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  2. MODULE II  Modes of Entry and International Institutions  International Market Entry strategies,  Market Selection and Barriers to it,  FDI and FII.  Multilateral Trade Agreements & TRIPs;  Multilateral Environmental Agreements (MEAs);  International Trade Blocks – NAFTA, ASEAN, SAARC, EU.  International Institutions - WTO, GATT, IMF, Asian Development Bank and World Bank. FEMA, FERA Acts.
  3. EXPORTING  It is a strategy in which a company, without any marketing or production organization overseas, exports a product from its home base.  Its main advantage is the ease in implementing the strategy  The product is often the same as the one marketed in the home market  Risks are minimal as company exports only the surpluses
  4. EXPORTING  Very likely the most common overseas entry approach for small firms  The problem, however, is that it is not always an optimal strategy  It functions poorly when the company’s home- country currency is strong.  A currency can remain strong over a long period thus creating problems for exports
  5. EXPORTING-TYPES 1. INDIRECT EXPORTING - Exporting the products either in their original form or in the modified form to a foreign country through another domestic country. 2. DIRECT EXPORTING - Direct exporting is selling the products in foreign country directly through its distribution arrangements or through a host country’s company.
  6. EXPORTING-TYPES 3. INTRA-CORPORATE TRANSFERS - selling of products by a company to its affiliated company in host country (another country). e.g., Selling of products by HUL in India to Unilever in the USA. This transaction is treated as exports in India and imports in the USA.
  7. LICENSING  It is a reasonable compromise when export is ineffective but the company is hesitant to invest abroad directly  It is an agreement that permits a foreign company to use industrial property, technical know-hows and skills, designs, or any combination of these  Essentially, a licensor allows a foreign company to manufacture a product for sale in the licensee’s country and in other markets.
  8. LICENSING  Licensing is not only restricted to tangible products  It is considered when capital is scarce, restrictions are there, and ownership issues are there  A company can avoid substantial risks and other difficulties with licensing  A prudent licensor doesn’t ‘assign’ a trademark to a licensee
  9. LICENSING  It has its own shortcomings  With reduced risk generally comes reduced profit  By granting a license to a foreign firm, a manufacturer may be nurturing a competitor in the future  Another problem is the poor performance of the licensee  Inconsistent product quality caused by licensee’s lax quality control is another problem
  10. JOINT VENTURES  It is an enterprise formed for a specific purpose by two or more investors  Partners’ commitment to a JV is a function of the perceived benefits  It substantially reduces the amount of resources to be contributed
  11. JOINT VENTURES  Often, it is the only way, apart from licensing, by which a firm can enter a foreign market  Sometimes social rather than legal circumstances require a joint venture to be formed  Sometimes it may lead to loss of control on the part of one of the parties
  12. ASSEMBLY OPERATIONS  It is a variation of manufacturing strategy  Parts or components are produced in various countries to gain advantage  It allows a company to be price-sensitive against cheap imports  Allows a company’s product to enter many markets without any restrictions
  13. MANAGEMENT CONTRACTS  Sometimes, govt. pressure and restrictions force a foreign company to sell or relinquish control of its domestic operations  Management contract is one such way with the govt. or the new owner in order to manager business for the new owner  The new owner may lack expertise and may need former owner to manage for some time  It may be used to enter a market with a min. investment and min. political risk
  14. TURNKEY OPERATIONS  An agreement by the seller to supply a buyer with a facility fully equipped and ready to be operated by the buyer’s personnel  Sometimes used in fast food franchising  Owing to the magnitude of a giant turnkey project, the winner can expect huge rewards  It is more than just offering technical assistance
  15. ACQUISITIONS  Used to enter a foreign market rapidly and retain maximum control  Reasons might be diversification, expertise, and rapid entry  A greenfield enterprise is generally welcomed by the host govt.
  16. ACQUISITIONS  International M & As are complex, expensive and risky. Quite often, the future synergies due to vertical integration are elusive  The value of a currency might reduce or increase the costs of an acquisition  The problems are numerous – suitable company, price, debt, merging, language, resentment, distance, etc.
  17. STRATEGIC ALLIANCES  It may be a result of merger, acquisition, JV, and licensing  JVs are strategic alliances but not vice-versa  Chip making is one good example of it
  18. STRATEGIC ALLIANCES  Three types  Shared distribution  Licensed manufacturing (enabling partners to fill unused capacity)  Research & Development  Motives for it include: access to new markets, accelerating the entry pace, a more complete product line, learning new skills, sharing R & D, manufacturing and marketing costs
  19. FRANCHISING  It is a rapidly growing form of licensing  Franchisor provides a standard package of products, systems, and management services  Franchisee provides market knowledge, capital, and personal involvement in mgmt.
  20. FRANCHISING  Two types of franchise agreements  Master franchise (McDonald’s)  Licensing (Coca Cola bottling plants)  The Franchisee pays a fee to the Franchisor who provides  Trade Marks  Operating Systems  Product Reputation  Continuous Support System like Advertising, Employee Training, Quality Assurance, etc.
  21. FREE TRADE ZONES  Variations among FTZs include free ports, tariff-free trade zones, airport duty free arcades, export processing zones, etc.  It is not only for warehousing purpose  Results in job retention and creation  Can generate foreign investments
  22. FREE TRADE ZONES  Export processing zones, a special type of FTZ, are set up by some countries due to political reasons  Offers superior facilities for lower costs, lower theft rate, lower insurance costs, etc.  Prevent an overpayment of duties
  23. BOT AND BOOT  BOT (build, operate, transfer) - a third party, for example the public administration, delegates to a private sector entity to design and build infrastructure and to operate and maintain these facilities for a certain period.  BOOT (build, own, operate, transfer) is a business model in which a private organization conducts a large development project under contract to a public-sector partner, such as a government agency.  A BOOT project is often seen as a way to develop a large public infrastructure project with private funding.  Both of them find extensive usage in public-private partnership
  24. ASSOCIATED ENTRY MODES  Newest, most recent form of international business  Transfer of technology or know-how between firms  Shared risks  Better access to local market knowledge
  25. ASSOCIATED ENTRY MODES : TYPES  Joint Ventures  Licensing  Management Contracts  International Franchising  Industrial franchising  Distribution franchising  Service franchising
  26. - EPRG MODEL
  27. MARKET SELECTION : FIRM-RELATED FACTORS  Enthnocentric – everything is centred on the domestic market  Polycentric – several important foreign markets exist  Regiocentric – the market is composed of several large economic regions  Geocentric – the world is one large global market
  28. RESTRAINING FORCES OF INTERNATIONAL MARKETING  Culture  Market differences  Costs  National controls  Nationalism  Peace vs War / Stability  Management myopia  Organization history  Domestic focus
  29. FACTORS IN THE ENTRY-MODE DECISION Target Country Market Factors Target Country Environmental Factors Target Country Production Factors Home Country Factors Entry Mode Decision Company Resource and Commitment Factors Company Product Factors External Factors Internal Factors
  30. TYPES OF FOREIGN INVESTMENT Foreign Investment Direct Investment (FDI) Wholly Owned Subsidiary Joint Venture Acquisition Portfolio Investment (FPI) Investment By FIIs Investment In GDRs, ADRs, FCCBs
  31. FOREIGN DIRECT INVESTMENT 1. It is investment of foreign assets into domestic structures, equipment, and organizations. 2. It does not include foreign investment into the stock markets. 3. FDI is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially "hot money" which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly.
  32. FACTORS WHICH INFLUENCE FDI IN INDIA  Stable political structure  Large economy with a growing middle-class  Open-door policy  Abundance of natural resources  Cost-effective labour which is largely skilled  Large English-speaking population
  33. FACTORS WHICH INFLUENCE FDI IN INDIA  Large pool of qualified professionals  Impressive banking network  Compliance to global standards  Well-established and independent judicial system  Good international relations  Large and expanding industrial base
  34. FOREIGN INSTITUTIONAL INVESTORS  A foreign institutional investor (FII) is an investor or investment fund registered in a country outside of the one in which it is investing.  Institutional investors most notably include hedge funds, insurance companies, pension funds and mutual funds.  The Foreign Institutional Investor is also known as hot money as the investors have the liberty to sell it and take it back.
  35. WHAT ARE FOREIGN INVESTORS LOOKING FOR?  Good projects  Demand Potential  Revenue Potential  Stable Policy Environment/Political Commitment  Optimal Risk Allocation Framework
  36. FDI 1. It is long-term investment 2. Investment in physical assets 3. Aim is to increase enterprise capacity or productivity or change management control 4. Leads to technology transfer, access to markets and management inputs 5. FDI flows into the primary market 6. Entry and exit is relatively difficult 7. FDI is eligible for profits of the company 8. Does not tend be speculative 9. Direct impact on employment of labour and wages 10. Abiding interest in mgt. FII 1. It is generally short-term investment 2. Investment in financial assets 3. Aim is to increase capital availability 4. FII results in only capital inflows 5. FII flows into the secondary market 6. Entry and exist is relatively easy 7. FII is eligible for capital gain 8. Tends to be speculative 9. No direct impact on employment of labour and wages 10. Fleeting interest in mgt. DIFFERENTIATION BETWEEN FDI & FII FDI is more preferred to the FII as they are considered to be the most beneficial kind of foreign investment for the whole economy.
  37. MULTILATERAL (OR REGIONAL) TRADE AGREEMENTS  Bilateral Agreements  They set rules of trade between two countries.  Multilateral (or Regional) Trade Agreements  They set rules of trade between several countries.  Multilateral agreements shape international trade unions, such as WTO, EU, NAFTA, etc.  This makes them extremely complicated to negotiate, but very powerful once all parties sign.
  38. MULTILATERAL (OR REGIONAL) TRADE AGREEMENTS  The primary benefit of multilateral agreements is that all nations get treated equally.  The first is the Doha round of trade agreements. This was a multilateral trade agreement between all 149 members of the World Trade Organization (WTO).  The most successful multi-lateral agreement has been the GATT (the General Agreement on Trade and Tariffs)
  39. TRIPS  Negotiated in the 1986-94 Uruguay Round  Trade Related Aspects of Intellectual Property Rights (TRIPS) is a World Trade Organization (WTO) agreement designed by developed countries to enforce a global minimum standard of Intellectual Property Rights.
  40. TRIPS - IPR  Intellectual property (IP) is a term referring to a number of distinct types of creations of the mind for which a set of exclusive rights are recognized and the corresponding fields of law.  Under IPR, owners are granted certain exclusive rights to a variety of intangible assets, such as musical, literary, artistic works; discoveries, inventions; ad words, phrases, symbols, and designs.  Monitored by World Intellectual Property Organization (WIPO), Switzerland.
  41. TYPES OF IPR Intellectual property is divided into two categories Industrial property which includes • patents for inventions, • trademarks, • industrial designs and • geographical indications Copyright and related rights which cover • literary and artistic expressions (e.g. books, films, music, architecture, art), • rights of performing artists in their performances, producers of phonograms in their recordings, and broadcasters in their radio and television broadcasts which are also referred to as neighbouring rights.
  42.  Copyrights - a legal concept giving the creator of an original work exclusive rights to it, usually for a limited time.  Trademarks - a distinctive sign or indicator used by an individual, business organization, or other legal entity to identify those products or services to consumers  Patents - a set of exclusive rights granted by a sovereign state to an inventor for a limited period of time in exchange for the public disclosure of an invention.  Industrial design rights - protects the visual design of objects that are not purely utilitarian.  Geographical Indication - place names (in some countries also words associated with a place) used to identify the origin and quality, reputation or other characteristics of products  Trade Secrets
  43. MULTILATERAL ENVIRONMENTAL AGREEMENTS (MEAS) International legal instruments that:  have a goal of environmental protection  are concluded between a large number of states or international organizations as parties  concluded in written form  governed by international law  can be embodied in a single instrument or in two or more related instruments (framework agreements)
  44. MEAS  MEAs are of global significance  negotiation, development or activities are associated with UNEP (United Nations Environment Programme) work  Main clusters:  Biodiversity  atmosphere  land  chemicals and hazardous wastes  regional seas and related
  45. MEAS  Shared Goal:  Sustainable Development  Cross-cutting issue:  pollution/waste management
  46. NAFTA  The North American Free Trade Agreement (NAFTA)is an agreement signed by Canada, Mexico, and the United States, creating a trilateral rules-based trade bloc in North America. It came into force in 1994  The goal of NAFTA was to eliminate barriers to trade and investment between the U.S., Canada and Mexico.  It brought the immediate elimination of tariffs on more than one-half of Mexico's exports to the U.S. and more than one-third of U.S. exports to Mexico.
  47. NAFTA  The current US President Donald Trump is critical of NAFTA and says that he would repeal it  Currently, the trade between US-Canada and US- Mexico stand at modest levels and contribute only a small percentage towards US GDP
  48. EU (EUROPEAN UNION)  The European Union (EU) is a politico-economic union of 28 member states that are located primarily in Europe.  The EU operates through a system of supranational institutions and intergovernmental-negotiated decisions by the member states.  The EU has developed a single market through a standardised system of laws that apply in all member states.
  49. EU (EUROPEAN UNION)  With a combined population of over 510 million inhabitants, or 7.3% of the world population, the EU in 2016 generated a nominal gross domestic product (GDP) of 16.44 trillion US dollars, constituting approximately 22% of global nominal GDP and 17% when measured in terms of purchasing power parity  Presently, the EU is going through the impact of ‘Brexit’, the exit of Great Britain from it, a proposal to this effect having been passed in July 2016.
  50. SAARC (SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION )  The South Asian Association for Regional Cooperation (SAARC) is an economic and geopolitical organisation of eight countries that are primarily located in South Asia or the Indian subcontinent. It was formed in 1980  The combined economy of SAARC is the 3rd largest in the world in the terms of GDP(PPP) after the United States and China  The organisation was established by the governments of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. Since then the organisation has expanded by accepting one new full member, Afghanistan
  51. SAARC (SOUTH ASIAN ASSOCIATION FOR REGIONAL COOPERATION )  The SAARC policies aim to promote welfare economics, collective self-reliance among the countries of South Asia, and to accelerate socio- cultural development in the region.  The SAARC has developed external relations by establishing permanent diplomatic relations with the EU, the UN (as an observer), and other multilateral entities.
  52. ASEAN (ASSOCIATION OF SOUTHEAST ASIAN NATIONS)  The Association of Southeast Asian Nations is a political and economic organization of ten Southeast Asian countries.  It was formed in 1967 by Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Since then, membership has expanded to include Brunei, Cambodia, Laos, Myanmar (Burma), and Vietnam.  The member countries have a combined population of approximately 625 million people, 8.8% of the world's population. In 2015, the organization's combined nominal GDP had grown to more than US$2.6 trillion.
  53. GATT (THE GENERAL AGREEMENT ON TRADE AND TARIFFS)  GATT was signed in 1947 between 153 countries.  Its goal was to reduce tariffs and other trade barriers. It took eight rounds of negotiations that lasted until 1995 to achieve its goal with the final Uruguay round.  This round created the WTO, which took over management of future GATT negotiations.
  54. WORLD TRADE ORGANIZATION (WTO)  The World Trade Organization (WTO) came into being on January 1st 1995. It was the outcome of the lengthy (1986-1994) Uruguay round of GATT negotiations. The WTO was essentially an extension of GATT.  It extended GATT in two major ways. First GATT became only one of the three major trade agreements that went into the WTO (the other two being the General Agreement on Trade in Services (GATS) and the agreements on Trade Related Aspects of Intellectual Property Rights (TRIPS)).
  55. WORLD TRADE ORGANIZATION (WTO)  Second, the WTO was put on a much sounder institutional footing than GATT. With GATT the support services that helped maintain the agreement had come into being in an ad hoc manner as the need arose. The WTO by contrast is a fully fledged institution (GATT was, at least formally, only an agreement between contracting parties and had no independent existence of its own while the WTO is a corporate body recognized under international law).
  56. WORLD BANK  The World Bank is an international financial institution that provides loans to developing countries for capital programs.  It comprises two institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA).  The World Bank is a component of the World Bank Group, and a member of the United Nations Development Group.
  57. WORLD BANK  The World Bank was created at the 1944 Bretton Woods Conference, along with three other institutions, including the International Monetary Fund (IMF).  The president of the World Bank is, traditionally, an American. The World Bank and the IMF are both based in Washington, D.C., and work closely with each other.
  58. INTERNATIONAL MONETARY FUND (IMF)  The International Monetary Fund (IMF) is an international organization headquartered in Washington, D.C., of "189 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.“  Formed in 1944 at the Bretton Woods Conference, it came into formal existence in 1945 with 29 member countries and the goal of reconstructing the international payment system.
  59. ASIAN DEVELOPMENT BANK (ADB)  The Asian Development Bank (ADB) is a regional development bank established in 1966 which is headquartered in Metro Manila, Philippines, to facilitate economic development in Asia.  The bank admits the members of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP, formerly the Economic Commission for Asia and the Far East or ECAFE) and non-regional developed countries.  From 31 members at its establishment, ADB now has 67 members, of which 48 are from within Asia and the Pacific and 19 outside.
  60. FOREIGN EXCHANGE REGULATION ACT, (FERA)  Foreign Exchange Regulation Act, shortly known as FERA, was introduced in the year 1973.  The act came into force, to regulate foreign payments, securities, currency import and export and purchase of fixed assets by foreigners.  The act was promulgated in India when the position of foreign reserves wasn’t satisfactory.
  61. FOREIGN EXCHANGE MANAGEMENT ACT, 1999 (FEMA)  Foreign Exchange Management Act, 1999 (FEMA) emerged as a replacement or say an improvement over the old Foreign Exchange Regulation Act, 1973 (FERA).  Foreign investors, frequently hear the terms FERA and FEMA, when they deal with India. As their name specifies, FERA lays emphasis on the regulation of currencies, whereas the FEMA manages forex.  The main objective of the act is to facilitate foreign trade and to encourage systematic development and maintenance of forex market in the country.
  62. DIFFERENCE  There are many differences between FERA and FEMA, the foremost difference is, while the former requires previous approval of Reserve Bank of India (RBI), the latter does not require RBI’s approval, except when the transaction is related to foreign exchange.