INTERNATIONAL MARKETING - ASSIGNMENT THE PROBLEM Your company has been selling products through an agency so far.

You are the top management of the Organisation. The agency has been underperforming impacting both the volumes of sale and the profitability curve. You are seriously considering a subsidiary in that country to replace the foreign agency. (a) What is your advice to yourself? (b) As an international marketeer, what are the ramifications of terminating an agency contract and having your own subsidiary in position? THE PROPOSED SOLUTION An international marketer has recourse to four possible modes of operation when he chooses to enter the international market. These are: (a) (b) (c) (d) Exporting Licensing Joint Venture and Sole Venture

The particular option which a firm zeroes-in on in conducting its business operations in a foreign country will be a reflection of the companys compromise among the four attributes of appetite for risk/ return, the quantum of resources a company commands and is willing to commit its international forays and the degree of control desired by the company over its international operations. The manifestation of the attributes in each of the options is as follows: (a) Exporting Mode - One End Of The Spectrum. Low resource, low risk/ return alternative, provides firm with operational control but lacks in providing market control. (b) Licensing Mode. Low investment, low risk/ return alternative which provides least control to the licensing firm. (c) Joint Venture Mode. Involves relatively lower investment and hence provides risk, return and control commensurate to the extent of equity participation of the investing firm. (d) Sole Venture - Other End Of The Spectrum. High investment, high risk/ return and high degree of control.

Because all of these modes involve resource commitments (albeit at varying levels), firms initial choices of a particular mode are difficult to change without considerable loss of time and money. Entry mode selection is therefore, a very important, if not a critical, strategic decision. The second school of thought, however, opines that the selection of mode will change from a low risk/ low return paradigm to the sole ownership paradigm gradually transitting through the various modes as the company grows in stature in the international market arena. THE CASE Let us assume that the case pertains to the manufacturer of a 4-wheel drive offroader headquartered in India. While the company caters to the niche domestic market of well-heeled and adventurous customer-set willing to pay a premium price for such a speciality vehicle, the bulk of its volumes are derived from exports to Sub-Saharan Africa. These export orders were historically processed by an agency based out of South Africa, which has, over the years, developed an extensive marketing and distribution network. This growth of this agency mirrored the growth in stature of the Indian automobile manufacturer in the African market. For the past couple of years, the agency had also negotiatied similar trading agreements with another off-roader manufacturer based out of China allowing access to the Chinese firm to the same marketing and distribution network. This had led to the two firms viz Indian and Chinese competing for the same pie and the South African Agency was not averse to playing one against the other to his own advantage. This, unfortunately was having an adverse effect on the demand for the Indian vehicles leading to erratic inventory situation. The Indian automobile manufacturer was faced with a vexing problem which could be briefly summarized as follows: (a) Sub-Saharan Africa represented an important export market which has been exhibiting great growth potential in the past decade. (b) Owing to the agents blow hot, blow cold attitude, the manufacturing plant was faced with alternating situations of inventory pile-ups and stock-outs, whereas a smoothened production flow was the most desirable scenario. (c) Given the importance of the African market and the strong financial position of the Indian manufacturer, the top management was of the opinion that the time was right to scale up the level of involvement in the African market by moving away from being a mere exporter. (d) The management was open to exploring all possible options including change of export partner, joint venture and sole venture.

Pros and Cons (a) Sole Ownership. Highest investment required however allows exercise of maximum management control by the Indian firm. Best option given the long term goal of the Indian company to become a dominant player in the African market. (b) Joint Venture. Risk commensurate to stake. Similarly control also commensurate to stake. Next best option to sole ownership. (c) Change of Export Partner. Low investment. Continued access to local expertise and knowledge of the foreign market, legalities, etc. However, the control would continue to remain low. The new partnership runs similar risks as the existing parternship. Other Ramifications (a) Legal Consequences of Termination. Termination may render the foreign company liable to pay compensation, which includes re-purchase of the inventory, plus some per cent to cover finance charges. Complete ban on products pending resolution of litigation. Rationale of foreign government being foreign companies came to the region, hire a sales representative or appoint a dealer, who supposedly invests significant resources in opening the market for the foreign product and once the market matures, the foreign company terminates the distributor without cause and takes over the market. (b) Bad Press. Owing to the agents access to local channels, would be capable of generating adverse publicity in the local media. (c) Drop in Sales in the Short Run. Pending stabilization of remedial measures, there is a likelihood of significant drop in sales (d) risk. alternative/

Resources. Requirement to sink in substantial resources with associated