Chapter 3 (6) - Analyzing and Managing Foreign Modes of Entry

  1. What are the different modes of entry into foreign markets? 
    Hint: Every cool cucumber likes faces. Not every way.
    • Exporting
    • Coutnertrade
    • Contract manufacturing
    • Licensing
    • Franchising
    • Nonequity strategic alliances
    • Equity-based joint ventures
    • Wholly owned subsidiaries
  2. What is exporting?
    The process of sending a firm's products or services to international destinations.
  3. What is indirect exporting?
    A firm's products are sent overseas without the firm's ultimate involvement.
  4. What is a combination export manager (CEM)?
    An independent firm that acts as export department of the company.
  5. What is a manufacturer's export agent?
    • Retains its own identity by operating in its own name instead of making sales in the name of the manufacturer.
    • Does not assume responsibility for advertising and financing.
  6. What is an export department?
    A department in a company to concentrate on developing new markets abroad.
  7. What is an export sales subsidiary?
    A semi-independent corporation, that is a separate company owned by the parent corporation.
  8. Why might a company create a foreign sales branch?
    They feel the need for closer supervision over the sales of their products in a certain market.
  9. What is a foreign sales subsidiary?
    • More independent than a foreign sales branch
    • Can evaluate the market, suggest product changes, and analyze the effectiveness of advertising, public relations, and promotion
  10. What is countertrade?
    It refers to arrangements whereby the flow of goods or services in both directions is an integral element of the specific terms of the business transaction.
  11. What is pure barter?
    Both sides of the business arrangement agree to accept each other's goods as payment for the transaction.
  12. What is switch trading?
    Trade involving three or more countries.
  13. What is counterpurchase?
    Country A experts to Country B and, in return, promises to spend some or all of the receipts on imports from B.
  14. What is buyback?
    Buyback involves licensing of patents or trademarks, selling production know-how, lending capital, or building a plant in another country and agreeing to buy part or all of its output as payment.
  15. What is contract manufacturing?
    A contractual agreement between a company and a foreign producer under which the foreign producer manufacturers the company's product.
  16. What is licensing?
    An international company, or licensor, agrees to make available to another company abroad, the licensee, use of its patents and trademarks, its manufacturing processes and know-how, its trade secrets, and its managerial and technical services.
  17. What do complex licensing agreements deliver?
    • A patented product or process
    • A trademark or trade name
    • Manufacturing techniques
    • Proprietary rights generally referred to as company or industry know-how.
  18. What are the control concerns of foreign licensing?
    • Technology
    • Production 
    • Quality
  19. What are the strategic fit concerns of foreign licensing?
    • Long-term coordination
    • Longer-term configuration
  20. What are the licensee-related concerns of foreign licensing?
    • Competitive positioning
    • Partner selection
    • Partner "cheating"
  21. What is franchising?
    A very common form of licensing, in which a transfer takes place of technology, business system, brand name, trademark, and other property rights by a franchisor to an independent company or person who is the franchisee.
  22. What are the five major areas of a franchise agreement?
    • 1. A detailed list of issues to consider regarding the cost of the franchise.
    • 2. A detailed list of issues to consider regarding the location of the franchise.
    • 3. A detailed list of issues pertaining to the buildings, equipment, and supplies.
    • 4. A detailed list of issues pertaining to the operating practices.
    • 5. A detailed list of issues pertaining to termination and renewal.
  23. What are advantages of franchising?
    • Inexpensive way to exploit a market
    • Little or no political risk
    • Significant providers of innovative ideas
  24. What are disadvantages of franchising?
    • Could spoil the franchisor's image due to quality issues
    • Franchisees may fight to implement changes
    • Brand names or trademarks can be altered
  25. What is a greenfield investment?
    An equity-based venture abroad which involves establishing the venture from the group up or by acquiring an existing firm.
  26. What are the characteristics of an international collaboration?
    • Explorative or exploitative
    • Cross-border or home-country based
    • Equity- or contractual-based
    • Two or multiple partners
    • Short-term project-based or long-term
  27. What is an equity international joint venture?
    A separate legal organizational entity representing the partial holdings of two or more parent firms, in which headquarters of at least one is located outside of the country of operations of the joint venture.
  28. What are the conditions that influence the choice of international joint venture (IJV)?
    • Legislation
    • Protecting a profitable market (i.e., tarriffs or import barriers)
    • Intellectual property considerations
    • Integrated network of subsidiaries (i.e., may decrease flexibility)
    • Acquisition of knowledge and expertise
  29. What are the motives for international joint ventures?
    Market reach and acquisition of new knowledge and technology
  30. What are the advantages of equity international joint ventures?
    • Only way to set up business due to political sensitivity
    • Can lower government societal hostility to firm
    • Helps to acquire high-quality managerial talent
    • Greater chance of winning government contracts
    • Overcome peculiar problems
    • Easier to acquire raw materials/components
  31. What are the disadvantages of equity international joint ventures?
    • Foreign company may not agree with interests of entire company or its subsidiaries
    • May have to sacrifice profits and efficiency if the partner provides components and processes at a higher price
    • Exporting to world markets
    • Differences in risk acceptance
    • Differences in time-return projections
    • Different tax laws and foreign exchange considerations
    • Need
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Chapter 3 (6) - Analyzing and Managing Foreign Modes of Entry
Analyzing and Managing Foreign Modes of Entry