Chapter 4 International Methods of Entry

Gustavo Herrera
Mind Map by Gustavo Herrera, updated more than 1 year ago
Gustavo Herrera
Created by Gustavo Herrera about 6 years ago
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Chapter 4 International Methods of Entry
  1. Entry strategy factors.
    1. Size of the market
      1. The growth of the market
        1. The potential market share of the exporter

          Annotations:

          • Mayor or not mayor player
          1. The type of product

            Annotations:

            • -After sale service or parts
            1. The Market strategy of the firm
              1. The willingness of the firm to get involved
                1. The characteristics of the country considered
                  1. Development
                    1. Infrastructure
                      1. Business sophistication potential trade partners
                        1. Business climate
                          1. Culture of the market
                            1. Culture of the customers
                            2. The horizon considered.
                              1. Life cycle
                            3. Indirect exporting
                              1. Export Trading Company (ETC)

                                Annotations:

                                • Intermediary... A company that purchases goods in one country for the purpose of reselling them in another country at a profit. Specialized in one geographical area or one product line. -Great for novice exporter. -Offices abroad.
                                1. Export Management Corporation (EMC)

                                  Annotations:

                                  • Company that puts suppliers in touch with potential buyers and earns a commisssion if sale is completed. -Located in the exporting country -Small firms (-15 employees). -No(rarely) offices abroad -Contacts and potential importers and send people to promote the exporting. -Kind of Agent (the overseas representative of a manufacturer) Novice exporters
                                  1. Piggy Backing

                                    Annotations:

                                    • When a manufacturer goeas overseas and asks its suppliers to continue doing business abroad with him, the suppliers are said to be piggy backing on that customer efforts.
                                  2. Active exporting
                                    1. Agent

                                      Annotations:

                                      • The overseas representative of a manufacturer. The agent represents the manufacturer in sales negotiations.  ->Uses terms of sale (price delivery and discounts). >Sales brochure and proces list, products characteristic, anlysis of competitors products, information on sales and service philosophy, sales support in the form of samples, catologs, trade advertising and financial support. ->After the sale, the agent finishes with the job. And he gets paid unil the exporter has been paid by the importer.
                                      1. Binding agent

                                        Annotations:

                                        • Agent who is allowed to make decisions that are binding on the principal. The prinicipal must abide by whatever statements the agent has made, and negociate terms of trade.
                                        1. Driven factors

                                          Annotations:

                                          • -Long term relationship
                                          1. Small potential in sales (5-10% of domestic sales)
                                            1. No stock item

                                              Annotations:

                                              • Specifically designed for that market
                                              1. Expensive item

                                                Annotations:

                                                • Machinery
                                                1. Short product life cycle
                                                  1. No frequent afeter-sale service
                                                    1. No become dominant in the market
                                                      1. Company that handle exports
                                                        1. No top of the line strategy, no premium prices
                                                          1. Reasonable control over prices and delivery process
                                                          2. Labor Law

                                                            Annotations:

                                                            • Compesation to the agent based on the law, overruling terms of contract.
                                                          3. Distributor

                                                            Annotations:

                                                            • Overseas company that purchases a manufacturer´s products with the goal of reseling them at profit. ->Inventory-After sale service-Complementary parts. +Responsability (Inventory risk, no sold items, Advertising, trade show attendance..) +Benefits: Setting prices, negotiating terms. ->Long term partner
                                                            1. Invoices
                                                              1. International invoices
                                                                1. Domestic invoices
                                                                2. Driven factors
                                                                  1. Substancial market (20-25% domestic sales)
                                                                    1. Stock item
                                                                      1. Moderately price item
                                                                        1. Fairly long product life cycle
                                                                          1. Frequent after sale service/maintenance parts
                                                                            1. Minor player in the market
                                                                              1. One customer handle exports sales
                                                                                1. Pursuing prestige pricing strategy and premium prices and service
                                                                                  1. Company comfortable not having control of price and delivery terms
                                                                                  2. Contract law

                                                                                    Annotations:

                                                                                    • Set of laws thet gobern relationships established by contracts between two parties.
                                                                                  3. Marketing subsidiary

                                                                                    Annotations:

                                                                                    • An overseas firm owned by an exporter that is responsible for selling the exportes products in a foreign market All are domestic sales +Costs: Rented building, inventory built and employees (less variable-cost).
                                                                                    1. Driven factors
                                                                                      1. Considerable market potential (+25% domestic sales)
                                                                                        1. Techology driven, with substantial intellectual property
                                                                                          1. Rather complicate to sell
                                                                                            1. Long run (+products to be introduced)
                                                                                              1. Sophisticted after-sale service/maitenance parts
                                                                                                1. Expects major player in market
                                                                                                  1. Exacting premium proces from customers
                                                                                                    1. Uncomfortable not having control of products and $
                                                                                                  2. Coordinating DIRECT EXPORT STRATEGIES
                                                                                                    1. Factors

                                                                                                      Annotations:

                                                                                                      • Consider changing from one entry strategy.
                                                                                                      1. Market driven

                                                                                                        Annotations:

                                                                                                        • Different strategies in each country (Agent, Distributor, EMC, etc.)} -Difficult in coordinating prices and after sale service. -Parallel imports looms. -Greatest profits can be extracted
                                                                                                        1. Product driven

                                                                                                          Annotations:

                                                                                                          • Same strategy in different countries (always agents) -Simplify management of its exports. -Unified front to its customers. -Prices and bounds coordinated. -After sale policies policies controlled. -Poor match with the market. -Stablish sales subsidiary in small markets.
                                                                                                      2. Foreign Sales Corporation

                                                                                                        Annotations:

                                                                                                        • A subsidiary, created for tax-reduction purposes only, that handles an exporter´s overseas sales.
                                                                                                      3. Production Abroad
                                                                                                        1. Contract Manufacturing(Subcontracting)

                                                                                                          Annotations:

                                                                                                          • An arregement between two companies where one maufactorers for the other. Not a method for entry. +Barriers +Tariffs and quotas
                                                                                                          1. Licesing

                                                                                                            Annotations:

                                                                                                            • An arrangement between two companies where one uses the other´s intellectual property (secret or know how) in exchange of royalty (fee paid to use IP)
                                                                                                            1. Franchising

                                                                                                              Annotations:

                                                                                                              • An arrangement between two companies where one licenses an array of related intellectial property items (business model). ->Trademarks ->Copyrights ->Patents ->Know-how ->training ->methods of operation ->Substancial amount of piggy-backing 
                                                                                                              1. Joint venture

                                                                                                                Annotations:

                                                                                                                • An overseas company that is jointly owned by two or more companies (share costs of venture.
                                                                                                                1. Minimize its exposure in a foreign investment
                                                                                                                  1. Complementary partner
                                                                                                                    1. Local way partnership
                                                                                                                      1. Politically conected
                                                                                                                      2. Subsidiary (WOFE)

                                                                                                                        Annotations:

                                                                                                                        • Company owned entirely by another company (Wholly-owned foreign enterprise). -Total control of investment and take the risk for this venture (no share). -Beneficial for host countries (creates jobs). -Manage a company in a foreign country without a very good understanding of local customs and regulations.
                                                                                                                      3. Parallel Imports/Gray market goods

                                                                                                                        Annotations:

                                                                                                                        • Goods purchased in one country by unauthorized inetermediaries and sold to unautorized retailers in another country.
                                                                                                                        1. Counterfeit Goods

                                                                                                                          Annotations:

                                                                                                                          • Goods manufactured to look like original products, but whose manufacturing was not approved by the brand owners. -Lower quality and price
                                                                                                                          1. Other Issues in Methods of Entry
                                                                                                                            1. Foreign Trade Zones

                                                                                                                              Annotations:

                                                                                                                              • Ana area that is physically within the borders of a country but that is considered outside of its borders for customs purposes. 
                                                                                                                              1. Maquiladoras

                                                                                                                                Annotations:

                                                                                                                                • A plant located in Mexico that have the same status as a foreign trade zone located both in ther US and Mexico.  -Import goods from us, transform in Mexico and re-export to the US
                                                                                                                                1. Anti-Bribery Convenions

                                                                                                                                  Annotations:

                                                                                                                                  • 2013 OECD convention that requires countries to penaize companies engaging in bribery.
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