Selecting and Managing Entry Modes

Flashcards on Selecting and Managing Entry Modes

Entry Mode

The institutional arrangement by which a firm gets its products, technologies, human skills, or other resources into a market.

Exporting

Selling goods and services to wholesalers, retailers, industrial buyers, and consumers in other nations.

Economies of Scale

Achieving a greater sales volume to spread fixed production costs over a greater number of manufactured products, lowering the cost of producing each unit.

Export Strategy

A plan to research and analyze international opportunities and actively pursue export markets.

Direct Exporting

When a company sells its products directly to buyers in a target market.

Sales Representative

An individual or organization that represents only its own company’s products, promoting them in many ways.

Distributor

Takes ownership of the merchandise when it enters the target market, selling to retailers, wholesalers, or end users.

Indirect Exporting

When a company sells its products to intermediaries who then resell to buyers in a target market.

Agent

An individual or organization that represents one or more indirect exporters in a target market and gets compensation via commissions.

Export Management Company (EMC)

A company that exports products on behalf of an indirect exporter, operating contractually as an agent or distributor.

Export Trading Company (ETC)

A company that provides services to indirect exporters in addition to activities directly related to clients’ exporting activities.

Sogo Shosha

The Japanese term for Export Trading Company, an ETC

Keiretsu

Enormous Japanese conglomerates such as Mitsubishi or Mitsui.

Chaebol

South Korean ETC that includes well-known companies such as Samsung or Hyundai.

Freight Forwarder

A specialist in export-related activities such as customs clearing, tariff schedules, and shipping and insurance fees.

Countertrade

Selling goods or services that are paid for, in whole or in part, with other goods or services.

Barter

The exchange of goods or services directly for other goods or services without the use of money.

Counterpurchase

The sale of goods or services to a country by a company that promises to make a future purchase of a specific product from that country.

Offset

An agreement that a company will offset a hard-currency sale to a nation by making a hard-currency purchase of an unspecified product from that nation in the future.

Switch Trading

The practice in which one company sells to another its obligation to make a purchase in a given country.

Buyback

The export of industrial equipment in return for products produced by that equipment.

Advance Payment

Export/import financing in which an importer pays an exporter for merchandise before it is shipped.

Documentary Collection

Export/import financing in which a bank acts as an intermediary without accepting financial risk.

Draft (Bill of Exchange)

A document ordering the importer to pay the exporter a specified sum of money at a specified time.

Sight Draft

Requires the importer to pay when goods are delivered.

Time Draft

Extends the period of time following delivery by which the importer must pay for the goods.

Bill of Lading

A contract between the exporter and shipper that specifies merchandise destination and shipping costs, also proof that merchandise has been shipped.

Letter of Credit

Export/import financing in which the importer’s bank issues a letter pledging to pay the exporter when the exporter fulfills the terms listed in the letter.

Irrevocable Letter of Credit

Letter of credit which allows the the issuing bank to modify its terms only after obtaining both exporter and importer approval.

Confirmed Irrevocable Letter of Credit

Where the exporter requests their bank to confirm the letter of credit, thereby adding the creditworthiness of the exporter’s bank to the pledge made by the importer’s bank.

Open Account

Export/import financing in which an exporter ships merchandise and later bills the importer for its value.

Licensing

A contractual entry mode in which one company owning intangible property grants another business the right to use that property for a limited period of time.

Licensor

The company owning the intangible property in a licensing agreement.

Licensee

The company granted the right to use the property in a licensing agreement.

Exclusive License

Grants a company the exclusive right to produce and market an intangible property in a specific geographic region.

Nonexclusive License

Grants a company the right to use an intangible property but does not grant it sole access to a market.

Cross-Licensing

When companies use licensing agreements to exchange intangible property with one another.

Franchising

A contractual entry mode in which one company supplies another with intangible property and other assistance over an extended period.

Franchiser

Party who supplies the intangible property in a franchising agreement.

Franchisee

Party who receives the intangible property in a franchising agreement.

Management Contract

One company supplies another with managerial expertise for a specific period of time.

Turnkey Project

When one company designs, constructs, and tests a production facility for a client, the agreement.

Wholly Owned Subsidiary

A facility entirely owned and controlled by a single-parent company.

Joint Venture

A separate company that is created and jointly owned by two or more independent entities to achieve a common business objective.

Forward Integration Joint Venture

When the partners invest in business activities that are normally performed by others later in the value system.

Backward Integration Joint Venture

When the partners invest in business activities that are normally performed by others earlier in the value system.

Buyback Joint Venture

When both partners supply the venture’s input and absorb its output.

Multistage Joint Venture

When one partner integrates backward and one partner integrates forward.

Strategic Alliance

A relationship whereby two or more entities cooperate (but do not form a separate company) to achieve the strategic goals of each.