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Modes of entering international business
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
 FDI without alliances
 FDI with alliances
Advantages :-
• Need for limited finance
• Less risk
• Motivation for exporting
Forms 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, brand
names, 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 business
applications of intangible
property.
 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 an
arrangement 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 agreement
between two companies whereby one
company provides managerial assistance,
technical expertise and specialised services
to the second company for a certain period
of time in return for monetary
compensation.
A turnkey project is a contract under which a firm
agrees to fully design, construct and equip a
manufacturing/business/service facility and turn
the project over to the purchaser when its ready
for 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 Acquisitions

What 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 Ventures

A 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

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Modes of entering international business

  • 2. To decide the mode of entry the following factor is to be considered :-  Ownership advantages  Location advantages  Internationalization Advantages
  • 3.  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.
  • 4.  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.
  • 5.  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.
  • 6.  EXPORTING -indirect exporting -direct exports -intra-corporate transfers  LICENSING - International Licensing  FRANCHISING - International Franchising  SPECIAL MODES -Contract manufacturing -BPO -Management Contracts -Turnkey projects
  • 7.  FDI without alliances  FDI with alliances
  • 8. Advantages :- • Need for limited finance • Less risk • Motivation for exporting Forms of exporting :- • Indirect exporting • Direct exporting • Intra corporate transfers
  • 9.  Government policies  Marketing factors  Logistics consideration  Distribution issues
  • 10.  Export management companies  Co-operative societies  International trading company  Manufacturers’ agents  Export and import brokers  Freight forwarders
  • 11. In this mode of entry, the domestic manufacturer leases the right to use its intellectual property, i.e., technology, work methods, patents, copy rights, brand names, trade marks etc. to a manufacturer in a foreign country for a fee.
  • 12.  Boundaries of the agreement  Determination of Royalty  Determining rights, privileges and constraints  Dispute settlement Mechanism  Agreement Duration
  • 13.  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 business applications of intangible property.
  • 14.  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.
  • 15. Under franchising, an independent organisation called the franchisee operates the business under the name of another company called the franchisor. In such an arrangement 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.
  • 16.  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.
  • 17. Contract manufacturing is outsourcing entire or part of manufacturing operations
  • 18. Contract manufacturing is outsourcing entire or part of manufacturing operations. E.g.: pharmaceuticals, textiles etc
  • 19.  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.
  • 20. A management contract is an agreement between two companies whereby one company provides managerial assistance, technical expertise and specialised services to the second company for a certain period of time in return for monetary compensation.
  • 21. A turnkey project is a contract under which a firm agrees to fully design, construct and equip a manufacturing/business/service facility and turn the project over to the purchaser when its ready for operation, for a remuneration.
  • 22. 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.
  • 23. 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.
  • 24.  Managing heavy outlay  Become strong to compete with a multinational company.
  • 25. Modes of FDI through alliances are:  Mergers and acquisitions  Joint ventures
  • 26. Mergers and Acquisitions What 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
  • 27. Joint Ventures A 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
  • 28.  PRODUCTION ALLIANCES  MARKETING ALLIANCES  FINANCIAL ALLIANCES  RESEARCH AND DEVELOPMENT ALLIANCES
  • 29. 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