International Market Entry

 Entry mode - institutional arrangement by which a firm gets its products,

technologies, human skills, or other resources into a market.
 Types of entry mode,
1. Exporting and countertrade
Exporting is done to expand and diversify sales, and to gain international
business experience.
Degree of exporting,
i. Direct exporting – company sell its products directly to buyers.
Export strategy,
Step 1: Identify a potential market.
Step 2: Match needs to abilities.
Step 3: Initiate meetings.
Step 4: Commit resources.
ii. Indirect exporting – company sells its products to intermediaries who then
resell to buyers.
Agents: individuals or organizations that represent the exporter in the target
market. They receive commissions on the value of sales.
Export Management Company: company that exports products on behalf of
an exporter. EMC can either operate as an agent or a distributor.
Export Trading Company: company that provides services to exporters in
addition to activities related directly to clients’ exporting activities.
Freight Forwarder: specialist in export-related activities such as customs
clearing, tariff schedules, and shipping and insurance fees.
Countertrade - selling goods or services that are paid for, in whole or in part, with
other goods or services. This is done when the government of the importer lacks
sufficient foreign currency.
Types of countertrade,
i. Barter - exchange of goods or services directly for other goods or
services without the use of money.
ii. Counter purchase – the exporting company promises to make a future
purchase of a specific product from importer’s country.
iii. Offset - exporter will offset a hard-currency sale to a nation by making a
future hard-currency purchase of an unspecified product from that nation.
Hard currency - currency that is not likely to depreciate suddenly or to
fluctuate greatly in value.
iv. Switch trading - additional parties are brought into the picture and some
of the exchanged goods are shifted to the new party, often for cash.
v. Buyback - export of industrial equipment in return for products produced
by that equipment.
2. Contractual entry – some products cannot be traded in open market because
they are intangible.
Types of contracts,
i. Licensing - one company owning intangible property (the licensor) grants
another business (the licensee) the right to use that property for a limited
period of time.
e.g., patents, copyrights, special formulas and designs, trademarks, brand
names.
Licensing normally is a one-time transfer of property.
 Cross licensing - companies use licensing agreements to exchange
intangible property with one another.
Advantages - low-risk method of international expansion for a licensor,
lower the likelihood that a licensor’s product will be counterfeited,
licensees can upgrade existing production technologies.
Disadvantages - restrict a licensor’s future activities, reduce the global
consistency of the quality and marketing of a licensor’s product in different
national markets, lead to a company lending strategically important
property to its future competitors.
ii. Franchising - one company (the franchiser) supplies another (the
franchisee) with intangible property and other assistance over an
extended period.
e.g., service industries such as auto dealerships, entertainment, lodging,
restaurants, business services.
Franchising requires ongoing assistance from the franchiser.
Advantages –low-cost, low-risk entry mode into new markets, allows for
rapid geographic expansion, franchisers benefit from the cultural
knowledge and know-how of local managers.
Disadvantages - product quality and promotional messages will not be
consistent from one market to another, franchisees can experience a loss
of organizational flexibility.
iii. Management contracts - company supplies another with managerial
expertise for a specific period of time.
e.g., public utilities sectors.
Advantages – firm can exploit an international business opportunity
without having to commit a great deal of its own assets, governments can
award management contracts, particularly when a nation is short of
investment financing, to develop the skills of local workers and managers.
Disadvantages - supplier’s personnel remain exposed to political or social
turmoil, and his expertise may end up nurturing a formidable new
competitor in the local market.
iv. Turnkey projects - company designs, constructs, and tests a production
facility for a client (build-operate-transfer).
Advantages – permit firms to specialize in their core competencies and to
exploit opportunities that they could not undertake alone, allow
governments to obtain designs for infrastructure projects from the world’s
leading companies.
Disadvantages - a company may be awarded a project for political
reasons rather than for technological know-how, it can create future
competitors.
3. Investment entry - direct investment in plant and equipment in a country coupled
with ongoing involvement in the local operation.
 Foreign investment,
1. Wholly Owned Subsidiaries - facility entirely owned and controlled by a single
parent company.
2. Joint Ventures - separate company that is created and jointly owned by two or
more independent entities.
Joint venture configurations,
i. Forward integration joint venture - partners invest in business activities
that are normally performed by others “later” in the value system.
 ii. Backward integration joint venture - partners invest in business activities
that are normally performed by others “earlier” in the value system.
iii. Buyback joint venture - both partners supply the venture’s input and
absorb its output.
iv. Multistage joint venture - one partner integrates backward, and one
partner integrates forward.
3. Strategic Alliances - relationship whereby two or more entities cooperate (but
do not form a separate company) to achieve the strategic goals of each.

International Marketing
● Factors that affect marketing (international and domestic),
o Controllable – price, product, promotion
o Uncontrollable - economic, legal, political, and competitive forces
● Challenges of international marketing (uncontrollable factors),
o Pricing is complicated -> tariffs, dumping laws, inflation, currency conversion.
o Advertising - language differences, government controls (e.g., ban on
advertising cigarettes), agency availability, economic differences (income
level), cultural diversity.
o Media selection
● Benefits of international marketing,
o Survival – countries that survive on exporting.
e.g., Hong Kong, Lesotho, European countries
o Growth of overseas markets – overcomes the small size markets of their
home country.
e.g., Philips (The Netherlands). Sony and Panasonic (Japan)
o Sales & Profits – major source of revenue for firms.
e.g., 80% of Coca-Cola's revenue comes from foreign sales.
o Inflation & price moderation – imports are also beneficial.
Absence of imported products -> high price of domestic products for
excessive profits for local firms -> inflation.
o Standard of living – without trade, product shortages force people to pay
more for less.
o Diversification – demand for products in the domestic market is affected by
factors like recession and seasons.
e.g., Decrease of soft drink consumption in cold weather -> not all countries
enter winter at the same time.
● Mix of 4 elements in international marketing,
o Product – anything that can be offered to a market to satisfy a want or a
need.
o Price – standard (or) two-tiered (or) market pricing.
Standard pricing – same price across the world (e.g., Boeing).
Two-tiered/Dual pricing – high price for exports and low price for domestic
market or vice versa.
o Place – distribution -> channels and modes of shipping.
o Promotion - branding
● Activities in international marketing,
o Market assessment – assess alternative foreign markets, costs, benefits &
risks.
 o Product decisions - standardization (little or no modification) or adaptation of
the product (modified as per needs of the market).
o Promotion strategies
Brand is a feature that identifies a company’s goods and services as distinct
from other firms.
Brand equity – assets or liabilities linked to a brand.
Problems with the same brand name – language barrier (different meaning) +
pronunciation problem.
o Pricing decisions – prices differ due to varying duties & taxes, competition
prices, transportation, FTA’s, expenses like marketing, manpower, company’s
own profit margins, product life span and distribution structure (direct/2-tier).
Price discrimination: price based on competition level of the market (high
price for low competition in the market).
Dumping: price in foreign market is charged lower than the cost of production.
Types of dumping,
1. Sporadic dumping – unsold items are sold at a lower price.
2. Predatory dumping - selling at a loss to gain market share and drive
out competition.
3. Persistent dumping – charging high prices at domestic markets to
compensate for low prices in foreign markets.
4. Reverse dumping - high price in foreign markets due to low level of
competition.
o Place or distribution strategies.

Export/Import Financing

● Risk in international trade,

o Exporters not receiving payment after delivery.
o Importers fear failure of delivery after payment for delivery.
● Export/import financing methods to reduce these risks,
1. Advance payment - importer pays an exporter for merchandise before it is
shipped; common when two parties are unfamiliar with each other, or the
transaction is relatively small.
Most favorable for exporters but the least favorable for importers.
2. Documentary collection – exporter and importer’s banks act as an intermediary
without accepting financial risk; common when there is an ongoing business
relationship between two parties.
Procedure:
i. Contract between exporter and importer to sell and buy goods.
ii. Exporter's bank gives draft to the exporter.
Draft (bill of exchange): document ordering an importer to pay an exporter
a specified sum of money at a specified time. Types – sight draft (pay
when goods are delivered), and time draft (pay after 30, 60 or 90 days
after delivery).
iii. Exporter (shipper) ships goods to importer via a transportation company
(carrier).
iv. Exporter delivers documents (draft, packing list of items, bill of lading) to
his/her bank.
 Bill of lading: contract between a shipper and a carrier that specifies
merchandise destination and shipping costs.
Inland bill of lading (shipment via ocean) and Air way bill (shipment via
air).
v. Exporter's bank sends documents to the importer's bank.
vi. Importer delivers payment to its bank.
vii. Importer's bank gives a bill of lading to the importer.
viii. Importer's bank pays the exporter's bank.
ix. Exporter's bank pays the exporter for goods.
3. Letter of credit - importer’s bank issues a letter pledging to pay the exporter
when the exporter fulfils the terms listed in the letter (provide evidence that the
goods have been shipped).
Used when both the parties are not familiar with each other.
Procedure:
i. Exporter/importer contract to sell/buy goods.
ii. Importer applies for a letter of credit.
iii. Importer’s bank issues a letter of credit to the exporter's bank on the
importer's behalf.
iv. Exporter's bank informs the exporter of the letter of credit.
v. Exporter ships goods to importer.
vi. Exporter delivers documents to his/her bank.
vii. Exporter's bank sends documents to the importer's bank.
viii. Importer's bank pays the exporter's bank.
ix. Importer pays his/her bank for the value of goods.
x. Importer's bank delivers documents to the importer.
4. Open account - exporter ships merchandise and later bills the importer for its
value.
Used when parties are familiar with each other or for sales between two
subsidiaries within a company.

Analyzing international opportunities

● Market research is the collection and analysis of information used to assist managers
in making informed decisions (assessment of potential markets and sites for
operation).
● Screening process for potential markets and sites,
1. Identify basic appeal - climate, materials, labour, financing, banned products.
First step is to assess the basic demand of the product and the availability of the
required resources for local business activities.
Cost of capital is a measure of the minimum return that a company needs to
invest in a project.
2. Assess the National Business Environment - language, people’s attitudes,
religious beliefs, culture & work ethics, government regulation & bureaucracy,
political stability, fiscal & monetary policies, currency issues, transportation cost.
Fiscal (government revenue/taxes); Monetary (money/currency).
Liquidity is the ease with which an asset or security can be converted into ready
case without affecting its market price.
3. Measure market or site potential - current sales, income elasticity, market
potential index, quality of workforce, materials, infrastructure.
➔ Names, production volumes, and market shares of the largest competitors.
➔ Volume of exports and imports of the product.
➔ Structure of the wholesale and retail distribution networks.
➔ Background on the market (population figures, key social trends).
➔ Total expenditure on the product in the market.
➔ Retail sales volume and market prices of the product.
➔ Future outlook for the market and potential opportunities.
Measuring market potential - income elasticity, national data, market size, market
intensity, market growth rate, market consumption capacity, commercial
infrastructure, market receptivity, economic freedom, country risk.
Market size - rank countries from largest to smallest, regardless of the product.
Market intensity estimates the wealth or buying power of a market from the
expenditures of both individuals and business.
Market consumption capacity estimates spending capacity, especially of the
middle class.
Market receptivity estimates market openness.
Country risk estimates the total risk of doing business (political, economic,
financial risks).
Measuring site potential - quality of resources available, local labour, local
infrastructure.
Income elasticity is a measurement that shows how consumer demand changes
as consumer income levels change.
MPI measures the potential of a country as a market for a product or service.
Shadow economy refers to the economic activities that are hidden from the
official authorities for various reasons.
4. Select the market or site - field trips, competitor analysis.
Competitor Analysis,
➔ Number of competitors
➔ Market share of each competitor
➔ Whether each competitor’s product appeals to a small market segment or has
mass appeal
➔ Whether each competitor focuses on high quality or low price
➔ Whether competitors tightly control channels of distribution
➔ Customer loyalty
➔ Potential threat from substitute products
➔ Potential entry of new competitors into the market
➔ Competitors’ control of key production inputs (labour, capital, and raw
materials).
● Secondary market research - process of obtaining information that already exists
within the company or that can be obtained from outside sources (public or private).
Public sources - World Trade Report, World Trade Statistical Review, International
Trade Statistics Yearbook, World Economic Outlook.
● Primary market research - process of collecting and analyzing original data and
applying the results to current research needs.
Trade show: exhibition at which members of an industry or group of industries
showcase their latest products, study activities of rivals, and examine recent trends
and opportunities.
Trade mission: government-sponsored international trip designed to explore
international business opportunities.
Focus group: unstructured but in-depth interview of a small group of individuals (8 to
12 people) by a moderator.
Consumer panel: research in which people record in personal diaries information on
their attitudes, behaviours, or purchasing habits.
Survey: research in which current or potential buyers answer a series of written or
verbal questions.
Consumer panels offer ongoing data over time, while focus groups provide
immediate feedback on specific topics.