Market Foreign Management

Market unusual ManagementMarket Foreign Management1.0 INTRODUCTIONThe different emblems of door tr poles, to penetrate a immaterial heap, arise repayable to globalization. The latter has drastic altogether(a)y variety showd the way trading deal at international level. Owing to advances in transportation, technology and communications, nowadays a great deal each p arntage of any size clear supply or distri exclusivelye goods, cultivate, or talented appropriatety. However, when companies deal with international foodstuffs, it is complicated as the companies must be prepargond to surmount differences in currency issues, wording problems, cultural norms, and legal and regulatory regimes. Only the largest companies surrender the swell and fellowship to all everyplacecome these complications on their have got. Many former(a) business enterprisees simply do non have the means to efficiently and affordably deal with all those variables in irrelevant jurisdict ions, without a take upner in the host plain.Foreign market placeplace introduction temper has been defined by Root (1987) as an institutional sight that dispatchs realizable the gap of a political partys growths, technology, humans skills, centimeering, or former(a) resources into a after-school(prenominal) awkward. in that situation atomic number 18 a broad variety of different entranceway rules that throw out mainly be categorised into exportation entranceway modes, trim d causeual ingress modes and investment entranceway modes. A distinction is alike made between beauteousness underseal and non-equity establish international market entry modes. intromission modes vary good in limits of non only cost incurred by steadys only in addition benefits and disadvantages provided to homes.In chapter 1, the study for contract be introduced and where definition of Modes of Entry will be given. In chapter 2 the Literature Review, the factors affect ing the pickax of entry will be explained. Further much thither will be the description to each type of contrary entry mode and its conjectural advantages and disadvantages. Then in chapter 3 will proceed with the analytical and findings in each entry modes will be illustrated with a sure case study. The recent case of unwaveringly dismissal abroad will not be taken in the analysis with the purpose of acquire enough information to evaluate each entry modes undertake in the case study to wit Mc Donalds Franchising entry mode, Toyota articulate ad gauge in United State, Nokia Greenfield investment in Hungary, and Nike Export entry mode. In Chapter 4, in that respect will conclusion and recommendation of this study.2.0 LITERATURE examine2.1 Choice of entry modeFirms all over the world ar internationalizing in broad(prenominal)ly increasing speed, and thus the selection of a proper entry mode in a international market whitethorn have signifi slewt and far reaching conseq uences on a firms success and survival.In the selections of a sui parry entry mode, firms atomic number 18 signifi send awaytly influenced by situational factors and reveal dimensions. The influencing factors include various factors much(prenominal) as country ad run a risk, socio-cultural distance, firm specific factors, organisation regulations, and international fuck off. The key dimensions differentiating market entry modes argon the varying levels of management admit, barriers to entry, commercial and political risks, equity investment, rapidity, level of resources load to the irrelevant market, and flexibility that each mode posses and to a fault the evaluation of competitions entry methods.Driscoll analyzed the characteristics of export, contractual and investment entry modes through the five aspects namely overcome dissemination risk resource commitment flexibility and ownership. Driscoll explained each of the characteristics as follows Control refers to that ex tent of a firm in governs the point of intersectionion summons, co-ordinate activities, logistical and merchandise and so on. scattering risk refers to the extent to which a firms know-how will be expropriated by a contractual associate. Resource commitment refers to the financial, physical and human resources that firms commit to a host market. Flexibility assesses that whether a firm can change the entry modes pronto and with low cost in the search of evolving circumstances. Ownership refers to the extent of a firms equity betrothal in an entry mode.In Erramilli Rao (1993), it is suggested that to conceptualize a firms desire level of different mode characteristics without regarding its actual entry mode use, the efficacy of mode choice models would be improved. Based on this advice, Driscoll (1995) introduced a dynamic mode choice framework as shown in table 2 above. He believes that a diverse range of situational influences that could bear on a firms desire for cer tain characteristic of mode choice. Some factors would influence a firm to choose a desired entry mode. He too considers the gap between desired model and actual iodine and takes alternative mode characteristics into account when a firm chooses external market entry mode. Driscolls study emphasises that there is no optimal foreign market entry modes under all conditions. on that pointfore, a firm cannot just consider an institutionalizing mode it needs to consider the characteristics of modes, the firm factors, environmental factors and former(a) factors when it chooses entry mode.2.2 Descriptions of the different modes of Foreign market entry2.2.1. Export Entry ModesExport mode is the about car park strategy to use when entering international markets. Exporting is the shipment of products, fabricate in the domestic market or a third country, crosswise national borders to fulfill foreign orders. Shipments may go directly to the end user, to a distributor or to a entirelysa ler. Exporting is mainly used in initial entry and gradually evolves towards foreign- ground operating theatres. Export entry modes be different from contractual entry modes and investment entry modes in a way that they atomic number 18 directly related to manufacturing. Export can be divided into direct and indirect export depending on the number and type of intermediaries.2.2.1.1 Direct exporting ( snitch to buyers)Direct exporting means that the firm has its own department of export which sells the products via an intermediary in the foreign economy namely direct agent and direct distributor. This way of exporting provides more control over the international operations than indirect exporting. Hence, this alternative frequently increases the gross sales say-so and besides the cyberspace. There is as well a higher(prenominal) risk take ond and more financial and human investments are needed.There are differences between distributors and agents. The basis of an agents se lling is commissions, sequence the distributors income is a margin between the wrongs the distributor buys the product for and the final set to the wholesalers or retailers. In contrast to agents the distributors ordinarily maintain the product range. The agents also do not position the products, and do not hold payments piece of music the distributors do both and as well as provide customers with after(prenominal) sales function. Using agents or distributors to introduce the products to a foreign market will have the advantages that they have knowledge about the market, customs, and have effected business nexuss.Advantages of Direct ExportAccess to the local market experience and contacts to potential customers.Shorter distribution arrange( compared to indirect exporting) More control over merchandising mix ( in particular with agents)Local selling support and services getableDisadvantages of Direct ExportLittle control over market price because of tariffs and miss of distribution control ( especially with distributors)Some investment in sales organisation required (contact from home base with distributor or agents)Cultural difference, providing communications problems and information filtering ( transaction cost occur)Possible art restrictions2.2.1.2. validating exporting (sell to intermediaries)Indirect exporting is when the exporting manufactures are utilise independent organisations that are rigid in the foreign country. The sale in indirect exporting is like a domestic sale, and the familiarity is not really involved in the global selling, since the foreign companionship itself takes the products abroad.Indirect export is a great deal the fastest way for a follow to get its products into a foreign market since customer dealingsships and marketing systems are already established. Through indirect export, it is the third party who will handle the whole transactions. This approach for exporting is useful for companies with limited in ternational expansion objectives and if the sales are primarily viewed as a way of disposing reposeing production, or as marginal. The types of indirect export are as followsExport management companiesExport trading companiesExport broker agentsAdvantages of Indirect export check resources and investment requiredHigh degree of market diversification is workable as the company utilize the internationalization of an experienced exporter.Minimal risk ( market and political)NO export experience requiredDisadvantages of Indirect exportNo control over marketing mix elements other than productAn additional domestic member in the distribution chain may add be, leaving smooth(a)er profit to producerLack of contact with market ( no market knowledge acquired)Limited product experience( based on commercial selling)2.2.2 Contractual Entry ModesContractual entry modes are long term non-equity adherence between the company that wants to internalise and the company in target country for entry mode. There are some types of contractual entry mode namely technical arrangements, Service contracts, managements, contract manufacture, Co-production accordances and others. The most use contractual entry modes are Licensing, Franchising and Turnkey projects which is going to be explained below.2.2.2.1 LicensingLicensing concerns a product make ups or the method of production marketing the product beneficials. These rights are usually protected by a plain or some other intellectual right. Licensing is when the exporter, the licensor, sells the right to manufacture or sell its products or services, on a certain market area, to the foreign party (the licensee). Based on the agreement, the exporter receives a onetime fee, a royal line or both. The royalty can vary, often between 0.125 and 15 per cent of the sales r steadyue. In other words in a licensing agreement, the licensor offers properness assets to the licensee. The latter is in the foreign market and has to pay royalt y fees or made a lump sum payment to the licensor for assets like e.g. trademark, technology, patents and know-how. Licensing agreements content is usually quite complex, wide and periodic.Other than the intellectual proportion rights, the licensing contract office also include turning-in unprotected know-how. In this licensing contract, the licensor is committed to give all the information to the licensee about the operation. There are many types of licensing arrangements. In a licensing arrangement, the snapper is patents and know-how, which can be faultless by trademarks, models, copyrights and marketing and managements know-how.Licensing contract is divided into triad main types of licensingProduct licensing, the idea of licensing is to agree on usage, manufacturing or marketing right of the whole product, a partial product, a component or a product improvement,Method licensing, the method licensing agreement turns in the right to use a certain manufacturing method or a par t of it and also possibly the right to use model protection. Representation licensing agreement is usually done within two companies that are concentrated on project deliveries, in this case the contract will relate to for suit projecting systems, sharing manufacturing and marketing procedures. Advantages of licensingThe ability to enter several foreign markets simultaneously by using several licensees or one licensee with entry to a regional market, for example the European Union.Enter market with high trade barriers.It is a non-equity mode, therefore licensor make profit quickly without gravid investments. The firm does not have to bear the development costs and risks associated with opening a foreign market.Licensing also saves marketing and distribution costs, which are left hand for the licensee. Licensing also enables the licensor to get insight of licensees market knowledge, business relations and cost advantages.The licensor decreases the delineation to economical and political instabilities in the foreign country. shtup be used by inexperienced companies in international businessAvoid the cost to customer of shipping large bulky products to foreign marketsDisadvantages of licensingThere is a risk that the licensee may become a competitor once the term of the agreement concludes, by using the licensors technology and fetching their customers.Not every company can use this entry model unless in possess certain type of intellectual property right or the name of the company is of enough interest to the other party. The licensors income from royalties is not as much as would be get togethered when manufacturing and marketing the product themselves. There is some other risk that the licensee will underreport sales in order to lower the royalty payment2.2.2.2 FRANCHISING Franchising is a form of licensing, which is most often used as market entry modes for services such as fast foods, business to-consumer services and business-to-business services. Franchising is somewhat like licensing where the franchiser gives the franchisee right to use trademarks, know-how and trade name for royalty. Franchising does not only cover products (like licensing) but it usually contains the entire business operation including products, suppliers, technological know-how, and even the account of the business The normal time for a franchisee agreement is 10 days and the arrangement may or may not include operation manuals, marketing plan and culture and quality monitoring.The idea of the franchising chain is that all parties use a uniform model in order to make the customer of a franchising chain may feel that he is dealing with franchisors company itself. In fact, regarding to the law, the customer is dealing with independents companies that have even have different owners. Franchising agreement usually includes tick offing and offers management services, as the operations are done in accordance with the franchisors directions. Franchising h as especially spread to areas, where certain selling style, name and the quality of service are crucial.Franchisee has different customs on the payments to the franchisor. Normally when a company substances the franchising chain it pays a one-time joining fee. As the operation goes on, the franchisee pays continues service fess that usually are based on the sales volumes of the franchisee company. (Koch 2001).Advantages of franchisingSame as licensing aboveLike with licensing, the franchisor gain local knowledge of the market place and in this case the domestic franchisee is highly motivatedThe fast expansion to a foreign market with low capital expenditures, standardised marketing, motivated franchisees and taking of low political risk. Disadvantages of franchisingSame as in licensing above, Since franchising requires more capital initially, it is more suitable to large and well-established companies with good brand images. So small firm get often problem to use this entry modes d welling country franchisor does not have daily operational control of foreign store. There is a risk that franchisees may not perform at desired quality level. more responsibilities ,more complicated and greater commitment to foreign firm than licensing or exports2.2.2.3 Turnkey projectIn screwing projects, the declarer agrees to handle 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. Hence we get the term turnkey. The company, who make the turnkey project, works overseas to build a installation for a local private company or agency of a state, province or municipality. This is actually a means of exporting process technology to another country. Typically these projects are large public firmament project such as urban transit stations, commercial airdrome and telecommunications infrastructure.Sometimes a turnkey project such as an urban transit system takes the form of a built-operate-transfer or a built-own-operate-transfer project. A sophisticated type of counter trade, in which the builder operates and may also own a public sector project for a condition period of years before turning it over to the government.Advantages of Turnkey ProjectsThey are a way of earning great economic returns from the know-how required to assemble and maneuver a technologically complex process, for example contractor must train and prepare owner to operate facilityTurnkey projects may also make sense in a country where the political and economic environment is such that a longer-term investment might expose the firm to unacceptable political and/or economic risk.Less risky than unoriginal FDIDisadvantagesThe firm that enters into a turnkey deal will have no long-term interest in the foreign country. The firm that enters into a turnkey project may create a competitor. If the firms process technology is a source of competitive advantage, then selling this technology through a turnkey project is also selling competitive advantage to potential and/or actual competitors.2.2.3 Investment Entry ModesInvestment entry modes are about acquiring ownership in a company that is located in the foreign market. In other word, the activities within this category involve ownership of production units or other facilities in the overseas market, based on some sort of equity investment. Several companies want to have ownership in some or all of their international ad thinks. This can be achieved by word ventures (equity based), acquisitions, green-field investment.A stick venture is a contractual arrangement whereby a collapse entity is created to carry on trade or business on its own, separate from the core business of the participants. A critical point venture occurs when new organizations are created, sayly owned by both partner in crimes. At least one of these partners must be from another country t han the rest and the location of the company must be outside of at least one partys home country.Typically, a company forming a joint venture will often partner with one of its customers, vendors, distributors, or even one of its competitors. These businesses agree to exchange resources, parcel of land risks, and divide rewards from a joint enterprise, which is usually physically located in one of the partners jurisdictions. The contributions of joint venture partners often differ. The local joint venture partner will frequently supply physical space, channels of distribution, sources of supply, and on-the ground knowledge and information. The other partner usually provides cash, key marketing personnel, certain operating personnel, and intellectual property rights. roast venture is an equity entry mode. Ownership of the venture may be 50% for each party, or may be other proportions with one party holding the absolute majority share. In order to make a joint venture remain success ful on a long-term-basis, there must be willingness and elaborated advance planning from both parties to renegotiate the venture terms as soon as possible. When multiple partners participate in the joint venture, the venture maybe called a consortium.Advantages of a Joint ventureJoint venture makes faster access to foreign markets. The local partner to the joint venture may have already established itself in the marketplace and often will have already obtained, or have access to, government contacts, lines of credit, regulatory approvals, scarce supplies and utilities, qualified employees, and cultural knowledge. Upon formation of the Joint venture, the non-resident partner has access to the local partners pre-established ties to the local market.When the development costs and/or risks of opening a foreign market are high, a firm might gain by sharing these costs and/or risks with a local partner. In many countries, political considerations make joint ventures the only feasible ent ry mode.The reputation of the resident partner gives the joint venturecredibility in the local marketplace, especially with existing key suppliers and customers.Disadvantages of Joint ventureShared ownership can lead to conflicts and battles for control if goals and objectives differ or change over time.Joint venture can foreclose other opportunities for entry into a foreign marketplace.It can be difficult for a joint venture to independently obtain financing, particularly debt financing. That is, in part, because Joint venture are usually finite in their duration and lack permanence. Thus, the parents of a joint venture should expect either to adequately furnish the entity up front or to guarantee loans made to the joint venture. some other potential disadvantage of joint venture a firm that enters into a joint venture risks giving control of its technology to its partner and there is the possibility you might wind up turning your own joint venture partner into a competitor. Howev er, this danger can be ameliorated by non-competition, non-solicitation, and confidentiality provisions in the joint venture agreement. strategical attachment is when the interchangeable coordination of strategic planning and management that enable two or more organisations to align their long term goals to the benefit of each organisation and generally the organisations remain independent. Strategic chemical bonds are cooperative relationships on different levels in the organisation. Licensing, joint ventures, query and development partnerships are just few of the alliances possible when exploring new markets. In other words, strategic alliances can be depict as a partnership between businesses with the purpose of achieving common goals date minimising risk, maximising leverage and benefiting from those facets of their operations that complement each others. A strategic alliance might be entered into for a one-off activity, or it might focus on just one part of a business, or its objective might be new products collectively developed for a particular market.Generally, each company involved in the strategic alliance will benefit by working together. The arrangement they enter into may not be as formal as a joint venture agreement. Alliances are usually accomplished with a written contract, often with agreed termination points, and do not result in the humankind of an independent business organisation. The objective of a strategic alliance is to gain a competitive advantage to a companys strategic position. Strategic alliances have increased a great deal since globalisation became an opportunity for companies.There are different types of strategic alliances1) Marketing alliances where the companies jointly market products that are complementary produced by one or both of the firms.2) A promotional alliance refers to the collaboration where one firm agrees to join in promotion for the other firms products.3) Logistics alliance is one more type of coopera tion where one company offers, to another company, distribution services for their products.4) Collaborations between businesses arise when the firms do not for example have the substance or the financial means to develop new technologies.Advantages of Strategic allianceIncreased leverageStrategic alliances allow you to gain greater results from your companys core strengthsRisk sharingA strategic alliance with an international company will help to offset your market exposure and allow you to jointly exploit new opportunities.Opportunities for growthStrategic alliances can create the means by which small companies can grow. By marrying your companys product to somebody elses distribution, or your RD to a partners production skills, you may be able to expand your business overseas more quickly and more cheaply than by other means.Greater responsivenessBy allowing you to focus on developing your core strengths, strategic alliances provide the ability to respond more quickly to change and opportunity.Disadvantages of strategic allianceHigh commitment time, money, peopleDifficulty of identifying a compatible partnerPotential for conflict between the partnersA small company risks being subsumed by a larger partnerStrategic priorities change over timePolitical risk in the country where the strategic alliance is basedIf the relationship breaks down, the cost/ownership of market information, market intelligence and jointly developed products can be an issue.2.2.3.3 entirely owned subsidiariesA company will use a only owned underling when the company wants to have 100 percent ownership. This is a very pricey mode where the firm has to do everything itself with the companys financial and human resources. Thus, more it is the large multi national corporations that could select this entry mode rather than small and medium sized enterprises. A altogether owned subsidiary could be divided in two separate ways Greenfield investment and Acquisitions.2.2.3.3.1Greenfield InvestmentGreenfield investment is a mode of entry where the firm starts from scratch in the new market and opens up own stores while using their expertise. It involves the transfer of assets, management talent, and proprietary technology and manufacturing know-how. It requires the skill to operate and manage in another culture with different business practices, labour forces and government regulations. The degree of risk varies according to the political and economic conditions in the host country. Despite these risks many companies prefer to use this mode of entry because of its total control over strategy, operation and profits.Advantages of Greenfield investmentA wholly owned subsidiary gives a firm the tight control over operations in different countries that are necessary for attractive in global strategic coordination (i.e., using profits from one country to support competitive attacks in another). A wholly owned subsidiary maybe required if a firm is trying to realize locat ion and experience curve economies.Local production lessens transport/import-related costs, taxes fees.Availability of goods can be guaranteed, delays may be eliminated.More uniform quality of product or service.Local production says that the firm is willing to adapt products services to the local customer requirementsDisadvantages of Greenfield investmentHigher risk exposure namely political risk and economic riskHeavier pre-decision information gathering research evaluationCountry-of-origin effects can be lost by manufacturing elsewhere.Establishing a wholly owned subsidiary is generally the most costly method of serving a foreign market. 2.2.3.3.2 AcquisitionsAcquisition is a very expensive mode of entry where the company acquirers or buys an already existing company in the foreign market. Acquisition is one way of entering a market by buying an already existing brand preferably of trying to compete and launch the companys products on the market and thereby lowering the chanc e of a profitable product. Acquisition is a risky alternative though, because the culture of the corporation is hard to transfer to the acquired firm. closely important, it is a very expensive alternative and both great profit and great losses could be the end product of this entry mode.Advantages of AcquisitionsThey are quick to executeAcquisitions enable firms to preempt their competitorsManagers may believe acquisitions are less risky than green-field ventures Disadvantages of AcquisitionsThe acquiring firms often overpay for the assets of the acquired firmThere may be a clash between the cultures of the acquiring and acquired firmAttempts to realize synergies by integrating the operations of the acquired and acquiring entities often run into roadblocks and take much longer than forecastThere is inadequate pre-acquisition covert 3.0ANALYSIS AND FINDINGSCase study 1 McDonalds used franchising as foreign entry modeIn 1940, the first restaurant was opened by the McDonald brothers, Dick and Macin San Bernardino and California. Then Ray Kroc, a Chicago based salesman with a flair for marketing, became involved that the business really started to grow. He realised that Mc Donalds, could be successful by using franchising, and could be exploited end-to-end the United States and beyond. Its first franchising was in Canada in 1967. In 2001, McDonalds served over 16 billion customers, equivalent to a lunch and dinner for every man, woman and child in the world. McDonalds global sales were over $38bn, making it by far the largest food service company in the world. McDonalds success on rapid growth and expansion is due to franchising that are based on selling quality products cheaply and quickly around the world. In 2002, around 70% of McDonalds are franchises.Mc Donalds ownership advantage to go abroad is its brand name. The majestic growth of Mc Donalds is largely credited to the creation of its satisfying brand name identity. With the purpose of protecting its brand name, Mc Donalds used radio and press advertisement to provide specific messages across the world emphasising on the quality of product ingredients. In addition to that Mc Donalds carry out massive investment in sponsorship which is also a central part of the image building process, for example football World cup and Olympic Games.The franchise agreement is that McDonalds, the franchisor, grants the right to sell McDonalds branded goods to someone w