To decide the mode of entry the following
factor is to be considered :-
 Ownership advantages
 Location advantages
 Internationalization Advantages

 Ownership advantages are those benefits
that the company may have by owning the
resources.
 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.

 EXPORTING
-indirect exporting
-direct exports
-intra-corporate transfers
 LICENSING
- International Licensing
 FRANCHISING
- International Franchising
 SPECIAL MODES
-Contract manufacturing
-BPO
-Management Contracts
-Turnkey projects

 FDI without alliances
 FDI with alliances

Advantages :-
• Need for limited finance
• Less risk
• Motivation for exporting
Forms of exporting :-
• Indirect exporting
• Direct exporting
• Intra corporate transfers

 Government policies
 Marketing factors
 Logistics consideration
 Distribution issues

 Export management companies
 Co-operative societies
 International trading company
 Manufacturers’ agents
 Export and import brokers
 Freight forwarders

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
 Agreement Duration

 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
property.

 Licensing agreements reduce the market
opportunities
 One party can effect the other through
improper acts.
 Costly and tedious litigation may crop up.
 Problem of leakage of the trade secrets of
the licensor.

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
of flexibility.

Contract manufacturing is outsourcing
entire or part of manufacturing
operations

Contract manufacturing is outsourcing entire
or part of manufacturing operations.
E.g.: pharmaceuticals, textiles etc

 Business Process Outsourcing is the long
term contracting out of non core business
processes to an outside provider to help
achieve increased shareholder value.
WHY BPO
• To enable executives to concentrate on
strategy.
• 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
compensation.

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
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 company.

Modes of FDI through alliances are:
 Mergers and acquisitions
 Joint ventures

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.
Pixar-Disney Merger
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

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

 PRODUCTION ALLIANCES
 MARKETING ALLIANCES
 FINANCIAL ALLIANCES
 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
 Legal factors