To decide the mode of entry the following
factor is to be considered :-
Ownership advantages are those benefits
that the company may have by owning the
TISCO Ltd. Owned its iron ore mines and
collieries. This advantage makes it the least
cost producer of molten iron.
Certain location factors grant benefit to the
company when the manufacturing facilities
are located in the host country.
• Customer needs , preferences and tastes
• Logistic requirements
• Cheap land and acquisition costs
• Political stability
• Cheap labour
• Low cost of raw materials
• Climatic Conditions.
Internationalisationadvantages are those
benefits that a company gets by
manufacturing goods or rendering services in
the host country by itself rather than through
contract arrangements with the companies in
the host countries.
Toyota enters foreign markets through direct
investments and joint ventures as the local
companies in foreign countries cannot
produce as efficiently as Toyota.
- International Licensing
- International Franchising
• Need for limited finance
• Less risk
• Motivation for exporting
Forms of exporting :-
• Indirect exporting
• Direct exporting
• Intra corporate transfers
Export management companies
International trading company
Export and import brokers
In this mode of entry, the domestic
manufacturer leases the right to use its
intellectual property, i.e., technology,
work methods, patents, copy rights, brand
names, trade marks etc. to a manufacturer
in a foreign country for a fee.
Boundaries of the agreement
Determination of Royalty
Determining rights, privileges and constraints
Dispute settlement Mechanism
Reduces development costs and risks of
establishing foreign enterprise.
Lack capital for venture.
Unfamiliar or politically volatile market.
Overcomes restrictive entry barriers
Others can develop business
applications of intangible
Licensing agreements reduce the market
One party can effect the other through
Costly and tedious litigation may crop up.
Problem of leakage of the trade secrets of
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.
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
Business Process Outsourcing is the long
term contracting out of non core business
processes to an outside provider to help
achieve increased shareholder value.
• To enable executives to concentrate on
• To improve processes and save money
• Increase organisational capabilities.
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
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.
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.
Strategic alliance is a cooperative and
collaborative approach to achieve the larger
Role of alliances
Many complicated issues are solved through
They provide the parties each other’s
Helps in developing new products with the
interaction of 2 or more industries
Meet the challenges of technological
Managing heavy outlay
Become strong to compete with a
Modes of FDI through alliances are:
Mergers and acquisitions
Mergers and Acquisitions
What Does Merger Mean?
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.
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
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
RESEARCH AND DEVELOPMENT ALLIANCES
BREAKING UP OF ALLIANCES
Incompatibility of partners
Access to information
Distribution of income
Changes in business environment
Acquiring the strengths of the partner