International Marketing Chapter 8

What are the two types of export entry mode?

1. Direct Investment 2. Indirect Investment

(T/F) Companies need to examine the fit between the costs of international involvement (and the opportunity costs that they would incur if they ignore the international market), company resources, and market potential.

True

(T/F) Outsourcing involves the strategic use of outside resources to perform activities that are usually handled by internal staff and resources.

True

Outsourcing has established itself as an effective:

cost-cutting technique for companies around the world because it involves transferring service-sector jobs to overseas location where labor is competent and cheap.

What is an example of a company that uses Joint Venture entry mode?

Nestle

What is an example of an alliance?

Outsourcing

Describe the disadvantages of Joint Ventures:

- A lot on the line - Requires more investment - Potential for conflicts between partners

What is an example of the risk of Franchising?

- Bensons and Dairy Queen in Athens

The assumptions behind a Wholly-Owned Subsidiary are that:

- Company can afford the costs to set up - Company is willing to commit to the market long term - Local government allows foreign companies to set up on its territory. (In many countries, majority or 100% ownership by foreign companies is forbidden)

Describe the advantages of a Wholly-Owned Subsidiary:

- Complete decision power and control - Investors achieve greater flexibility

Describe the advantages of Indirect Exporting:

- Does not require long-term commitment - Little investment needed - Do no have to learn about the international market - Risk is minimal

Describe the disadvantages of Franchising:

- Franchisee can become competitor by taking the ideas.... can offer same product and quality without using Brand or name.

Nearly ______________________ outsourcing deals end in failure, with ______ % of the problems due to errors in _____________.

- Half of all - 60% - Communication

Describe the disadvantages of a Wholly-Owned Subsidiary:

- Has the greatest level of risk!

Describe the disadvantages of Indirect Exporting:

- Lack of control over marketing it's product - Little involvement

Describe the advantages of Franchising:

- Less risk - Higher level of control

Describe the disadvantages of Direct Exporting:

- More control = higher costs

Describe the advantages of Direct Exporting:

- Provides more control over the marketing mix than indirect exporting - Takes next step in becoming more involved internationally

Describe the advantages of Joint Ventures:

- Share cost - Higher control - Higher performance leading to higher profits

What does choosing the right market entry strategy depend on?

- Vision - Attitude toward risk - How much investment capital is available - How much control is desired

What are the 2 ways a Subsidiary can be established?

1. Company can develop its own subsidiary (Referred to as Green-fielding) very costly 2. Company can purchase an existing company through acquisition

What are the questions to ask before Franchising?

1. Will local consumers buy your product? 2. How tough is local competition? 3. Does government respect trademark and franchiser rights? 4. Can profits be easily repatriated? 5. Can you buy all supplies you need locally? 6. Is commercial space available and affordable? 7. Are local partners financially stable and do they understand the basics of franchising?

Entry Mode Classifications:

A company's control over operations and overall risk increases from the export mode to the wholly owned subsidiary entry mode.

Strategic International Alliances:

A international business relationship established by two or more companies to cooperate out of mutual need and to share risk in achieving a common objective.

Indirect Exporting:

Company uses home country intermediaries who, in turn, sell product overseas.

Alliances allow a company to:

Compete more effectively

Franchising:

Contractual agreement where the franchisor gives the franchisee the right to use its brand name and all related trademarks and its business know-how.... all in return for royalties.

Companies may choose direct exporting because it allows them to A. Monitor retailers B. Control suggested sale prices C. Observe the handling of customer complaints D. All of the above

D. All of the above

Which of the following is a reason for the failure of joint ventures? A. Natural disasters B. Poor performance by a partner C. Partners becoming competitors D. All of the above

D. All of the above - The primary reason is usually attributed to one partner though

Joint Ventures are the preferred international entry mode for:

Emerging markets

What is the mode that companies tend to use in their first attempt to expand internationally?

Export mode

(T/F) One of the benefits of Franchising is that it keeps out new competitors.

False: - Has potential of creating competitors from local employees who can learn the business and transfer the know-how to a local competitor.

(T/F) Licensing is an international entry mode that presents less risk to the company but offers more control than exporting.

False: - Higher risk than exporting, but it does offer more control.

Direct Exporting:

Firm handles its exporting function usually using its own in-house export department.

Joint Ventures:

Involves a foreign company joining with a local company, sharing capital, equity, and labor to set up a newly - created business entity.

Wholly-Owned Subsidiaries:

Represents the most extensive engagement abroad

All joint ventures and licensing and franchising agreements are occasionally loosely referred to as:

Strategic Alliances

Outsourcing:

Strategic use of outside resources to perform activities that are usually handled by internal staff and resources. (Also known as offshoring)

Franchising is a principal entry mode for what industry?

The service industry - Gyms, hotels, cleaning services

What is an example of Indirect Exporting?

Volkswagen operates through independent importers and distributors in Belgium, Netherlands, Switzerland, and Austria While in France, Germany, Italy, and Spain controls its wholesale operations directly.

Strategic Alliances:

a formal arrangement between two or more companies who have agreed to share resources in a specific project to create a competitive advantage.

Global Strategic Partnerships:

is a multinational approach in which two partnered firms make a long-term commitment to come up with major products expected to dominate international markets. It only utilizes one product marketing strategy for all markets.

Collaborative Agreements:

way to establish the ground rules for your project; it can help protect business arrangements, friendships, and future projects.