BBM 602

TOPIC: MODES OF INTERNATIONAL

BUSINESS

SUBMITTED BY:NEETU S
SATSANGI

Turnkey Project
Exporting

ng
i
s
i
h
c
Fran

Licensing
Wholly Owned Subsidiary

Mode of Entry

Mode of Entr

Entering a new market is always a

risky business, with a big risk of

Mode of entry

(cont..)

When a firm is going to explore a

foreign market, the choice of the best
mode of entry will arise in the firms
expansion strategy.
The choice of mode for entering a
foreign market is thus a major
issue.

3 Main Categories of Mode of

Entry
Export

Contract
ual

Investme
nt

Direct
Export

Turnkey
Projects

Joint
Venture

Indirect
Export

Licensing

Wholly
owned
subsidiar
y

Franchisin
g

Exporting
Frequently employed mode of
internationalization.
One of the simplest and most
common approaches adopted
by firms in their endeavour to
enter foreign markets.

Exporting

(cont...)
Definition of exporting :
An action by a firm to send produced
goods and services from the home
country to other countries.
According to Kotler (2000:374)
the normal way to get involved
into a foreign market is through
export.

Two types of Export

Direct
Export

Indirect
Export

Producer sells directly to the

importer
Very little or no knowledge
about the foreign market is
needed
A firm in the domestic country is
used to do the exporting for the
manufacturer

The sale of a firms products in

foreign markets through an
export agent

Direct Export
This mode gives the company a
greater degree of control over
its distribution channels.

Indirect Exporting
This mode is seen as a
good way of gaining
knowledge about a
potentially interesting
market.

Exporting

Licensing

Licensing is when a firm, called the

licensor, leases the right to use its
intellectual
property
technology, work methods, patents,
copyrights,
brand
names,
or
trademarksto another firm, called the
licensee, in return
for a fee.

Licensing
Defined as
a contractual mode of entry, whereby a
company (the licensor) grants a foreign firm
(the licensee) the rights to use some or all of
its
intangible
properties
(patents,
trademarks, copyrights, etc.).
- Osland; Taylor; Zou (2001)

The Licensing Process

Licensing Adv. & Disadv.

Coca-Cola
Has licensed its famous
trademark to clothing
manufacturers, which have
incorporated the design into
their clothing.

Franchising
Under franchising, an independent organisation
called the franchisee operates the business
under the name of another company called the
franchisor.
In such an arrangement the franchisee pays a
fee to the franchisor.
Franchising is a form of Licensing but the
Franchisor can exercise more control over the
Franchisee as compared to that in Licensing.

Franchising Agreements
Franchisee has to pay a fixed amount and
royalty based on sales.
Franchisee should agree to adhere to
follow the franchisors requirements
Franchisor helps the franchisee in
establishing the manufacturing facilities
Franchisor allows the franchisee some
degree of flexibility.

Franchising- Adv. & Disadv.

Examples
Examples of companies that use franchising as a
mode of entry are
McDonalds,
Kentucky Fried Chicken,
Hilton hotels
(Johnson/Beaton (1998), p. 107; Hill/Jones (1998), p. 263).

Specialized Entry Modes

Contract manufacturing
Contract manufacturing is outsourcing
entire or part of manufacturing operations.
E.g.:
pharmaceuticals,
Personal
Care
products etc
The iPad and iPhone, which are products
from
Apple Inc., are manufactured in
China by Foxconn. Hence, Foxconn is a
contract manufacturer and Apple benefits
from a lower cost of manufacturing devices

Contract Manufacturing-Adv. &

Disadv.

Management Contract
A management contract is an agreement
between two companies whereby one
company provides managerial assistance,
technical expertise and specialised
services to the second company for a
certain period of time in return for
monetary compensation.
Eg. Schools, sports facilities, hospitals,
office buildings, malls and large businesses
have on-site cafeterias, restaurants.

Management Contract

Turnkey Project
A turnkey project is a contract under
which a firm agrees to fully design,
construct and equip a
manufacturing/business/service
facility and turn the project over to the
purchaser when its ready for
operation, for a remuneration.

Turnkey Project

Investment Entry Modes

Joint Venture
Became an important element

of many firms international

strategies.
Defined as
an enterprise, corporation or

partnership, formed by two or

more companies, individuals,
or organizations, at least one of
which is an operating entity
which wishes to broaden its
activities, for the purpose of

Motives for Joint Venture

Commonly used by firms to as a
means of
Competing multi-domestic or
Global competitive arenas
(Porter & Fuller 1986; Harrigan 1988).

New Markets Take existing

products to
foreign
markets

To diversify
into new
business

Existing
Markets

To strengthen
the existing
business

To bring
foreign
products to
local market

Existing
Products

New
Products

 Joint venture is associated with

providing access to :
resource and market,
technology transfer,
reduce political risk and
help to improve the firms
competitive position.
(Bradley
2005:249)

Apollo Hospitals Group

The largest healthcare group in
Asia
With more than 7,500 beds in
43 hospitals
16 million patients from 55
countries

 The hospital is
equipped with the latest technology and
high end medical equipments.
poised to deliver advanced tertiary
care of international standards to
Mauritian people as well as tourists

Advantages
Technology
sharing
product development

and

joint

Reduce political and economic risks

as a result of the involvement of the
native partner

Disadvantages
Mistrust
over
knowledge

proprietary

Performance ambiguity - how to

split the pie

Wholly Owned Subsidiary

The firm owns 100 % of the
stock
Keegan
(2001)

and

Schlegelmilch

The most expensive method

form of market entry
Requires
the
greatest
commitment in terms of
management and resources

Two options

Greenfield Investment
Building an entirely new
subsidiary in a foreign country
from scratch to enable foreign
sales and/or production.
The parent firm has decided to
clone
its
strategy
and
structure in the foreign plant

Acquisition
Combining two companies from
different countries to establish a
new legal entity.
Acquisition of a local firms
assets by a foreign company.
Both local and foreign firms
may continue to exist.

Acquisitions v/s Greenfield

Investment
Firms with weak competitive
advantage
tend
to
use
acquisitions while
Those with strong competitive
advantages
prefer
Greenfield
investments
to
transfer
their
advantages to foreign markets .
Hennart and Park (1993)

Indian Oil Corporation

India's flagship national oil
company
Set up subsidiaries in Sri Lanka,
Mauritius and the United Arab
Emirates (UAE)
Scouting for new business
opportunities in the energy
markets of Asia and Africa

Indian Oil (Mauritius) Ltd

(IOML)
A wholly owned subsidiary company of
Indian Oil Corporation Ltd
The third largest petroleum company
in Mauritius.
Holds an overall market share of 24%
Competes with other multinational
companies present in Mauritius for
over five decades.

Advantages
Provides high experiential
knowledge in foreign markets
Low level of conflict between the
subsidiary and the parent firm
Able to control operations
abroad
Does not have the problem of
integrating different cultures,
structures, procedures, and
technologies

Disadvantages
Could not rely on pre-existing
relationships
with
customers,
suppliers, and government officials
Potential
difficulty
in
accessing
existing managers and employees
familiar with local market conditions

CONCLUSIO
N

The selection of a market entry mode

is a critical decision
Firms seek to expand geographically
due to
Convergence of technology
Emergence of alternative
communication structures
Increased competitive arena in
which they operate

Be proactive rather than

reactive in their approach to
internationalisation

Findings
assignment:

from

our

no best way to enter a

foreign market
the mode of entry may differ
from one country or region to

Thank You