FIRM ANALYSIS
October 23, 24, 2024
Bernardo S. Blum
Professor of Economic Analysis and Policy
Selling Abroad: The Options
Don’t do it
Sell to a home country exporting agent or a foreign country importing agent
Contract with a foreign country importing agent
Establish a foreign subsidiary that imports and distributes
License production to a foreign manufacturer who distributes
Establish a foreign subsidiary, either via acquisition or greenfield investment, that
manufactures and distributes (become a multi-national)
Selling Abroad: if will do it, then how?
Don’t do it
Sell to a home country exporting agent or a foreign country importing agent
Export only
Contract with a foreign country importing agent
Establish a foreign subsidiary that imports and distributes
Foreign
License production to a foreign manufacturer who distributes operation
Establish a foreign subsidiary, either via acquisition or greenfield investment, that
manufactures and distributes (become a multi-national)
Export vs. Foreign Operation: Manufacturing
Foreign operation advantages:
• Avoid transportation costs
• Avoid trade costs
• Political benefits
• Information benefits
Foreign operation disadvantages:
• Lose scale economies (internal to the firm)
• May lose comparative advantage benefits
• Costs of managing in different cultures / political systems
Export vs. Foreign Operation: Distribution Modes
Choice between contracting with an existing distributor of related products or having a sole
distributor of your product (either owned or contracted).
Advantage of contracting with an existing distributor:
Cost savings from not having to establish own distribution operation.
Existing distributor can add your product at lower cost (scope economies).
Disadvantage of existing distributor:
Does not have same incentives to work hard at selling your product as a sole distributor does.
Sole distributor only profits from selling your product.
For existing distributor, selling your product (potentially) takes profits from other lines.
Lessons
1. If your firm is small, your resources are likely better spent developing assets that give you a competitive
advantage so your firm can grow domestically. Think about exporting after that.
2. Know your customer profile and evaluate which countries have significant pool of your customers
3. Evaluate what assets you have that give you ownership advantage and whether these assets are cheaply
deployed to these foreign markets
4. Invest in assets that foster your ownership advantages
5. Don’t be afraid to start small; use existing capacity and networks.
• You can reduce costs and lower capital risks by utilizing existing intermediaries in foreign country to sell
your product
• Don’t expect intermediary to be as focussed on selling your product as you would be
6. You can always invest later
• An agent that distributes only your product has better incentives but higher costs
• When investing in productive capacity, think about trade-offs: scale economies, trade costs, comparative
advantage, materials availability, infrastructure, and capital risk
Toyota USA
Toyota Motor Sales USA established in 1957.
It starts as a single Toyota dealership in Southern California.
Total sales in 1957: 287 cars and 1 land cruiser.
Toyota Corona introduced in 1965. All Toyota cars imported to
US from Japan
Distribution: established contracts with private distributors in
different regions of US during 1960’s. These distributors were
given exclusive rights to distribute Toyota cars throughout their
region. Also dealt with dealers in their regions.
Toyota USA
Automobile production operations in US:
1984, joint venture with GM;
1988, wholly owned production facilities established in Kentucky.
Parts production established in 1972.
Distribution: Most private distributors are bought up by Toyota over
time and become part of owned distribution operation.
Two private distributors remain: Gulf States Toyota and Southeast
Toyota Distributors.
Check-List Pre Trade Mission
1. Develop a clear value proposition statement, this should include: Why?
Value proposition; Competition map; SWOT analysis
2. Build a Market Profile document
Identify potential clients/partners Who?
eCommerce platforms?
Retail stores that carry your kind of products How?
Importers that carry your kind of products
3. Identify your exporting/importing cost $$$
Calculate costs associated to exporting and landing your product in the market
4. Build a pitch deck (5 slides to be presented in 5-7 min.?)
