Global Business - Chapter 15

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Global Business - Chapter 15
2013-04-01 17:56:08
Chapter 15

Exporting, licensing, joint venture
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  1. What are the ways to enter a market?
    • 1. exporting
    • 2. licensing
    • 3. joint ventures
    • 4. franchising
    • 5. turnkey projects
    • 6. Wholly owned industries
  2. Exporting
    usually the first way to enter a market and then may choose other routes later
  3. Advantages of Exporting
    • Avoids the substantial costs of established manufacturing operations in the host country
    • may help a firm achieve experience curve and location economies: substantial scale economies can be realized from its global sales volume
  4. Disadvantages of exporting
    • 1. may not be appropriate if lower-cost locations for manufacturing the product can be found abroad. 
    • 2. High transport costs
    • 3. trade barriers
    • 4. problems with local marketing agents
  5. Turnkey Contracts
    • the contractor handles every detail of the project for a foreign client, including the training of operating personnel at completion of the contract, the foreign client is handed the "key" to a plant that is ready for full
    • operation
  6. Advantages of turnkey projects
    • 1. ability to earn returns from an asset e.g. petroleum or steel
    • 2. useful in countries that have limited FDI by host-government regulations
  7. Disadvantages of Turnkey
    • 1. the firm that enters into turnkey projects will have no long-term interest in the foreign country
    • 2. may inadvertently have created a competitor
    • 3. if the firm's process technology is a source of competitive advantage, selling this technology is also selling competitive advantage to potential and/or actual clients
  8. Licensing
    an arrangement whereby a licensor grants the rights to intangible property to another entity (the licensee) for a specified period, and in turn, the licensor receives a royalty fee from the licensor
  9. Advantages of licensing
    • 1.low development costs and risks: the licensee puts up most of the capital necessary
    • 2. Can enable a firm to participate in a foreign market that it is prohibited to do by barriers to invest.
    • 3. Used when a firm possesses some intangible property that they don't want to develop themselves.
  10. Disadvantages of Licensing
    • 1. Control: does not give the firm tight control over manufacturing, marketing, and strategy required for realizing experience curve and location economies. 
    • 2. Inability to engage in global market coordination - coordinating strategic moves across countries by using profits earned in one country to support competitive attacks in another
    • 3. loss of control of technological know-how
  11. Franchising
    specialized form of licensing in which the franchiser not only sells intangible property (normally a trademark) to the franchisee, but also insists that the franchisee agree to abide by strict rules as to how it does business.
  12. Advantages of franchising
    • 1. Franchisee usually assumes the costs and risks of opening in a foreign market
    • 2. Can build a global presence quickly and at a relatively low cost and risk ie McDonald's.
  13. Disadvantages of Franchising
    • 1. Lack of control over quality - could use a aster franchisee to help monitor this
    • 2. Inability to engage in global strategic coordination
  14. Joint Ventures
    entails a firm that is jointly owned by two or more otherwise independent firms.
  15. Advantages of Joint Ventures
    • 1. Benefit from a local partner's knowledge of the host country's competitive conditions, culture, language, political systems and business systems
    • 2. Share costs and risks of opening in a foreign market
    • 3. political considerations make joint ventures the only feasible entry mode in many countries
  16. Disadvantages of Joint Ventures
    • 1. Lack of control over technology
    • 2. Inability to engage in global strategic coordination
    • 3. Conflicts and battles for control between investing firms if their goals and objectives change or if they take different views on what strategy should be used.
  17. Wholly-owned subsidies
    • The firm owns 100% of the stock
    • Can be done in foreign markets two ways:
    • 1. Set up a new operation in that country
    • 2. acquire an established firm in that host nation and use that firm to promote its products.
  18. Advantages of Wholly-owned Subsidaries
    • 1. Protection of technology
    • 2. Ability to engage in global strategic coordination
    • 3. ability to realize location and experience economies
  19. Disadvantages of wholly owned subsidiaries
    1. high costs and risks
  20. What are strategic alliances?
    • refer to cooperative agreements between potential or actual competitors
    • range from formal joint ventures to
    • short-term contractual agreements
  21. Why choose strategic alliance?
    • facilitate entry into a foreign market
    • allow firms to share the fixed costs and
    • risks of developing new products or processes
    • bring together complementary skills and
    • assets that neither partner could easily develop on its own 
    • help a firm establish technological
    • standards for the industry that will benefit the firm