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BMP-MBA 504

1M.S Ramaiah School of Advanced Studies - Bangalore

Session 6

nternational Business !ntr"

Mode

Session S#ea$er

%a"ashree &

Asst. Professor


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(ecision of modes of entr"

)o decide the mode of entr" the follo*ing

factor is to +e considered ,-

*nershi# advantages

/ocation advantages

nternationaliation Advantages


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o*nershi# advantages

*nershi# advantages are those +enefits that

the com#an" ma" have +" o*ning the

resources.

)S2 /td. *ned its iron ore mines and

collieries. )his advantage ma$es it the least

cost #roducer of molten iron.


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/ocation advantage

2ertain location factors grant +enefit to the com#an"

*hen the manufacturing facilities are located in the host

countr".

2ustomer needs 3 #references and tastes /ogistic reuirements

2hea# land and acuisition costs

Political sta+ilit"

2hea# la+our

/o* cost of ra* materials

2limatic 2onditions.


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BMP-MBA 504

5

Pressures for lo+al ntegration and

ational (ifferentiation

see C. Bartlett (1986)

Global

Organization

Multinational

Organization

Forces forGlobal

Integration

Forces forNational

Differentiation

Lo

Lo

High

High

TransnationalOrganization

International

Organization


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Advantages and (isadvantages

Strateg" Advantages (isadvantagesInternational transfer distinct com#etencies lac$ local res#onsiveness

lac$ location economies

can7t e8#loit e8#. curve

Multi-domestic customie offerings 9 lac$ location ec"7s

(multi-national) mar$eting can7t e8#loit e8#. curve

cant7 transfer distinct

com#etencies

Global e8#loit e8#erience curve lac$ local res#onsiveness

e8#loit location economies

Transnational e8#loit e8#. 2urve 9 location im#lementation- org7nl

economies3 customie3 glo+al #ro+lems

learning +enefits


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Basic !ntr" (ecisions

;hich mar$ets to enterree mar$et s"stems

?o dramatic u#surge in inflation or #rivate-sector de+t. @nfavora+le

? Politicall" unsta+le develo#ing nations *ith a mi8ed or

command econom" or *here s#eculative financial +u++les

have led to e8cess +orro*ing..

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)iming of !ntr"

Advantages in earl" mar$et entr",? >irst-mover advantage.

? Build sales volume.

? Move do*n e8#erience curve and achieve cost

advantage.

? 2reate s*itching costs.

(isadvantages,

? >irst mover disadvantage -pioneering costs.? 2hanges in government #olic".

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Scale of !ntr"

/arge scale entr"?Strategic Commitments- a decision that has a

long-term im#act and is difficult to reverse.

?Ma" cause rivals to rethin$ mar$et entr".?Ma" lead to indigenous com#etitive res#onse.

Small scale entr",

?)ime to learn a+out mar$et.?Reduces e8#osure ris$.

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!ntr" Modes

!8#orting

)urn$e" Proects

/icensing >ranchising

%oint Centures

;holl" *ned Su+sidiaries Mergers and Acuisitions

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!8#orting

Advantages,

? Avoids cost of esta+lishing manufacturing o#erations.

? Ma" hel# achieve e8#erience curve and location economies.

(isadvantages,

? Ma" com#ete *ith lo*-cost location manufacturers.

? Possi+le high trans#ortation costs.

? )ariff +arriers.

? Possi+le lac$ of control over mar$eting re#s.

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/icensing

n this mode of entr"3 the domesticmanufacturer leases the right to use itsintellectual #ro#ert"3 i.e.3 technolog"3

*or$ methods3 #atents3 co#" rights3 +randnames3 trade mar$s etc. to a manufacturerin a foreign countr" for a fee.


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Basic issues

Boundaries of the agreement

(etermination of Ro"alt"

(etermining rights3 #rivileges and constraints

(is#ute settlement Mechanism

Agreement (uration


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/icensing, Advantages

Reduces develo#ment costs and ris$s ofesta+lishing foreign enter#rise.

/ac$ ca#ital for venture.

@nfamiliar or #oliticall" volatile mar$et. vercomes restrictive entr" +arriers

thers can develo# +usiness

a##lications of intangi+le#ro#ert".


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/icensing agreements reduce the mar$et

o##ortunities

ne #art" can effect the other through

im#ro#er acts.

2ostl" and tedious litigation ma" cro# u#.

Pro+lem of lea$age of the trade secrets of the

licensor.


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/icensing

Advantages,?Reduces costs and ris$s of esta+lishing enter#rise.

?vercomes restrictive investment +arriers.

?thers can develo# +usiness a##lications ofintangi+le #ro#ert".

(isadvantages,?/ac$ of control.

?2ross-+order licensing ma" +e difficult.?2reating a com#etitor

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BMP-MBA 504

1=

>ranchising

@nder franchising3 an inde#endent organisation calledthe franchisee o#erates the +usiness under the nameof another com#an" called the franchisor. n such an

arrangement the franchisee #a"s a fee to thefranchisor.

>ranchising is a form of /icensing +ut the >ranchisorcan e8ercise more control over the >ranchisee as

com#ared to that in /icensing.


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>ranchising agreements

>ranchisee has to #a" a fi8ed amount and

ro"alt" +ased on sales.

>ranchisee should agree to adhere to follo*

the franchisor7s reuirements

>ranchisor hel#s the franchisee in

esta+lishing the manufacturing facilities

>ranchisor allo*s the franchisee some degree

of fle8i+ilit".

A 04


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>ranchising

Advantages,

?Reduces costs and ris$ of esta+lishing enter#rise.

(isadvantages,?Ma" #rohi+it movement of #rofits from one

countr" to su##ort o#erations in another countr".

?Dualit" control.

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2ontract manufacturing

2ontract manufacturing is outsourcing entire or

#art of manufacturing o#erations.

!.g., #harmaceuticals3 te8tiles etc

BMP MBA 504


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BP

Business Process utsourcing is the long term

contracting out of non core +usiness #rocesses

to an outside #rovider to hel# achieve increased

shareholder value.WHY BPO

)o ena+le e8ecutives to concentrate on strateg".

)o im#rove #rocesses and save mone"

ncrease organisational ca#a+ilities.

BMP MBA 504


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Management contract

A management contract is an agreement+et*een t*o com#anies *here+" one

com#an" #rovides managerial assistance3technical e8#ertise and s#ecialised services

to the second com#an" for a certain #eriodof time in return for monetar"

com#ensation.

BMP MBA 504


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)urn$e" #roect

A turn$e" #roect is a contract under *hich afirm agrees to full" design3 construct and eui# a

manufacturingE+usinessEservice facilit" and turnthe #roect over to the #urchaser *hen its read"for o#eration3 for a remuneration.

BMP MBA 504


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)urn$e" Proects

Advantages,?2an earn a return on $no*ledge asset.

?/ess ris$" than conventional >(.

(isadvantages,?o long-term interest in the foreign countr".

?Ma" create a com#etitor.

?Selling #rocess technolog" ma" +e sellingcom#etitive advantage as *ell.

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>( *ithout alliances

2om#anies enter the international mar$et

through >( 3 invest their mone"3 esta+lish

manufacturing and mar$eting facilities

through o*nershi# and control.

reenfield strateg"- the term reenfield refers

to starting of the o#erations of a com#an"

from scratch in a foreign mar$et.

BMP MBA 504


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>di *ith strategic alliances

Strategic alliance is a coo#erative andcolla+orative a##roach to achieve the largergoals.

Role of alliances

Man" com#licated issues are solved throughalliances

)he" #rovide the #arties each other7s strengths

Fel#s in develo#ing ne* #roducts *ith theinteraction of ' or more industries

Meet the challenges of technological revolution.

BMP MBA 504


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Managing heav" outla"

Become strong to com#ete *ith a

multinational com#an".

BMP MBA 504


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Modes of >( through alliances are,

Mergers and acuisitions

%oint ventures

BMP MBA 504


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Mergers and Acuisitions

;hat (oes Merger Mean@2)A/ A//A2!S

PR(@2) A//A2!S

MAR&!) A//A2!S

>A2A/ A//A2!S

R!S!AR2F A( (!C!/PM!)

A//A2!S

BMP MBA 504


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%oint Centures

Advantages,?Benefit from local #artner7s $no*ledge.

?Shared costsEris$s *ith #artner.

?Reduced #olitical ris$.

(isadvantages,?Ris$ giving control of technolog" to #artner.

?Ma" not realie e8#erience curve or location

economies?Shared o*nershi# can lead to conflict.

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BMP MBA 504


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;holl" *ned Su+sidiar"

Advantages,

?o ris$ of losing technical com#etence to a

com#etitor.

?)ight control of o#erations.

?Realie learning curve and location economies.

(isadvantage,

?Bear full cost and ris$.

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BR!A& @P > A//A2!S

ncom#ati+ilit" of #artners

Access to information

(istri+ution of income

2hanges in +usiness environment

Acuiring the strengths of the #artner

/egal factors

BMP-MBA 504


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Advantages and (isadvantages of

!ntr" Modes

Entry Mode Advantage Disadvantage

Exporting Ability to realize location andexperience curve economies

High transport costsTrade barriers

Problems with local marketing

agentsTurnkeycontracts

Ability to earn returns romprocess technology skills incountries where !D" isrestricted

#reating eicient competitors$ack o long%term market

presence

$icensing $ow development costsandrisks $ack o control over technology"nability to realize location and

experience curve economies"nability to engage in

global strategiccoordination

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BMP-MBA 504Advantages and (isadvantages of


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Advantages and (isadvantages of

!ntr" Modes

EntryMode Advantage Disadvantage

!ranchising $ow development costs andrisks

$ack o control over &uality"nability to engage in global strategic

coordination

'ointventures

Access to local partner(sknowledge

)haring development costsand risks

Politically acceptable

$ack o control over technology"nability to engage in global strategic

coordination"nability to realize location and

experience economies

*hollyownedsubsidiaries

Protection o technologyAbility to engage in global

strategic coordinationAbility to realize location and

experience economies

High costs and risks

Table 14.1b

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Selecting an !ntr" Mode

Technological+now%How

Management+now%How

*holly owned subsidiary, except-./ 0enture is structured to reducerisk o loss o technology/

1/ Technology advantage istransitory/

Then licensing or 2oint venture 3+/

!ranchising, subsidiaries4wholly owned or 2oint

venture5/

Pressure or#ost 6eduction

#ombination o exporting andwholly owned subsidiary/

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!ntr" Mode and 2om#etitive

Advantage

Advantage Based on )echnological &no*-Fo*

? !8#orting3 /icensing3 or ;holl"-o*ned su+sidiaries

? !8am#les, Fonda3 ntel

Advantage Based on Management &no*-Fo*? >ranchising3 %oint Centures3 or su+sidiaries

? !8am#les, Mc(onalds3 Marriott

BMP-MBA 504


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Strategic Alliances

2oo#erative agreements +et*een #otential or actualcom#etitors.

Advantages,

? >acilitate entr" into mar$et.

? Share fi8ed costs.

? Bring together s$ills and assets that neither com#an" has or

can develo#.

? !sta+lish industr" technolog" standards.

(isadvantage,

? 2om#etitors get lo* cost route to technolog" and mar$ets.

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BMP-MBA 504


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Alliances Are Po#ular

Figh cost of technolog" develo#ment

2om#an" ma" not have s$ill3 mone" or

#eo#le to go it alone

ood *a" to learn

ood *a" to secure access to foreign

mar$ets Fost countr" ma" reuire some local

o*nershi#

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lo+al Alliances3 ho*ever3 are different

2om#anies oin to attain *orld leadershi#

!ach #artner has significant strength to+ring to the alliance

A true glo+al vision

Relationshi# is horiontal not vertical

;hen com#eting in mar$ets not #art of

alliance3 the" retain their o*n identit"

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BMP-MBA 504


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Partner Selection

et as much information as #ossi+le on the

#otential #artner

2ollect data from informed third #arties

?former #artners

?investment +an$ers

?former em#lo"ees

et to $no* the #otential #artner +efore

committing

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BMP-MBA 504Structuring the Alliance to Reduce


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Structuring the Alliance to Reduce

##ortunism

3pportunismby partner

reduced by-

Seeking credible

commitments

Agreeing to swap

valuable skills

and technologies

Establishing

contractual

safeguards

Walling off

critical technology

Figure 14.1

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2haracteristics of a lo+al Alliance

Pla"ers are inde#endent #rior to the creatingof the alliance

Pla"ers share

?+enefits of the alliance

?control over o#erations

Pla"ers continue to contri+ute

?technolog"

?#roducts

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BMP-MBA 5042haracteristics of a Strategic Alliance


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2haracteristics of a Strategic Alliance

Independence of

Participants

Shared

Benefits

Ongoing

ontributions

Markets

#ooperat

7eneits#ontrol

Products

Technology

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BMP-MBA 504

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Pro+lems *ith Strategic Alliances

Fave to give u# some authorit"Econtrol

2ould +e strengthening a future com#etitor

?)echnolog" transfer?Management #ractices

?#erating #rocedures

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