I_Bus Exam 3 - Module 6

Terms - missing Global Market Opportunity

Global Market Opportunity

Favorable combination of circumstances, locations, or timing that offer prospects for exporting, investing, sourcing, or partnering in foreign markets

Global Market Opportunity Assessment (GMOA) Steps

1) Analyze organizational readiness to internationalize

2) Assess the suitability of products + services for foreign markets

3) Screen countries to identify attractive target markets

4) Assess industry market potential for the products/services in selected target markets

5) Choose qualified biz partners (such as distributors or suppliers)

6) Estimate company sales potential for each target market

Products that are best suited for internationalization

Sell well in domestic market

Cater to universal needs

Address a need not well served in foreign market

Address new or emergent need abroad

Screen countries to identify attractive target markets - country screening

To identify target markets

Identify 5-6 countries that hold best potential

Country screening techniques

Gradual elimination - lot of prospective target countries — narrow choices based on increasingly specific information

Indexing and ranking - assign scores to countries based on market attractiveness

Variables used in market potential index

Market size

Market growth rate

Market intensity

Market consumption capacity

Commercial infrastructure

Market receptivity

Economic freedom

Country risk

Assess industry market potential for the products/services in selected target markets

Considers all firms in a particular industry during a specific time period

Uber saw demand, increase urbanization, increase phone usage, congested traffic in India - and expanded to india

What kind of data is need to assess market potential?

Size and growth rate, industry trends

Tariffs and non-tariff barriers to entry

Standard and regulations

Availability and sophistication of distribution

Unique customer requirements and preference

Competitor performance

Choose qualified biz partners

Need to decide what activities they want to delegate to international partners + select based on their experience

Different internationalization strategies may choose different partners

Organizational readiness

Question their own competitive advantage (how many resources can they put towards internationalization)

Assess company strengths and weaknesses for international biz

Assess the suitability of products + services for foreign markets

Conduct a systematic assessment of the company offerings for international customers

Evaluate the fit between offerings and foreign customer needs

For each target market - identify factors that may hinder market potential + determine how offerings may need to be adapted for each market

Assess factors (such as foreign cultures, laws, competition)

Exporting

Producing goods or services in one country, selling in another

Common service exports

Professional services (accounting, consulting)

Digital (software development, tech support)

Education (international students, study abroad)

Travel and tourism

Advantages of service exports

Increases market share

Increases economies of scale

Minimizes cost of foreign entry

Minimizes risk

Flexible

Leverages the capabilities of foreign partners

Disadvantages of service exports

Fewer opportunities to learn foreign markets

Tariff and nontariff trade barriers \

Exchange rate fluctuations

Types of exporting

Indirect

Direct

Company-owned foreign subsidiary

Indirect exporting

Contract with an intermediary in the firm’s home country

Export management company or trading company

Direct exporting

Contracting with intermediaries in foreign market - perform downstream value-chain activities in target market

Distributors or agents

Company-owned foreign subsidiary export

Like direct exporting - exporters owns the foreign intermediation operation

Export documentation

Quotation or pro forma invoice

Comercial invoice

Bill of lading

Shipper’s export declaration

Certificate of origin

Insurance certificate

Quotation or pro forma invoice - export doc

Send to buyer before shipment

Estimated costs and terms of sale

Used to secure payment or apply for a letter of credit

Commercial invoice - export doc

From exporter to importer

Specify goods sold, prices, terms of sale, and payment details

Primary doc for customers clearance

Bill of lading - export doc

Basic contract - exporter and shippers

Authorizes shipping company to transport goods

Shipment receipt, contract, and docu of title for the goods

Shipper’s export declaration - export docu (maybe remember for exam)

Filed with the gov

Provides export statistics

Ensures compliance with regulations

Typically required when value of shipment exceeds a certain threshold

Certificate of origin - export doc

“Birth certificate” of goods

Where product originated

Required by some country to determine tariff or comply with trade agreements

Insurance certificate - export doc

Shipment is insured against loss or damage during transmit

Required to comply with sales contract terms (especially when using certain INCOTEMERS)

INCOTERMS

International Commerce Terms = system of universal terms for sale and delivery

Commonly used in insurance contracts

Clarifies tasks, costs, and risks - avoids cultural misunderstandings

Common INCOTERMS

EXW

FOB

CIF

EXW - common INCOTERMS

Ex Works = buyers arrange transportation from the seller’s premises

FOB - common INCOTERMS

Free On Board = sellers delivers goods to the port; buyer assumes risk from there

CIF - common INCOTERMS

Cost, Insurance, and Freight = seller covers costs, insurance, and freight to the destination port

Methods of payment

Cash in advance

Open account

Letter of credit

Cosignment

Cash in Advance - Method of payment

Payment made before goods are shipped

pro = Low risk for sellers - payment is secured

con = high risk for buyer

Open account - Method of payment

Seller ships goods and invoices buyer - who pays at a later date

pros = convenient for buyer - relationship with strong trust

cons = high risk for seller

Letter of credit - Method of payment

Bank guarantees payment on behalf of buyer - seller must meet specific conditions

pros = reduces risk for both parties

cons = can be complex and costly - bank fees

Cosignment - Method of payment

Exporter ships goods to importer, payment made when goods are sold

pros = can help build market presence + gain trust with foreign partners

cons = high risk for the exporter - payment is dependent on sale of goods

Letter of credit steps

1) Buyer and seller agree to terms, buyer requests letter from bank

2) Bank issues, promising to pay upon submission of specific documents

3) Seller ships goods and submits documents to bank for payment

Countertrade

Paying for goods or services using other goods or services - when conventional means are difficult

10-33% of all world trade

Common in large-scale government procurement

Risky - hard to price goods, may lead to price fixing, time consuming, complex

Types of Countertrade

Barter

Compensation Deal

Counterpurchase

Buy-back agreement

Barter - types of countertrade

Goods directly exchanged - no transfer of money

PepsiCo traded Pepsi for Soviet Union vodka

Compensation deal - types of countertrade

Payment in goods and cash

Saudi Arabia purchased aircrafts from Boeing. Paid partly in cash and in oil

Counterpurchase - types of countertrade

Two distinct contracts

1) seller agrees to set price of goods + receives cash from buyer

2) seller agrees to purchase gods from buyer

General motors sold auto techo to Poland. GM agreed to purchase goods in the future

Buy-back agreement - types of countertrade

Seller agrees to supply technology or equipment and receives payment in forms of goods produced by it

McDonnell Douglas helped China build aircraft manufacturing. MDD agreed to buy aircrafts.

Foreign intermediaries

Exporter relies on intermediaries for marketing, physical distribution, and customer service in the export market

Types of foreign intermediaries

Foreign distributor

Manufacturer’s representative

Trading company

Export management company (EMC)

Foreign distributor - foreign intermediaries

Base in foreign market

Under contract

Titled to and distributes products in national market

Marketing functions - sales, promotion, and after-sales

Manufacturer’s representative - foreign intermediaries

Contracted by exporter to represent and sell its merchandise or services in designated country

Trading company - foreign intermediaries

Engages in import and export - variety of commodities, products, and services

Export Management company - foreign intermediaries

Based in home market - act as export agent on behalf of client firm

Global sourcing

Procurement of products or services from suppliers located abroad for consumption in home country/3rd country

Benefits of global sourcing

Cost efficient b/c of lower wages abroad + potentially cheaper materials

Access to quality partners, tech, goods, etc

Market expansion opportunities

Faster speed to market

Risks of global sourcing

Outside risk factors (exchange rate fluctuations, trade barriers)

Weak legal environment

Low-skilled workers

Over-reliance on suppliers

Risk of creating competitors

Erosion of morale and commitment among home-country employees due to outsourcing jobs

Drivers of global sourcing

Tech advances

Digitalization

Increased knowledge and com

Increase of free trade

Less trade barriers

International biz is cheaper

Emerging markets

Intellectual property

Patent

Trademark

Copyright

Patent - intellectual property

Exclusive right for invention - prevent others from making, using, selling invention for set period

Trademark - intellectual property

Legally registered symbol, name, phrase - to identify and distinguish company’s goods/services from others

*Nike swoosh

Copyright - intellectual property

Legal protection - gives creators exclusive rights to reproduce, distribute, and display original literary, artistic, musical, other creative works

Licensing

Contractual agreement - licensor permits licensee to use the IP (trademarks, patents, tech, brand names) under defined condition - for royalties or fees

Licensing - IP usage

Licensee gains rights to use IP without owning

Licensing - Royalties and fees

Licensee pays the licensor for IP usage

Licensing - defined scope

Specifies duration, territory, and purpose of use

Licensing - quality control

Licensor may enforce standards to protect IP value

Types of licensing

Trademark licensing

Copyright

Patent

Trademark licensing

Permits use of trademark/brand name for specified products/services, maintaining brand consistency

*Clothing company licenses use of team’s logo for merchandise

Copyright licensing

Grant permission to use, reproduce, distribute, or display a creator’s original work - owner retains ownership

*Author licenses their novel to a publisher for printing and sales

Patent licensing

Licensee can make, use, sell, or import invention under agreed terms/conditions

*Tech company licenses patented tech to manufacturers for production

Licensing advantages

Low investment and involvement

Low effort once established

Avoid some country risk or trade barriers

Able to test foreign markets

Licensing disadvantages

Performance depends on licensee

Licensor has limited control over assets abroad

IP risks

Lower revenue than some other entry strategies

Franchising

Franchisee can operate a biz using franchisor’s brand, trademark, products and operation methods - for fees/royalties - more comprehensive and longer-term than licensing

Franchising - brand usage

Operate under an established brand name and trademark

Franchising - Standardized operations

Adherence to franchisor’s proven biz model and guidelines

Franchising - Support and training

Franchisor provides initial training and ongoing assistance in marketing, management, and operations

Franchising - Fees and royalties

Franchisee pays initial franchise fee plus ongoing assistance in marketing, management, and operations

Franchising - Markets

Often in advanced economies or select emerging markets

Franchising advantages - franchisee

Use well-known brand

Acquire training and operations knowledge

Already tested biz

Franchising disadvantages - franchisee

Must pay royalty fees

Franchisor has some overarching control

Franchising advantages - franchisor

Low investment

Internationalize quickly to multiple markets

Low effort once established

Leverage franchisee local knowledge

Franchising disadvantages - franchisor

Maintaining control over franchisees may be difficult

Franchiser has limited control over assets abroad

Risk creating a future competitor

Foreign direct investment (FDI)

Strategy - firm establishes physical presence abroad - by acquiring productive assets (capital, tech, labor, land, plant, equipment)

International collaborative venture (*don’t worry)

Cross-border biz alliance - partnering firms pool their resources and share costs/risks of a venture

Joint venture (JV)

Form collaboration between 2+ firms to create jointly-owned enterprise

FDI Destinations

Advanced economies in Europe, Japan, N Am = popular destinations

Emerging markets and developed economies = recently gained appeal as destination

China, Mexico, Eastern Europe = targeted for low-cost manufacturing and easy access to adjoining regional markets

FDI - key features

High ownership and control

Transfer of capital between firms or countries

Increased market access/expansion

Tech and expertise transfer

Employment and economic development

Low-term commitment

Motives

Market-seeking motives = expand to new markets/customers

Resource-seeking = access to new tech/knowledge from new partners

Efficiency-seeking = ease market entry + regulations - reduce financial + operational risks

Marketing-seeking motives

Gain access to new markets/opportunities = Boeing, Coca-cola, McDonald = more sales abroad

Follow key customers = Company that supplies plastic to Procter & Gamble - built a plant in China after P&G did

Compete with key rivals in their own markets = Caterpillar entered Japan to tie up Komatsu (rival), to hamper Komatsu’s ability to expand its activities in the US

Resource-seeking motives

Access raw materials needs = Mining and oil industries must go to raw materials

Gain access to knowledge or other assets = partnering with international firms - can make entry internationally easier

Access technological + managerial know-how available in key market = firm may benefit by establishing presence in key industrial cluster like robotics industry in Japan

Efficiency-seeking motives

Can increase economies of scale = reduce sourcing and production costs - allow resources to be effectively allocated

Physical presence in markets = production closer to customers - increase speed to market

Avoid trade barriers = direct market entry - avoid tariffs and other trade barriers

Types of FDI

Greenfield investment

Acquisition

Merger

Greenfield investment - types of FDI

Firms invest to build new manufacturing, marketing, or administrative facility - opposed to acquiring existing facilities

Acquisiton - types of FDI

Purchase existing company or facility

*Majority of FDI inflows through acquisitions

Merger - types of FDI

Special type of acquisition - two companies join to form larger firm

Acquisition benefits

Quicker to execute than greenfield investment

Gain access to valuable strategic assets = brand loyalty, customer relationships, trademarks/patents, distributions and production systems

Increase efficiency of acquired unit by transferring capital, tech, or management skills

Acquisition benefits

Vertical integration = arrangement - firm owns or seeks to own multiple stages of value chain for producing, selling, or delivering

Horizontal integration = expanding at same production level - often by acquiring competitors to increase market share and achieve econ of scale - Microsoft acquired foreign subsidiaries - make different types of software they haven’t covered yet

Categories of strategic alliance

Joint venture

Equity Strategic Alliance

Project-based strategic alliance

Joint venture - categories of strategic alliances

New independent entity jointly created and owned by 2+ parent companies

Equity strategic alliance - categories of strategic alliances

2+ partners have different relative ownership shares

*Small firm may contribute local knowledge to larger firm

Project-based strategic alliance - categories of strategic alliances

Shorter-term - often focused on developing a product/facility that benefits both firms - no new firm is legally created

Marketing Mix components

Product, Price, Promotion, Place