1. DIFFERENT MODES OF
ENTRY INTO
INTERNATIONAL BUSINESS
By
Rizwan
Dhanesh
Prathamesh

2. Different modes of entry
EXPORTING
-indirect exporting
-direct exports
-intra-corporate
transfers


SPECIAL MODES
-Contract
manufacturing
-Management
Contracts
-Turnkey projects
LICENSING


FDI without alliances

FDI with alliances
FRANCHISING

3. Forms of Exporting
Indirect
exporting
Direct
exporting
Intra-corporated
transfer

4. Forms of Exporting
4
 Indirect
involvement means that the firm
participates in international business
through an intermediary and does not
deal with foreign customers or markets.
 Direct
involvement means that the firm
works with foreign customers or markets
with the opportunity to develop a
relationship.

5. Indirect Exporting

6. Indirect Exporting – Eg.
16-6

Exporting of goods and services through
various home-based exporters
 Manufacturers’
export agents
 Export
commission agents
 Export
merchants
 International
firms

7. Direct Exporting

8. Intra-corporate Transfer

9. Exporting
Advantages
Relatively low
financial exposure
Permit gradual
market entry
Disadvantages
Vulnerability to
tariffs and NTBs
Logistical
complexities
Acquire knowledge
about local market
Potential conflicts
with distributors
Avoid restrictions on
foreign investment

10. 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 skills


11. The Licensing Process

12. Basic Issues in
International Licensing





Specifying the boundaries of the agreement
Determining compensation
Establishing rights, privileges, and constraints
Specifying the duration of the contract
Eg. Pepsico, Coke Bottling Plant

13. Licensing –Adv. & Disadv.
Advantages
Disadvantages
• Low financial risks
• Low-cost way to
assess market
potential
• Avoid tariffs, NTBs,
restrictions on foreign
investment
• Licensee provides
knowledge of local
markets
• Limited market
opportunities/profits
• Dependence on
licensee
• Potential conflicts
with licensee
• Possibility of creating
future competitor

14. Franchising
Under franchising, an independent organisation
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.


15. 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

16. Franchising- Adv. & Disadv.
Advantages
• 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
Disadvantages
• Limited market
opportunities/profits
• Dependence on
franchisee
• Potential conflicts with
franchisee
• Possibility of creating
future competitor

17. Specialized Entry Modes

18. Contract manufacturing



Contract manufacturing is outsourcing entire or
part of manufacturing operations.
E.g.: pharmaceuticals, Personal Care products
etc
The iPad and iPhone, which are products from
Apple Inc., are manufactured in China by
Foxconn. Hence, Foxconn is a contract
manufacturer and Apple benefits from a lower
cost of manufacturing devices

19. Contract Manufacturing-Adv. &
Disadv.
Advantages
Disadvantages
• Low financial risks
• Minimize
resources devoted
to manufacturing
• Focus firm’s
resources on other
elements of the
value chain
• Reduced control
(may affect quality,
delivery
schedules, etc.)
• Reduce learning
potential
• Potential public
relations problems

20. Management Contract
A management contract is an agreement
between two companies whereby one
company provides managerial assistance,
technical expertise and specialised services
to the second company for a certain period
of time in return for monetary
compensation.
 Eg. Schools, sports facilities, hospitals,
office buildings, malls and large businesses
have on-site cafeterias, restaurants.


21. Management Contract
Advantages
Disadvantages
• Focus firm’s resources on
its area of contracts
• Minimal financial exposure
• Potential returns limited by
contract expertise
• May unintentionally transfer
proprietary knowledge and
techniques to contractee

22. Turnkey Project

A turnkey project is a contract under which
a firm agrees to fully design, construct and
equip a manufacturing/business/service
facility and turn the project over to the
purchaser when its ready for operation, for
a remuneration.

23. Turnkey Project

24. 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.

25. Greenfield Strategy
Advantages
Disadvantages
•
•
•
•
Best site
Modern facilities
Economic development incentives
Clean slate
• Huge time and patience needed
• Expensive
• Comply with local and national
regulation
• Local workforce needed
• Strongly perceived as a foreign worker

26. 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

27. FDI with strategic alliances
Modes of FDI through alliances are:
 Mergers and acquisitions
 Joint ventures

28. Mergers and Acquisitions
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.
HDFC Bank acquisition of Centurion Bank of
Punjab for $2.4 billion

29. Acquisition Strategy
Advantages
• Obtains control over the acquired firm
such as factories and brand names
• Integrate the mgt of the firm into its
overall international strategy
Disadvantages
• Assumes all the liabilities such as
financial and managerial

30. Joint Ventures


A joint venture 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.
Sony-Ericsson is a joint venture by the
Japanese consumer electronics company Sony
Corporation and the Swedish
telecommunications company Ericsson to
make mobile phones

31. Joint Ventures

Advantages:
 Benefit
from local partner’s knowledge.
 Shared costs/risks with partner.
 Reduced political risk.

Disadvantages:
 Risk
giving control of technology to partner.
 May not realize experience curve or location
economies.
 Shared ownership can lead to conflict

32. THANK YOU