1

INTERNATIONAL BUSINESS
ENTRY
Oman MBA (EXEC)
BS4
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LEARNING OBJECTIVES

1. An overview of foreign market entry strategies

2. Internationalization of the firm
3. Exporting as a foreign market entry strategy
4. Managing export-import transactions
5. Payment methods in exporting and importing
6. Export-import financing
7. Identifying and working with foreign intermediaries
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CHARACTERISTICS OF COMPANY
INTERNATIONALIZATION
• Push and pull factors serve as initial triggers
• Initial internationalization may be accidental.
• Risk and return must be balanced.
• An ongoing learning experience.
• Firms may evolve through stages of internationalization
• However, note that recently some firms—born globals—have
internationalized quickly.
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TYPICAL STAGES OF COMPANY

INTERNATIONALIZATION
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FOREIGN MARKET ENTRY STRATEGIES

• Importing or global sourcing: Procurement of products and

services from foreign sources

• Exporting: Producing products or services in one country

(often the producer’s home country), and selling and
distributing them to customers in other countries

• Countertrade: International transaction in which all or partial

payments are made in kind rather than cash
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FOREIGN MARKET ENTRY STRATEGIES

(CONT.)

• In contrast to home-based international operations (e.g.,

exporting), foreign direct investment (FDI) involves
establishing a presence in the foreign market by investing
capital and securing ownership of a factory, subsidiary, or
other facility there.

• Collaborative ventures include joint ventures in which the

firm makes similar equity investments
abroad, but in partnership with another company.
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FOREIGN MARKET ENTRY STRATEGIES

(CONT.)
• With licensing, the firm allows a foreign partner to use its
intellectual property in return for royalties or other
compensation.
•
• Franchising is common in retailing. McDonalds, Dunkin’
Donuts, Century 21 Real Estate, and many other firms have
used franchising to internationalize worldwide.
 DETERMINANTS OF MARKET ENTRY
MODE - INTERNAL

•Corporate objectives including risk / return trade off

•Product characteristics, value/ weight ratio, service
characteristics, etc
•Firm’s size, resources, capabilities
•Degree of product differentiation & branding
•Technology, firm specific knowledge & dissemination risk
 DETERMINANTS OF MARKET ENTRY
MODE - EXTERNAL

•Size & growth rate of foreign markets

•Country risks including political, economic and currency risks
•Competitive intensity
•Geographic distance & location familiarity
•Location culture, language & tastes / need for local
responsiveness & adaptation
•Government policies
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ADDITIONAL FACTORS TO CONSIDER

• The value-adding activities the firm is willing to perform in

the market and the activities it will delegate to local
partners
• Long-term strategic importance of the market

• Characteristics of the product or service

FACTORS INFLUENCING THE CHOICE &
IMPORTANCE OF MARKET ENTRY
 MARKET
-How important is the
demand in this country?

• Growth?
RESOURCESS • Size
• Customer’s quality? COMPETITION
- Is the country • Intensity of Rivalry
a critical source of: • Entry barriers
• Bargaining Power of
• Skilled Personnel Suppliers and Customers
• Raw materials? MARKET ATTRACTIVENESS
• Components?
• Labor - Is the business
• Technological
•Profitable short term ?
innovation?
•Profitable long term ?
• Learning
- Quality of Infrastructure • Does a presence in this
and supporting services country is neded for
- Location INCENTIVES global competitiveness ?
• Taxes
• Subsidies
• Infrastructures
• Government contracts
COMPARISON OF ENTRY MODE
STRATEGIES
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CLASSIFICATION OF ENTRY STRATEGIES

BASED ON DEGREE OF CONTROL FOR FOCAL FIRMS
 ADVANTAGES AND DISADVANTAGES
OF THE DIFFERENT MODES OF ENTRY

Mode of Advantages Disadvantages

Entry
Licensing  Speedy entry to foreign  Hard to monitor partners in
market foreign markets
 Does not require a high  High potential for
resource commitment in the opportunism
targeted country  Hard to enforce agreements
 Can be used as a step  Provides a small experiential
towards a more committed knowledge in foreign markets
mode of entry
 Low cost strategy to expand
sales in order to achieve
economies of scale.
 ADVANTAGES AND DISADVANTAGES OF
THE DIFFERENT MODES OF ENTRY

Mode of Advantages Disadvantages

Entry
Inter-  Speed entry to foreign
national
market
Franchising
 Requires a moderate
resource commitment in the
targeted country
 Moderate cost strategy to
expand sales in order to
achieve economies of scale.
 High monitoring costs
 High potential for
opportunism
 Could damage the firm’s
reputations and image
 Does not provide first hand
experiential knowledge in
foreign markets
 JOINT VENTURES
Advantages Disadvantages
• Shared investment risk • Difficult to find good partners
• Complementary • Relationship management issues
resources • Loss of competitive advantage
• Maybe a requirement for • Difficult to integrate and
market entry. coordinate.
 ADVANTAGES AND DISADVANTAGES
OF THE DIFFERENT MODES OF ENTRY
Mode of Advantages
Entry
Wholly-  Low risks of technology
owned appropriation
ventures  Able to control operations abroad
Greenfield  Provides high experiential
strategy knowledge in foreign markets
 Low level of conflict between the
subsidiary and the parent firm
 Does not have a problem of
integrating different cultures,
structures, procedures and
technologies
 Managers of foreign subsidiaries
have a strong attachment to the
parent firm
Disadvantages
 Could not rely on pre-existing
relationships with customers,
suppliers and government officials
 Potential difficulty in accessing to
existing managers and employees
familiar with local market conditions
 Adds extra capacity to the existing
market
 The firm is seen as a foreign firm by
local stakeholders
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OVERVIEW OF EXPORTING

• Usually the firm’s first foreign entry strategy.

• Low risk, low cost, and flexible.
• Popular among SMEs.
• When we talk about trade, trade deficits, trade surpluses,
etc., we’re talking about exporting.
• Most exports involve merchandise.
• Export channels:
• Independent distributor or agent
• Firm’s own marketing subsidiary abroad
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SERVICES ARE ALSO EXPORTED

• Examples are architecture, education, banking, insurance,

entertainment, and information.
• However, many pure services cannot be exported because they
cannot be transported.

• Retailers offer their services by establishing retail stores abroad

via FDI. Retailing requires direct contact with customers.

• Overall, most services are delivered to foreign customers via

entry strategies other than exporting.
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ADVANTAGES OF EXPORTING
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DISADVANTAGES OF EXPORTING

• Requires firm to acquire new capabilities and redirect

organizational resources;
• Sensitive to tariffs and other trade barriers;
• Sensitive to exchange rate fluctuations;
• Compared to FDI, firm has fewer opportunities to learn
about customers, competitors, and the marketplace.
 ADVANTAGES AND DISADVANTAGES
OF THE DIFFERENT MODES OF ENTRY
Mode of Advantages
Entry
Export  Does not require a high
resource commitment in the
targeted country
 Inexpensive way to gain
experiential knowledge in
foreign markets
 Economies of scale in home
country
Disadvantages
 Hard to control operations
abroad
 Dependence on export
intermediaries
 Provides very small
experiential knowledge in
foreign markets
 Transportation costs
 Possible tariff and NTB’s
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A SYSTEMATIC APPROACH TO EXPORTING

Screen for the Assess firm’s Acquire new abilities Devise needed
most attractive resource needs; in such areas as on-the-ground
markets; identify establish product tactics; adapt
qualified timetable for development, products and
distributors; achieving export logistics, finance, marketing as
estimate industry goals; decide on contracts, currency needed
market potential distribution management,
and company sales strategy foreign languages,
potential cross-cultural skills
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EXPORT INTERMEDIATION OPTIONS

• Indirect exporting: Contracting with an intermediary, often an export
management company or a trading company, in the firm’s home
country to perform all export functions; common among firms new to
exporting

• Direct exporting: Contracting with intermediaries, such as distributors

or agents, in the foreign market to perform export functions; perform
downstream value-chain activities in the target market

• Company-owned foreign subsidiary: Similar to direct exporting,

except the exporter owns the foreign intermediation operation; the
most advanced option
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ALTERNATIVE ORGANIZATIONAL
ARRANGEMENTS FOR EXPORTING
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EUROPEAN UNION: TOP TRADING

PARTNERS

Sum of merchandise exports and imports, in billions of U.S. dollars

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EXPORT DOCUMENTATION

The official forms and other paperwork required to transport

exported goods and clear customs
• Quotation or pro forma invoice: Issued on request to advise a
potential buyer about the price and description of the exporter’s
product or service
• Commercial invoice: Actual demand for payment issued by the
exporter when a sale is concluded
• Bill of lading: Basic contract between exporter and shipper;
authorizes the shipping company to transport the goods to the
buyer’s destination
•
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EXPORT DOCUMENTATION (CONT.)

• Shipper's export declaration: Lists the contact information of

the exporter and buyer, full description, declared value,
and destination of the products being shipped
• Used by governments to collect statistics

• Certificate of origin: The "birth certificate" of the goods,

showing country where the product originated

• Insurance certificate: Protects the exported goods against

damage, loss, pilferage, and, sometimes, delay
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INCOTERMS (INTERNATIONAL COMMERCE

TERMS)

• A system of universal, standard terms of

sale and delivery.
• Commonly used in international sales
contracts and price lists to specify how
the buyer and the seller share the cost
of freight and insurance, and at which
point the buyer takes title to the goods.
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EXAMPLES OF INCOTERMS
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SOURCES OF INFORMATION TO
IDENTIFY POTENTIAL INTERMEDIARIES
• Country and regional business directories such as Kompass (Europe), Bottin
International (worldwide), Japanese Trade Directory, and Foreign Yellow
Pages
• Trade associations such as the National Furniture Manufacturers Association
or the National Association of Automotive Parts Manufacturers
• Government ministries and agencies such as Austrade in Australia, Export
Development Canada, and the U.S. Department of Commerce
• Commercial attachés in embassies and consulates abroad
• Branch offices of government agencies located in exporter’s country, such
as the Japan External Trade Organization
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COMMON DISPUTE AREAS WITH

INTERMEDIARIES
• Compensation arrangements
• Pricing practices
• Advertising and promotion practices and the extent of advertising
support
• After-sales service
• Return policies
• Adequate inventory levels
• Incentives for promoting new products
• Adapting the product for local customers
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CRITERIA FOR EVALUATING EXPORT

INTERMEDIARIES