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First Mover advantages and disadvantages
advantages: establish the brand, sales volume, and experience curve
disadvantages: pioneering costs (promo, regulation)
Late mover/entrants advantages and disadvantages
advantages: experience, avoid pioneering costs
disadvantages: switching costs, costs disadvantages
Large scale entry
requires the commitment of significant resources and rapid entry
has long term impact and cannot be easily reversed
Advantages to exporting (market entry modes)
avoids the substantial costs of establishing manufacturing in the host country, and may help a firm achieve experience curve and location economies
disadvantages to exporting (market entry modes)
exporting from the firm’s home base may not be appropriate if there are lower-cost locations for manufacturing the product abroad.
high transport costs can make exporting uneconomical, particularly for bulk products
tariff barriers
foreign agents often carry the product of competing firms and so have divided loyalties
turnkey projects
occur when a contractor handles all the details of a project for a foreign client, including the training of operating personnel. when the project is complete, the foreign client is handed the “key” to a plant ready for operation without needing to do anything.
Advantages to a turnkey project
way to earn great economic benefits from technologically complex project where foreign direct investment is limited
disadvantages to turnkey projects
no long term interest in the foreign market and creating a competitor?
the promises of exporting
large revenue and profit opportunities are to be found in foreign markets for most industrues
international markets are normally much larger than the domestic market which guarantees a way to increase the revenue and profit of a company
exporting can enable a firm to reach economies of scale and lower unit costs
difficulties of exporting
exporters face lots of paperwork and complex formalities with a lot of documents
the time involved with these documents amounts to 10% of the final value of the goods exported
How to improve export performance
international comparisons: collecting info through trade associations, government agencies and banks
info sources: companies in Canada are becoming more aware of int. business opportunities from the federal level (stats Canada, global affairs Canada) and the provincial level (local chambers of commerce, commercial banks etc)
service providers: companies that are export marketing departments that help companies get an understanding of export operations until they can take over, trading or packaging companies. (ex: freight forwarders, export management companies (EMC)]
export strategy: use a third party that both sides trust
Countertrade
is a type of international trade in which goods and services are exchanged, partially or fully, instead of using cash. It is often used when countries or companies face foreign exchange shortages, trade restrictions, or financial instability
barter
a direct exchange of goods or services without the use of money
(1000 tons of coffee beans for an equivalent value of something else)
counter purchase
The seller agrees to buy goods from the buyers country as a condition of the sale
EX: a german automobile manufacturer sells luxury cars to china, in return, agrees to purchase an equivalent amount of Chinese-made car parts for future production
Offset
The seller agrees to invest in the buyers country or purchase local products to offset the transaction
EX: A U.S. aerospace company sells fighter jets to India and agrees to source 30% of the aircraft components from Indian manufacturers to support the local economy
Buyback
a company provides equipment or tech and receives payment in the form of goods produced using that equipment
EX: A European engineering firm builds a hydroelectric power plant in Argentina and, instead of receiving cash, accepts a portion of the electricity generated as payment over time.
switch trading
A third party is involved in selling goods received from a countertrade deal in another market.
EX: A Malaysian palm oil exporter barters with an African country for cocoa beans but does not need them. So, the exporter sells the cocoa to a third-party trader who then resells it to chocolate manufacturers in Europe
Pros of countertrade
gives a firm a way to finance an export deal, export opportunity, or government requirement
Cons of countertrade
may involve the exchange of poor-quality goods, most attractive to large diverse multinationals. not suited for small or medium-sized exporters
Benefits of FDI (for the Host country receiving FDI)
Economic Growth – Increases capital inflow, infrastructure development, and job creation.
Technology Transfer – Brings in advanced technology, knowledge, and skills.
Employment Opportunities – Generates jobs in various sectors.
Improved Productivity – Enhances the efficiency of domestic firms through competition and collaboration.
Access to Global Markets – Integrates the host country into international trade networks.
Benefits of FDI for the investing country
Market Expansion – Companies gain access to new consumer bases.
Higher Returns – Investors can benefit from lower production costs and new revenue streams.
Stronger Global Presence – Builds brand recognition and international influence.
Resource Acquisition – Helps secure essential raw materials or labor.
Costs of FDI for the host country
loss of economic control- foreign companies may dominate key industries
profit repatriation- a significant part of the profits is sent back to the investor’s home country instead of reinvesting locally
environmental concerns- foreign firms might exploit natural resources, leading to environmental damage
Local Business Competition – Domestic companies may struggle to compete with multinational corporations.
costs of FDI for the home country
Job Loss – Investment abroad may lead to outsourcing and domestic job reductions.
Capital Flight – Funds that could be invested locally are sent overseas.
Economic Dependence – The home country may rely too much on foreign earnings instead of strengthening its domestic economy.
Licensing
A licensing agreement is where a licensor grants the rights to intangible property (inventions, formulas, design, copyrights) to another entity (the licensee) for a specific period, and in return, the licensor recieves a royalty fee from the licensee.
advanatges: firm foes not habve to bear developmental costrs and risks, appropriate for markets where it would be prohibited by barriers to investment
disadvantages: loss of control over manufacturing, marketing and strategy→ firm does not realize experience curve and location economies
Experience Curve
The Experience Curve concept suggests that as a company produces more of a product, its costs per unit decrease due to accumulated learning, process improvements, and economies of scale. This idea was first introduced by the Boston Consulting Group (BCG) in the 1960s.
Key Reasons for Cost Reduction in the Experience Curve:
Learning Effects – Workers and managers become more efficient over time.
Economies of Scale – Larger production volumes spread fixed costs over more units.
Process Improvements – Innovation and technological advancements improve productivity.
Standardization & Specialization – Repetitive production leads to increased efficiency.
Bargaining Power – Higher production allows for better supplier negotiations and lower input costs.
franchising
a special form of licensing in which a franchiser not only sells intangible property (normally a trademark), to a franchisee, but it also insists that the franchisee agrees to bide by strict rules about how business is conducted
advantages: similar to licensing, the franchisee assumes all the costs and risks
disadvantages: the firm does not realize experience curve and location economies and quality control
Joint venture
entails establishing a firm that is jointly owned by two or more otherwise independent firms
advantages: a firm benefits from local partners’ knowledge of the host country’s competitive environment and shares with the local firm the development costs and risks. in some countries, joint ventures are the only feasible entry mode.
disadvantages: a firm risks giving control of its technology to its partner, lack of control over subsidiary needed to realize experience curve or location economies and shared ownership arrangements can lead to conflicts over control.
wholly owned subsidiaries
Occurs when a firm owns 100% of its stock
advantages: reduces the risk of losing control over tech competence necessary for engaging in global strategic coordination and allows the firm to realize location and experience curve economies.
disadvantage: it is the most costly method of serving a foreign market, firms bear all the costs and risks and have to learn new cultures or acquire enterprises in the host country.
technilogical know how
refers to the specialized knowledge, skills, and expertise required to develop, operate, and improve technology. It includes both explicit knowledge (documented processes, patents, blueprints) and tacit knowledge (skills, experience, and intuition gained through practice).
types of tech know how
Product Know-How – Understanding the design, development, and innovation of products.
Example: A smartphone company developing foldable screen technology.
Process Know-How – Expertise in optimizing production or operational processes.
Example: A car manufacturer improving assembly line efficiency using AI-driven automation.
Software & Digital Know-How – Knowledge related to software development, data science, and cybersecurity.
Example: A fintech company using blockchain for secure transactions.
Engineering & Scientific Know-How – Specialized knowledge in fields like aerospace, biotechnology, and nanotechnology.
Example: A pharmaceutical firm developing mRNA vaccine technology.
pressures for cost reduction and entry mode
the greater the pressure for cost reduction the more likely the firm will pursue a combination or exporting a wholly owned subsidiary.
regional economic integration
free trade area: All barriers to the trade of goods and services among member countries are removed
customs union: A group of countries committed to removing all barriers to the free flow of goods and services between each other and the pursuit of a common external trade policy
a common market: Group of countries committed to removing all barriers to the free flow of goods, services, all factors of production between each other; pursuing a common external trade policy and allowing factors of production to move freely among members
economic union: where member nations coordinate economic policies, allow free movement of goods, services, capital, and labour, and may adopt common currency and fiscal policies.
Political Union: A central political apparatus that coordinates economic, social, and foreign policy.
economic case for integration
regional economic integration can be seen as an attempt to achieve additional gains from the free flow of trade and investment between countries beyond those attainable under global agreements such as the WT
Political case for integration
Linking neighbouring economies and making them increasingly dependent on each other creates incentives for political cooperation between neighbouring states and reduces the potential for violent conflict
trade creation
When high-cost domestic producers are replaced by low-cost producers within the free trade area
trade diversion
when lower-cost external suppliers are replaced by higher cost suppliers within the free trade area
foreign exchange market
is a market for converting the currency of one country into that of another country
exchange rate
is the rate at which one currency is converted into another
currency conversion
conduct international trade
make FDI
hedge against currency risk- Currency values fluctuate, creating financial risk.
repatriate profits from foreign operations- convert earnings from overseas branches back into home currency
pay international employees and companies pay wages in different countries
speculate on currency movements- currency trading to profit from exchange rate fluctuations
Insuring Against Foreign Exchange (FX) Risk
Foreign exchange (FX) risk, also known as currency risk, arises when exchange rate fluctuations impact the value of international transactions, investments, or financial positions. Companies and investors use various strategies to hedge (protect) against this risk.
1. Hedging with Financial Instruments
a. forward contracts- A company agrees today to exchange a fixed amount of currency at a specified future date and rate
B. Futures Contracts- Standardized contracts traded on exchanges to buy or sell currency at a future date. Used mainly by investors and large firms.
C. Options Contracts- Gives the right (but not the obligation) to exchange currency at a predetermined rate before expiration.
D. Currency Swaps- Two parties exchange currencies and interest payments for a fixed period.
2. Natural Hedging Strategies
Matching Revenues and Expenses 🔁
Earning and spending in the same currency reduces exposure
Diversification of Markets 🌍
Spreading operations across multiple regions reduces dependency on one currency.
Holding Foreign Currency Accounts 🏦
Maintaining bank accounts in different currencies allows companies to manage transactions without frequent conversions.
Government & Central Bank Support
Export Credit Agencies (ECAs) provide currency risk insurance for exporters.
Central banks intervene to stabilize currency movements in extreme cases.
Spot exchange rates
A spot exchange rate is the current price at which one currency can be exchanged for another immediately (on the spot). Transactions at this rate typically settle within two business days (T+2), except for USD/CAD, which settles in one business day (T+1).
Forward exchange rates
A forward exchange rate is when two parties agree to exchange currency and execute the deal at some specific date in the future
Currency swaps
a currency swap is when simultaneous purchase and sale of a given amount of a foreign exchange for 2 different value dates
strategies
actions managers take to attain the goals of the firm
profitability
rate of return that the firm makes on its invested capital
Profit growth
percentage increase in net profits over time
value creation (2 conditions)
the amount of value customers place on a firms goods and services (perceived value)
the firms costs of production
Pressures of competing in global marketplace
pressures for cost reduction require a firm to lower the costs of value creation
pressure for local responsiveness: difference in consumer tastes and preferences
differences in infrastructure and traditional practices
differences in distribution channels
host government demands
the rise of regionalism
Strategies for firms entering the global marketplace
global standardization strategy: is a business approach where a company uses a uniform product, brand, and marketing strategy across multiple countries, with minimal local adaptation. This strategy aims to maximize efficiency, reduce costs, and create a consistent global brand identity.
localization strategy: a localization strategy focuses on increasing profitability by modifying the firm’s products to match the tastes and preferences of different regional markets
transnational strategy: a business approach that combines global efficiency with local responsiveness. Companies using this strategy aim to achieve the cost benefits of standardization while adapting products and services to local markets
International Strategy: when a company expands into foreign markets while keeping most of its operations, decision-making, and product development centralized in its home country. Unlike global or transnational strategies, it involves minimal adaptation to local markets.
market segmentation
geography
demography
sociocultural factors
Psychological factors
business analytics
Business analytics helps companies analyze and optimize their international business strategies using data-driven insights. It has three core applications:
Descriptive Analytics (What Happened?) – Analyzes past data to identify trends (e.g., global sales performance).
Predictive Analytics (What Might Happen?) – Uses models to forecast future trends (e.g., market demand, currency fluctuations).
Prescriptive Analytics (What Should We Do?) – Recommends actions for strategy optimization (e.g., best market entry approach).
distribution strategy
A distribution strategy refers to how a firm delivers its product to consumers in different countries. Key factors influencing distribution include:
retail concentration
Concentrated System: Few large retailers dominate (e.g., U.S. supermarkets).
Fragmented System: Many small retailers, no dominant supplier (e.g., rural markets in India).
Channel Length –
Short Channel: Direct sales or few intermediaries (e.g., luxury brands).
Long Channel: Multiple intermediaries between producer and consumer (e.g., food distribution in Japan).
Channel Exclusivity –
Some markets have closed or hard-to-access distribution networks, requiring strong local partnerships.
Channel Quality
The expertise and capabilities of retailers in a country to sell and support international products.
Barriers to International Communication
Cultural Barriers 🌍 – Differences in language, customs, and values can lead to misunderstandings (e.g., humor or gestures not translating well).
Source Effects 🏢 – The credibility of the sender influences how the message is received. A brand’s reputation may affect consumer trust (e.g., luxury brands from France may be seen as superior).
Noise Levels 📢 – Competing messages in a market can make it hard for consumers to focus on a company’s communication. High advertising clutter reduces effectiveness (e.g., social media overload in the U.S.).
push marketing strategy
A push marketing strategy focuses on actively promoting a product to distributors, wholesalers, and retailers to get it in front of consumers. The goal is to "push" the product through the supply chain using aggressive marketing tactics.
Key Features:
Uses Personal Selling – Sales teams convince retailers to stock the product.
Trade Promotions – Discounts, incentives, and bulk deals encourage resellers.
Retailer Partnerships – Stores promote the product to end consumers.
Pull Marketing strategy
A pull marketing strategy focuses on creating consumer demand so that customers actively seek out a product, pulling it through the distribution channel. Instead of pushing the product to retailers, companies market directly to consumers, who then request it from stores.
Key Features:
Direct-to-Consumer Advertising – Uses media campaigns, social media, and digital marketing.
Brand Loyalty & Awareness – Builds strong brand recognition to create long-term demand.
Word-of-Mouth & Influencer Marketing – Encourages organic sharing and recommendations.
