Chapter 3 (6) - Analyzing and Managing Foreign Modes of Entry

• Exporting
• Coutnertrade
• Contract manufacturing
• Licensing
• Franchising
• Nonequity strategic alliances
• Equity-based joint ventures
• Wholly owned subsidiaries

The process of sending a firm's products or services to international destinations.

A firm's products are sent overseas without the firm's ultimate involvement.

An independent firm that acts as export department of the company.

• Retains its own identity by operating in its own name instead of making sales in the name of the manufacturer.
• Does not assume responsibility for advertising and financing.

A department in a company to concentrate on developing new markets abroad.

A semi-independent corporation, that is a separate company owned by the parent corporation.

They feel the need for closer supervision over the sales of their products in a certain market.

• More independent than a foreign sales branch
• Can evaluate the market, suggest product changes, and analyze the effectiveness of advertising, public relations, and promotion

It refers to arrangements whereby the flow of goods or services in both directions is an integral element of the specific terms of the business transaction.

Both sides of the business arrangement agree to accept each other's goods as payment for the transaction.

Trade involving three or more countries.

Country A experts to Country B and, in return, promises to spend some or all of the receipts on imports from B.

Buyback involves licensing of patents or trademarks, selling production know-how, lending capital, or building a plant in another country and agreeing to buy part or all of its output as payment.

A contractual agreement between a company and a foreign producer under which the foreign producer manufacturers the company's product.

An international company, or licensor, agrees to make available to another company abroad, the licensee, use of its patents and trademarks, its manufacturing processes and know-how, its trade secrets, and its managerial and technical services.

• A patented product or process
• A trademark or trade name
• Manufacturing techniques
• Proprietary rights generally referred to as company or industry know-how.

• Technology
• Production 
• Quality

• Long-term coordination
• Longer-term configuration

• Competitive positioning
• Partner selection
• Partner "cheating"

A very common form of licensing, in which a transfer takes place of technology, business system, brand name, trademark, and other property rights by a franchisor to an independent company or person who is the franchisee.

• 1. A detailed list of issues to consider regarding the cost of the franchise.
• 2. A detailed list of issues to consider regarding the location of the franchise.
• 3. A detailed list of issues pertaining to the buildings, equipment, and supplies.
• 4. A detailed list of issues pertaining to the operating practices.
• 5. A detailed list of issues pertaining to termination and renewal.

• Inexpensive way to exploit a market
• Little or no political risk
• Significant providers of innovative ideas

• Could spoil the franchisor's image due to quality issues
• Franchisees may fight to implement changes
• Brand names or trademarks can be altered

An equity-based venture abroad which involves establishing the venture from the group up or by acquiring an existing firm.

• Explorative or exploitative
• Cross-border or home-country based
• Equity- or contractual-based
• Two or multiple partners
• Short-term project-based or long-term

A separate legal organizational entity representing the partial holdings of two or more parent firms, in which headquarters of at least one is located outside of the country of operations of the joint venture.

• Legislation
• Protecting a profitable market (i.e., tarriffs or import barriers)
• Intellectual property considerations
• Integrated network of subsidiaries (i.e., may decrease flexibility)
• Acquisition of knowledge and expertise

Market reach and acquisition of new knowledge and technology

• Only way to set up business due to political sensitivity
• Can lower government societal hostility to firm
• Helps to acquire high-quality managerial talent
• Greater chance of winning government contracts
• Overcome peculiar problems
• Easier to acquire raw materials/components

• Foreign company may not agree with interests of entire company or its subsidiaries
• May have to sacrifice profits and efficiency if the partner provides components and processes at a higher price
• Exporting to world markets
• Differences in risk acceptance
• Differences in time-return projections
• Different tax laws and foreign exchange considerations
• Need