1. Harsh Bansal JIMS-Rohoni, Sector-5 Delhi-85 Different Modes
of entry into international business 1
2. Different modes of entry Exporting Licensing Franchising
Contract manufacturing Management Contracts FDI without alliances
FDI with alliances 2
3. Forms of Exporting 1 Indirect Exporting 2 Direct Exporting 3
Intra-corporate Transfers 3
4. Forms of Exporting 4 Exporting means shipping the goods and
services out of the port of a country. Seller is referred to as an
"exporter" . Buyer is referred to as an "importer. Indirect
Exporting means that the firm participates in international
business through an intermediary and does not deal with foreign
customers or markets. Direct exporting means that the firm works
with foreign customers or markets with the opportunity to develop a
relationship.
5. Indirect Exporting 5
6. Indirect Exporting Eg. Exporting of goods and services
through various home-based exporters Manufacturers export agents
Export commission agents Export merchants International firms
6
7. Direct Exporting 7
8. Differences 8
9. Intra-corporate Transfer 9
10. Exporting Advantages Relatively low financial exposure
Permit gradual market entry Acquire knowledge about local market
Avoid restrictions on foreign investment Disadvantages
Vulnerability to tariffs and NTBs Logistical complexities Potential
conflicts with distributors 10
11. Licensing Licensing is when a firm, called the licensor,
leases the right to use its intellectual propertytechnology, work
methods, patents, copyrights, brand names, or trademarksto another
firm, called the licensee, in return for a fee. The property
licensed may include: Patents Trademarks Copyrights Technology
Technical know-how Specific business skills11
12. The Licensing Process 12
13. Basic Issues in International Licensing Specifying the
boundaries of the agreement Determining compensation Establishing
rights, privileges, and constraints Specifying the duration of the
contract Differences in laws and culture. Eg. Pepsico, Coke
Bottling Plant 13
14. Licensing Adv. & Disadv. Advantages Low financial risks
Low-cost way to assess market potential Avoid tariffs, NTBs,
restrictions on foreign investment Licensee provides knowledge of
local markets Disadvantages Limited market opportunities/profits
Dependence on licensee Potential conflicts with licensee
Possibility of creating future competitor 14
15. Under franchising, an independent organization called the
franchisee operates the business under the name of another company
called the franchisor. In such an arrangement the franchisee pays a
fee to the franchisor. Franchising is a form of Licensing but the
Franchisor can exercise more control over the Franchisee as
compared to that in Licensing. Franchising 15
16. Franchising Agreements Franchisee has to pay a fixed amount
and royalty based on sales. Franchisee should agree to adhere to
follow the franchisors requirements Franchisor helps the franchisee
in establishing the manufacturing facilities Franchisor allows the
franchisee some degree of flexibility. Eg. McDonalds, Subway, KFC
16
17. Franchising- Adv. & Disadvantages Advantages
Disadvantages 17 Low financial risks Low-cost way to assess market
potential Avoid tariffs, NTBs, restrictions on foreign investment
Maintain more control than with licensing Franchisee provides
knowledge of local market Limited market opportunities/profits
Dependence on franchisee Potential conflicts with franchisee
Possibility of creating future competitor
18. FDI without alliances Companies enter the international
market through FDI , invest their money, establish manufacturing
and marketing facilities through ownership and control. Greenfield
strategy- the term Greenfield refers to starting of the operations
of a company from scratch in a foreign market. 18
19. Greenfield Strategy Best site Modern facilities Economic
development incentives Clean slate Advantages Huge time and
patience needed Expensive Comply with local and national regulation
Local workforce needed Strongly perceived as a foreign worker
Disadvantages 19
20. FDI with strategic alliances Strategic alliance is a
cooperative and collaborative approach to achieve the larger goals.
Role of alliances Many complicated issues are solved through
alliances They provide the parties each others strengths Helps in
developing new products with the interaction of 2 or more
industries Meet the challenges of technological revolution.
Managing heavy outlay Become strong to compete with a multinational
company. 20
21. FDI with strategic alliances Modes of FDI through alliances
are: Merger : The combining of two or more companies, generally by
offering the stockholders of one company securities in the
acquiring company in exchange for the surrender of their stock.
Acquisition : When one company takes over another and clearly
established itself as the new owner, the purchase is called an
acquisition. Joint ventures is an entity formed between two or more
parties to undertake economic activity together. The parties agree
to create a new entity by both contributing equity, and then they
share in the revenues, expenses, and control of the
enterprise.21
22. Examples Merger Acquisition 22 ING Vysya merged into Kotak
Mahindra Ranbaxy into Sun Pharma Tata Chemicals took over British
salt based in UK Flipkart acquired Myntra Yahoo acquired Bookpad
Asian paints acquired front end sales of Ess Ess bathroom Products
ICICI Bank's acquisition of Bank of Rajas
23. Acquisition Advantages Disadvantages 23 Obtains control
over the acquired firm such as factories and brand names Integrate
the mgt of the firm into its overall international strategy Assumes
all the liabilities such as financial and managerial
24. Joint Ventures Advantages Disadvantages 24 Benefit from
local partners knowledge. Shared costs/risks with partner. Reduced
political risk. Risk giving control of technology to partner. May
not realize experience curve or location economies. Shared
ownership can lead to conflict