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ENTRY MODES

ENTRY MODES. WEEK 3. Know thy entry choices. Export Mode Contractual Mode Investment Mode Alliance. EXPORTING. INDIRECT EXPORTERS FROM HOME COUNTRY IMPORTERS IN HOME COUNTRY DIRECT FOREIGN AGENT/DISTRIBUTOR FOREIGN SALES OFFICE/SUBSIDIARY. Direct Exporting. ADVANTAGES

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ENTRY MODES

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  1. ENTRY MODES WEEK 3

  2. Know thy entry choices. Export Mode Contractual Mode Investment Mode Alliance

  3. EXPORTING • INDIRECT EXPORTERS FROM HOME COUNTRY IMPORTERS IN HOME COUNTRY • DIRECT FOREIGN AGENT/DISTRIBUTOR FOREIGN SALES OFFICE/SUBSIDIARY

  4. Direct Exporting ADVANTAGES Lower Incremental Investment Lower Risk Profits on Current Sales Control Over Plans Quicker Feedback of Information Learning Experience

  5. Direct Exporting DISADVANTAGES Transportation Costs Inventory Costs Longer Lead Times Control from too far Import Barriers

  6. CONTRACTUAL MODES • LICENSING • FRANCHISING • MANAGEMENT CONTRACTS • CONTRACT MANUFACTURE

  7. Licensing Licenser makes available intangible assets (intellectual property or technical know-how) to a licensee for a predetermined period in return for some form of payment (a disclosure fee + royalty).

  8. Royalty • Annual payment for the use of intellectual property or technical know-how. • Usually assessed as a percentage of units sold by the licensee per year.

  9. Licensing ADVANTAGES Incremental income on technology. No capital investment. Circumvention of import barriers. Circumvention of transportation costs. Exports of intermediate goods. Possible sale of obsolete product/tech. Future possibilities of ownership.

  10. Licensing DISADVANTAGES Returns are limited in size and duration. Little learning experience. Little control over plans. Risk of creating a competitor. High cost of making and enforcing contract.

  11. Why are licensing contracts difficult to write? Price of an intangible asset cannot be correctly assessed until fully disclosed. However, upon full disclosure, price can become zero.

  12. Contracts are difficult to write and enforce anyway! Environment is uncertain Human beings are opportunists

  13. How to protect your knowledge? • Don’t solely rely on legal document/system. • Supply obsolete technology. • Withhold key piece of technology. • Supply a key component. • Develop new products (BEST).

  14. EQUITY INVESTMENT SOLE VENTURES JOINT VENTURES Greenfield/Acquisition

  15. Equity Investment ADVANTAGES Circumvention of transportation costs. Circumvention of import barriers. May lower manufacturing costs. Greater control. Closer to market. Greater potential for profits.

  16. Equity Investment DISADVANTAGES Higher startup cost. Exposure to political, economic, and business risks. Longer payback periods Difficult to dis-invest.

  17. Joint Venture is: a cooperative agreement, between two or more firms, to achieve similar objectives. And involves creation of a separate entity, and control is proportionate to equity.

  18. Joint Ventures are used... • By smaller firms/larger projects, or those that lack relevant experience. • Under environmental uncertainty. • To complement and learn skills. • To reduce political risk. • To share equity/risk. • To satisfy host-country laws.

  19. Success of Joint Ventures. Most firms enter JVs with the objective to gain explicit knowledge. When knowledge acquisition shifts the balance of bargaining power between partners, the cooperative basis for the JV may erode.

  20. JVs more likely to dissolve if: Partners don’t have similar strategic scope. Partners are not of similar size and age. Partners are direct competitors. There is transfer of technology.

  21. License to your own Subsidiary It keeps technology and capital separate. Ownership is clearly defined. Royalties/Fees are tax deductible. Royalties/Fees are repatriable.

  22. STRATEGIC ALLIANCES A coalition of two or more organizations to achieve strategically significant goals that are mutually beneficial.

  23. STAR-ALLIANCEOPERATIONS-BASED

  24. AT&T AND BT CONCERT-ALLIANCE

  25. DISTRIBUTION-BASED

  26. DISTRIBUTION-BASED

  27. DISTRIBUTION BASED

  28. TECHNOLOGY-SWAPS MOTOROLA SEARS IBM WANG APPLE KALEIDA TALIGENT

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