2. Different modes of entry
Exporting
Licensing
Franchising
Contract manufacturing
Management Contracts
FDI without alliances
FDI with alliances
2
3. Forms of Exporting
1
• Indirect Exporting
2
• Direct Exporting
3
• Intra-corporate Transfers
3
4. Forms of Exporting
4
Exporting means shipping the goods and services
out of the port of a country.
Seller is referred to as an "exporter" .
Buyer is referred to as an "importer“.
Indirect Exporting means that the firm participates
in international business through an intermediary
and does not deal with foreign customers or
markets.
Direct exporting means that the firm works with
foreign customers or markets with the opportunity
to develop a relationship.
10. Exporting
Advantages
Relatively low
financial exposure
Permit gradual
market entry
Acquire
knowledge about
local market
Avoid restrictions
on foreign
investment
Disadvantages
Vulnerability to
tariffs and NTBs
Logistical
complexities
Potential conflicts
with distributors
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11. 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 trademarks—to
another firm, called the licensee, in return for a fee.
The property licensed may include:
Patents
Trademarks
Copyrights
Technology
Technical know-how
Specific business skills11
13. Basic Issues in
International Licensing
Specifying the boundaries of the agreement
Determining compensation
Establishing rights, privileges, and constraints
Specifying the duration of the contract
Differences in laws and culture.
Eg. Pepsico, Coke Bottling Plant
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14. Licensing –Adv. & Disadv.
Advantages
• Low financial risks
• Low-cost way to assess
market potential
• Avoid tariffs, NTBs,
restrictions on foreign
investment
• Licensee provides
knowledge of local
markets
Disadvantages
• Limited market
opportunities/profits
• Dependence on licensee
• Potential conflicts with
licensee
• Possibility of creating
future competitor
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15. Under franchising, an independent organization 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
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16. Franchising Agreements
Franchisee has to pay a fixed amount and royalty
based on sales.
Franchisee should agree to adhere to follow the
franchisor’s requirements
Franchisor helps the franchisee in establishing the
manufacturing facilities
Franchisor allows the franchisee some degree of
flexibility.
Eg. McDonalds, Subway, KFC
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17. Franchising- Adv. & Disadvantages
Advantages Disadvantages
17
Low financial risks
Low-cost way to assess
market potential
Avoid tariffs, NTBs,
restrictions on foreign
investment
Maintain more control
than with licensing
Franchisee provides
knowledge of local market
Limited market
opportunities/profits
Dependence on
franchisee
Potential conflicts with
franchisee
Possibility of creating
future competitor
18. FDI without alliances
Companies enter the international market through
FDI , invest their money, establish manufacturing
and marketing facilities through ownership and
control.
Greenfield strategy- the term Greenfield refers to
starting of the operations of a company from
scratch in a foreign market.
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19. Greenfield Strategy
• Best site
• Modern facilities
• Economic development incentives
• Clean slate
Advantages
• Huge time and patience needed
• Expensive
• Comply with local and national
regulation
• Local workforce needed
• Strongly perceived as a foreign
worker
Disadvantages
19
20. FDI with strategic alliances
Strategic alliance is a cooperative and collaborative approach to
achieve the larger goals.
Role of alliances
Many complicated issues are solved through alliances
They provide the parties each other’s strengths
Helps in developing new products with the interaction of 2 or
more industries
Meet the challenges of technological revolution.
Managing heavy outlay
Become strong to compete with a multinational company.
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21. FDI with strategic alliances
Modes of FDI through alliances are:
Merger : The combining of two or more companies,
generally by offering the stockholders of one
company securities in the acquiring company in
exchange for the surrender of their stock.
Acquisition : When one company takes over
another and clearly established itself as the new
owner, the purchase is called an acquisition.
Joint ventures is an entity formed between two or
more parties to undertake economic activity together.
The parties agree to create a new entity by both
contributing equity, and then they share in the
revenues, expenses, and control of the enterprise.21
22. Examples
Merger Acquisition
22
ING Vysya merged into
Kotak Mahindra
Ranbaxy into Sun
Pharma
Tata Chemicals took
over British salt based
in UK
Flipkart acquired
Myntra
Yahoo acquired
Bookpad
Asian paints acquired
front end sales of Ess
Ess bathroom Products
ICICI Bank's acquisition
of Bank of Rajas
23. Acquisition
Advantages Disadvantages
23
Obtains control over the
acquired firm such as
factories and brand
names
Integrate the mgt of the
firm into its overall
international strategy
Assumes all the
liabilities such as
financial and
managerial
24. Joint Ventures
Advantages Disadvantages
24
Benefit from local
partner’s knowledge.
Shared costs/risks
with partner.
Reduced political risk.
Risk giving control of
technology to partner.
May not realize
experience curve or
location economies.
Shared ownership can
lead to conflict