Foreign market entry modes

FOREIGN MARKET ENTRY MODES

ABASTILLAS, JAN MAE DECAUSTRIA, JASLINE KAYECASTILLO, ALMYRHARIOFLORIDO, JAN TRISIA

FOREIGN MARKET ENTRY CONCEPT

OVERSEAS MARKET

ORGANIZATION

COST RISKDEGREE

OFCONTROL

EXPORTING

LICENSING

JOINT VENTURES

DIRECT INVESTMENT

E X P O R T I N G

E X P O R T SGoods and services

that are made in one country and

transmitted to foreigners

E X P O R T I N GMARKETING AND DIRECT SALE OF

DOMESTICALLY-PRODUCED GOODS IN A FOREIGN COUNTRY

COUNTRY A COUNTRY B

MOST COMMON

E X P O R T I N G

INDIRECT DIRECT

INDIRECT EXPORTING

COMPANY A COMPANY B

COMPANY C

DIRECT EXPORTING

PHILIPPINES USA

INTRA-CORPORATE

COMPANY A COMPANY A

L I C E N S I N G

When a firm leases the right to use its intellectual

property to another firm, in return of a fee.

R I

E P

IGHTS NTELLECTUALPROPERTY

AYS FEEARNS

JOINT VENTURE

DEFINITION Joint venture is when two or more parties, whether individuals or entities,

enter into an agreement to combine resources for a specific business undertaking.

The organization of a joint venture serves as a short term partnership for the duration of the project.

PURPOSE To combine strengths and increase competitive advantage while

minimizing risk

Provide a way for companies to enter foreign markets

EXAMPLE OF JOINT VENTURE IN PH

Total and Filoil Joint Venture

EXAMPLE OF JOINT VENTURE IN PH

Cargill Philippines, Inc. and Jollibee Foods Corporation

CONTRACTUAL AGREEMENT

Joint venture has certain factors and possibilities that need consideration thus, it is important to include everything in a legal format.

Elements required for a joint venture’s contractual agreement: Structure Objective Confidentiality Financial contributions Assets and employees Intellectual property ownership Management Profits, losses and liabilities Disputes Exit strategy

COMMON OBJECTIVES IN A JOINT VENTUREMarket entryRisk/reward sharingTechnology sharing and joint product development

Conforming to government regulations.

WHEN IS A JOINT VENTURE FAVORABLE? The partners' strategic goals converge while their competitive goals

diverge

The partners' size, market power, and resources are small compared to the industry leaders

Partners are able to learn from one another while limiting access to their own proprietary skills.

KEY ISSUES TO CONSIDER Ownership Control Length of agreement Pricing technology transfer Local firm capabilities and resources, Government intentions

POTENTIAL PROBLEMS Conflict over asymmetric new investments Mistrust over proprietary knowledge Performance ambiguity - how to split the pie Lack of parent firm support Cultural clashes If, how, and when to terminate the relationship

JOINT VENTURES HAVE CONFLICTION PRESSURE TO COOPERATE AND COMPETE:

Strategic imperative: the partners want to maximize the advantage gained for the joint venture, but they also want to maximize their own competitive position.

The joint venture attempts to develop shared resources, but each firm wants to develop and protects its own proprietary resources.

The joint venture is controlled through negotiations and coordination processes, while each firm would like to have hierarchal control.

FOREIGN DIRECT INVESTMENT

FOREIGN DIRECT INVESTMENT

Foreign direct investment is the direct ownership of facilities in the target country. It involves the transfer of resources including capital, technology, and personnel. Direct foreign investment may be made through the acquisition of an existing entity or the establishment of a new enterprise.

Foreign direct investment is the direct ownership of facilities in the target country. It involves the transfer of resources including capital, technology, and personnel. Direct foreign investment may be made through the acquisition of an existing entity or the establishment of a new enterprise.

Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment. However, it requires a high level of resources and a high degree of commitment.

Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment. However, it requires a high level of resources and a high degree of commitment.

Foreign Direct Investment usually occurs in one of two ways:

1.Greenfield Investment2.Cross-border merges and

acquisition

Foreign Direct Investment usually occurs in one of two ways:

1.Greenfield Investment2.Cross-border merges and

acquisition

COMPARISON OF FOREIGN MARKET ENTRY MODES

EXPORTING

CONDITIONS FAVORING THIS MODE

Limited sales potential in target country; little product adaptation required. Distribution channels close to plants. High target country production cost. Liberal import policies High political risk

ADVANTAGES

Minimizes risk and investment Speed of entry. Maximizes scale; uses existing facilities

DISADVANTAGES

Trade barriers and tariffs add to costs. Transport costs. Limited access to local information Company viewed as an outsider.

LICENSING


Import and investment barriers Legal protection possible in target environment Low sales potential in target country Large cultural distance Licensee lacks ability to become a competitor.

ADVANTAGES

Minimizes risk and investment Speed of entry. Able to circumvent trade barriers High ROI

DISADVANTAGES

Disadvantages Lack of control over use of assets Licensee may become competitor. Knowledge spillovers License period is limited.

JOINT VENTURES


Import barriers. Large cultural distance Assets cannot be fairly priced High sales potential Some political risk Government restrictions on foreign ownership Local company provide skills, resources, distribution network,, brand name,

etc.

ADVANTAGES

Overcomes ownership restrictions and cultural distance Combines resources of 2 companies Potential for learning Viewed as insider Less investment required

DISADVANTAGES

Difficult to manage Dilution of control Greater risk than exporting & licensing Knowledge spillovers Partner may become a competitor.

DIRECT INVESTMENT


Import barriers Small cultural distance Assets cannot be fairly priced High sales potential Low political risk

ADVANTAGES

Greater knowledge of local market Can better apply specialized skills Minimizes knowledge spillover Can be viewed as an insider

DISADVANTAGES

Higher risk than other modes Requires more resources and commitment May be difficult to manage local resources

Education

Foreign market entry modes