2. Introduction
One of the most important strategic decisions in
international business is the mode of entering the
foreign market.
On one extreme, a company may do the
complete manufacturing of the product
domestically and export it to the foreign market.
On the other extreme, a company may do by
itself, the complete manufacturing of the product
to be marketed in the foreign market there itself.
There are several alternatives in between these
two extremes.
The choice of the most suitable alternative is
based on the relevant factors related to the
company and the foreign market.
3. Important foreign market
strategies are a follows:
Exporting
Licensing/franchising
Contract Manufacturing
Management Contracting
Fully owned manufacturing facilities.
Joint ventures
Third country location
Mergers and acquisitions
4. Going it Alone: Exporting
HOME COUNTRY HOST COUNTRY
Export of Goods
MNE
(Multi National Enterprise)
Revenues
Customers
5. Going it Alone: Export
Advantages
Low initial investment
Reach customers quickly
Complete control over
production
Benefit of learning for
future expansion
Disadvantages
Potential costs of trade
barriers
Transportation cost
Tariffs and quotas
Foregoes potential
location economies
Difficult to respond to
customer needs well
When Is Export Appropriate?
Low trade barriers
Home location has cost advantage
Customization not crucial
6. In Indian Context
Several Indian Companies have entered foreign
markets targeting their exports at the ethnic
population.
Examples:
Mumbai based American Dry Fruits (ADF) sells its
range of packaged foods like chutneys, spices,
canned vegetables, ready to eat dals to countries
with large Indian Population.
Several firms in Kerela export processed spices,
rice powder etc.
Raymonds and Birla VXl have a number of
showrooms in West Asia to sell their range of textie
items.
8. Licensing Agreement
Advantages
Low initial investment
Avoids trade barriers
Potential for utilizing
location economies
Access to local
knowledge
Easier to respond to
customer needs
Disadvantages
Lack of control over
operations
Difficulty in transferring tacit
knowledge
Negotiation of a transfer price
Monitoring transfer outcome
Potential for creating a
competitor
When Is Licensing Appropriate?
Well codified knowledge
Strong property rights regime
Location advantage
9. In Indian Context
A number of foreign companies have entered the
Indian market, both industrial and consumer
goods, by licensing.
Examples:
The IFB washing machine, was manufactured in
India, under license from Bosch of Germany.
In early 2003, US apparel giant Tommy Hilfiger
Corporation entered into a licensing agreement
with the Arvind Group to market the Tommy Hilfiger
brand in India.
10. Franchising
Under franchising an independent
organization called the franchisee operates the
business under the name of another company
called the franchisor under this agreement the
franchisee pays a fee to the franchisor.
The franchisor provides the right to use trade
marks, operating System, product reputation
and continuous support system like
advertising, employee training etc.
There are two major franchising types:
1.Product and trade name franchising.
2. Business format “package” franchising
11.
12. Contract Manufacturing
ADVANTAGES
Company does not have to
commit resources for
setting up production
facilities.
Cost of product obtained
by contract manufacturing
is lower than if it were
manufactured by the
international firm.
It is a less risky way to
start with, if the business
does not sufficiently pick
up, dropping it is easy.
DISADVANTAGES
Less control over
manufacturing process.
Has the risk of
developing potential
competitors.
Not suitable in cases of
high tech products and
cases which involve
technical secrets.
Under contract manufacturing, a company doing international
marketing contracts with firms in foreign countries to manufacture
and assemble the products while retaining the responsibility of
marketing the products.
13. In Indian context
There are a number of multinationals and affiliates of
multinationals which employ this strategy in India like
Park Davis, Hindustan Lever, Ponds, etc.
Due to availability of excess capacity with some soap
manufacturers enabled several foreign companies to
experiment with new brand of toile soaps in India.
For example, Godrej soaps manufactured Dettol for
Reckitt and Coleman, Johnson’s Baby Soap for
Johnson and Johnson and Ponds Dreamflower, Cold
cream and Sandlewood for Ponds.
15. Management Contract
Advantages
Access to local
management skills
Avoids buying unwanted
assets
Retains strategic control
Disadvantages
Potential incentive
problem
Potential adverse
selection problem
How do you know the
competencies of the
manager?
When Is a Management Contract Appropriate?
Management has a reputation to protect
Hotels
Consulting companies
Performance-based contract provides no perverse
incentives
16. In Indian Context
Some Indian companies – Tata Tea, Harrisons
Malayalam and AVT- have contracts to manage a
number of plantations in Sri Lanka.
17. Fully owned manufacturing facilities or
“Green Field” Entry
New Subsidiary
Company
Investment
HOME COUNTRY HOST COUNTRY
MNE
Profit
18. Going it Alone: “Green Field” Entry
Advantages
Normally feasible
Avoids risk of
overpayment
Avoids problem of
integration
Still retains full control
Disadvantages
Slower startup
Requires knowledge of
foreign management
High risk and high
commitment
When Is “Green Field” Entry Appropriate?
Lack of proper acquisition target
In-house local expertise
Embedded competitive advantage
19. In Indian context
Mercedes Benz has a production facility in Pune,
India and BMW has in Chennai, India.
21. Joint Venture
Advantages
Access to partner’s local
knowledge
Reduction of concern about
overpayment
Both parties have some
performance incentives
Significant control over
operation
Disadvantages
Potential loss of
proprietary knowledge
Potential conflicts
between partners
Neither partner has full
performance incentive
Neither partner has full
control
When Is a Joint Venture Appropriate?
Both partners contribute hard-to-measure inputs
Large expected mutual gains in the long-run
Trade secrets can be walled off
22. In indian Context
Toyota Motor Corporation entered India in 1997 in
a joint venture with the Kirloskar Group.
Joint venture between Bharti Airtel and Alcatel
Lucent for managing Airtel’s Broadband and
Landline networks.
23. Third Country Location
Third country location is used as an entry strategy
when there is no commercial transactions between
two nations because of political reasons.
In such a situation a firm in one of those countries
which wants to enter the other market will have to
operate from the third country.
In Indian Context
Rank Xerox found it convenient to enter USSR
through its Indian Joint venture Modi Xerox,
because of India’s friendly relations with USSR.
24. Mergers and Acquisitions
A domestic company selects a foreign company
and merger itself with foreign company in order
to enter international business.
Alternatively the domestic company may
purchase the foreign company and acquires it
ownership and control. It provides immediate
access to international manufacturing facilities
and marketing network.
25.
26. In Indian Context
Foreign MNC’s have been using M&A’ as a
marketing strategy.
The soft drinks industry witnessed the use of M&A
to increase market Share and shrink Competition.
The French Cement Major Lafarge has moved on
to strengthen its position by acquiring Raymond’s
cement unit for Rs. 785 Crore.
A very important foreign acquisition by India has
been the buy out of Tetley by Tata Tea for RS. 1870
Crore.
Tata Motors acquired Jaguar land Rover in 2008.
