International Business Strategy301LON

Foreign Market EntryStrategy I

Unit: 7 Knowledgecast: 1

• Demonstrate a sound appreciation of current strategic management concepts

• Integrate and apply strategic approaches to practical situations in various types of organisations

• Resolve management problems in the area of strategic management by evaluating alternative outcomes

Module Learning Outcomes

Foreign Market Entry Strategies

• Importing or global sourcing: Procurement of products and services from foreign sources

• Exporting: Producing products or services in one country (often the producer’s home country), and selling and distributing them to customers in other countries

• Countertrade: International transaction in which all or partial payments are made in kind rather than cash

Foreign Market Entry Strategies

• In contrast to home-based international operations (e.g., exporting), foreign direct investment (FDI) involves establishing a presence in the foreign market by investing capital and securing ownership of a factory, subsidiary, or other facility there.

• Collaborative ventures include joint ventures in which the firm makes similar equity investments abroad, but in partnership with another company.

Foreign Market Entry Strategies (cont.)

• With licensing, the firm allows a foreign partner to use its intellectual property in return for royalties or other compensation.

• Franchising is common in retailing.

McDonalds, Dunkin’ Donuts, Century 21 Real Estate, and many other firms have used franchising to internationalize worldwide.

Classification of Entry Strategies Based on Degree of Control for Focal Firms

Overview of Exporting

• Usually the firm’s first foreign entry strategy.• Low risk, low cost, and flexible. • Popular among SMEs.• When we talk about trade, trade deficits, trade

surpluses, etc., we’re talking about exporting.• Most exports involve merchandise.• Export channels:

• Independent distributor or agent• Firm’s own marketing subsidiary abroad

Advantages of Exporting

A Systematic Approach to Exporting

Screen for the most attractive markets; identify qualified distributors; estimate industry market potential and company sales potential

Assess firm’s resource needs; establish timetable for achieving export goals; decide on distribution strategy

Acquire new abilities in such areas as product development, logistics, finance, contracts, currency management, foreign languages, cross-cultural skills

Devise needed on-the-ground tactics; adapt products and marketing as needed

Export Intermediation Options

• Indirect exporting: Contracting with an intermediary, often an export management company or a trading company, in the firm’s home country to perform all export functions; common among firms new to exporting

• Direct exporting: Contracting with intermediaries, such as distributors or agents, in the foreign market to perform export functions; perform downstream value-chain activities in the target market

• Company-owned foreign subsidiary: Similar to direct exporting, except the exporter owns the foreign intermediation operation; the most advanced option

Alternative Organizational Arrangements for Exporting

Working with Foreign Intermediaries

• The exporter relies on intermediaries for much of the marketing, physical distribution, and customer service activities in the export market.

• The exporter should cultivate mutually beneficial, bonding relations; respond to the intermediary’s needs; demonstrate commitment; and build trust.

• Intermediaries prefer handling good, profitable products, and desire various types of support.

Common Dispute Areas With Intermediaries

• Compensation arrangements• Pricing practices• Advertising and promotion practices and the

extent of advertising support• After-sales service• Return policies• Adequate inventory levels• Incentives for promoting new products• Adapting the product for local customers

Criteria for Evaluating Export Intermediaries

Countertrade• An international business transaction in which all or

partial payments are made in kind rather than cash; similar to barter.

• Used when conventional means of payment are difficult, costly, or nonexistent

• Accounts for between 10% and 33% of all world trade

• Common in large-scale government procurement

• Risky• May involve inferior or hard-to-price goods• May lead to price padding• Can be complex, cumbersome, and time

consuming

Types of Countertrade• Barter: Goods are directly exchanged without the

transfer of any money

• Compensation deal: Payment in goods and cash

• Counterpurchase: Entails two distinct contracts• In the first, the seller agrees to a set price for goods

and receives cash from the buyer.• In the second, the seller agrees to purchase goods

from the buyer.• Buy-back agreement: Seller agrees to supply

technology or equipment to construct a facility and receives payment in the form of goods it produces

Examples of Countertrade• Boeing traded aircraft for oil in Saudi Arabia.

• Caterpillar received caskets in Colombia and wine in Algeria in exchange for earthmoving equipment.

• Goodyear traded tires for minerals, textiles, and agricultural products.

• Coca-Cola received tomato paste from Turkey, oranges from Egypt, and beer from Poland in exchange for Coke.

• Demonstrate a sound appreciation of current strategic management concepts

• There are a range of strategic directions open to MNEs• Integrate and apply strategic approaches to practical situations in

various types of organisations • How might strategy selection differ for MNEs?• Resolve management problems in the area of strategic

management by evaluating alternative outcomes • How might we analyse a business’ strategy with reference to its

structure?

Knowledgecast Summary

SeminarMini case: Internationalization of French Retailer—Carrefour (found in chapter 5, page 148 of recommended text by Frynas & Mellahi)

1. What are the factors responsible for Carrefour's internationalization?

2a. Assess Carrefour's internationalization effort and profile its choices (host countries) based on market and economies (developing, developed and emerging). 2b. Give a generic description of the each classification and its attractiveness to carrefour.

3. What internationalization strategy is adopted by Carrefour? (International, Transnational etc.) Support your answer with specific example from the case.

Group ActivityAssessing National Competitive Advantage Opening Mini Case: Dubai: The Path to Creating a Knowledge-Based Economy (found on page 177 of your required text)

Requirement1. Consider the Persian Gulf City-State of Dubai and discuss the key contributory factor to its National Competitive Advantage. 2. Conduct a brief independent research on the city of Shanghai and present a comparative analysis assessing competitive advantage between Shanghai and Dubai and draw some conclusion on their attractiveness.