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
