28 July 2005
International Market Entry Modes (Part II)
Foreign Market Entry Modes
The decision of how to enter a foreign market can have a significant impact on the results. Expansion into foreign markets can be achieved via the following four mechanisms:
• Exporting
• Licensing
• Joint Venture
• franchising
• Direct Investment
Exporting
Exporting is the marketing and direct sale of domestically-produced goods in another country. Exporting is a traditional and well-established method of reaching foreign markets. Since exporting does not require that the goods be produced in the target country, no investment in foreign production facilities is required. Most of the costs associated with exporting take the form of marketing expenses.
Exporting commonly requires coordination among four players:
• Exporter
• Importer
• Transport provider
• Government
Licensing
Licensing essentially permits a company in the target country to use the property of the licensor. Such property usually is intangible, such as trademarks, patents, and production techniques. The licensee pays a fee in exchange for the rights to use the intangible property and possibly for technical assistance.
Because little investment on the part of the licensor is required, licensing has the potential to provide a very large ROI. However, because the licensee produces and markets the product, potential returns from manufacturing and marketing activities may be lost.
Joint Venture
There are five common objectives in a joint venture: market entry, risk/reward sharing, technology sharing and joint product development, and conforming to government regulations. Other benefits include political connections and distribution channel access that may depend on relationships.
Such alliances often are favorable when:
•The partners' strategic goals converge while their competitive goals diverge;
•The partners' size, market power, and resources are small compared to the industry leaders; and
•Partners' are able to learn from one another while limiting access to their own proprietary skills.
The key issues to consider in a joint venture are ownership, control, length of agreement, pricing, technology transfer, local firm capabilities and resources, and government intentions.
Potential problems include:
•Conflict over asymmetric new investments
•Mistrust over proprietary knowledge
•Performance ambiguity - how to split the pie
•Lack of parent firm support
•Cultural clashes
•If, how, and when to terminate the relationship
Joint ventures have conflicting pressures to cooperate and compete:
•Strategic imperative: the partners want to maximize the advantage gained for the joint venture, but they also want to maximize their own competitive position.
•The joint venture attempts to develop shared resources, but each firm wants to develop and protect its own proprietary resources.
•The joint venture is controlled through negotiations and coordination processes, while each firm would like to have hierarchical control.
Foreign Direct Investment
Foreign direct investment (FDI) is the direct ownership of facilities in the target country. It involves the transfer of resources including capital, technology, and personnel. Direct foreign investment may be made through the acquisition of an existing entity or the establishment of a new enterprise.
Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment. However, it requires a high level of resources and a high degree of commitment.
The Case of EuroDisney
Different modes of entry may be more appropriate under different circumstances, and the mode of entry is an important factor in the success of the project. Walt Disney Co. faced the challenge of building a theme park in Europe. Disney's mode of entry in Japan had been licensing. However, the firm chose direct investment in its European theme park, owning 49% with the remaining 51% held publicly.
Besides the mode of entry, another important element in Disney's decision was exactly where in Europe to locate. There are many factors in the site selection decision, and a company carefully must define and evaluate the criteria for choosing a location. The problems with the EuroDisney project illustrate that even if a company has been successful in the past, as Disney had been with its California, Florida, and Tokyo theme parks, future success is not guaranteed, especially when moving into a different country and culture. The appropriate adjustments for national differences always should be made.
The decision of how to enter a foreign market can have a significant impact on the results. Expansion into foreign markets can be achieved via the following four mechanisms:
• Exporting
• Licensing
• Joint Venture
• franchising
• Direct Investment
Exporting
Exporting is the marketing and direct sale of domestically-produced goods in another country. Exporting is a traditional and well-established method of reaching foreign markets. Since exporting does not require that the goods be produced in the target country, no investment in foreign production facilities is required. Most of the costs associated with exporting take the form of marketing expenses.
Exporting commonly requires coordination among four players:
• Exporter
• Importer
• Transport provider
• Government
Licensing
Licensing essentially permits a company in the target country to use the property of the licensor. Such property usually is intangible, such as trademarks, patents, and production techniques. The licensee pays a fee in exchange for the rights to use the intangible property and possibly for technical assistance.
Because little investment on the part of the licensor is required, licensing has the potential to provide a very large ROI. However, because the licensee produces and markets the product, potential returns from manufacturing and marketing activities may be lost.
Joint Venture
There are five common objectives in a joint venture: market entry, risk/reward sharing, technology sharing and joint product development, and conforming to government regulations. Other benefits include political connections and distribution channel access that may depend on relationships.
Such alliances often are favorable when:
•The partners' strategic goals converge while their competitive goals diverge;
•The partners' size, market power, and resources are small compared to the industry leaders; and
•Partners' are able to learn from one another while limiting access to their own proprietary skills.
The key issues to consider in a joint venture are ownership, control, length of agreement, pricing, technology transfer, local firm capabilities and resources, and government intentions.
Potential problems include:
•Conflict over asymmetric new investments
•Mistrust over proprietary knowledge
•Performance ambiguity - how to split the pie
•Lack of parent firm support
•Cultural clashes
•If, how, and when to terminate the relationship
Joint ventures have conflicting pressures to cooperate and compete:
•Strategic imperative: the partners want to maximize the advantage gained for the joint venture, but they also want to maximize their own competitive position.
•The joint venture attempts to develop shared resources, but each firm wants to develop and protect its own proprietary resources.
•The joint venture is controlled through negotiations and coordination processes, while each firm would like to have hierarchical control.
Foreign Direct Investment
Foreign direct investment (FDI) is the direct ownership of facilities in the target country. It involves the transfer of resources including capital, technology, and personnel. Direct foreign investment may be made through the acquisition of an existing entity or the establishment of a new enterprise.
Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment. However, it requires a high level of resources and a high degree of commitment.
The Case of EuroDisney
Different modes of entry may be more appropriate under different circumstances, and the mode of entry is an important factor in the success of the project. Walt Disney Co. faced the challenge of building a theme park in Europe. Disney's mode of entry in Japan had been licensing. However, the firm chose direct investment in its European theme park, owning 49% with the remaining 51% held publicly.
Besides the mode of entry, another important element in Disney's decision was exactly where in Europe to locate. There are many factors in the site selection decision, and a company carefully must define and evaluate the criteria for choosing a location. The problems with the EuroDisney project illustrate that even if a company has been successful in the past, as Disney had been with its California, Florida, and Tokyo theme parks, future success is not guaranteed, especially when moving into a different country and culture. The appropriate adjustments for national differences always should be made.
27 July 2005
International Market Entry Modes (Part I)
In today's globalising world, firms are increasing looking towards other regions of the world to trade in. The newspapers are filled with reports of firms merging or aquiring firms from different part of the world or firms looking to franchise their products and services.
What are the steps taken by the executives of these firms before deciding on which market to enter? How do they make sure they make their journey a successful one? The decision requires an analysis of the aspects of the foreign market.
1. Country/market Attractiveness in terms of the following:
o Market size
o Market growth and need potential in terms of demand
2. Company strength in terms of brand and accessibility
3. When the risk e.g. political is marginal compared to opportunities
4. Customer response
5. Competitive situation
However, most firms make their decisions to trade across boarders i.e. go international based on market conditions. They therefore become proactive or reactive in their decision making process.
A firm becomes proactive i.e. pulled by the potentials and advantages in the foreign market due to the following reasons:
1. The firms specific advantages in terms of profit
2. The advantage of having a unique brand
3. When a firm possesses technological advantages
4. The availability of resources in the foreign countries
5. Economies of scale
6. Economic and political factors
A firm becomes reactive i.e. pushed by bad domestic markets when the following is evident:
1. The pressure of domestic competition
2. Poor domestic market due to stagnant or declining sales figures
3. Saturated domestic markets
4. Overproduction
What are the steps taken by the executives of these firms before deciding on which market to enter? How do they make sure they make their journey a successful one? The decision requires an analysis of the aspects of the foreign market.
- Whether to go abroad
- Which markets to enter
- How to enter those markets
- Choice of marketing program
- Marketing organisation
1. Country/market Attractiveness in terms of the following:
o Market size
o Market growth and need potential in terms of demand
2. Company strength in terms of brand and accessibility
3. When the risk e.g. political is marginal compared to opportunities
4. Customer response
5. Competitive situation
However, most firms make their decisions to trade across boarders i.e. go international based on market conditions. They therefore become proactive or reactive in their decision making process.
A firm becomes proactive i.e. pulled by the potentials and advantages in the foreign market due to the following reasons:
1. The firms specific advantages in terms of profit
2. The advantage of having a unique brand
3. When a firm possesses technological advantages
4. The availability of resources in the foreign countries
5. Economies of scale
6. Economic and political factors
A firm becomes reactive i.e. pushed by bad domestic markets when the following is evident:
1. The pressure of domestic competition
2. Poor domestic market due to stagnant or declining sales figures
3. Saturated domestic markets
4. Overproduction
25 July 2005
Bangalore: Hot and Hotter
Technology plays a vital role in everyone's life may he/she be a student to an accountant. Where China dominates the manufacturing side of the business, India leads in the services industry of the world. To be more precise, Bangalore!
The silicon valley in Bangalore, India has been the talking point amongst techies as the haven for conducting technology based business.
Thomas L. Friedman in his article "Bangalore: Hot and Hotter" explores the importance Bangalore plays in todays globalising world.
Did you know that when China's prime minister, Wen Jiabao, visited India for the first time last April, he didn't fly into the capital, New Delhi - as foreign leaders usually do. He flew directly from Beijing to Bangalore - for a tech-tour - and then went on to New Delhi.
No U.S. president or vice president has ever visited Bangalore.
To read the article please click here.
Latest Economic Scapegoat: The Euro
The European continent's poor economic performance is being blamed on the Euro say's Floyd Norris in his article "Latest Economic Scapegoat: The Euro".
Italian cabinent ministers are suggesting a referendum to be held with regards to withdrawing from the European common currency. French and Dutch voters opposing the European constitution has brought many to think that euro will stop being the legal currency of much of Europe.
An interesting read for people to keep in touch with the political situation in Europe which will no doubt have a major affect on world economies and businesses worldwide. To read the article please click here.
23 July 2005
See a Bubble?
It's a good time to be a financial-disaster writer say's the author Roger Lowenstein of the article "See a Bubble?".
Over the past half-century the number of bubbles and consequent meltdowns are enough to fill a proper business school syllabus. However not every bubble leads to a meltdown...
A must read article for all. To read the article you can click here.
Over the past half-century the number of bubbles and consequent meltdowns are enough to fill a proper business school syllabus. However not every bubble leads to a meltdown...
A must read article for all. To read the article you can click here.
06 July 2005
Just a Thought
Over the past few days i have been thinking about the effects of informatin technology (IT) and the emergence of internet on students. As i was unable to get the full picture on how students have been affected, the idea of posting an article that might initiate in a public debate on this blog came about.
Well we can all agree that IT and the internet has provided us with lots of information for free of costs and therefore has enabled us to write great pieces of work, may they be homework, essays, dissertations or course works! They have also enabled us to learn agreat deal through alternative means.
However due to these technological breakthroughs the education systems have been on a decline. Once students used to do complicated calculations ( and still do in some parts of the world) single handedly! Now with the introduction of calculators and students have allowed themselves to rely on it so much that even simple calculations cannot be done without the use of calculators! Schools, Colleges and even Universities averages have been on a constant decline leading to grading criteria to be lowered over the years. Where once to achieve an 'A' grade used to be 90%, students are able to achieve this by getting 70% thesedays.
Above was just an example and im sure in some parts of the world my statement may not apply to. However, don't you agree that technology a powerful learning tool it may be, has also affected our minds to such an extent that it has lowered in some sence our education quantity as well as to some extent the quality levels?
Well we can all agree that IT and the internet has provided us with lots of information for free of costs and therefore has enabled us to write great pieces of work, may they be homework, essays, dissertations or course works! They have also enabled us to learn agreat deal through alternative means.
However due to these technological breakthroughs the education systems have been on a decline. Once students used to do complicated calculations ( and still do in some parts of the world) single handedly! Now with the introduction of calculators and students have allowed themselves to rely on it so much that even simple calculations cannot be done without the use of calculators! Schools, Colleges and even Universities averages have been on a constant decline leading to grading criteria to be lowered over the years. Where once to achieve an 'A' grade used to be 90%, students are able to achieve this by getting 70% thesedays.
Above was just an example and im sure in some parts of the world my statement may not apply to. However, don't you agree that technology a powerful learning tool it may be, has also affected our minds to such an extent that it has lowered in some sence our education quantity as well as to some extent the quality levels?
Tomorrow's Education
Technology has become a very important part of our lives. Therefore it is time that we adopt technology in order to promote education as well as use technological means such as blogs as an educational tool and part of the curriculum.
Getting adapted to technology seems to be the hardest part for us, however, this could be overcome by awareness and understanding.
What about adoption? What does it do?
- media literacy
- course information management
- make those lessons extend - getting people involved on other levels (great for shy people and could help them to open up)
- summarise readings so they can participate more in class
- give project info
- group blogging
- user-centred learning
What can you do to get your students to blog:
- use only one publishing tool
- subscribe to their blogs
- comment on their posts at least once a week
- minimum post size
- require comments - make them interact with each other
- have guided questions
- determine grading on quantity or quality
What does this all mean for education?
- technology transformation
- blended classrooms
- distributed learning is possible
- need increased focus on interdisciplinary work - tech not just for geeks, soft skills not just for humanities students
Getting adapted to technology seems to be the hardest part for us, however, this could be overcome by awareness and understanding.
What about adoption? What does it do?
- media literacy
- course information management
- make those lessons extend - getting people involved on other levels (great for shy people and could help them to open up)
- summarise readings so they can participate more in class
- give project info
- group blogging
- user-centred learning
What can you do to get your students to blog:
- use only one publishing tool
- subscribe to their blogs
- comment on their posts at least once a week
- minimum post size
- require comments - make them interact with each other
- have guided questions
- determine grading on quantity or quality
What does this all mean for education?
- technology transformation
- blended classrooms
- distributed learning is possible
- need increased focus on interdisciplinary work - tech not just for geeks, soft skills not just for humanities students
SMS for Businesses?
As an organisation, the use of SMS may seem too innovative or unprofessional. So why are "forward-thinking" organisations throughout the world are welcoming SMS open-heartedly? What's so good about SMS? www.zyb.com has developed some reasons to use SMS in businesses.
The list they've come up with includes:
1. SMS is popular and well established
2. SMS' unique ability to reach anyone, anytime, anywhere
3. SMS is a great friendship-marketing tool
4. SMS is reliable
5. SMS is one of the most cost-effective methods of communication out there
The blog has also interestingly blamed neophobia for the reasons why businesses haven't started using sms.
For detailed information please visit their blog here.
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