Chapter 13 Global Business
Explain how companies use exporting , importing , and counter trade.
-Exporting helps a company to expand sales, diversify sales, or gain experience and represents a low-cost ,losw-risk way of getting started in international business. -A successful export strategy involves 1) identifying a potential market 2)matching needs to abilities 3)initiating meetings. 4)committing resources. -Direct exporting occurs when a company sells its products directly to buyers in a target market through local sales representatives or distributors -Indirect exporting occurs when a company sells its products to intermediaries (agents,export management companies, and export trading companies) who then resell to buyers in a target market. -Countertrade is selling goods or services that are paid for with other goods or services ; it can take the form 1) barter 2) counterpurchase 3)offset, 4)switch trading , and 5) buyback
Explain the various types of investment entry modes
-Investment entry modes entail the direct investment in plant and equipment in a country coupled with ongoing involvement in the local operation -A wholly owned subsidiary is a facility entirely owned and controlled by a single parent company -A separate company created and jointly owned by two or more independent entities to achieve a common business objective is called a joint venture (downstream integration by one partner and upstream integration by another ) -A strategic alliance is a relationship in which two or more entities cooperate (but do no form a separate company)
Describe the different contractual entry modes that are available to companies
-Licensing is a contractual entry mode in which a company that owns intangible property (the licensor) grants another firm (the licensee) the right to use that property for a specified period of time. -Franchising is a contractual entry mode in which one company supplies another with intangible property and other assistance over an extended period -A management contract is where one company supplies another with managerial expertise for a specific period of time, it is used to transfer two types of knowledge- the specialized knowledge of technical managers and the business-management skills of general managers -A turnkey (build-operate-transfer) project is where one company designs, constructs, and tests a production facility for a client.
Discuss the important strategic factors in selecting an entry mode.
-Managers are typically less confident in their ability to manage operations in unfamiliar cultures and may avoid investments entry modes in favor of exporting or a contractual mode. -Large political differences and high levels of instability cause companies to avoid large investments and favor entry modes that shelter assets. -Rising incomes encourage investment entry because investment allows a firm to prepare for expanding market demand and to increase its understanding of the target market. -Producing locally is desirable when the total cost of production in a market is lower than in the home market and when shipping costs are high. -Companies tend to make their initial foray into international markets using exporting and to select entry modes that require deeper involvement as they gain international experience.
Explain the various means of financing export and import activities.
-With advance payment an importer pays an exporter for merchandise before it is shipped -Documentary collection calls for a bank to act as an intermediary without accepting financial risk - Under a letter of credit, the importer's bank issues a document stating that the bank will pay the exporter when the exporter fulfills the terms of the document. -Several types of letters of credit are irrevocable letter of credit, revocable letter of credit, and confirmed letter of credit. -Under open account, an exporter ships merchandise and later bills the importer for its value.
