Unit18.International Marketplace
Unit 18. International Marketplace
InternationalMarketplace Onceacompanyhasdecidedto sell inaforeigncountry,it must determine the best mode ofentry.Its choices are exporting,joint venturing,and direct investment.Figure 18.1 shows threemarket entry strategies,along with theoptionseach one offers.As thefigure on the next chartshows,each succeeding strategy involvesmorecommitment and risk,but also more controlandpotentialprofits
International Marketplace ◼ Once a company has decided to sell in a foreign country, it must determine the best mode of entry. Its choices are exporting, joint venturing, and direct investment. Figure 18.1 shows three market entry strategies, along with the options each one offers. As the figure on the next chart shows, each succeeding strategy involves more commitment and risk, but also more control and potential profits
DecidingHowtoEntertheMarket(See P306 Fig. 19.1)Joint yenturing (Jy)ExportingDirectinvestmentLicensing.Contract manufacturingIndirectAssemblyfacilities.Management Contracting.Manufacturing facilities·Direct.Joint OwnershipAmountof Commitment,risks,control and profit potential involved
3 Deciding How to Enter the Market (See P306 Fig. 19.1) Exporting •Indirect •Direct Joint venturing（JV） •Licensing •Contract manufacturing •Management Contracting •Joint Ownership Direct investment •Assembly facilities •Manufacturing facilities Amount of Commitment, risks, control and profit potential involved ➔
ExportingExportingis thesimplest wayto enteraforeignmarket is through exporting.The company maypassively export its surpluses from time totime,orit may makean active commitment toexpand exports to a particular market.In eithercase,the company produces all its goods in itshome country.It may or may not modify themfor theexport market.Exporting involves theleast change in the company's product linesorganization,investments,ormission
Exporting ◼ Exporting is the simplest way to enter a foreign market is through exporting. The company may passively export its surpluses from time to time, or it may make an active commitment to expand exports to a particular market. In either case, the company produces all its goods in its home country. It may or may not modify them for the export market. Exporting involves the least change in the company's product lines, organization, investments, or mission
Companies typically start with indirectexportingworking through independent internationalmarketing intermediaries.Indirect exportinginvolveslessinvestmentbecausethefirm doesnot reguire an overseas sales force or set ofcontacts.It also involves less risk.Internationalmarketingintermediaries-domestic-basedexportmerchants or agents,cooperative organizations,and export-managementcompanies-bringknowhow and servicesto the relationship,sothesellernormallymakesfewermistakes
◼ Companies typically start with indirect exporting, working through independent international marketing intermediaries. Indirect exporting involves less investment because the firm does not require an overseas sales force or set of contacts. It also involves less risk. International marketing intermediaries—domestic-based export merchants or agents, cooperative organizations, and export-management companies—bring knowhow and services to the relationship, so the seller normally makes fewer mistakes
Sellersmay eventuallymove intodirectexporting,whereby they handle their own exports.Theinvestment and riskare somewhat greater in thisstrategy,but so is the potential return. A companycan conduct direct exporting in several ways:Itcan set up adomesticexport department thatcarries out export activities.It can set up anoverseas sales branch thathandles sales,distribution,and perhapspromotion.The salesbranchgivesthe sellermorepresenceandprogram control in the foreign market and oftenserves as a display center and customer servicecenter
◼ Sellers may eventually move into direct exporting, whereby they handle their own exports. The investment and risk are somewhat greater in this strategy, but so is the potential return. A company can conduct direct exporting in several ways: It can set up a domestic export department that carries out export activities. It can set up an overseas sales branch that handles sales, distribution, and perhaps promotion. The sales branch gives the seller more presence and program control in the foreign market and often serves as a display center and customer service center
Thecompanycan also sendhome-basedsalespeople abroad at certain times in order tofind business.Finally,the company can do itsexporting eitherthrough foreign-baseddistributors who buy and own the goods orthrough foreign-based agents who sell the goodson behalf of thecompany.Joint VenturingA second method of entering a foreign market isjoint venturing-joining with foreign companiestoproduce or market products or services
◼ The company can also send home-based salespeople abroad at certain times in order to find business. Finally, the company can do its exporting either through foreign-based distributors who buy and own the goods or through foreign-based agents who sell the goods on behalf of the company. Joint Venturing ◼ A second method of entering a foreign market is joint venturing—joining with foreign companies to produce or market products or services
Joint venturingdiffersfrom exportingin thatthecompany joins with a host country partner to sellor market abroad. It differs from directinvestment inthat anassociation isformed withsomeone in the foreign country.There are fourtypes of joint ventures:licensing,contractmanufacturing,management contracting,andjoint ownershipLicensing haspotential disadvantages,however.The firm haslesscontroloverthelicenseethanitwouldoverits own productionfacilities
◼ Joint venturing differs from exporting in that the company joins with a host country partner to sell or market abroad. It differs from direct investment in that an association is formed with someone in the foreign country. There are four types of joint ventures: licensing, contract manufacturing, management contracting, and joint ownership. ◼ Licensing has potential disadvantages, however. The firm has less control over the licensee than it would over its own production facilities
LicensingLicensing is a simple way for a manufacturer toenter international market.The company entersinto an agreement with a licensee in the foreignmarket.For a fee or royalty,the licensee buysthe right to use the company's manufacturingprocess,trademark,patent,trade secret,orother item of value.The company thus gainsentry into the market at little risk;the licenseegains production expertise or a well-knownproduct or name without having to start fromscratch.Coca-Cola markets internationallyby licensing
◼ Licensing ◼ Licensing is a simple way for a manufacturer to enter international market. The company enters into an agreement with a licensee in the foreign market. For a fee or royalty, the licensee buys the right to use the company's manufacturing process, trademark, patent, trade secret, or other item of value. The company thus gains entry into the market at little risk; the licensee gains production expertise or a well-known product or name without having to start from scratch. ◼ Coca-Cola markets internationally by licensing bottlers around the world and supplying them
Furthermore,if thelicensee is very successful,thefirm has given up these profits,and if and whenthe contract ends,it may find it has created acompetitor.ContractManufacturingAnother option is contractmanufacturing-thecompany contracts withmanufacturersin theforeign market to produce its product or provideits service.Sears used this method in opening updepartmentstoresin Mexico and Spain,where itfound qualified local manufacturers to producemany of the productsit sells
◼ Furthermore, if the licensee is very successful, the firm has given up these profits, and if and when the contract ends, it may find it has created a competitor. ◼ Contract Manufacturing ◼ Another option is contract manufacturing—the company contracts with manufacturers in the foreign market to produce its product or provide its service. Sears used this method in opening up department stores in Mexico and Spain, where it found qualified local manufacturers to produce many of the products it sells