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Three categories of entry Three criteria for selecting a mode of entry Examination of export entry mode Distinguish between direct exports and indirect exports Examine the rationale for overseas production Methods of overseas production
INDIRECT EXPORT
where there is resale of the product to customer overseas DRAGON STOUT: sells to wholesalers in Jamaica who in turn ship goods to Toronto
DIRECT EXPORTS These are sales to customers overseas. These customers may be intermediary organizations. based abroad or end-users
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OVERSEAS MANUFACTURER A firm may set up its own production operation aboard or enter into joint venture with enterprises in overseas market.
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LEARNING REQUIREMENTS RISK- POLITICAL Expropriation of overseas assets- discouraging CONTROL NEEDS The more involved the greater the degree of control over the marketing mix variable
Location aboard can offer eventually a better understanding of the problems and needs of customers. Some markets are so large that economies of scale can be gained by overseas production. Production cost are lower in some countries overseas than at home
For firms producing bulky products, overseas production can reduce storage and transportation cost Overseas production can overcome the effect of tariff and non-tariff barrier to imports. [Japan- car manufacturer. When overseas government is a customer- winning combination
including supply of essential materials. Right to produce patented product Eg. HEINEKEN BEER IN JAMAICA
ADVANTAGES OF LICENSING
It require no investment-only cost of monitoring 2) It enables entry into new markets that would otherwise be closed due to tariffs, government attitudes and policies. 3) As a mode of entry it is simple and quick 4) The licenser gains access to knowledge and local production processes.
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New products can be introduced to many countries quickly because of low investment requirements. It provides all the usual benefits of overseas production
FRANCHISING
This is a type of licensing. The franchise agreement specifies in more detail than a licensee agreement, exactly what is expected of the franchisee In this agreement the franchiser supplies ingredients, standard package of goods components, management and marketing.
The franchiser provides capital, personal involvement, local market knowledge.etc. Examples are as follows: KFC
HOLIDAY INN
BURGER KING
HILTON HOTEL
TACO BELL
CONTRACT MANUFACTURER
Contractor makes contract with firm aboard whereby the contractee manufactures or assembles a product on behalf of the contractor. Contractor maintains full control over marketing and distribution. Examples of firms that use this method are: PROCTER & GAMBLE COLGATE DEL MONTE
ADVANTAGES There is no need to invest in plant abroad - The risk of asset expropriation is minimized - Control of marketing is retained by contractor - Risk associated with currency fluctuation
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JOINT VENTURES
A joint venture is an arrangement where two firms or more join forces for manufacturing, financial and marketing purposes and each has a share in both the equity and the management of business of joint venture. Joint ventures are bound by much stronger formal ties.
Some countries encourage joint ventures Eg. RUSSIA, INDIA, NIGERIA, CUBA and KENYA. Joint ventures can reduce the risk of government intervention Joint ventures can provide close control of marketing etc.
The firm is able to operate a completely integrated and synergistic into firm - There is no communication problem
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MAJOR DISADVANTAGES
Substantial investment required - Suitable managers with required skills - difficulty in locating - Some overseas governments discourage and sometimes prohibits 100% ownership of an enterprise by a foreign firm
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partner's market knowledge, distribution system and other local expertise required.