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Chapter 9 Market Entry and Expansion

Chapter 9 Market Entry and Expansion. Stimuli to Internationalize. In business activities, a variety of stimuli are responsible for firms taking steps in a given direction The major motivations for firms to go international have been differentiated into proactive and reactive

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Chapter 9 Market Entry and Expansion

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  1. Chapter 9 Market Entry and Expansion

  2. Stimuli to Internationalize • In business activities, a variety of stimuli are responsible for firms taking steps in a given direction • The major motivations for firms to go international have been differentiated into proactive and reactive • Proactive motivations - • Reactive motivations -

  3. Going International • Firms in smaller markets may be born global • Born global firms: • Export

  4. Going International • Export • Modes of export

  5. Going International • Export management companies (EMC) • Two primary forms of operation

  6. Going International • Both parties must recognize:

  7. Going International • Trading companies • The most famous trading companies are the _________of Japan • Reasons for the success of the Japanese sogoshosha:

  8. Going International • Export trading companies (ETCs)

  9. Going International • Firms participating in trading companies by joining or forming them need to:

  10. Going International • International success depends on market demand

  11. Going International • E-commerce • Various methods to market products over the Internet:

  12. Going International • Concerns for a firm using e-commerce:

  13. Going International • Legal concerns for e-commerce:

  14. Licensing and Franchising • Are market expansion alternatives used by all types of firms, large and small • They offer flexibility and reflect the needs of the firm and the market

  15. Licensing • Licensing agreement: • The recipient firm is the licensee • Advantages of licensing • Royalty income provides additional return on R&D investments already incurred

  16. Licensing • Ongoing licensing cooperation and support enables the licensee to benefit from new developments • Allows a firm to test a foreign market without major investment of capital or management time • Preempts a market for competition, especially if the licensor’s resources permit full-scale involvement only in selected markets

  17. Licensing • Disadvantages of licensing

  18. Licensing • Principal issues in negotiating licensing agreements:

  19. Licensing • The licensor should cover : • Transfer costs: • R&D costs: • Opportunity costs:

  20. Licensing • Licensee compliance in the agreement should address: • Specification of term, termination, and survival of rights

  21. Licensing • Trademark licensing

  22. Licensing • The licensor and licensee may run into difficulty if:

  23. Franchising • A situation under which a parent company (the franchiser) grants another independent entity (the franchisee) the right to do business in a specified manner • The major forms of franchising are:

  24. Franchising • Product/trade franchising emphasizes the product or commodity to be sold • Reasons for the international expansion of franchise systems:

  25. Licensing and Franchising • Franchising concerns • For successful growth, companies adopt master franchising system • Master franchising system:

  26. Foreign Direct Investment (FDI) • International investment flows that acquire properties and plants • Portfolio investment:

  27. Major Foreign Investors • Multinational corporations through their investment: • Foreign direct investors bring with them imports on an ongoing basis

  28. Reasons for FDI • Marketing factors

  29. Reasons for FDI • Derived demand:

  30. Reasons for FDI • Government incentives • Fiscal incentives: • Financial incentives: • Non-financial incentives

  31. A Perspective on Foreign Direct Investors • Positive perspectives:

  32. A Perspective on Foreign Direct Investors • Negative perspectives:

  33. Types of Ownership • Full ownership • A major concern is the “fairness” of ____________, or transfer of profits, and the extent to which firms reinvest into their foreign operations

  34. Types of Ownership • Can be limited either through outright legal restrictions or through measures designed to make foreign ownership less attractive • Joint ventures

  35. Advantages of joint ventures Pooling of resources The partner’s knowledge of the local market Tap local capital markets Disadvantages of joint ventures Different levels of control are required Disagreements over business decisions Types of Ownership

  36. Types of Ownership • Strategic alliances • Can be formed, adjusted, and dissolved rapidly • The most successful alliances are those that:

  37. Types of Ownership • Management contract • Supplier brings together a package of skills that: • Provides:

  38. Types of Ownership • Lowers the risk of participating in an international venture and allows operational control • Government consortia • Research consortia:

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