International Management

1. International Management

2. Chapter 7 Modes of Entry into Foreign Markets

3. Exporting Countertrade Contract Manufacturing Licensing Franchising Management Service Contracts Turnkey Projects Non-Equity Strategic Alliances Equity-based Joint Ventures Wholly-Owned Subsidiaries Modes of Entry into Foreign Markets

4. Fig 7-1: Foreign Mode of Entry Choices Decision to Internationalize Wholly-Owned International Choices Cooperative International Choices Acquisition Greenfield Investment Equity Joint Ventures Non-Equity Strategic Alliances/ Licensing Contracts

5. Countertrade Arrangements whereby the flow of goods or services in both directions is an integral element of the specific terms of the business transaction

6. Fig 7-2:Licensing as a Foreign Entry Choice Cost Advantage Risk Deflection Licensing In Foreign Countries Strategic Rationale Profit-driven Rationale Revenue Source Knowledge Source

7. Table 7-1 Foreign Licensing: Factors for Success and Failure Factors Leading to Success 1. Choice of reliable and competent partner 2. Inherent value of patent, trademark or know-how licensed 3. Goal congruence with partner 4. Some participation in ownership 5. Close personal contact with licensee 6. Appropriate level of control by licensor 7. Reputation of licensor and licensed asset 8. Sales assistance to licensee 9. Support of licensor’s top management 10. Flexibility by both partners 11. Correct timing and pacing of activity 12. Detailed spelling out of contract obligations and responsibilities 13. Effective coordination with other parts of licensor’s overseas activities 14. Thorough research and market knowledge Factors Leading to Failure 1. Inadequate market analysis by licensor 2. Higher start-up costs than anticipated by licensee 3. Insufficient attention paid to activity by top management of licensor 4. Poor timing 5. Lack of goal congruence with partner 6. Unanticipated competition from home, host and third country competitors 7. Inadequate licensee after sales effort 8. Partner rigidity 9. Insufficient marketing effort by both licensor and licensee 10. Weak licensee market research 11. Lack of fit with other licensor activities 12. Lack of sales assistance to licensee

8. Questions to be Asked in a Licensing Contract • How many patents, processes, or trademarks will be used? • How will technical assistance be rendered? • Which products are included in the agreement, and to what extent? • What territory is to be covered by the license? • How should the licensee be compensated? • The currency in which payments will be made to the licensor • What happens if compensation cannot be paid by the licensee? • If sublicensing is permitted, how should it be carried out? • Geographical limitations on the marketing of the licensed product or service • What are the provisions as to duration of the agreement and its cancellation? • What rights does the licensor have in developments by the licensee?

9. Questions to be Asked … (contd.) • What visitation and inspection privileges are held by the licensor? • Can the parent company inspect accounts? • What provisions are there for satisfactory promotional/sales performance and adequate quality control? • What home and host government approvals are required? • What tax factors are involved? • How will disputes be settled?

10. Areas Covered in a Franchise Agreement • A detailed list of issues to consider regarding the cost of the franchise • A detailed list of issues to consider regarding the location of the franchise • A detailed list of issues pertaining to the buildings, equipment and supply terms • A detailed list of issues pertaining to the operating practices terms

11. Table 7-2: Type and Degree of Parent Company Control over Foreign Operations A = Daily Management Control B = Control over Physical assets C = Control over Tacit Expertise and Knowledge D = Control over Codified assets

12. Table 7-3: Characteristics of Entry Modes

13. Table 7-3 (contd.)