4. Various factors have to be done before entering into
international market
A. Country specific factors:
• Laws & regulations of the country
• Infrastructural conditions
• Property rights & legal framework
• Political factors
• Cultural factors
B. Industry specific factors:
• Entry & exit barriers
• Industrial complexity
• Uncertainty in industrial environment
• Supply and distribution pattern
5. C. Firm specific factors :
• Resources of the firm
• Technological risk
• Goals and objectives of the firm
• Experience of the firm
D. Project specific factors:
• Size of the project
• Project orientation
• Availability of raw material and labour required for the
project implementation
• Availability of suitable market for the project
6. Modes of Entry
► 1. Exporting :
► Advantages:
► Limited finance required
► Less Risk
► Forms of Exporting :
► 1.Indirect - Firm sell it’s product through export intermediaries in host
country.
► Advantages:
► Little investment & experience required
► It provides low cost opportunity to test products internationally
► Limitations :
► Feedback from ultimate customers is limited
► Part with higher profit share by commission/margin
► Firm develops little market insights
► Does not develop contacts with overseas buyers
7. Indirect Exports - Intermediaries
► Agents :
► Don’t take title of goods, get commission & act on behalf
of principal
► Importer’s buying agents e.g. Garments, Handicrafts
► Buying offices : e.g. Wal-Mart, Mark & Spencer
► Merchant Exporter : Buy the goods & take product title for
profit as well as risk
► International Trading Companies : e.g. Mitsubishi, Marubeni,
Samsung
► Trading /Export Houses: e.g. Tata International, STC, MMTC
8. Direct Exports
► Firm exports goods without help of any market intermediary in
home country
► Advantages:
► Exporter gets more profit
► Firm gets market information first hand
► Firm develops skills for export operations
► Firm establishes own rapport & brand image in foreign market
► Export Agents :
► These agents specialize in few countries & offer services to
many companies
► Local Overseas agents : e.g. SPC, Srilanka
► Merchant Importers : Trader who imports products & sells to
wholesaler
► Distributors : They have contractual agreement with exporter
on long term basis
9. Outsourcing
It is a cost effective strategy used by companies to reduce
costs by transferring portions of work to outside suppliers
rather than completing it internally
It includes both domestic and foreign contracting and also off
shoring (relocating a business function to another country).
Advantages:–
• Risks sharing
• Reduced costs
• Swiftness and expertise in operation
• Concentration on core process rather than supporting ones
11. International Licensing
► Firm leases the right to use it’s intellectual property i.e brand,
trade mark, copy rights, technology etc to manufacturer in
foreign country
► FMCG MNC’s marketing brands under Licence
► E.g. Unilever, P&G, J&J
► Arrow brand shirts – Arvind Mills
► Disney characters – Modi Co.
12. International Licensing
Advantages
► Low investment for Licensor
► Low financial risk to
Licensor
► Licensor can study market
without much cost & effort
► Licensee benefits with
less investment on
R&D
► Licensee escapes from
risk of product failure
► Disadvantages
► It Limits market opportunity
for both parties
► Licensee can damage brand
image
► Possibility of
misunderstanding &
break up of agreement
► Costly litigation in break up
► Leakage of trade secrets of
licensee
► Licensee may develop
reputation
► Licensee may become
competitor later
13. International Franchising
► It is form of licensing but franchisor can exercise more control
over franchised
► Under agreement franchisee pays a fee to Franchisor &
► Agrees to adhere to follow franchisor’s requirements
like operating procedures, customer service, ambience,
product specs etc
► Franchisor provides following services to franchisee:
► Establishing mfg facilities, services facilities, provide expertise,
advertising, corporate image etc
► Allow some degree of flexibility to meet local tastes
► E.g. McDonald, Domino’s, Pizza Hut, KFC
14. International Franchising
Advantages
► Franchisor enters market
with low investment & risk
► Franchisor gets market
information of host country
► Franchisee starts business
with low risk
► Franchisee gets benefits of
R&D at low cost
► Franchisee escapes risk of
product failure
Disadvantages
► International Franchising
more complicated than
domestic
► Difficult to control Intl
Franchisee
► Limits opportunities for
both parties
► Franchisee can damage
reputation
► Scope for Mutual
misunderstanding
► Leakage of trade secrets
15. Contract Manufacturing
► To take advantage of lower costs of production, a firm may
sub-contract mfg in a foreign country
► It involves supply of inputs, semi-finished goods, components &
technical know-how to local mfr in foreign country
► Contract mfr limits himself to mfg while marketing is taken care
of by International firm
► A processing fee is paid to foreign based manufacturer
► It is also called outsourcing mfg activity
► E.g. Nike in Thailand, Vietnam
► Electronic items, cellphones – Foxcom
► Private Lables – own Brands
► Indian pharma cos – Sun Pharma with Eli-Lilly
► B.P.O’s – I.T.
16. Management Contracts
► Firm offers management of technical services to run
production or
service facility, training and management
► E.g. Hotel industry – Taj group manages number of hotels
overseas
► Hyatt manages 216 hotels in 44 countries
► Hospitals – Apollo , Fortis ,
► Monetary compensation may be in the form of :
► A flat fee or
► Percentage over sales or
► Performance bonus based on profitability, Sales growth etc
17. Turnkey Projects
► It’s a contract under which a firm agrees to fully design, construct
& equip a mfr/business/service facility and turn the project over
to the purchaser when ready for operation in consideration of a
remuneration
► Various types :
► Build & Transfer ( BT)
► Build , Operate & Transfer (BOT)
► Build, operate & Own (BOO)
► E.g. ONGC. L&T, GVK, IRCON, EIL,
18. Foreign Direct Investment
with Strategic Alliances
► Strategic Alliance is a cooperative & collaborative approach to
achieve the larger goals
► E.g. Star Alliance
► Lifescan – Novo Nordisk
► Ethicon Endosurgery – Karl Storz
► Merck – J&J
► Lipton - Coke
19. International Joint Ventures
► Firm shares equity & other resources with other partner firms
to form new company in target country
► Benefits :
► Provide access to countries where 100% ownership is
restricted
► Provides access to complimentary strengths of partner firm
► Less investment compared to complete ownership
► Reduce operating & political risks
► Overcomes tariff & non-tariff barriers of host country
20. International Joint Ventures
► Limitations
► Shared control
► Risk of partner becoming future competitor
► Management problems due to cultural differences
► Difference in goals & objectives of partner firms lead
to conflicts
► Trade secrets, processes, and know-how are often
shared
► Selection of right partner is difficult
21. Wholly owned subsidiary
► Firm has complete control over its overseas operations with
100% ownership in new entity
► Benefits
► Complete control over its foreign operations
► Trade secrets, proprietary technology remains within the
company
► Limitations
► Require commitment of large financial & operational resources
► High investment & High risk exposure
► Considerable international experience & exposure required
► Challenges :
► Wholly owned Cos are usually not allowed in vital sectors
► Host country Govt puts rigorous conditions & scrutiny
► High vulnerability to criticism by social activists
22. Greenfield Operations
► Creating production & marketing facilities on a firm’s own
from scratch
► It is recommended where :
► In developing countries right targets for acquisition are not
available
► Small firms don’t possess required finances for acquisition
► Host country offers incentives for foreign investment
► There are regulatory barriers to International acquisition
23. Mergers & Acquisitions
► It is transfer of existing assets of a domestic firm to a foreign
firm
► It involves transferring management control of assets &
operations of a domestic company to a foreign firm
► Generally mergers occur in friendly settings where two firms
build a synergy
► Acquisitions can be hostile takeovers by purchasing majority
shares of a firm
► Benefits
► Provides rapid expansion of firm’s business. It becomes crucial
when speed of business expansion is important.
24. ► Acquiring firm gets ready access to tangible &
intangible assets of target firm like brand equity,
marketing channels, skilled manpower, patents &
trademarks, technical know-how, process &
management skills that add to operational efficiency.
► Types : Minority , Majority , Full outright stake
► E.g. Mittal Arcelor – largest steel producer
► Tata Steel – Corus
► Tata Motors – Jaguar
► Idea –Vodafone
► Airtel- Tata Docomo
► Mahindra - Ford
► Glaxo – Smith Klime Beecham
