Participation Strategies: The Content Options

Participation Strategies: The Content Options • Participation strategies: the choice of how to enter each international market - Exporting - Licensing - Strategic alliances - Foreign direct investment Exporting • Easiest way to sell a product in international market • Passive exporter: company that treats and fills overseas orders like domestic orders • Alternatively, a company can put extensive resources into exporting with dedicated export department Export Strategies • Indirect exporting: uses intermediaries or gobetween firms • The most common intermediaries – Export Management Company (EMC) and Export Trading Company (ETC) • Specialize in products, countries, or regions • Provide ready-made access to markets • Have networks of foreign distributors Export Strategies • Direct exporting: direct contact with customers in the foreign market – More aggressive exporting strategy – Requires more contact with foreign companies – Uses foreign sales representatives, distributors, or retailers – May require branch offices in foreign countries Export Strategies (cont.) • Channels in direct exporting - Sales representatives use the company’s promotional literature and samples - Foreign distributors resell the products - Sell directly to foreign retailers or end users Burberry and Sanyo Shokai • http://asia.nikkei.com/Markets/TokyoMarket/Sanyo-Shokai-to-lose-Burberry-license • http://www.ft.com/intl/cms/s/0/3ee0de60e0ae-11e3-875f00144feabdc0.html#axzz3U2cql8HF Licensing • Licensing: contractual agreement between a domestic licensor and a foreign licensee • Licenser has valuable patent, know-how, or trademark • Foreign licensee pays royalties for use Special Licensing Agreements • International franchising: the franchisor grants the use of a whole business operation • Contract manufacturing: production following the foreign companies’ specifications http://www.telecompaper.com/news/sharp-to-license-led-tv-output-to-slovak-universal-media--1056538 International Strategic Alliances • Cooperative agreements between firms from different countries to participate in business activities • May include any value-chain activity Types of International Strategic Alliances • Equity International Joint Ventures (IJV): two or more firms from different countries have an ownership in a separate company • International Cooperative Alliance (ICA): two or more firms from different countries agree to cooperate in any value-chain activity Foreign Direct Investment (FDI) • Companies own and control directly a foreign operation - Symbolizes the highest stage of internationalization • Greenfield investments: starting foreign operations from scratch What should we choose? Export Strategy • Exporting is the easiest and cheapest participation strategy, although it may not always be the most profitable • It is a way to begin to internationalize or test new markets • Which form of exporting should it choose? Deciding on Export Strategy • Does management need to control sales, customer credit, and sale of the product? – - If yes, choose direct exporting • Does company have resources to manage export operations? – - If not, use indirect exporting Deciding on Export Strategy • Does company have resources to design/execute international promotional activities? – - If not, use foreign intermediaries and indirect exporting • Does company have resources to support extensive international travel or possibly an expatriate sales force? • - If so, choose direct exporting. Deciding on Export Strategy • Does company have time and expertise to develop overseas contacts and networks? - If not, rely on foreign intermediaries or indirect exporting. • Will time and resources affect domestic operations? - If not, choose direct exporting. Licensing Decision • Based on three factors - Characteristics of the products • Best products are older or soon-to-be replaced - Characteristics of the target country • Situation in target country - Nature of the licensing company • Company may lack resources to go international Licensing: Disadvantages • • • • Gives up control May create new competitors Often generates only low revenues Opportunity costs (barriers to other participation strategies) Motivations for Strategic Alliances • • • • • • Partner’s knowledge of the market Government requirements To share risks To share technology Economies of scale Low cost raw materials or labor Key Considerations for Alliances • Could other participation strategies better satisfy strategic objectives? • Does firm have management and capital resources to contribute? • Can partner benefit the company’s objectives? • What is expected reward? Foreign Direct Investment (FDI) • Most experienced international firms choose FDI • Advantages - Greater control - Lower costs of supplying host country - Avoid import quotas - Greater opportunity to adapt product to local markets - Better local image of the product Disadvantages of FDI • Increased capital investment • Increased investment of managerial and other resources • Greater exposure of the investment to political and financial risks