5. DISTRIBUTION /ENTRY METHODS

Common Modes of Direct Market Entry's

1. Direct Exporting 2. Licensing 3. Overseas sales and marketing offices 4. overseas joint ventures and alliances 5. overseas manufacturing

Pressure to STANDARDIZE your product or service

1. Economic of scale in R&D and production 2. Product usage dictates standardization 3. company size forces standardization 4. country of origin effect 5. converging tastes

Example of an ETC

AJC Foods: world leader in marketing frozen an refrigerated food products, as well as in logistics and logistics services. Bc of their broad global coverage and deep market knowledge, they can provide a consistent supply of varied products at excellent value

What is franchising most popular with?

fast-food restaurants or small business services

A move to nonexclusive representation may be a triggering event that forces the manufacturer to

make a foreign direct investment in a local sales office

Which market entry requires greater investment

Direct

An indirect market entry essentially involves

turning over the foreign market entry to a third party

A joint venture is created when

two or three exporters want to share the costs of investing in a facility abroad.

One company can pursue direct and indirect export at the same time (T/F)

True

Time-To-Market may be higher with Direct Market Entry (T/F)?

True

Piggy-back exporters

manufacture their own products and sell them internationally

What is subsidiary strategy normally followed by

a well-established large company, as the costs associated with creating a subsidiary are very high

Active Exporting for the exporter

actively participates in finding potential markets abroad

Indirect Exporting for the Manufacturer

allows them to concentrate on domestic market and leave exporting to the experts

With direct exporting, a company sells its products to

an overseas buyer

Suitable partners for piggy-back exporting are

manufacturers whose products are enhanced by your products or companies within your industry that do not manufacture competing products but sell to the same customer base

Risks for Licensing

may create a new competitor and ultimately the profits may be lower than if the company did its own manufacturing

FSCs are not actually methods of entry but a

methods for US companies to lower their income tax

Overseas manufacturing is selected as a form of foreign market entry to lower the costs of producing a product that is then imported back into the home market of the manufacturer called

off-shoring - taking the whole of a manufacturing facility overseas and closing the domestic facility

Any ongoing relationships between manufacturers and foreign customers tend to be

out in the open and the manufacturer simply pays the agent a commission

One of the best known forms of foreign direct investment is

overseas manufacturing

A Marketing Subsidiary is wholly owned by the

parent company

The license can allow the use of a

patented technology, trademark, brand name or trade secret

The control and operations system at the foreign location can be duplicated but must

be adapted to take into account the unique challenges and issues facing the foreign office.

Why are parallel imports an issue?

because it is difficult for companies to fight them, as they are due to market characteristics rather than strategic choices

ETCs are more likely to represent

competing products and export products (may even own or control the transportation methods)

Most EMCs will not represent

competing products because the contacts are exclusive

Often the joint owners are companies manufacturing

complementary product lines

Most companies begin their international expansion using

direct exporting

In the initial stage of direct/active exporting, the manufacturer makes no

direct investment in the foreign market

Indirect Exporting for the Exporter

does not seek export sales

One of the single most powerful techniques for improving your international sales success is to

establish a foreign sales and marketing office

Example of an EMC

Northern Gulf Trading Group

Counterfeit good can also be

intellectual property like films and software

Advantages of Active/Direct Market Entry

1. Direct Control 2. Excellent Feedback 3. Greater Sales?

5 Forms of Entry Into Foreign Markets

1. Direct Exporting 2. Indirect Exporting 3.

Why do companies go beyond exporting

1. Barriers to Exporting Success 2. Transportation Costs 3. Need for Increased Control and Feedback 4. Moving from exclusive distribution to nonexclusive distribution 5. Increasing customer support requirements 6. Strong buyer-seller relationship 7. Increased competition export stagnation 8. Access to foreign resources

DIRECT EXPORTING: Factors to Consider when choosing Foreign Agents/Distributors:

1. Company Overview 2. Market Access 3. Marketing Ability 4. Distribution/Logistics/Order Fulfillment 5. Competitive Situation 6. Budgets/Forecasts 7. Infrastructure 8. Technical Ability 9. Motivation/Contract

DIRECT EXPORTING: Helpful Indicators for Selection

1. Company size 2. Product line currently represented 3. Number of lines and currently represented 4. Industry focus and technical knowledge 5. number of employees 6. Years of experience 7. Sales volume 8. Sales structure 9. Key accounts 10. Professionalism and attitude 11. Customer support 12. Office locations 13. Product launch experience 14. References

INDIRECT EXPORTING: Piggyback partners may include

1. Current customers 2. Current suppliers 3. Noncompeting companies in your industry 4. Competing companies that don't produce the product you want to export

DIRECT EXPORTING: Top 10 Methods for Finding Overseas Agents or Distributors without Travel

1. Existing distributors and agent lists 2. Networking with industry contacts and trade associations 3. US Department of Commerce 4. Local and state contacts 5. Catalog shows 6. Ask the potential customer base for recommendations 7. Advertising 8. Private databases 9. The internet

Type of Indirect Exporting

1. Export management company 2. Export trading company 3. Piggyback exporting 4. Domestic distributors and gray markets

Two sets of invoices for Distributors:

1. Exporter/Distributor 2. Customer/Distributor

DIRECT EXPORTING: Selecting Agents or Distributors WITHOUT Travel

1. Fax or e-mail questionnaire 2. Phone calls 3. Financial background checks 4. Check references 5. Ask for a written marketing plan 6. Wait until a domestic trade show

Disadvantages with Direct Exporting

1. Greater investment required than indirect exporting 2. Higher Risk 3. Time-To-Market may be higher

DIRECT EXPORTING: Selecting Agents or Distributors WITH Travel

1. Local trade shows 2. Trade missions 3. Holiday and vacation conflicts 4. Combine multiple markets 5. Seasonal buying 6. Arranging meetings 7. Do not overlook your schedule 8. The Gold Key Service from the Commercial Service 9. Don't just visit buyers 10. Selecting the right representative is like hiring a new employee 11. Issues to discuss during meetings 12. Determine the motivation of the foreign agent or distributor 13. Sometimes it will be very difficult to decide 14. Avoid the "first is best" temptation

INDIRECT EXPORTING: 5 Methods for finding an EMC

1. Networking 2. International trade centers/local contacts 3. Internet 4. Industry associations 5. Trade journals

INDIRECT EXPORTING: 5 Methods for Finding a Piggyback Partner

1. Networking 2. Trade shows 3. Industry press 4. Trade associations 5. Sales staff

Advantages of Indirect Exporting

1. No international experience required 2. Management is not distracted 3. Faster to the international market 4. Little to no increased financial commitment 5. Low risk

Disadvantages of Indirect Exporting

1. Poor control 2. Wrong market, wrong distributor 3. Inadequate market feedback 4. Potentially lower sales 5. Higher risk

Licensing may be a very cost effective way to create __________ with little to no work on behalf of the holder of the technology.

1. Revenue

Factors for Entering a New Market:

1. Size and growth of the market 2. Potential market share of the exporter 3. Type of product and marketing strategy of the exporter 4. Willingness of the exporter to get involved 5. Characteristics of the importing country 6. Time horizon considered

What two approaches are there for coordinated Direct Export Strategies

1. Standardized Approach 2. Tailored Approach

The US Government allows companies to take a tax deduction when they create domestic subsidiaries that meet certain conditions:

1. The subsidiaries must have at least 95% of their assets and personnel devoted to export sales 2. The exported goods must have at least a 50% US content

Pressures to ADAPT Your Product or Service

1. Variations in consumer behavior, needs, and ability to buy 2. Government standards and restrictions

Advantages of sending a US person to foreign facility

1. better control and feedback, company's knowledge 2. expertise will be more easily transferred to the foreign market

A distributor may carry products from ______ in the same field. Oftentimes, it will also service _______ and carry ___________ __________.

1. competitors 2. service 3. replacement parts

Disadvantages of sending a US person to foreign facility

1. costly 2. resource draining 3. legal implications lower

Two Critical Decisions of Direct Exporting

1. direct involvement in the selection of which foreign markets to enter 2. actively choosing the foreign companies to represent the US company

For the exporter selling to the ETC, as well as for the the "importer" buying from the ETC, the transactions are _________ transactions, even though the good eventually travel __________.

1. domestic 2. internationally

An EMC acts as a __________ helping the exporter find __________, and earns __________ on the sales.

1. facilitator 2. buyers 3. commission

EMCs VS Piggy-backing partners

1. future use of the distribution channel 2. brand awareness 3. customer service, training, and warranty issues 4. industry and technical knowledge requirements

By employing a non-FDI strategy, you avoid

1. having to establish and manage foreign facilities 2. hire international staff 3. deal with the foreign exchange risks 4. deal with the increased political and economic risk exposure

The licensor retains ownership of the _______ _______ and the licensee must _________ the licensor a ___________ every time it is used.

1. intellectual property 2. pay 3. fee

The parent company sells products to the subsidiary in an ________ ___________. The subsidiary in turn will ________ these products to customers in the _______ ______.

1. international transaction 2. sell 3. foreign country

Disadvantages of wholly owned foreign enterprise

1. lack of local partner for expertise and connections 2. greater risk with full responsibilities of the investment and management

Franchising is similar to ______ but involves a "bundle" or ______ _______ items.

1. licensing 2. intellectual property

Considerations when starting a foreign sales and marketing office include:

1. location 2. facility size 3. staffing 4. market perception 5. tax and accounting 6. reporting and control

The perception of the _______ regarding why the _________ is being __________ is critical.

1. market 2. facility 3. opened

An agent will represent ___________companies manufacturing products that _____________ the exporter's products.

1. multiple 2. complement

The principal is the _________ being represented by the __________.

1. party or company 2. agent

If a foreign salesperson is hired, this person will have to learn about the company's

1. products 2. domestic procedures 3. management 4. corporate culture

The decision to choose direct or indirect exporting can be narrowed down to deciding which of the risks are ________ to the company and how each risk could impact the international and domestic ___________ of the company.

1. relevant 2. goals

An EMC acts as a _________ for the exporter abroad, but never takes __________ to the goods.

1. representative 2. title

Piggy-backing refers to the possibility of a ________firm piggy-back on another firm's efforts to _________ a foreign market.

1. small 2. enter

When wanting to export you need to know at least

1. what would want to export 2. where you want to export it 3. industry experience 4. product experience 5. country experience

Licensing

A company (the licensor) allows another firm ( the licensee) to use its intellectual property in exchange for a fee (royalty)

Contract Manufacturing

A company enters into an agreement with a foreign company to manufacture its goods abroad. It is a way for a firm to get its products in a foreign country, either when there are barriers to entry (like a quota), or when transportation costs are high

Transfer Pricing

A company should export to its subsidiary at the same price it would if it was selling to a foreign buyer not owned by the company. It must be able to justify the price and show that the price is essentially a price that an unrelated party would pay

Where is an EMC located?

An Export Management Corporation is normally located in the exporting country

What is an ETC?

An Export Trading Company is a firm with offices in multiple countries that purchases goods in one country and resells them in another

Why is it not wise for if a company's medium-to long term strategy in a market is to go direct, to not go indirect in the short term.

Bc often a change from indirect to direct can be very difficult, especially if the indirect partner did not represent the product effectively.

Why do difficulties arise when a firm decides to change strategies in a particular market?

Because the long-term relationships are very important and ending any one of them can be difficult and costly

Pick and Pack

Companies break apart the large ocean shipment into smaller shipments, the company then ships for the manufacturer

Outside expertise should be consulted, especially if someone familiar with the specific needs of your industry can be used WHEN

Creating a control and operations systems at a foreign location

When US manufacturer products are sold to domestic distributors, dealers, or even customers that redirect the products to foreign customers.

Domestic Distributors

The more involved the agent gets the closer it is to becoming an

EMC

A firm utilizes another company's distribution channels abroad to sell its products. It uses another company's experience to sell its products abroad.

Example of Piggy-Backing

A firm's customer may open a manufacturing facility abroad and request that the firm continue to sell its products to that new facility. The firm ends up being an exporter, even though it never sought to enter that market.

Example of Piggy-Backing

What does EMC stand for?

Export Management Corporation

The choice of Entry Mode is determined by the size of the company. (T/F)

FALSE: Each mode can be used by small or large companies

Owning warehouses overseas would be an example of

FDI

FDI

Foreign Direct Investment is an investment made by a company in a facility or asset in a foreign country to market and/or produce a product.

What does FSC stand for?

Foreign Sales Corporations

Parallel Imports or

Gray Market

Distributor/?

Importer

Manufacturing abroad leads to:

Indirect Exporting or Active Exporting

Risk comparison between indirect/direct exporting

Indirect Risk: quality of the match between the manufacturer and the indirect export partner Direct Risk: financial and time resources

Agent Definition

Is typically a small firm acting as a representative of the exporter. He or she will not take title of the goods and will earn a commission from the exporter

The company must decide whether market factors favor:

Manufacturing at home or manufacturing abroad

Is it all or nothing?

NO. A company should not choose only one or the other. Rather the decision should be made on a market-by-market basis

Entrepreneurs will often buy the good in the country with the lowest price, and then sell them in the country with the highest price. In order to do that, they buy from the normal distribution channel, but sell through alternative channels of distribution that are not the ones that the exporter would normally use.

Parallel Imports

DIRECT EXPORTING: Rule of thumb for the question "To Travel or Not to Travel?...That's the Question"

Some travel is better than no travel

Two sets of invoices for Distributors: Between the distributors and its customers:

The customer sees this as a domestic transaction

Two sets of invoices for Distributors: Between the exporter and the distributor:

The distributor is therefore the importer

Distributor Definition

Will purchase the goods from the exporter and therefore take title of them. It will then resell the goods for a profit

What is a counterfeit good?

a copy of legitimate good. The product is being produce to imitate a genuine good and deceive consumers. It is almost always of much lower quality and costs less than genuine good.

The buyer in direct/active exporting is typically a

a distributor or agent depending on the product

Franchising

a firm (franchisor) will allow and entire business model to be used by another firm (franchisee) in exchange for royalties

Strategic Alliance

a joint venture that does not involve ownership and are simply cooperative arrangements

A Marketing Subsidiary is a

foreign office of a parent organization

Advantages of a wholly owned foreign enterprise

full control of operations and no shared profits

If the export is not authorized by the manufacturer, especially if the export is into a foreign market where the manufacturer already has representation (either directly or indirectly), it is considered

gray marketing

The costs (and risks) associated with creating a marketing subsidiary are great but a subsidiary allows for

greater control by the exporter

Direct Market Entry has _______ risk

higher

At its most basic, the decision of which type of entry mode focuses on the question of

how close does the company need to be to its foreign customers VS the increased risks?

One of the most difficult decisions for FDI is

how to staff the facility

Why would an export partner not relay information to their manufacturer?

if the manufacturer is kept from knowing many details it will continue to need its indirect partner

Benefits of FDI

increase in control, feedback, and access to local resources which all leads to profit

The importance of FDI lies in the significant competitive advantages that come from

increasing your foreign market involvement

Domestic Distributors are an example of

indirect exporting

Joint Venture

is a firm created and jointly owned by two or three companies

Subsidiary

is an independent company established in a foreign country but owned entirely by the exporting company

Tailored Approach for Direct Exporting

is where an agent is used in some countries, a distributor in others, and a marketing subsidiary in the remainder

Standardized Approach for Direct Exporting

is where it uses a single method of entry in all markets: agents, distributors, or sales subsidiaries

Gray marketing is not desired because

it disrupts the authorized export channels

Active Exporting is the best option for who

large firms or firms with international experience

Advantage of Joint Ventures

local partnership brings market knowledge, connections, government relations, and local manufacturing know-how

Disadvantage of Joint Ventures

loss of control and shared profits

Obvious benefits of non-FDI strategy

low investment (money, time, and resources) and low risk

Benefit of Contract Manufacturing is

lower costs and risks since no employees or fixed assets are held by the company seeking the overseas manufacturing

The franchising intellectual property includes a large number of

related trademarks, copyrights, patents, and know-how training and methods of operation

Franchising works best for

retail establishments requiring a uniform appearance for consumers

A subsidiary allows the foreign firm to

retain complete control of its foreign investment

EMCs are typically involved in the whole international trade process including:

sales, marketing, invoicing, shipping, foreign receivables risk, and in some cases customer training, support, and warranty issues

As the manufacturer gains international experience with direct/active exporting it will

seek greater control and feedback. (Accomplished by a marketing subsidiary)

A subsidiary is a

separate entity incorporated in the foreign country

Distinction between EMCs and ETCs lies in the

size of the company

Agents are typically for

smaller companies, if not one person operations

3PLs

some part of the supply chain task is outsourced on a contractual basis

Joint ventures work well while the relationship is

strong. Unfortunately, the two entities will often grow in different directions over time and the joint venture will suffer

Counterfeit goods can be

tangible goods like watches, clothing, or car parts

The essential difference between indirect and direct market entry is

that a third party is coordinating the entry on your behalf and assumes the risk

The decision of what to use in Direct Exporting depends on

the characteristics of the market and resources

Benefit of exclusive distributor relationship

the distributor or agent is motivated to invest in local marketing activities

A distributor is typically located in

the importing country

An agent is typically located in

the importing country

The uniformity of the standardized approach in Direct Exporting simplifies

the management of international sales

A move from exclusive to non exclusive distribution can trigger

the necessity for a foreign sales and marketing office

If you have an exclusive distributor you can still have a foreign sales and marketing office but in this case

the purpose would be to support the distributor

The size of an FDI office will depend on

the responsibilities of the office

The most difficult tax and accounting issue to address is

the specific legal structure that is chosen for the overseas entity because it will impact the tax consequences of its activities

The main differences between EMCs, ETCs, and export commission agents and brokers are

their level of involvement in completing the sale, such as invoicing, shipping, and between differing industries

The World Trade organization has ruled against FSCs, but as soon a particular version is found illegal,

they are resurrected under a different form

An option before FDI overseas distribution would be the use of

third party logistics

The key to piggy-backing is

to find a company who is already successful internationally that fits well with your product and is willing to sell products from outside its own company

When there is both an exclusive distributor and a foreign sales and marketing office it allows greater participation in

trade shows, training events, and public relations activities

The most basic difference between an agent and EMCs and ETCs is that agents

typically don't fulfill the order; they simply pass it on to the manufacturer

Overseas manufacturing

when some or most of the manufacturing of a product is done overseas to serve overseas customers

All intellectual property is at risk of being copied or "stolen" in countries where ______.

where intellectual property is not well protected

Basic decision for staffing is

whether to send an individual from the US office headquarters to work in the facility or not

WOFE

wholly owned foreign enterprise. Another word for subsidiary

When a company wants full control of its manufacturing process in a foreign country, it would select

wholly owned foreign production

Contractual basis

you pay what you get with little to no fixed costs

EMCs can be considered replacements for

your own in-house international department

When choosing a FDI location, utilize

your resources