition: involves transferring management control of assets and operations of a domestic company to a foreign firm. As a result the local firm becomes an affiliate of the foreign company. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  39. 39. Strategy for Selecting International Business Expansion Mode  Naïve rule  Pragmatic rule  Strategy rule Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  40. 40. Marketing Strategy and Expansion Modes Market penetration strategy: When a firm focuses itself on a select few countries. Market-skimming strategy: When a firm either simultaneously or in quick succession enters a large number of countries. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  41. 41. Sequential Adoption of Business Expansion Modes    Platform countries: eg. Singapore and Hong Kong Emerging countries: eg. Myanmar, Laos, and Cambodia Vietnam, Growth countries: eg. China, India, Thailand, Indonesia, Malaysia, and Philippines  Maturing countries: eg. Korea and Taiwan  Established countries: eg. Japan Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion
  42. 42. Decision-Making Process for Selecting Modes of International Business Expansion The expansion mode strategy should aim at achieving a firm’s strategic goals. It should aim at optimal harnessing of a firm’s core competencies by way of international expansion. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 11: Modes of International Business Expansion

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