BUS 200 STUDY GUIDE - Chapter 14 (4) - Selecting and Managing Entry Modes

3 Categories of Entry Modes

Exporting and countertrade
Contractual entry

Investment entry

Why companies export

To expand total sales when domestic markets become saturated, To offset slow sales in one market with increased sales in another, and because its a low-cost, low-risk way to gain international business experience.

Direct Exporting

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

Indirect exporting

Occurs when a company sells its products to intermediaries who then resell to buyers in a target market

Countertrade

Selling goods or services for other goods or services

Contractual entry modes

Licensing, franchising, management contracts, and turnkey projects

Licensing

A company owning property grants another business the right to use that property for a limited period.

Advantages of licensing

Can be used to finance international expansion, can lower the likelihood of counterfitting, and can be a low-risk method of international expansion

Disadvantages of licensing

Can restrict a licensor's future activities, might reduce consistency in quality of a licensor's products, might lead to company lending property to its future competitor

Franchising

One company supplies another with property and other assistance over an extended period.

Advantages of franchising

can be a low-cost, low risk entry mode into new markets,allows for rapid geographic expansion of a business, franchisers can benefit from cultural knowledge of local managers

Disadvantages of franchising

May be cumbersome to manage numerous franchisees across a number of nations, franchisees can experience a loss of organizational flexibility in franchising agreements.

Management contract

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

Turnkey projects

When one company constructs and tests a production facility for a client

Investment entry modes

Wholly owned subsidiaries, joint ventures, strategic alliances

Wholly owned subsidiaries

A facility entirely owned and controlled by a single parent company

Advantages of wholly owned subsidiaries

gives managers complete control over all operations

Disadvantages of wholly owned subsidiaries

Risky because it requires substantial company resources

Joint Ventures

A separate company that is created and jointly owned by two or more independent entities

Advantages of joint ventures

companies reduce risk when market entry requires a large investment, can be used to enter markets that are otherwise off limits,can be used to gain acess to another company’s international distribution network

Disadvantages of joint ventures

Can result in conflict between partners, the government may take control over the joint venture if it's a partner.