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ENTRY AND EXPANSION
CHAPTER 13
Copyright © 2011 John Wiley & Sons
Visit http://wileymanagementupdates.com/ for the latest in business news stories.
Chapter 13
Learning Objectives
1. Learn how firms gradually progress through an internationalization process
2. Understand the strategic affects of internationalization of the firm
3. Study the various modes of entering international markets
4. Understand the role and functions of international intermediaries
5. Learn about the opportunities and challenges of cooperative market development
6. Understand how firms can overcome market barriers by either building competitive capabilities from scratch or through acquisition
7. Observe a model linking managerial commitment, international expansion, and corporate concerns
2 Czinkota: International Business, 8eChapter 13
Chapter 13
Dynamism and commitment of managers are essential for international operations
The issue of managerial commitment is a critical one because foreign market penetration requires:
Going international means that a fundamental strategic change is taking place
3 Czinkota: International Business, 8e
The Role of Management
Sensitivity Toward Foreign Environments
Market Development
Activity
InnovationResearch
Chapter 13
Steps in developing international commitment1. Become aware of international business opportunities2. Determine the degree and timing of the firm’s
internationalizationInternational orientation grows over timeManagement is often too preoccupied with
short-term issues to engage in long-term planning Unsolicited orders – Unplanned business opportunities
that arise as a result of another firm’s activities Accidental exporters – Firms which participate in
international trade due to active outside demand rather than inside planning
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The Role of Management
Proactive MotivationsProactive Motivations Reactive MotivationsReactive Motivations
Chapter 13
Profit advantageUnique productsTechnological
advantageExclusive
informationTax benefitEconomies of scale
Competitive pressuresOverproductionDeclining domestic salesExcess capacitySaturated domestic
marketsProximity to customers
and ports (physical and psychological distance)
Motivations to Go Abroad
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Tierra Dynamic, a Phoenix-based environmental cleanup company, has successfully entered world markets. First, the company developed a bacteria that eats spilled hydrocarbons at an accelerated rate and then discovered a void in the world market for the bacteria. Next the company identified locations needing cleanup and found local partners in those locations. The company then set up shop on foreign soil to take advantage of these market opportunities.
Focus on Entrepreneurship: An International Bug
6Chapter 13 Czinkota: International Business, 8e
Strategic Affects of Going International
Chapter 13
Wide range of Issues to Consider: Service delivery Strategic considerations such as government regulation
compliance Start-up issues such as communication with customers Operational matters such as information flows and mechanics
Companies must determine their preparedness for internationalization by assessing strengths and weaknesses
Understanding the changes in risk and profitability can help management overcome the cost of going international
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Telecom Companies Find New Revenue in Global Markets
Chapter 13
As the nation’s economy has faltered in 2008 and 2009, many U.S. companies have started looking overseas both to cut costs and to increase growth. While the downturn has had an impact beyond our borders, surveys of U.S.-based multinationals indicate only a slowing of the meteoric pace of globalization that has characterized this decade to date. In other words, their overseas expansion continues in earnest.
For telecom agents feeling the squeeze on domestic business, helping more U.S. companies go global or improve their global operations by supporting their telecommunications infrastructure requirements may be an opportunity they can no longer afford to ignore.
Source: Phone Plus Magazine: http://www.phoneplusmag.com/articles/2009/08/going-global-agents-find-new-revenue-selling-inte.aspx
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Entry Development Strategies for Exporting and Importing
Chapter 13
Indirect involvement – Use of an intermediary to deal with foreign customers or firms
Direct involvement – Working with foreign customers or markets with the opportunity to develop a relationship
Transaction cost theory – Firms will evaluate and compare the costs of integrating an operation internally as compared to the cost of going global
Some firms are born global, starting out with an international orientation or quickly developing one
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How a Trade Intermediary Can Offer Assistance
Chapter 13
1. Knows foreign market competitive conditions
2. Has personal contacts with potential foreign buyers
3. Evaluates credit risk associated with foreign buyers
4. Has sales staff to call on current foreign customers in person
5. Assumes responsibility for physical delivery of product to foreign buyer
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Chapter 13
EMCs specialize in performing services as commission representatives or distributors
EMC Roles: Agent – Developing foreign business and sales strategies Distributor – Purchasing products and assuming trading
riskCompensation of EMCs
Fee for activities performed as a retainer Price break for international sales
Power Conflicts Between EMCs and Clients Once a foreign market is penetrated, the EMC faces the
continuous problem of retaining a client Clear arrangements must be made to avoid or minimize
conflict11 Czinkota: International Business, 8e
Export Management Companies
Tradewinds Global
Chapter 13
Tradewinds Global is an export management company representing the export sales of North American manufacturers into international markets. The company serves as a liaison and consultant between the manufacturer who is looking to expand into foreign markets and foreign buyers seeking to purchase consumer goods from U.S. and Canadian manufacturers.
Located in Oahu, Hawaii, Tradewinds is ideally situated to facilitate trade between North American firms and those within the emerging economies in Southeast Asia.
Source: Tradewinds Web Site: http://www.tradewinds-global.com/
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Chapter 13
Concept made popular by the European trading houses from earlier centuries
Japanese sogoshosha is the most successful trading company
Expansion of Trading Companies An export trading company allows businesses to band
together to export or offer export services Export trading company legislation is designed to improve
the export performance of small and medium-sized firms Banks can participate in ETCs, allowing better access to
capital and making trading transactions easier to accomplish
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Trading Companies
Chapter 13
Supply knowledge and information, but do not participate in the transaction
Come from both the private and public sectorPrivate sector facilitators include:
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Private-Sector Facilitators
DistributorsOther Firms in the
Industry
Other Business
Associations
Chambers of Commerce
Banks and Other Service
Firms
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Public-Sector Facilitators
Small Business
Administration
U.S. Department
of Commerce
Educational Institutions
State and Local
Organizations
Export-Import Bank
Chapter 13
International Licensing: A firm permits another to use its intellectual property for a
royalty Does not require capital investment or detailed involvement Exploits research and development that has already been
conducted Avoids host-country regulations and cultural problems Allows a company to test the market
Trademark licensing – Permits the names or logos to be used on products in exchange for payment
Disadvantages: Limited form of foreign market participation May actually hinder future expansion A company could create its own future competitor
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Licensing
With the privatization of many state-run television enterprises during the 1980s, most markets abroad have relied on American-produced TV shows to fill their airtime because of a lack of knowledge and skills to create television programs independently. Over time, the situation abroad has changed, and local stations have become more adept at developing and producing their own programming.
Focus on Culture:TV Program Licenses are International
17Chapter 13 Czinkota: International Business, 8e
Chapter 13
Granting the right by a parent company (the franchisor) to an independent entity (the franchisee) to do business
Major forms of franchising: Manufacturer-retailer systems (e.g. car dealerships) Manufacturer wholesaler systems (e.g. soft drink companies) Service-firm retailer systems (e.g. fast-food outlets)
Keys to Success Offer unique products or selling propositions Offer a high degree of standardization Be adaptable to local circumstances
Reasons for the international expansion: Market potential Financial gain Saturated domestic markets
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Franchising
Chapter 13
Strategic Alliances with suppliers, customers, competitors, and companies in other industries
Reasons for Interfirm Cooperation Market development To share risks To share resource requirements To block and co-opt competitors
Types of Interfirm Cooperation Informal Cooperation – Partners work together
without a binding agreement Contractual Agreements – Joint efforts in specific
areas or for outsourcing19 Czinkota: International Business, 8e
Inter-firm Cooperation
Types of Inter-firm Cooperation
Chapter 13 20 Czinkota: International Business, 8e
Informal Cooperatio
n
Equity Participatio
n
Contractual Agreements
Joint Venture
Consortia
Stateless Corporations
Chapter 13
In the 1990s, a new type of company emerged in global business: The stateless corporation developed products in several countries, practiced diversity, and had shareholders on numerous continents long before traditional companies adopted these practices. These companies established joint ventures, partnerships, and other significant changes in operations to take advantages of the benefits of going global. These benefits include:•Solving trade problems•Avoiding political problems•Side-stepping regulatory hurdles•Winning technology breakthroughs
By taking advantage of the benefits of global operations, these companies set the stage for today’s multinational corporations. Source: AllBusiness: http://www.allbusiness.com/management/453036-1.html
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Chapter 13
Find the right partner firstThe more formal the arrangement, the
greater the care that needs to be taken in negotiating the agreement
The cultures of the two parties must be blended
Must be able to adjust to changing market conditions
Must consider government attitudes and policies
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Managerial Considerations
Chapter 13
Company may believe that no outside entity should have an impact on corporate decision making (ethnocentric view)
Ownership decision could be based on financial concerns
Consider how important total control is to success
Increasingly, the international environment is hostile to full ownership by MNCs
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Full Ownership
A Comprehensive View of International Expansion
Chapter 13
Alternate Strategies•Trading •Export/ Import•Licensing/ Franchising•Local Presence •Alliances•Ownership
Concerns•Information•Mechanics•Communication•Sales Effort•Service•Regulations
Motivation
•Proactive•Reactive
Stages of Managemen
t Commitmen
t•Aware•Interested•Trial•Evaluation•Adaptation
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DomesticFocus
Multi-National
Focus
Intermediaries•EMC•Trading Companies•Facilitators