BASIC MODES OF ENTRY

INTO INTERNATIONAL
BUSINESS
Submitted By :-
Anil Kumar
2018MBA004
 Different modes of entry

 EXPORTING SPECIAL MODES

-indirect exporting -Contract
-direct exports manufacturing
-intra-corporate -Management
transfers Contracts
-Turnkey projects
 LICENSING
 FDI without alliances
 FDI with alliances
 FRANCHISING
 Forms of Exporting

Indirect Direct
exporting exporting

Intra-corporated
transfer
 Forms of Exporting
4

Indirect involvement means that the firm

participates in international business
through an intermediary and does not deal
with foreign customers or markets.

Direct involvement means that the firm

works with foreign customers or markets
with the opportunity to develop a
relationship.
Indirect Exporting
Direct Exporting
Intra-corporate Transfer
 Exporting

Advantages Disadvantages

Relatively low
financial exposure Vulnerability to
tariffs and NTBs

Permit gradual
market entry
Logistical
complexities

Acquire knowledge
about local market
Potential conflicts
with distributors
Avoid restrictions on
foreign investment
 Licensing
 Licensing is when a firm, called the licensor,
leases the right to use its intellectual property—
technology, work methods, patents, copyrights,
brand names, or trademarks—to another firm,
called the licensee, in return for a fee.
 The property licensed may include:
Patents
Trademarks
Copyrights
Technology
Specific business skills
The Licensing Process
 Licensing –Adv. & Disadv.

Advantages Disadvantages

• Low financial risks • Limited market

• Low-cost way to opportunities/profits
assess market • Dependence on
potential licensee
• Avoid tariffs, NTBs, • Potential conflicts
restrictions on foreign with licensee
investment • Possibility of creating
• Licensee provides future competitor
knowledge of local
markets
 Franchising
 Under franchising, an independent organisation
called the franchisee operates the business
under the name of another company called the
franchisor.
 In such an arrangement the franchisee pays a

fee to the franchisor.

 Franchising is a form of Licensing but the

Franchisor can exercise more control over the

Franchisee as compared to that in Licensing.
 Franchising Agreements
 Franchisee has to pay a fixed amount and
royalty based on sales.
 Franchisee should agree to adhere to follow
the franchisor’s requirements
 Franchisor helps the franchisee in establishing
the manufacturing facilities
 Franchisor allows the franchisee some degree
of flexibility.
 Eg. McDonalds, Subway, KFC
 Franchising- Adv. & Disadv.

Advantages Disadvantages

• Low financial risks • Limited market

• Low-cost way to assess opportunities/profits
market potential • Dependence on
• Avoid tariffs, NTBs, franchisee
restrictions on foreign • Potential conflicts with
investment franchisee
• Maintain more control • Possibility of creating
than with licensing future competitor
• Franchisee provides
knowledge of local
market
 Contract manufacturing

 Contract manufacturing is outsourcing entire or

part of manufacturing operations.
 E.g.: pharmaceuticals, Personal Care products
etc
 The iPad and iPhone, which are products from
Apple Inc., are manufactured in China by
Foxconn. Hence, Foxconn is a contract
manufacturer and Apple benefits from a lower
cost of manufacturing devices
 Contract Manufacturing-Adv. &
Disadv.

Advantages Disadvantages
Low financial risks Reduced control
Minimize resources (may affect quality,
devoted to delivery schedules,
manufacturing etc.)
Focus firm’s Reduce learning
resources on other potential
elements of the Potential public
value chain relations problems
 Management Contract
 A management contract is an agreement
between two companies whereby one
company provides managerial assistance,
technical expertise and specialised services
to the second company for a certain period
of time in return for monetary
compensation.
 Eg. Schools, sports facilities, hospitals,

office buildings, malls and large businesses

have on-site cafeterias, restaurants.
 Management Contract

• Focus firm’s resources on

its area of contracts
Advantages • Minimal financial exposure

• Potential returns limited by

contract expertise
Disadvantages • May unintentionally transfer
proprietary knowledge and
techniques to contractee
 Turnkey Project
 A turnkey project is a contract under which
a firm agrees to fully design, construct and
equip a manufacturing/business/service
facility and turn the project over to the
purchaser when its ready for operation, for
a remuneration.
Turnkey Project
 FDI without alliances

• Companies enter the international market

through FDI , invest their money, establish
manufacturing and marketing facilities
through ownership and control.

• Greenfield strategy- the term Greenfield

refers to starting of the operations of a
company from scratch in a foreign market.
 FDI with strategic alliances
Strategic alliance is a cooperative and collaborative
approach to achieve the larger goals.
Role of alliances
 Many complicated issues are solved through

alliances
 They provide the parties each other’s strengths

 Helps in developing new products with the

interaction of 2 or more industries

 Meet the challenges of technological revolution.

 Managing heavy outlay

 Become strong to compete with a multinational

 FDI with strategic alliances

Modes of FDI through alliances are:

 Mergers and acquisitions

 Joint ventures
 Mergers and Acquisitions

Merger : The combining of two or more

companies, generally by offering the
stockholders of one company securities in the
acquiring company in exchange for the
surrender of their stock.
Acquisition : When one company takes over
another and clearly established itself as the new
owner, the purchase is called an acquisition.
HDFC Bank acquisition of Centurion Bank
of Punjab for $2.4 billion
 Acquisition Strategy

Advantages
• Obtains control over the acquired firm
such as factories and brand names
• Integrate the mgt of the firm into its
overall international strategy
Disadvantages
• Assumes all the liabilities such as
financial and managerial
 Joint Ventures
 A joint venture is an entity formed between two
or more parties to undertake economic activity
together. The parties agree to create a new
entity by both contributing equity, and then they
share in the revenues, expenses, and control
of the enterprise.
 Sony-Ericsson is a joint venture by the
Japanese consumer electronics company Sony
Corporation and the Swedish
telecommunications company Ericsson to
make mobile phones
 Joint Ventures

 Advantages:
Benefit from local partner’s knowledge.
Shared costs/risks with partner.
Reduced political risk.

 Disadvantages:
Risk giving control of technology to partner.
May not realize experience curve or location
economies.
Shared ownership can lead to conflict
THANK YOU