Selecting and Managing Entry Modes

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Discuss the essential aspects of exporting
Define each form of countertrade Explain each type of export/import financing

Describe the advantages and disadvantages of each contractual entry mode

Identify the pluses and minuses of each investment entry mode Identify strategic factors in selecting entry modes

Developing an Export Strategy

Step 1
Identify a potential market

Step 2
Match needs to abilities

Step 3
Initiate meetings

Step 4
Commit resources

Degree of Export Involvement

Direct exporting (sell to buyers)
Sales representatives Distributors

Indirect exporting (sell to intermediary)

Agents Export management companies Export trading companies

Avoiding Export Blunders

Conduct market research Obtain export advice Consider a freight forwarder

Forms of Countertrade
Barter
Direct exchange without money

Counterpurchase
Sale to a country in return for promise of future purchase from it

Offset agreement
Offset a hard-currency sale to a nation with future hard-currency purchase

Switch trading
Sale by a company of obligation to purchase from a country

Buyback
Export of industrial equipment in return for products the equipment produces

High-Risk Approaches
Advance payment
Importer pays exporter for merchandise before it ships

Open account
Exporter ships merchandise and later bills importer

Documentary Collection
Bank acts as intermediary without accepting financial risk
Draft (bill of exchange)
Document that orders importer to pay exporter a specified sum of money at a specified time

Bill of lading
Contract between exporter and shipper specifying destination and shipping costs for merchandise

Letter of Credit
Importers bank issues a document stating that the bank will pay the exporter when exporter fulfills documents terms
Irrevocable Revocable Confirmed

Licensing
Company owning intangible property (licensor) grants another firm (licensee) the right to use it for a specified time
Advantages
Finance expansion Reduce risk Reduce counterfeits Upgrade technologies

Disadvantages
Restrict licensors future Reduce global consistency Lend strategic property

Franchising
Company (franchiser) supplies another (franchisee) with intangible property over an extended period
Advantages
Low cost and low risk Rapid expansion Local knowledge

Disadvantages
Cumbersome Lost flexibility

Management Contract
Company supplies another with managerial expertise for a specific period of time
Advantages
Few assets risked Nations finance projects Develops local workforce

Disadvantages
Personnel at risk Create competitor

Turnkey Project
Company designs, constructs and tests a production facility for a client
Advantages
Firms specialize in core competency Nations obtain infrastructure projects

Disadvantages
Politicized process Create competitor

Wholly Owned Subsidiary

Facility entirely owned and controlled by a single parent company
Advantages
Day-to-day control Coordinate subsidiaries

Disadvantages
Expensive High risk

Joint Venture
Separate company created and jointly owned by two or more independent entities to achieve a common business objective

Forward Backward Buyback Multistage

Advantages
Reduce risk level Penetrate markets Access channels Protect interests

Disadvantages
Partner conflict Lose control

Strategic Alliance
Entities cooperate (but do not form a separate company) to achieve strategic goals of each
Advantages
Share project cost Tap competitors strengths Gain channel access Protect interests

Disadvantages
Create competitor Partner conflict

Entry Modes: Strategic Factors

Cultural environment Political/Legal environments Market size Production and shipping costs International experience