FMA 6043 Chapter 12 Strategies for Analyzing and Entering Foreign Markets.

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Transcript of FMA 6043 Chapter 12 Strategies for Analyzing and Entering Foreign Markets.

  • FMA 6043Chapter 12Strategies for Analyzing and Entering Foreign Markets

  • Entry ModesAn entry mode is the institutional arrangement by which a firm gets its products, technologies, human skills, or other resources into a market.The specific mode chosen depends on many factors, including experience in a market, amount of control managers desire, and potential size of the market

  • Entry ModesThree categories of entry modes available to companies:Exporting, importing, and counter tradeContractual entryInvestment entry

  • Why Companies ExportExpand salesDiversify SalesGain Experience

    Companies often drawn into exporting when customers in other countries solicit their goodsCompanies should not fall into the habit of simply responding to random international request instead a more logical approach to research and analyze international opportunities and develop a coherent export strategy is needed

  • Step 1Step 2 Identify a potential marketMatch needs to abilitiesStep 3InitiatemeetingsDeveloping an Export StrategyStep 4Commit resources

  • Degree of Export InvolvementDirect exporting(sell to buyers)Indirect exporting(sell to intermediaries) Sales representatives

    Distributors Agents Export management companies Export trading companies

  • Indirect ExportingAgentsRepresent one or more indirect exporters in a target marketTypically receive compensation in the form of commissions on value of salesCareful selection is essential because agents often represent several indirect exporters simultaneouslyExport Management Companies (EMC)Export products on behalf of an indirect exporterOperate contractually, either as an agent or as a distributor (taking ownership of the merchandise and earning a profit from its resale)EMC services include gathering market information, formulating promotional strategies, performing specific promotional duties, researching customer credit, making shipment arrangement, and coordinating export documents

  • Indirect ExportingExport Trading Companies (ETC)Provide services to indirect exporters in addition to activities directly related to clients exporting activitiesWhereas EMC is restricted to export-related activities, an ETC assists its clients by providing import, export, and countertrade services, developing and expanding distribution channels, providing storage facilities, financing trading and investment projects, and even manufacturing productsExamples include sogo shosha,chaebol

  • Avoiding Export BlundersConduct market researchObtain export adviceConsider a freight forwarder

  • Forms of Countertrade

    BarterCounterpurchaseOffset agreementSwitch tradingBuyback

    Direct exchange without moneySale to a country in return for promise of future purchase from itOffset a hard-currency sale to a nationwith future hard-currency purchaseSale by a company of an obligation to purchase from a countryExport of industrial equipment in return for products the equipment produces

  • Export/Import Financing

  • High-Risk Approaches

    Advance payment

    Importer pays exporter for merchandise before it ships

    Open account

    Exporter ships merchandise and later bills importer

  • Documentary CollectionDraft (bill of exchange)Bill of ladingBank acts as intermediary without accepting financial riskDocument that orders an importer to pay an exporter a specified sum of money at a specified timeContract between an exporter and shipperspecifying destinationand shipping costsfor merchandise

  • Documentary Collection Process

  • Letter of CreditImporters bank issues a document stating that the bank will pay the exporter when exporter fulfills documents terms Irrevocable Revocable Confirmed

  • Letter of Credit Process

  • LicensingCompany owning intangible property (licensor) grantsanother firm (licensee) the right to use it for a specified time

  • FranchisingCompany (franchiser) supplies another (franchisee)with intangible property over an extended period

  • Management ContractCompany supplies another withmanagerial expertise for aspecific period of timeAdvantages

    Few assets risked Nations finance projects Develops local workforce


    Personnel at risk Create competitor

  • Turnkey ProjectCompany designs, constructs, and testsa production facility for a client

  • Wholly Owned SubsidiaryFacility entirelyowned and controlledby a single parent companyAdvantages

    Day-to-day control Coordinate subsidiariesDisadvantages

    Expensive High risk

  • Joint VentureSeparate company created and jointly owned by two or more independent entities to achieve a common business objective

    Forward Backward Buyback MultistageAdvantages

    Reduce risk level Penetrate markets Access channels Protect interestsDisadvantages

    Partner conflict Lose control

  • Strategic Alliance


    Create competitor Partner conflict


    Share project cost Tap competitors strengths Gain channel access Protect interests Entities cooperate (but do not form a separate company) to achieve strategic goals of each

  • Entry Modes: Strategic FactorsCultural environmentPolitical/Legal environmentsMarket sizeProduction and shipping costsInternational experience

  • Risk, Control, Experience