To decide the mode of entry the following factor is to be considered :- Ownership advantages Location advantages Internationalization Advantages
Ownership advantages are those benefits that the company may have by owning the resources. TISCO Ltd. Owned its iron ore mines and collieries. This advantage makes it the least cost producer of molten iron.
Certain location factors grant benefit to the company when the manufacturing facilities are located in the host country.• Customer needs , preferences and tastes• Logistic requirements• Cheap land and acquisition costs• Political stability• Cheap labour• Low cost of raw materials• Climatic Conditions.
Internationalisationadvantages are those benefits that a company gets by manufacturing goods or rendering services in the host country by itself rather than through contract arrangements with the companies in the host countries. Toyota enters foreign markets through direct investments and joint ventures as the local companies in foreign countries cannot produce as efficiently as Toyota.
EXPORTING-indirect exporting-direct exports-intra-corporate transfers LICENSING- International Licensing FRANCHISING- International Franchising SPECIAL MODES-Contract manufacturing-BPO-Management Contracts-Turnkey projects
Advantages :-• Need for limited finance• Less risk• Motivation for exportingForms of exporting :-• Indirect exporting• Direct exporting• Intra corporate transfers
Government policies Marketing factors Logistics consideration Distribution issues
Export management companies Co-operative societies International trading company Manufacturers’ agents Export and import brokers Freight forwarders
In this mode of entry, the domestic manufacturer leases the right to use its intellectual property, i.e., technology, work methods, patents, copy rights, brandnames, trade marks etc. to a manufacturer in a foreign country for a fee.
Boundaries of the agreement Determination of Royalty Determining rights, privileges and constraints Dispute settlement Mechanism Agreement Duration
Reduces development costs and risks of establishing foreign enterprise. Lack capital for venture. Unfamiliar or politically volatile market. Overcomes restrictive entry barriers Others can develop businessapplications of intangibleproperty.
Licensing agreements reduce the market opportunities One party can effect the other through improper acts. Costly and tedious litigation may crop up. Problem of leakage of the trade secrets of the licensor.
Under franchising, an independent organisation called the franchisee operates the business under the name of another company called the franchisor. In such anarrangement the franchisee pays a fee to the franchisor. Franchising is a form of Licensing but the Franchisor can exercise more control over the Franchisee as compared to that in Licensing.
Franchisee has to pay a fixed amount and royalty based on sales. Franchisee should agree to adhere to follow the franchisor’s requirements Franchisor helps the franchisee in establishing the manufacturing facilities Franchisor allows the franchisee some degree of flexibility.
Contract manufacturing is outsourcing entire or part of manufacturing operations
Contract manufacturing is outsourcing entire or part of manufacturing operations.E.g.: pharmaceuticals, textiles etc
Business Process Outsourcing is the long term contracting out of non core business processes to an outside provider to help achieve increased shareholder value.WHY BPO• To enable executives to concentrate on strategy.• To improve processes and save money• Increase organisational capabilities.
A management contract is an agreementbetween two companies whereby onecompany provides managerialassistance, technical expertise andspecialised services to the second companyfor a certain period of time in return formonetary compensation.
A turnkey project is a contract under which a firmagrees to fully design, construct and equip amanufacturing/business/service facility and turnthe project over to the purchaser when its readyfor operation, for a remuneration.
Companies enter the international market through FDI , invest their money, establish manufacturing and marketing facilities through ownership and control.Greenfield strategy- the term Greenfield refers to starting of the operations of a company from scratch in a foreign market.
Strategic alliance is a cooperative and collaborative approach to achieve the larger goals.Role of alliances Many complicated issues are solved through alliances They provide the parties each other’s strengths Helps in developing new products with the interaction of 2 or more industries Meet the challenges of technological revolution.
Managing heavy outlay Become strong to compete with a multinational company.
Modes of FDI through alliances are: Mergers and acquisitions Joint ventures
Mergers and AcquisitionsWhat Does Merger Mean? The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. Pixar-Disney Merger Acquisition When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition.HDFC Bank acquisition of Centurion Bank of Punjab for $2.4 billion
Joint VenturesA joint venture is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and then they share in the revenues, expenses, and control of the enterprise Sony-Ericsson is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones
PRODUCTION ALLIANCES MARKETING ALLIANCES FINANCIAL ALLIANCES RESEARCH AND DEVELOPMENT ALLIANCES
BREAKING UP OF ALLIANCES Incompatibility of partners Access to information Distribution of income Changes in business environment Acquiring the strengths of the partner Legal factors