RISK AND CONTROL IN FOREIGN MARKET ENTRY STRATEGIES

HIGHRISK

LOWRISK

HIGH CONTROLOVER STRATEGY

LOW CONTROLOVER STRATEGY

FOREIGNPRODUCTION

DIRECTINVESTMENT

JOINTVENTURE

LICENSINGFRANCHISING

EXPORTING

FOREIGNPRODUCTION

DIRECTINVESTMENT

JOINTVENTURE

LICENSING/FRANCHISING

EXPORTING

COUNTRYINSTABILITY

POTENTIALCONFLICT

MARKETACCEPTANCEOf PRODUCT

LOSS OFFREIGHT

POTENTIALCOMPETITORS What is Going to Happen to

your Product in the Foreign Market

FOREIGN MARKET ENTRY STRATEGIES

THE FOUR BASIC STRUCTURES OF OPERATION IN A FOREIGN MARKET

o

COMPANY

The Company Can

Undertaking Manufacture in the Foreign country market may be a more feasible alternative.

EXPORTING AS A FOREIGN MARKET ENTRY STRATEGY

NATURE OF PRODUCT CATEGORY

The Physical Movement of Goods may preclude export marketing as a feasible strategy.

DOMESTIC MARKET FOREIGN COUNTRY MARKET

COMPANY E C

COMPANY E I D C

COMPANY E I C

COMPANY C

COMPANY I C

COMPANY I D C

DIRECTEXPORT

INDIRECTEXPORT

METHODS OF EXPORTING

INTERMEDIARIESINTERMEDIARIES

INDIRECT EXPORT MARKETING

DIRECT EXPORT MARKETING

Glory House Apparels Export House

Rajdeep Metals

Importer Based in the U.S. Foreign Market

Importer’s Buying Agent based in the Domestic Market

INDIRECT EXPORT MARKETING INTERMEDIARY BASED IN THE EXPORTER’S HOME MARKET• MEA • RESIDENT BUYER (Importing Company’s Buying Agent Resident in the Foreign Market)• EXPORT HOUSE• EXPORT MANAGEMENT COMPANY• TRADING COMPANY• PIGGY BACK EXPORTING

DIRECT EXPORT MARKETING

INTERMEDIARY BASED IN OVERSEAS BUYER’S MARKET• IMPORT AGENT

• FOREIGN DISTRIBUTOR

• TRADING COMPANY

EXPORT MARKETING STRATEGIES

IMPORTER

MANUFACTURER’S EXPORTAGENT (MEA)

Represents the Domestic Exporter

WHOLESALER

TRADING COMPANY

WHOLESALEREXPORT MANAGEMENT

COMPANY

RESIDENT BUYERRepresents the Foreign Buyer

RETAILER

TRADING COMPANY

COMPANY EXPORT DEPARTMENT/SALES FORCE

EXPORT COMMISSION HOUSERepresents the Foreign Buyer W

IMPORT AGENT WHOLESALER

W R

EXPORT MARKETING INTERMEDIARIES

PRODUCER

CONSUMER/USER

HOME COUNTRY MARKET FOREIGN MARKET

What is the Difference in these Intermediaries…

• Functions Performed by the Agent.

• Commissions taken from Whom they Represent Whom do they represent: Buyer or Seller and from whom do they get their commission ?

• Which Country Market are they Based in.

• Their Loyalty to Clients.

DIFFERENT TYPES OF INTERMEDIARIES ARE PREVALENT IN DIFFERENT COUNTRY MARKETS.

AGENTS VARY IN TERMS OF:

An Agent performs fewer functions and is paid a Commission by the Exporter or the Foreign Buyer.

FUNCTIONS PERFORMED BY INTERMEDIARIES

• CONTACTING

• NEGOTIATING

• BUYING/SELLING

• DOCUMENTATION/ INSURANCE

• SHIPPING/ TRANSPORTATION

• FINANCING/CREDIT

An Export-Import Trading Company will perform more functions and make higher profits.

NOTE

An Intermediary may perform one or more of the functions:

EXPORT MANAGEMENT COMPANIESPopular in the U.S.A: Account for 30% of U.S. Exports.

Estimated Approx. 1000 EMCs in USA

EXPORT COMMISSION HOUSESThey are popular in the U.K. : Responsible for 20% of U.K. Exports.

Estimated at around 800 in number.

TRADING COMPANIES

Popular in Japan, South East Asian Countries: Account for 50%-60% of Japanese Exports/Imports.

Estimated Approx. 10,000 in Number

They May Be: General Trading Companies Specialist Trading Companies

TYPES OF EXPORT INTERMEDIARIES PREVALENCE

•They represent more than one manufacturer at a time and may have a short term relationship.

•They work on a commission basis.

•They contact sellers directly and aid in the Transfer of title to goods.

MANUFACTURERS EXPORT AGENTS

CHARACTERISTICS of MEAs

EXPORT MANAGEMENT COMPANIES (EMC’s)

They generally work for one manufacturer at a time and have a closer relationship than MEAs.

They use the exporting company’s letterhead.

EMC’s work like the manufacturer’s export department.• Contact foreign customers

• Market research and information• Negotiate on behalf of the manufacturer• Credit arrangements• Promotion of goods• Physical handling/shipping/insurance documentation

THEY PROVIDE SEVERAL SERVICES

CHARACTERISTICS

EXPORTER(Sells)

EXPORTMANAGEMENT

COMPANY

FOREIGNBUYER(Buys

Agentrepresentingthe Exporter

Sells onbehalf of

theExporter

ContactsNegotiates terms of SaleDocumentationInsuranceTransportShipping

EXPORT MANAGEMENT COMPANY

EXPORT MANAGEMENT COMPANIES:

Have a Closer Relationship than that of an Export Agent. They represent one company at a time and use the exporter’s letterhead.

They are BUYING AGENTS for overseas companies BASED in THE EXPORTER’S HOME COUNTRY.

• They buy from the manufacturer and make export shipments on behalf of the importing company.

• They represent and get commission from the foreign buyer in the overseas country.

• Attempt to develop long term relationships.

RESIDENT BUYERSCHARACTERISTICS

EXPORTER(Sells)

EXPORT HOUSEFOREIGNBUYER(Buys

Agentrepresenting

the Foreign Buyer or Domestic Seller.

Buys on behalf of The Foreign Buyer

• Contacts• Advertises for Product• Negotiates terms of Sale• Pays Cash on behalf of • Foreign Buyer• Documentation• Insurance• Transport• Shipping

EXPORT HOUSESDOMESTIC MARKET FOREIGN MARKET

EXPORT HOUSES:

More Formal than Resident Buyers. Buy on basis of cost/quality specifications for overseas buyer.

(EXPORT COMMISSION HOUSES)

(EXPORT COMMISSION HOUSES)

EXPORT HOUSES IN INDIA

CATEGORY VALUE OF EXPORTS

AVERAGE SALES REVENUE OF PRECEDING THREE YEARS

FOB Rupee Value

EXPORT HOUSE 10 Crores

TRADING HOUSE 50 Crores

STAR TRADING HOUSE 250 Crores

SUPER STAR TRADING HOUSE 750 Crores

EXPORT HOUSE CATEGORIES IN INDIA

TRADING COMPANIES

They perform all the functions of merchant middlemen: They buy, accumulate, transport, distribute, extend credit

Large degree of Vertical integration.

What istheir Biggest Asset

?--- THE FINANCING ABILITY OF TRADING COMPANIES IS EXTREMELY HIGH

• Debt is 10 times the equity

• They take loans from banks which have shares in them. END