Global business- Chapter 5

5 common entry modes

exporting, licensing and franchising, partnership and strategic alliances, establishing new subsidiaries, acquisition

exporting advantages

fast entry, low risk

exporting disadvantages

low control, low local knowledge, potential negative environmental impact of transportation

licensing and franchising advantages

fast entry, low cost, low risk

licensing and franchising disadvantages

less control, licensee may become a competitor, legal and regulatory environment must be sound

Partnership and strategic alliances advantages

shared costs reduce investment needed, reduced risk, seen as local entity

partnerships and strategic alliances disadvantages

higher cost than exporting, licensing, or franchising, integration problems between two corporate cultures

joint ventures advantages

fast entry, known established operations

joint ventures disadvantages

high cost, integration issues wit home office

Risk of joint ventures

challenges include finding the right partner in terms of business focus and compatible cultural perspectives and local partner could gain knowledge to become its own competitive product or service

Greenfield ventures advantages

gain local market knowledge; can be seen as insider who employs locals; maximum control

Greenfield venture disadvantages

high cost, high risk due to unknowns, slow entry due to setup

brownfield ventures

investments into an existing facility a company acquires to do business through typically through a merger or acquisition

importing

the procurement of goods or services to another region, country, or continent

exporting

the sending of goods or services to another region, country, or continent

distributor

an export intermediary who represents a company

why do companies export

because it is the easiest way to participate in global trade, less costly, and easier to exit

countertrade

a reciprocal form of international trade in which goods or services are exchanged for other goods or services rather than for hard currency

reason for counter trade

countries may limit the profits a company may take out of the country, large scale deals, or in certain industries, mitigation of inflation risk

Bartercard

established in 1991 and it functions like a credit card, however a company funds the card with its own goods nad services, no cash needed

countertrade disadvantages

associations with command economies during cold war when goods received were useless or of poor quality

global sourcing

refers. to buying raw materials, components, or services from foreign companies

parts of export and importing

exporter, the importer, and the carrier

export management company

performs the additional duties a firm’s export department would execute

bill of lading

the contract between exporter and carrier

commercial or customs invoice

bill for goods shipped from exporter to importer and used by governments to determine value of goods

export declaration

lists items, contact information, given to customs/ port authorities

certificate of origin

declares country from which product originates

insurance certificates

amount of coverage on the goods and identifies merchandise

license

some governments require one export goods

letter of credit

legal document issued by bank at importer’s request specifying amount it will pay once the bank receives documents about the shipment from the exporter’s bank

carrier

entity handling the physical transportation of the goods’

customs administration

offices from both the home country and the foreign country

letter of credit

states the bank will pay the exporter upon getting the proper documentation about the merch

the bill of lading

proves the exporter has given the carrier the merchandise and that the carrier owns the title to the merch until paid by the importer

bill of exchange (draft)

tells the importer to pay a specified amount at a specified time

OPIC

factors loans to developing companies