CHP 3. Doing business in Global Markets

Pros. Of licensing.

-Firm gains the revenues

-licensee (other country) purchase supplies

-licensers spends little to no money to produce

Cons of licensing

Bulk a revenues belong to licensees

licensing

Firm allows a foreign country to produce its products in exchange for a fee(royalty)

pros of contract manufacturing

-Low risk

-increase flexibility

-faster time to market

-ability to focus on core business functions over production

Cons of contract manufacturing

-Less control

-increase risk of quality control issues

Contract manufacturing

Foreign company produces private label goods that a domestic company attaches it’s own name or trademark

Joint venture

Partnership with two or more companies join to undertake major projects

Pros of joint venture

-Shared Tech and risks

-shared marketing and managing expertise

-entry into foreign markets

Cons of joint venture

-become too large

-partners break apart

strategic alliance

A long-term partnership, with two or more companies to help each other build competitive market advantages.

Pros of strategic alliance

-Don’t share costs, risks, management, or profits

-Provides access to markets, capital, tech expertise.

Cons of strategic alliance

-potential conflicts due to cultural or strategic differences, and equal benefits

franchising

someone with a good idea, selling the right to use their business name and sell product services

Pros of franchising

-established brand recognition

-ongoing support to franchisees

-reduced risk

-increased chances of success

Cons of franchising

-high start up and ongoing costs

-lack of flexibility and autonomy

-dependent on franchisor success and reputation

ethnocentricity

The tendency to to view one’s own culture as superior to others

comparative advantage

Country should sell products they produce most efficiently and buy what they cannot.

absolute advantage

Company with monopoly on producing specific products or best at manufacturing

effect of foreign exchange rate fluctuations on importing and exporting

countries with lower exchange rates do this in their own favor.

effect of tariff on prices of important goods

Tariffs, create an economic burden on foreign exporters by raising prices, and reduce availability, quantities of goods and services for US businesses and consumers

Balance of payments

Difference between money, coming in (exports)and out (imports) of the country

Dumping

Selling products in another country, for cheaper than charged in producing country

PESTEL

Strategic framework that categorizes, external macro environmental factors into political, economic social, technological,environmental, and legal categories to understand how these forces impacts an organization, or product