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Chapter 9Market Entry and Expansion

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Stimuli to Internationalize• In business activities, a variety of stimuli

are responsible for firms taking steps in a given direction

• The major motivations for firms to go international have been differentiated into proactive and reactive• Proactive motivations -

• Reactive motivations -

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Going International

• Firms in smaller markets may be born global• Born global firms:

• Export•

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Going International

• Export • Modes of export

• • •

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Going International

• Export management companies (EMC)•

• Two primary forms of operation• •

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Going International• Both parties must recognize:

• • •

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Going International

• Trading companies• The most famous trading companies are the

_________ of Japan• Reasons for the success of the Japanese

sogoshosha:•

• • •

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Going International

• Export trading companies (ETCs)•

•

•

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Going International

• Firms participating in trading companies by joining or forming them need to:•

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Going International

• International success depends on market demand •

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Going International

• E-commerce•

• Various methods to market products over the Internet:• •

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Going International

• Concerns for a firm using e-commerce:•

•

•

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Going International

• Legal concerns for e-commerce:• • • •

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Licensing and Franchising

• Are market expansion alternatives used by all types of firms, large and small

• They offer flexibility and reflect the needs of the firm and the market

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Licensing• Licensing agreement:

• The recipient firm is the licensee• Advantages of licensing

•

• Royalty income provides additional return on R&D investments already incurred

•

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Licensing• Ongoing licensing cooperation and support enables the

licensee to benefit from new developments•

• Allows a firm to test a foreign market without major investment of capital or management time

• Preempts a market for competition, especially if the licensor’s resources permit full-scale involvement only in selected markets

•

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Licensing• Disadvantages of licensing

• • •

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Licensing

• Principal issues in negotiating licensing agreements:•

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Licensing• The licensor should cover :

• Transfer costs:

• R&D costs:

• Opportunity costs:

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Licensing• Licensee compliance in the agreement should

address:• • •

• Specification of term, termination, and survival of rights

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Licensing

• Trademark licensing•

•

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Licensing• The licensor and licensee may run into

difficulty if:•

•

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Franchising• A situation under which a parent

company (the franchiser) grants another independent entity (the franchisee) the right to do business in a specified manner

•

• The major forms of franchising are:• • •

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Franchising

• Product/trade franchising emphasizes the product or commodity to be sold

•

• Reasons for the international expansion of franchise systems:• • •

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Licensing and Franchising

• Franchising concerns• • •

• For successful growth, companies adopt master franchising system• Master franchising system:

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Foreign Direct Investment (FDI)

• International investment flows that acquire properties and plants

• Portfolio investment:

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Major Foreign Investors

• Multinational corporations through their investment:• •

• Foreign direct investors bring with them imports on an ongoing basis

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Reasons for FDI

• Marketing factors• • • • •

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Reasons for FDI

• Derived demand:

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Reasons for FDI• Government incentives• Fiscal incentives:

• Financial incentives:

• Non-financial incentives• • •

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A Perspective on Foreign Direct Investors

• Positive perspectives:• • •

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A Perspective on Foreign Direct Investors

• Negative perspectives:• • • • • •

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Types of Ownership

• Full ownership•

•

• A major concern is the “fairness” of ____________, or transfer of profits, and the extent to which firms reinvest into their foreign operations

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Types of Ownership• Can be limited either through outright legal

restrictions or through measures designed to make foreign ownership less attractive

• Joint ventures• • •

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Types of OwnershipAdvantages of joint ventures

• Pooling of resources• • The partner’s knowledge of the local market• • Tap local capital markets

Disadvantages of joint ventures• Different levels of control are required• • Disagreements over business decisions•

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Types of Ownership• Strategic alliances•

• Can be formed, adjusted, and dissolved rapidly

•

• The most successful alliances are those that:

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Types of Ownership

• Management contract• Supplier brings together a package of skills

that:•

• Provides:• • •

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Types of Ownership• Lowers the risk of participating in an

international venture and allows operational control

• Government consortia• •

• Research consortia: