ENTERING THE

I N T E R N AT I O N A L
MARKET

HEIDI ARMANI (145020301111060)

M A R I A E K I S TA O K TA V I A N A D E W I
(145020301111062)
D I C K Y A RV I A N TO
(145020301111057)
 CONCERNS AND
ISSUES OF GOING
INTERNATIONAL
As the activities of some companies expand, they are faced with a situation where they can
choose to enter a foreign market.
These companies have to consider the way they should treat their chances.
Some business ventures are launched at an international level in the first place.
 MOTIVATION
Increasing international trade
liberalization

Declining barriers to trade and

investment

Stagnant national market

 Methods for foreign market entry:
CONCERNS,
1. Production in home market RISKS, AND
Indirect export ISSUES
o Trading company
o Export management company
o Piggyback
Direct export
o Foreign distributor
o Agent
o Marketing subsidiary
 CONCERNS,
2. Foreign production sources
RISKS, AND
Contract manufacture
ISSUES
Licensing
Assembly
Joint venture
Full ownership
CONCERNS, RISKS, AND ISSUES
INTERNATIONAL BUSINESS
RESEARCH: DETERMINING
INTERNATIONAL BUSINESS RESEARCH
OBJECTIVES
Why is marketing research important?

What factors affect foreign market entry mode

choice?

How should existing competition be dealt with?

DISTRIBUTION AND SALES
CHANNEL IDENTIFICATION

Sellers
headquarters
Channels
organization Channels Final user or
Seller between
for within nations buyer
nations
international
marketing
FOREIGN MARKET ENTRY STRATEGIES

Export Market Entry Modes

Contractual Entry Modes

Investment Entry Modes

EXPORTS MARKET ENTRY MODES

1. Indirect Exporting:
Companies utilizing the services of an export agent or trading companies, or sell it to the
sales office of a foreign organization (overseas) located in the domestic market the company
concerned.
All the responsibility and risk belong to the export management companies (EMCs)
EMCs are a very convenient export support option for small and medium-sized firms, that have an
interest to enter the international market and want to test the market before giving all the focus
and sources on it.
This strategy cant give enough information about international market

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EXPORTS MARKET ENTRY MODES

2. Cooperative Exporting
For companies that want to control on international sales, but lack the resources or the
volume of sales to form its own export sales organization
Piggyback Exporting : where is a company market their products or services through the distribution
organization of other companies in certain overseas markets.
EXPORTS MARKET ENTRY MODES

3. Direct Exporting
When the sales rate of the company high and company wants to give all the effort to
develop the international market.
Firms set up their own exporting departments
Direct export needs more cost and greater commitment to develop export market
This strategy can produce more effective promotion and sales, and more contact information
1. LICENSING CONTRACTUAL ENTRY MODE

This form of foreign market entry is based on a contractual relationship where the
licensor is the firm that possesses an asset in the form of a patent (or the know-how
to produce a product or provide a service) and the licensee is a firm in the host
country that is willing to exchange the use of the foreign firms technology in the host
market with a certain remuneration (generally the payment of royalties). Licensing can
be a very effective way for the internationalization of the activities of small and
medium enterprises that might have developed very good products and technologies
that could serve clients in the international market but lack the resources for an
autonomous international expansion

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 1. LICENSING CONTRACTUAL ENTRY MODE
Advantages:
Appealing to small companies that lack resources
Faster access to the market
Rapid penetration of the global markets
Disadvantages:
Other entry mode choices may be affected
Licensee may not be committed
Lack of enthusiasm on the part of a licensee
Biggest danger is the risk of opportunism
Licensee may become a future competitor
2. FRANCHISING
CONTRACTUAL ENTRY MODE

Franchising is a form of licenses in service industries such as fast food

restaurants, retail, car rentals, hotels and agency job seekers.
Franchisee is the one who do business with franchisor brand/name.
Franchisor must still monitor activity on each franchisee operations in
various parts of the world and establish performance standards and strict
control mechanisms in order to realize the uniformity of products and
services worldwide.
Exm : McDonalds, Dunkin Donuts, Kentucky Fried Chicken, Dominos Pizza,
Hillton Hotels, Body Shop and Manpoer

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2. Franchising
CONTRACTUAL ENTRY MODE

Advantages Disadvantages

Overseas expansion with a Revenues may not be

minimum investment
Franchisees profits tied to their
efforts
Availability of local franchisees
knowledge
adequate
Availability of a master
franchisee
Limited franchising
opportunities overseas
Lack of control over the
franchisees operations
Problem in performance
standards
Cultural problems
Physical proximity
2. Franchising

Chapter 9 Copyright (c) 2007 John Wiley & Sons, Inc. 17

3. CONTRACT MANUFACTURING
(OUTSOURCING) CONTRACTUAL ENTRY MODE

International firms engage in contract production or contract

manufacturing either within a framework of allocating low-cost
production facilities in many countries around the globe (depending
mostly on the local labor market conditions prevailing at that period
of time) or because this is the only market access possible due to
government limitations and other local conditions. Ex: nike & IKEA

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3. CONTRACT MANUFACTURING
(OUTSOURCING) CONTRACTUAL ENTRY MODE
Advantages:
Labor cost advantages
Savings via taxation, lower energy costs, raw materials, and
overheads
Lower political and economic risk
Quicker access to markets
Disadvantages:
Contract manufacturer may become a future competitor
Lower productivity standards
Backlash from the companys home-market employees
regarding HR and labor issues
Issues of quality and production standards

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3. CONTRACT MANUFACTURING
(OUTSOURCING) CONTRACTUAL ENTRY MODE
Qualities of an ideal subcontractor:
Flexible/geared toward just-in-time delivery
Able to meet quality standards
Solid financial footings
Able to integrate with companys business
Must have contingency plans

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INVESTMENT ENTRY MODES

Portfolio Investments by Multinational Corporations

Foreign Direct Investment

Joint Ventures

Wholly-owned Subsidiaries

Strategic Alliances
PORTFOLIO INVESTMENTS BY
MULTINATIONAL CORPORATIONS

MNCs regularly invest in foreign firms by acquiring a

relatively small percentage of their equity capital. In case
the equity participation in the foreign firm is significant (above
35 percent depending on the individual company), the
investor might also participate in the managing board, thus
acquiring valuable knowledge of the local market conditions.
FOREIGN DIRECT INVESTMENT

A basic distinction can be made between two types of FDI:

the horizontal FDI where the firm expands by entering a
foreign market, increasing the volume of its operations
while at the same time maintaining the same activities
the vertical FDI that denotes the simultaneous vertical
integration in either upstream or downstream
operations, along with the foreign market entry.
JOINT VENTURES
IJVs are formed when firms need to combine with other
firms intermediate inputs that are subject to high market
transaction costs

Advantage Disavantage
Higher rate of return Lack of full control
Creation of synergy Lack of trust
Sharing of resources
Conflicts
WHOLLY-OWNED SUBSIDIARIES

Branches or subsidiaries of foreign company which is

wholly owned and fully controlled

Mergers and Greenfield

Acquisition Operations
MERGERS AND ACQUISITIONS

Acquisition refers to the purchase of sufficient stock of an

already existing firm whereas in a merger two or more
firms might form a new company.

Advantage Disavantage
Quick foreign market Adaptation difficulties
access Increased cost
GREENFIELD OPERATIONS

Building a subsidiary including new operational facilities

from scratch and usually targets local production and
marketing in the host market as well.

Advantage Disavantage
Higher profit Higher risks
Strong commitment Increase sunk costs
Ability to manage and Risk of nationalization
control
STRATEGIC ALLIANCES

International strategic alliances can take various different forms; their

most distinct characteristic is that they are made so as to pursue a
common goal.
Successful international alliances share some characteristics :
Allies should have the same market power
All allies maintain their autonomy and a high degree of flexibility.
The participation on ownership should be equal so as to ensure
equally shared benefits, while all allies should equally maintain an
ongoing contribution.
INTERNATIONAL LOGISTICS AND TRANSPORTATION ISSUES
REL ATED TO FOREIGN MARKET ENTRY

It should, however, be noted that most firms heavily invest and depend
on distribution systems and supply chain networks in order to
increase both effectiveness and the value component of the products
or services they offer in the market. Another reason for this is to
decrease the cost by improving efficiency of the system.
MEXICO

Mexico is the 15th largest exporter in the world

Mexico has free trade agreements with over 50 countries
Export : US$303 billion

Import : US$306 billion

MEXICO
CANADA

11th largest nominal GDP in the world

10th largest nominal GDP per capita

Service sector accounts for 78% of GDP

Unemployment rate of 7.11%

CANADA
Canadas main export goods:
Oil and gas
Motor vehicle
Gold
Aircraft
Food products
Chemicals
USA

2nd largest manufacturer

9th highest per capita GDP (nominal)
10th highest per capita GDP (purchasing power partity
Highest average household and employee income among OECD nation
The world's largest producer of oil and natural gas
one of the largest trading nations in the world
The United States has one of the world's largest and most influential financial markets.
The New York Stock Exchange is by far the world's largest stock exchange by market
capitalization.
USA

USAs main export goods :

Machine, engine,pump
Industrial supplies
Consumer goods
Gold
Refined petroleum
USA
Most Recognizes Franchising Brand from USA:

Most Recognized Soft Drink from USA :

THANK YOU