The document discusses various non-equity and equity-based modes for foreign manufacturing strategies without direct investment. Non-equity options include indirect exporting, direct exporting, turnkey projects, licensing, franchising, management contracts, and contract manufacturing. Equity-based options are wholly owned subsidiaries, joint ventures, and strategic alliances. Each option is described along with associated costs, control levels, and other considerations for using the different entry strategies without full foreign direct investment.

1. FOREIGN
MANUFACTURING
STRATEGIES WITHOUT
DIRECT INVESTMENT
PRESENTED BY
B.SAI KIRAN
(12NA1E0036)

2. Nonequity Modes of Entry
• Indirect exporting done through
home-country based exporters
– No special expertise
– No large cash outlay
• Called in the trade as:
– Manufacturers’ Export
Agents
 sell for the manufacturer
– Export Commission Agents
 buy for overseas
customers
– Export Merchants
 purchase and sell for own
accounts
– International Firms
 Use their own goods abroad
• Costs of indirect
exporting:
– Commissions
– Lost foreign business if
exporters change
suppliers
– Exporters gain little
international experience
LO2
13-2

3. Direct Exporting
• Direct Exporting:
– “the exporting of goods and services by a firm that
produces them”
– Initial responsibility done internally – sales
manager
– Sales company may be set up
– Internet makes direct exporting easier
• High level investment for international presence
• Cost of trial is low
LO2
13-3

4. Turnkey Projects
LO2
• Turnkey projects are used to export:
– technology
– management expertise
– capital equipment (some cases)
• Exporter of a turnkey project may be a:
– contractor that specializes in designing and erecting plants in
a particular industry
• After a trial run, the facility is turned over to the purchaser
– company that wishes to earn money from its expertise
– producer of a factory
13-4

5. Licensing
LO2
• Licensing
– “a contractual arrangement in which one firm (licensor) grants
access to its patents, trade secrets, or technology to another (licensee)
for a fee”
– Licensee pays fixed sum and sales royalties (2%-5%) over life of
contract with renewal option
• Anything can be licensed – technology, brand &
manufacturer names, logos, symbols, colors
• Licensing is attractive because:
– courts have begun upholding patent infringement claims
– patent holders have started suing violators
– foreign governments have begun enforcement of their patent laws
• A Licensee may become a competitor!
13-5

6. Piracy
• Patent Infringement
• Intellectual property
protection:
– courts have begun
upholding patent
infringement claims
– patent holders have
started suing violators
– foreign governments have
begun enforcement of
their patent laws
• Traditional Piracy
– Attack on defenseless sailing
vessels, theft of cargo and/or
ship on the high seas
• Pirates can be:
– International terrorists
– Organized crime
– Poor local fisherman
• Locations:
– Waters around Indonesia,
Nigeria, Somalia,
Bangladesh & Caribbean
LO3
13-6

7. Franchising
• Franchising:
– “a form of licensing in which one firm contracts
with another to operate a business under an
established name according to specific rules”
• The franchisee gets:
– Publicized brand name
– Well-known set of procedures
– carefully developed & controlled controlled
marketing plan
LO2
13-7

8. Management Contract
LO2
• Management Contract
– “An arrangement by which one firm provides
management in all or specific areas to another firm”
– Typical fee is 2-5% of annual sales and tax
deductable
• MNCs make contracts with:
– Other firms with no ownership interest
– Joint venture partners
– Wholly owned subsidiaries
13-8

9. Contract Manufacturing
• Contract Manufacturing
– “An arrangement in which one firm contracts with
another to produce products to its specifications but
assumes responsibility for marketing”
• Other types of:
– Subcontract assembly or parts production
– Lend capital to 3rd party foreign contractor
•Called “foreign direct investment without
investment”
LO2
13-9

10. Equity-Based Modes of Entry
1. Wholly Owned
Subsidiary
2. Joint Venture
3. Strategic Alliances
• Wholly Owned
Subsidiary
1. Start from the ground up by
building a new plant
(greenfield investment)
2. Acquire a going concern
3. Purchase its distributor to
obtain a distribution network
familiar with its products
LO2
13-10

11. Joint Venture
1. Joint Venture
– “A cooperative effort
among two or more
organizations that
share a common
interest in a business
enterprise or
undertaking”
1. A corporate entity formed by
an international company
and local owners;
2. A corporate entity formed by
two international companies
for the purpose of doing
business in a third market;
3. A corporate entity formed by
a government agency
(usually in the country of
investment) and an
international firm; or
4. A cooperative undertaking
between two or more firms
of a limited-duration project.
LO2
13-11

12. Issues with Venture Ventures
• Strong nationalism
• Expertise, tax & other benefits
• Disadvantages:
– Shared profits
– Minority ownership position
– Difficulty in share distribution to allow minority
owner to be largest stockholder
– Lack of control
– Local law requiring local majority ownership
– Joint venture control through management
contracts
LO2
13-12

13. Strategic Alliances
• Strategic Alliances
– “partnerships between or
among competitors,
customers, or suppliers that
may take one or more various
forms, both equity and
nonequity”
• Goals of Strategic
Alliances:
– Faster market entry and
start-up
– Access to new products,
technologies, and markets
– Cost-savings by sharing
costs, resources, and risks
• Issues with Strategic
Alliances:
– Alliances may be Joint
Ventures
– Pooling versus Trading
Alliances
– Alliances versus Mergers
and Acquisitions
– Future of Alliances
LO2
13-13

14. Issues with Strategic Alliances
• Strategic Alliances may be Joint Ventures
– In manufacturing and marketing
• Pooling versus Trading Alliances
– Pooling Alliances – driven by similarity and integration
– Trading Alliances –driven by the logic of contributing dissimilar resources
– Fundamental differences:
• Goals (common vs. compatible)
• Optimal resources (many vs. few partners)
• Managerial challenges (low vs. high coordination needs)
• Alliances versus Mergers and Acquisitions
– Mergers and acquisitions not considered alliances, but ways to access new
technology
• Future of Alliances
– Many fail or are taken over by a partner
– Difficult to manage due to different strategies, operating practices, and
organizational cultures
– Partner may acquire technological or other competencies and become
competitor
LO2
13-14

15. Reasons to Export
LO4
• To serve markets where the firm has no or limited production
facilities.
• To satisfy a host government’s requirements that the local
subsidiary have exports.
• To remain price competitive in the home market.
• To test foreign markets and foreign competition inexpensively.
• To meet actual or prospective customer requests for the firm to
export.
• To offset cyclical sales in the domestic market.
13-15

16. CONCLUSION:
• FINALLY I CONCLUDE THAT
FOREIGN MANUFACTURING
STRATEGIES WITHOUT DIRECT
INVESTMENT LEADS TO HAVE
IMPACT ON OUR OWN COUNTRY
RESOURCES AND NON-DEVELOPMENT.