METHODS OF ENTERING INTERNATIONAL MARKET

Need of Entering in International Market?

The need to take any form of business beyond the national boundary arises due to following reasons: Expansion of the current business.- Tata-Jaguar-Land Rover Saturation in the current business. Saturation in the current market. Disposal of excess production in the domestic market-Export Firms

Non-availability of a product in the domestic market-Import Firms, raw material,

spares, machinery. Better business opportunity in foreign market- Better Prices.

Acquisition of better technology from overseas market.

Development of better sales & distribution channels in overseas market.

1. International Business Methods

International Trade Licensing Franchising Joint Ventures Acquisitions of Existing Operations Establishing New Foreign Subsidiaries

Ways of International business ?

Overseas Expansion Desire & need of a new market. Reaping the overseas market for profit. Saturation of the domestic or the current market. Merger & Acquisitions Acquiring new similar businesses. Forming a coalition for specific purpose. Searching for new business opportunities.

Overseas Projects Construction Projects like roads & bridge. Consultancy Projects. Turnkey operations Management Contracts

Export & Import Disposal of excess production Production especially for foreign market. Fulfillment of basic needs for industry. Catering increasing demand of domestic market.

Market Entry Methods

high

Acquisition/ Wholly-Owned Subsidiary Joint Ventures

Control and Foreign Market Presence

STRATEGIC ALLIANCE

Franchising Licensing Direct Exporting Indirect Exporting Production in the Home Market
low

low

Production Abroad
high

Resource Deployment

International Business Methods

There are several methods by which firms can conduct international business.

International trade is a relatively conservative approach involving exporting and/or importing.

The

internet facilitates international trade by enabling firms to advertise and manage orders through their websites.

International Business Methods

Licensing allows a firm to provide its technology in exchange for fees or some other benefits.
Sprint

telecommunications in UK IGA supermarkets in China & Singapore

Franchising obligates a firm to provide a specialized sales or service strategy, support assistance, and possibly an initial investment in the franchise in exchange for periodic fees.
McDonalds,

PizzaHut

International Business Methods

Firms may also penetrate foreign markets by engaging in a joint venture (joint ownership and operation) with firms that reside in those markets.
Gen

Mills cereals sold through Nestles distribution network

Acquisitions of existing operations in foreign countries allow firms to quickly gain control over foreign operations as well as a share of the foreign market.
P&G

bought bleach company in Panama

International Business Methods

Firms can also penetrate foreign markets by establishing new foreign subsidiaries. In general, any method of conducting business that requires a direct investment in foreign operations is referred to as a direct foreign investment (DFI). The optimal international business method may depend on the characteristics of the MNC.

Factors Influencing Entry Mode Decision

External Factors
Target country market factors Target country environmental factors Target country production factors, e.g. investment and
exchange control regulation

Home country factors

Internal Factors
Company product factors Company resource/commitment factors

2. Regional Trade Agreements

Regional Trade Agreements

Regional trade agreements, sometimes referred to as RTAs, are increasingly important in global trade. Essentially, a regional trade agreement involves one or more countries deciding to liberalize the exchange of goods and services across their borders.

RTAs are an important exception to the World Trade Organization's (WTO) multilateral trade policy, which does not allow any country to be discriminated against by another country's trade regime.

Types of Regional Trade Agreements

Preferential Trade Areas
First-level RTAs are also called preferential trade areas. A preferential trade area is created when two countries lower their trade barriers with one another, but do not completely eliminate them. This type of RTA does not involve any type of integration of the two countries' labor, capital or money markets. This type of RTA is not allowed by the WTO, and they can have a harmful effect on multilateral trade

Free Trade Areas

A second-level RTA is called a free trade area, or FTA. This involves the complete removal of all trade barriers between two countries, but still does not involve the integration of labor or capital markets. In this system, each member of the agreement is allowed to maintain its trade barriers with third parties not involved in the agreement. FTAs represent 84 percent of all RTAs.

Customs Unions
Third-level RTAs are also called customs unions. Under this type of RTA, the member countries must eliminate all trade barriers between one another, but also adopt the same trade policy in regard to other countries not a part of the agreement. This is often referred to as a common external tariff.

However, under this type of RTA capital and labor markets remain un-integrated. This type of RTA represents about 8 percent of all RTAs.

Common Markets

Fourth-level RTAs are called common markets. In this type of RTA, all barriers between the movement of labor and physical capital are removed. Essentially, this allows the movement of production factors across borders along with the products produced.

3. Introduction to the WTO

WTO: What is it?

An international Organization:
Organization created by the Marrakesh Agreement Independent from the United Nation system Replaces the GATT (created in 1947)

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World Trade OrganizationAn international organization designed to supervise and liberalize international trade. The WTO came into being on January 1, 1995, and is the successor to the General Agreement on Tariffs and Trade (GATT), which was created in 1947. Responsible for negotiating and implementing new trade agreements, around 150 members of WTO

WTO: What is its purpose?

WTO Objectives:
Raising standards of living
Ensuring full employment Ensuring growth of real income and demand Expanding production and trade Sustainable development

Protection of the environment

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WTO: What is its purpose?

WTO Functions:
Administer and implement the WTO agreements Forum for negotiations Administer Settlement of Disputes Administer Trade Policy Review Mechanism Technical Assistance to developing countries

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WTO: How does it Works?

Set of rules
The negotiated legal rules included in the various WTO agreements cover the following topics:
Trade in Goods
Trade in Services Trade-related aspects of intellectual property rights Dispute Settlement Trade Policy Reviews

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 WTO Structure
Ministerial Conference TPRB General Council DSB Appellate Body Dispute Settlement Panels

Goods Council Committees

Services Council Committees

TRIPS Council
Director-General Secretariat

Investment, competition, Government Procurement)

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CTD (Development) CTE (Environment) CRTA (Regionalism) BOP Budget WG (Accessions,

WTO: How does it work?

Secretariat
About 750 staff Headed by a Director-General (DG) Budget 2009: 190 millions Swiss francs + extrabudgetary funds (about 24 millions Swiss francs)

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WTO: How does it work?

Decision making
Member-driven organisation Through consensus making Consensus when no Member formally object to a decision

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