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TOPIC 11: ENTERING FOREIGN MARKETS (Entry Mode), Advantages - Coggle…
TOPIC 11: ENTERING FOREIGN MARKETS
(Entry Mode)
Exporting
Characteristic
common first step for many manufacturing
Advantages
avoids the cost of establishing local manufacturing operations
helps the firm achieve experience curve and location economies
Disadvantages
lower cost manufacturing locations
high transport cost and tariffs
agents in a foreign country may not act in exporters best interest
Turnkey projects
Characteristic
most commonly performed
often performed for a governmental agency
one company contracts with another to build complete
Advantages
earning economic returns from the know-how required to assemble/ run a technologically complete process
can be less risky than conventional FDI
Diadvantages
the firm has no long term interest in the foreign country
the firm may create a competitor
selling competitive advantage to competitor
Licensing
Characteristic
A licensor grants the rights to intangible property to the licensee for a specified time period and in return receives a royalty fee from the licensee patents, inventions, formulas, processes, designs, copyrights and trademarks.
Diadvantages
the firm doesnt have the tight control required for realizing experience curve and location economies
the firm's ability to coordinate strategic moves across countries is limited
proprietary assets could be lost
Franchising
Characteristic
franchisor sells intangible property, franchisee has to abide
by strict rules how it does business
Advantages
avoids the costs and risks of opening up a foreign market
firms can quickly build a global presence
Diadvantages
unhibits the firms ability to take profits out of one country to support
the geographic distance of the firm from franchisees can make it difficult to detect poor quality
Joint Ventures
Characteristic
a firm that is jointly owned by two or more otherwise independent firms
Advantages
firms benefits from local partner's knowledge of local conditions, culture, polical systems and business systems
the costs and risks of opening a foreign market are shared
the satisfy political considerations
Diadvantages
the firm risks giving control of its technology to its partner
the firm may not have the tight control to realize experience curve /location economics
shared ownership can lead to conflicts and battles for control
Wholly Owned Subsidiaries
Charateristic
firms 100% of the stock
Advantages
they reduce the risk of losing control over core competencies
the give a firm the tight control over operations in different countries
the may be required in order to realize location / experience curve economies
Disadvantages
the firm bears the full cost and risk of setting up overseas operations
Advantages
firm avoids development costs and risks associated with opening a foreign market
the firm avoids barriers to invertment
the firm can capitalize on market
