Summary of chapter 9:

Market entry
Introduction
Participation in international marketplace can be a very rewarding activity and can be key to survival therefore companies must prepare their activities and adjust to the needs and opportunities of international markets in order to become a long term participant. Because of the gradual globalization of the marketplace, firms have less and less time to adjust to new market realities. This chapter discusses market entry issues. Companies have wide variety of options to choose when they go international which totally depends on its internal resources and the alternatives offered by the external environment. Firms can choose different entry strategies for different markets. For example: 1. Market entry via exporting, 2. Market entry via licensing.

Motivation to Internationalize
A key factor determining why firms go international is the type and quality of management. Dynamic management, management commitment and perception are important when firms go international and are good predictors of export success. In most business activities there are variety of motivational factors, for international market entry, both pushing and pulling firms along the international path. The major motivations to internationalize are differentiated into: 1. Proactive motivations 2. Reactive motivations

Proactive motivations
It represents stimuli to attempt strategic change. The most stimulating proactive motivation to become involved in international marketing is The profit advantage, management may perceive international sales as a potential source of higher profit margins or of more added on profits. Second major stimulus emanates from unique products or from technological advantage. Firm may produce goods or services that are not widely available in the international market. Exclusive market information is another proactive stimulus. This includes knowledge of foreign market customers, marketplaces or market situations that is not widely shared by other firms. Managerial urge is a motivation that reflects the desire, drive and enthusiasm of management toward international marketing activities. Tax benefits can also play a major motivating role. It allows a firm either to offer its products at a lower cost in foreign markets or to accumulate a higher profit. Economies of scale can be finally another major stimulus. Increased production for the international market can help in reducing the cost of production for domestic sales and make the firm more competitive domestically.

Reactive motivations
It influences firms that are responsive to environmental changes and adjust to them by changing their activities over time. A prime form of reactive motivation is reaction to competitive pressures. Similarly, overproduction can serve as a major reactive motivation. Excess capacity can also be a powerful reactive motivation. If equipment for production is not fully utilized, firms may see expansion into the international market for achieving broader distribution of fixed cost. The reactive motivation of a saturation domestic market is similar in results to that of declining domestic sales.

A final major reactive motivation is proximity to customers and ports. Physical and psychological closeness to the international market can often play a major role in the export activities of a firm.

Change Agents in the Internationalization Process

For change to take place someone or something within the firm must initiate it and shepherd it through to implementation. This intervening individual or variable is here called a change agent. Change agents in the internationalization process are as follows:

Internal Change Agents

1. A primary change agent is enlightened management. Trigger factors for the current management are foreign travel, to discover business opportunities or receipt of information. 2. A second set of a major internal change agent consists of new management or new employees where their international market experience is the major factor for the firms. 3. A significant internal event can be another major change agent.

External Change Agents

1. The primary outside influence on a firms decision to become international is foreign demand. 2. Another major outside influence is the statements and actions of other firms in the same industry. 3. A third quiet outside influential change agent consists of distribution in international markets. 4. Banks and other service firms can serve as a major change agent by altering domestic clients to international opportunities. 5. Chamber of commerce, export agents, governmental efforts and governmental entities that interact with firm can frequently heighten international marketing interests, which also serve as a major change agent.

Export Development Stages

Normally export development is a gradual process. This appears to proceed in several stages. Initially vast majority of firms are not interested in international marketplace. But over the time it gradually becomes partially interested exporter. In next stage the firm gradually explores international markets to consider the feasibility of exporting. After this exploratory stage firms becomes an experimental exporter, usually to psychological close countries. The final stage of this process is that of export adaptation, in which firm is an experienced exporter to a particular country.

Exporter Concerns
Firms that enter the international marketplace are faced with a host of new problems. Firms at an export awareness stage, partially interested in the international market are, primarily concerned with operational matters such as information flow and the mechanics of carrying out international transaction. Finally, firms that have reached the export adaptation phase are mainly strategy and service oriented, which is to say that they worry about longer-range issue. Linking the various decision components and characteristics discussed so far facilitates an understanding of the process that a firm must undergo in its internationalization efforts. Model of the internationalization process, demonstrates the interaction between components and shows how a firm gradually grows into becoming a full participant in the global arena.

Corporate Strategy and Exporting

As a firm moves through the export stages, unusual things can happen to both risk and profit .In light of the gradual development of expertise, the many concerns about engaging in a new activity, and a firm's uncertainty with the new environment it is about to enter, management's perception of risk exposure grows. At the same time, because of the investment needs required by a serious export effort, immediate profit performance may slip. Export success does require

the firm to be a risk taker, and firms must realize that satisfactory export performance will take time. This satisfactory performance can be achieved in three ways: 1. Export effectiveness, 2. Export efficiency, and 3. Competitive strength Effectiveness is characterized by the acquisition of market share abroad and by increased sales. Efficiency is manifested later by rising profitability. Competitive strength refers then to the firm's position compared to other firms in the industry, and due to the benefits of international market experience.

Market-Entry Alternatives
Firms recognize the value of marketing internationally. For these firms, there are alternative methods to enter the international marketplace. Two key options are the use of licensing and franchising in addition, the services of international market intermediaries can be employed. These alternatives are open to and used by all types of firms, large and small.

Licensing
Under a licensing agreement, one firm, licensor, permits another to use its intellectual property in exchange for compensation, designated as a royalty. The recipient firm is a licensee.

Assessment of Licensings
Licensing has intuitive appeal to many international markets. Some of its advantages are as follows: 1. As an entry strategy it may require neither capital investment nor knowledge and marketing strength in foreign markets. 2. By earning loyalty income, it provides an opportunity to obtain an additional return on research and development investments already incurred. 3. After initial costs, the licensor can reap benefits until the end of contract period.

4. Licensing reduces the risk of exposure to government intervention. 5. It allows the firm to test foreign markets without major involvement of capital. 6. Final reason is that intellectual property right protection in many countries is weak. 7. It also offers a foreign entity the opportunity for immediate market entry with a proven concept. 8. It never comes under criticism from supranational organizations. Licensing also has some disadvantages as follows: 1. The licensor may not gain sufficient international marketing expertise to ready itself for subsequent world market penetration. 2. Moreover the initial toehold in the foreign market may not be a foot in the door. 3. In exchange of royalty, licensor create its own competitors not only in markets for which the agreement was made but also in the third markets. 4. Some companies are hesitant to enter in licensing agreements. 5. Licensing agreements typically have time limits.

Principle Issues in Negotiating Licensing Agreements

The key issues in negotiating the licensing agreements include:
The scope of rights: It means specifying the technology, know how, show how, to be included, the format and guarantee. Compensation issues: The costs the licensor must to cover are Transfer Costs, R & D Costs, and Opportunity Costs. Licensee compliance: They compliance on a number of dimensions that are export control regulations, confidentiality of the intellectual property and record keeping for the licensors audit. Dispute Resolutions: The discussions about dispute resolutions center on the choice of law for contract interpretation and the choice of forum. Terms of termination: these terms and survival of rights must be specified properly.

Trademark Licensing
Trademark licensing has become a substantial source of worldwide revenue for the companies that can trade on their name and characters. Both the parties may run into difficulty it the trademark is used for the product. So in licensing trademark, consumer perceptions have to be researched to make sure the brands positioning will not change.

Franchising
Franchising is a form of licensing in which the Parent company (the franchisor) grants another independent entity (the franchisee) the right to do the business in a prescribed manner. This right could be selling the franchisors products, using its name, production and marketing techniques or general business approach. Franchising is not only used by large firms as a foreign market entry but it can also be used by small firms if a firm can offer special business concept.

Facilitating Intermediaries
1. Firm that do not go for licensing or franchising and do not care to export abroad still can participate in the international market by making use of facilitating intermediaries. 2. One obvious possibility is the selling of merchandise to a domestic firm that in turns sells it abroad. 3. These are only those firms who specialize in bringing firms or their products and services to the global markets. This section will consider two intermediaries: 1. Export management companies. 2. Export trading companies

Export Management Companies

Export management companies (EMCs) are domestic firms that specialize in performing international marketing services as commission representatives or as distributors for several other firms. They have two primary forms of operations: 1. They either take title to goods or operate internationally on their own accounts as distributors 2. Or they perform services as agents.

Export Trading Companies

A second major facilitating intermediary is the trading company. Export Trading Companies (ETCs) were designed to improve the performance of small and medium sized firms. Permitting banks to participate in ETCs was intended to allow better excess to capital and for more trading transactions and easier receipt of title of goods.

Conclusion
Firms do not become experienced exporters overnight but rather progress gradually through export development process. Companies have wide variety of options to choose when they go international which totally depends on its internal resources and the alternatives offered by the external environment.

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