chapter 12

International Business, 6th Edition

Strategies for Analyzing and Entering

Foreign Markets

Griffin & Pustay

12-1
Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall
 Chapter Objectives

• Discuss how firms analyze foreign

markets
• Outline the process by which firms
choose their mode of entry into a foreign
market
• Describe forms of exporting and the
types of intermediaries available to assist
firms in exporting their goods

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 Chapter Objectives (continued)

• Identify the basic issues in international

licensing and discuss the advantages
and disadvantages of licensing
• Identify the basic issues in international
franchising and discuss the advantages
and disadvantages of franchising

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 Chapter Objectives (concluded)

• Analyze contract manufacturing,

management contracts, and turnkey
projects as specialized entry modes for
international business
• Characterize the greenfield and
acquisition forms of FDI

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 Foreign Market Analysis

• Assess alternative markets

• Evaluate the respective costs,
benefits, and risks of entering each
• Select those that hold the most
potential for entry or expansion

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 Table 12.1 Critical Factors in Assessing
New Market Opportunities

• Product-market • Potential target

dimensions markets
• Major product-market • Relevant trends
differences
• Explanation of
• Structural change
characteristics of
• Success factors
national market
• Strategic options
• Competitor analysis

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 Map 12.1 A Tale of Two Chinas

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 Figure 12.1 Choosing a Mode of
Entry

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 Exporting

Advantages Disadvantages
• Relatively low • Vulnerability to tariffs
financial exposure and NTBs
• Permit gradual • Logistical
market entry complexities
• Acquire knowledge • Potential conflicts
about local market with distributors
• Avoid restrictions on
foreign investment

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 Motivations for Exporting

Proactive Reactive

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 Forms of Exporting

Indirect
exporting

Direct Intracorporate
exporting transfers

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 Figure 12.2a Indirect Exporting

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 Figure 12.2b Direct Exporting

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 Figure 12.2c Intracorporate Transfers

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 Additional Considerations for Exporting

Governmental policies

Marketing concerns

Logistical considerations

Distribution issues

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 Types of Export Intermediaries

Export Management Company

Webb-Pomerene association

International trading company

Other intermediaries

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 Export Management Company

An export management company (EMC)

is a firm that acts as its client's export
department by managing the legal,
financial, and logistical details of exporting,
and providing advice about consumer
needs and available distribution channels in
the foreign markets the exporter wants to
penetrate.

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 Webb-Pomerene Association

A Webb-Pomerene Association is a
group of U.S. firms that operate within
the same industry and that are
allowed by law to coordinate their
export activities without fear of
violating U.S. antitrust laws.

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 Five Largest Soga Soshas

• Mitsubishi Corporation
• Mitsui & Company
• Marubeni
• Sumitomo Group
• Itochu Corporation

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 Other Intermediaries

Manufacturers’ agents

Manufacturers’ export agents

Export and import brokers

Freight forwarders

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 International Licensing

Licensing is when a firm, called the

licensor, leases the right to use its
intellectual property—technology,
work methods, patents, copyrights,
brand names, or trademarks—to
another firm, called the licensee, in
return for a fee.

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 Figure 12.3 The Licensing Process

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 Basic Issues in
International Licensing

• Set the boundaries of the agreement

• Establish compensation rates
• Agree on the rights, privileges, and
constraints conveyed in the agreement
• Specify the duration of the agreement

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 Licensing

Advantages Disadvantages
• Low financial risks • Limited market
• Low-cost way to opportunities/profits
assess market
potential • Dependence on
licensee
• Avoid tariffs, NTBs,
restrictions on foreign • Potential conflicts
investment with licensee
• Licensee provides
knowledge of local • Possibility of creating
markets future competitor

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 Franchising

A franchising agreement allows an

independent entrepreneur or
organization, called the franchisee, to
operate a business under the name of
another, called the franchisor, in
return for a fee.

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 Basic Issues in
International Franchising

• Does a differential advantage exist

in the domestic market?
• Are these success factors
transferable to foreign locations?
• Has franchising been a successful
domestic strategy?

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 Yum! Brands Franchise
Opportunities

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 Franchising

Advantages Disadvantages
• Low financial risks • Limited market
• Low-cost way to assess opportunities/profits
market potential
• Dependence on
• Avoid tariffs, NTBs,
restrictions on foreign franchisee
investment • Potential conflicts
• Maintain more control with franchisee
than with licensing
• Possibility of creating
• Franchisee provides
knowledge of local future competitor
market

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 Specialized Entry Modes for
International Business

Contract
Manufacturing

Management
Contract

Turnkey
Project

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 Contract Manufacturing

Advantages Disadvantages
• Low financial risks • Reduced control (may
affect quality, delivery
• Minimize resources
schedules, etc.)
devoted to
manufacturing • Reduce learning
• Focus firm’s potential
resources on other • Potential public
elements of the value relations problems
chain

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 Management Contracts

Advantages Disadvantages
• Focus firm’s • Potential returns
resources on its area limited by contract
of expertise expertise
• Minimal financial • May unintentionally
exposure transfer proprietary
knowledge and
techniques to
contractee

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 Turnkey Projects

Advantages Disadvantages
• Focus firm’s • Financial risks
resources on its – Cost overruns
area of expertise
• Construction risks
• Avoid all long-
– Delays
term operational
risks – Problems with
suppliers

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 Foreign Direct Investment

Advantages Disadvantages
• High financial and
• High profit potential managerial
investments
• Maintain control over
operations • Higher exposure to
political risk
• Acquire knowledge of • Vulnerability to
local market restrictions on foreign
investment
• Avoid tariffs and
• Greater managerial
NTBs complexity

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 Foreign Direct Investment
(continued)

• Building new facilities (the

greenfield strategy)
• Buying existing assets in a foreign
country (acquisition strategy)
• Participating in a joint venture

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 Greenfield Strategy

• Best site
• Modern facilities
• Economic development incentives
• Clean slate

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 Acquisition Strategy

A second FDI Strategy is the

acquisition of an existing firm
conducting business in the host
country.

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Copyright © 2010 Pearson Education, Inc.

publishing as Prentice Hall