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66 Cards in this Set
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entry mode |
Institutional arrangement by which a firm gets its products, technologies, human skills, or other resources into a market. |
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1. Exporting, importing, and countertrade 2. Contractual entry 3. Investment entry |
three categories of entry modes: |
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1. Expand sales - to achieve economies of scale when the domestic market saturated. 2. Diversify sales - offset slow sales in one national market another and level off cash flow, 3. Gain experience-low-cost, low-risk way to gain valuable international experience. |
Reasons Why Companies Export |
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1.identify a potential market = market research 2.match needs to abilities =satisfy design/prod 3.initiate meetings = local distributors & buyers 4.commit resources = objectives & resources |
4 Steps in developing an export strategy |
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Direct - rely on either local sales representatives or distributors.
Indirect - use intermediaries such as 1. agents 2. export management companies 3. export trading companies |
Degree of Export involvement |
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1. Direct
2. Indirect |
2 Basic forms of exporting |
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direct exporting |
Practice by which a company sells its products directly to buyers in a target market. |
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indirect exporting |
Practice by which a company sells its products to intermediaries who then resell to buyers in a target market. |
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sales representative |
(whether an individual or an organization) represents only its own company’s products, not those of other companies. |
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distributor pros : reduce risk cons: reduced control on prices |
take ownership of the merchandise when it enters their country and bears all the risks associated with generating local sales to retailers and wholesalers or to end users through their own channels of distribution |
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agents |
Individuals or organizations that represent one or more indirect exporters in a target market. receive compensation in the form of commissions on the value of sales |
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export management company (EMc) |
Company that exports products on behalf of indirect exporters. operates contractually, either as an agent (commissions) or as a distributor (ownership of the merchandise). |
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export trading company (ETc) Services: providing import, export & countertrade developing & expanding distribution channels; providing storage facilities; financing trading & investment projects & manufacturing products |
Company that provides services to indirect exporters in addition to activities related directly to clients’ exporting activities. |
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1. failure to conduct adequate market research before exporting. 2. failure to obtain adequate export advice. - engage the services of a freight forwarder |
Export and Import Blunders |
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freight forwarder
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Specialist in export-related activities such as customs clearing, tariff schedules, and shipping and insurance fees. Can also pack shipments for export and take responsibility for getting a shipment from the port of export to the port of import. |
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countertrade |
Practice of selling goods or services that are paid for, in whole or in part, with other goods or services. |
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1. barter 2. counterpurchase 3. offset 4. switch trading 5. buyback |
Types of Countertrade |
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barter or trueque
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Exchange of goods or services directly for other goods or services without the use of money
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counterpurchase |
Sale of goods or services to a country by a company that promises to make a future purchase of a specific product from the country. designed to allow the country to earn back some of the currency that it paid for the original imports. |
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offset |
Agreement that a company will offset a hard-currency sale to a nation by making a hard-currency purchase of an unspecified product from that nation in the future |
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switch trading |
Practice in which one company sells to another its obligation to make a purchase in a given country. |
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buyback
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Export of industrial equipment in return for products produced by that equipment.
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1. advance payment 2. documentary collection 3. letter of credit 4. open account |
Measures to reduce risk |
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advance payment
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Export/import financing in which an importer pays an exporter for merchandise before it is shipped.
common bet two unfamiliar parties, small transaction or the buyer is unable to obtain credit because of a poor credit rating at banks. |
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documentary collection |
Export/import financing in which a bank acts as an intermediary without accepting financial risk. |
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1. exporter draws up a draft (bill of exchange) 2. exporter delivers merchandise to a transportation company for shipment to the importer. 3. exporter’s bank sends the documents to the importer’s bank. |
3 main stages of documentary collection |
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draft (bill of exchange) - sight draft=importer pay upon goods delivery - time draft = period of time (typically 30, 60, or 90 days) following delivery by which the importer must pay for the goods. |
Document ordering an importer to pay an exporter a specified sum of money at a specified time. |
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bill of lading - inland bill - ocean bill - air way bill |
Contract between an exporter and a shipper that specifies merchandise destination and shipping costs. |
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letter of credit
used when: importer’s credit rating is questionable exporter needs a letter of credit for financing, market’s regulations require it. |
Export/import financing in which the importer’s bank issues a document stating that the bank will pay the exporter when the exporter fulfills the terms of the document.
*Before a bank issues a letter of credit, it checks on the importer’s financial condition |
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1. irrevocable letter of credit -allows the bank issuing letter to modify terms only after the approval of both exporter & importer. 2. revocable letter of credit - can be modified by issuing bank without approval from either exporter or importer. 3. confirmed letter of credit- guaranteed by both the exporter’s bank in the country of export & importer’s bank in the country import. |
several types of letters of credit: |
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1. Exporter/importer contract to sell/buy goods 2. Importer applies for letter of credit 3. Importer’s bank issues letter of credit to exporter’s bank on importer’s behalf 4. Exporter’s bank informs exporter of letter of credit 5. Exporter ships goods to importer 6. Exporter delivers documents to its bank (invoice,customsform, billoflading,packing list) 7. Exporter’s bank checks documents and pays exporter 8. Exporter’s bank delivers documents to importer’s bank 9. Importer’s bank sends payment to exporter’s bank 10. Importer pays its bank for value of goods 11. Importer’s bank delivers documents to importer |
Letter of Credit process |
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open account |
Export/import financing in which an exporter ships merchandise and later bills the importer for its value. |
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licensing, franchising, management contracts, turnkey projects |
Contractual Entry Modes for intangible products |
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licensing
exclusive non exclusive cross licensing |
Practice by which one company owning intangible property (the licensor) grants another firm (the licensee) the right to use that property for a specified period of time. Licensors receive royalty payments as percentage of the licensee’s sales revenue and a one-time fee to cover the cost of transferring the property to licensee. |
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exclusive license
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grants a company the exclusive rights to produce and market a property, or products made from that property, in a specific geographic region. |
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nonexclusive license |
grants a company the right to use a property but does not grant it sole access to a market. A licensor can grant several or more companies the right to use a property in the same region. |
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cross licensing |
Practice by which companies use licensing agreements to exchange intangible property with one another.. |
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1 use licensing to finance their international expansion. 2. less risky method of international expansion 3. reduce the likelihood of product appearance on the black market 4. method of upgrading existing production technologies. |
Advantages of Licensing |
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1. restrict a licensor’s future activities. 2. reduce the global consistency of the quality and marketing of product in diff natl markets 3. company “lending” strategically important property to its future competitors. |
Disadvantages of Licensing |
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franchising |
Practice by which one company (the franchiser) supplies another (the franchisee) with intangible property and other assistance over an extended period |
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1. greater control over the sale of its product in a target market, follow strict guidelines on product quality, day-to-day management duties, and marketing promotions.
2. primarily used in service industries than manufacturing 3. ongoing assistance from the franchiser not just one time transfer of property. offers start-up capital, management training, location advice, and advertising assistance |
Ways franchising differs from licensing |
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1. low-cost, low-risk entry mode into new markets. - standardized 2. allows for rapid geographic expansion. 3. benefit from the cultural knowledge and know-how of local managers. |
important advantages of franchising. |
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1. cumbersome to manage a large number of franchisees in a variety of national markets. - To control: master franchiser, responsible for monitoring operations of indiv franchisees 2. loss of organizational flexibility - restrict strategic and tactical options |
Disadvantages of franchising. |
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management contract |
Practice by which one company supplies another with managerial expertise for a specific period of time. commonly found in the public utilities sectors of developed and emerging markets |
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1. specialized knowledge of technical managers 2. business-management skills of general managers. |
Two types of knowledge can be transferred through management contracts |
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1. an opportunity without having to place a great deal of its own physical assets at risk.
2. operate and upgrade public utilities, particularly when a nation is short of investment financing 3. to develop the skills of local workers and managers. |
Advantages of Management Contracts |
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1. risk on supplier’s personnel: Political or social turmoil can threaten managers’ lives. 2. suppliers of expertise may end up nurturing a formidable new competitor in the local market. |
Disadvantages of Management Contracts |
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turnkey (build–operate– transfer) project
client pays a flat fee for the project and expected to do nothing more than simply “turn a key” to get the facility operating |
Practice by which one company designs, constructs, and tests a production facility for a client firm. *large-scale and often involve government agencies & transfer special process technologies or production-facility designs to the client. |
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1.permit firms to specialize in their core competencies and to exploit opportunities that they could not undertake alone. 2. allow governments to obtain designs for infrastructure projects from the world’s leading companies. |
Advantages of Turnkey projects |
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1. process of awarding them can be highly politicized. cost passed on to taxpayers 2. can create future competitors |
Disadvantages of Turnkey projects |
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wholly owned subsidiaries joint ventures strategic alliances |
three common forms of investment entry |
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wholly owned subsidiary |
Facility entirely owned and controlled by a single parent company either forms a new company or buys an existing facility |
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1. complete control over day- to-day operations, competitive advantage, output and prices and access to valuable technologies, processes, and other intangible properties within the subsidiary. 2. good mode of entry when a company wants to coordinate the activities of all its national subsidiaries |
Advantages of a wholly owned subsidiary |
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1. expensive because of finance investments internally or raise funds in financial markets 2. risk exposure is high because it requires substantial company resources. |
Disadvantages of a wholly owned subsidiary |
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joint venture |
Separate company that is created and jointly owned by two or more independent entities to achieve a common business objective. |
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1. forward integration JV 2. backward integration JV 3. buyback JV 4. multistage JV |
four main joint venture configurations |
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forward integration JV
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parties choose to invest together in downstream business activities—activities further along in the “value system” that are normally performed by others |
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backward integration JV
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the joint venture signals a move by each company into upstream business activities—activities earlier in the value system that are normally performed by others. |
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buyback JV |
formed when each partner requires the same component in its production process. To achieve savings from economies of scale production both combines resources. input is provided and output is absorbed by both partners |
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multistage JV |
results when one company produces a good or service required by another. downstream integration by one partner and upstream by another |
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1. fewer risk - each partner has a contribution 2. allows penetrate international markets that are other- wise off-limits 3. gain access to another company’s international distribution network 4. for defensive reasons from government - shielded by local ventures |
Advantages of Joint Ventures |
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1. conflict between partners - when management shared equally 2. loss of control when the local government is a partner |
Disadvantages of Joint Ventures |
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strategic alliance |
Relationship whereby two or more entities cooperate (but do not form a separate company) to achieve the strategic goals of each. |
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1. shared cost for an intl investment project 2. tap competitor's specific strength 3. Attain reasons similar to JV - access to channels or reduce risk exposure |
Advantages of strategic alliance |
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1. can create a future local or even global competitor 2. conflict can arise and eventually undermine cooperation |
Disadvantages of strategic alliance
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cultural environment - communication &interpersonal problems political and legal environments - instability and import regulations market size - rising income = investment entry, small market = export or contractual, high domestic demand = JV, Strat alliance & WO subsidiary production and shipping costs international experience |
key factors that influence a company’s international entry mode selection |
