BUSI 303 Ch 7

Modes of business entry, listed from low to high intensity

- Exporting/importing - Licensing/franchising - Management contracts - Turnkey projects - Joint ventures - Wholly owned subsidiaries

Joint Ventures and Strategic Alliances

- Partnership between different commercial entities - Used when different parties have different expertise/assets to offer

Competition in global markets

- competition on quality and price - competition by counterattack - realization of additional profits - economies of scale

Entry considerations

- conduct foreign market research - select distribution methods - set prices, negotiate deals, navigate legal morass - secure sources of financing - package and label to comply with legal requirements of target nation

Conditions necessary for expansion

- expanding markets - gaining access to resources - cutting costs - capitalizing on special features of location

Location considerations

- market existence - national attributes - geography and socioeconomic attributes - openness to global trade

Market expansion risk

- national customer preferences - national business culture - national regulations - national political risks - lack of global experience

Management contracts

A company in one country can utilize the expertise, technology, or specialized services of a company from another country to run its business for a set time and fee or percentage of sales

The __________ is one of the global market knowledge competencies required to succeed in the global marketplace.

Competitor knowledge process

__________ empowered United States banks to make equity investments in commercial ventures that qualify as export trading companies.

Export Trading Company Act

A licensor must invest into the foreign market because the licensee (more than likely) is not established in the market. (T/F)

False

A turnkey project allows a novice corporation immediate presence within a foreign country and ease the initiation process into the marketplace. (T/F)

False

Firms are better off selecting non-equity, low-investment entry modes in countries that have low environmental uncertainty. (T/F)

False

In attractive markets, short-term profitability for a firm is expected to be provided through these investment modes. (T/F) ???

False

Small businesses cannot compete in the global economy. (T/F)

False

The wholly owned subsidiary is partially liable for specific aspects of the operation in the host country. (T/F)

False: whollyliable

Indirect entry modes

Licensing and Franchising: the company exports technology/intellectual property instead of goods

Additional decision variables to consider for competition in global markets include the following except for

Location of competitors

Environmental turbulence has two dimensions: technological turbulence and __________.

Market dynamism

__________ constraints are placed on firms through fair-trade decisions, antitrust laws, tax programs, minimum wage, legislation, pollution and pricing policies, administrative jawboning, and many other actions aimed at protecting employees, consumers, the general public, and the environment.

Political

Market entry motivation

Proactive and Reactive

A turnkey project relieves the purchaser in a developing country of the responsibility of managing and coordinating the various technical and managerial aspects in a situation where there are often inadequate technical and managerial capabilities. (T/F)

True

Intermediaries can facilitate the transfer of goods and services from a company to the consumer in a new market. (T/F)

True

One of the most important advantages in using an export management company is that it can handle all aspects of exporting a company's product into the new market(s). (T/F)

True

License

agreement that allows one party to use a property right in exchange for payment to the other party,

Franchising

alternative to licensing that doesn't necessitate an initial investment into a foreign market; company sells its name, operating procedures, etc, to another party

Facilitator

an individual who helps manage a process of information exchange

Reactive motivation

based on the firm's behavior with respect to the environment and adaptation to external changes: the firm goes international because they must - competitive pressure - excess capacity - overproduction - saturated or declining home market

Proactive motivation

based on the firm's internal situation and firm initiated: the firm goes international because they want to - quest for profit - competitive advantage - market opportunities - economies of scale - tax benefits

Wholly owned subsidiaries

foreign subsidiary that is totally owned and controlled by an organization

Export management companies (EMC)

independent businesses that liason between the parent company and the customer

Public sector facilitators

located at state and federal levels -- export assistance agencies

Two types of entry modes are available into a market: __________ intensity or __________ intensity.

low or high

Low intensity

no investment in the new market

Intermediaries

organizations that act as a facilitator for a potential supplier and customer, bolstered by the Export Trading Company Act (OECTA)

Private sector facilitators

primary private sector facilitator is commercial banks

High intensity

significant amounts of investment, and not just financially

Turnkey projects

the contractor handles every detail of the project for a foreign client, including the training of operating personnel

Export trading companies

transacts commercial and financial activities to facilitate exports by unaffiliated persons