Analyzing INTERNATIONAL

ENTRY MODES
PRESENTED BY
: Dr. VAISHALI SHARMA
MODES OF ENTRY

• When a domestic company plans • Size of business.

to engage in IB , the co. has to • Environmental factors.
select the mode of entry into the
foreign country based on all • Attractiveness of the foreign
relevant factors like the, influence market.
of the following factors such as : • Cost.
• Benefits.
• Risk factors.
• Market potential.
Different Modes of Entry

• Exporting (Direct and Indirect) • Turn key projects

• Licensing • Joint Ventures

• Franchising • Mergers and Acquisitions

• Contract manufacturing • Wholly owned subsidiaries

• Management contracts
Exporting (Direct and Indirect)
• Direct Exporting: Direct exporting means you export directly to a customer
interested in buying your product.

• You are responsible for handling the logistics of shipment and for collecting
payment.

• Advantage:-

• Huge profits due to non-existence of any intermediaries.

• Greater degree of control over all aspects of the transaction

Indirect Exporting

• In Indirect export the firm participates in IB through an intermediary & does not
deal with foreign customers or distributors.

• Although the firm’s products are sold in foreign market , no special export
activity is carried on within the firm.

• It is not IB in real sense, it is International marketing only by proxy.

• For firm it’s like domestic sale, it supplies to a domestic party that carries the
products abroad.
Intra-Corporate Transfers

• It is the selling of products by a company to its affiliated company in country

(another country).

• Selling of products by Hindustan Lever in India to Unilever in the USA.

• This transactions is treated as exports in India and imports in the USA.

GREENFIELD STRATEGY

• The term Greenfield refers to starting with a virgin green site & then building on
it. Thus, Greenfield strategy is starting of the operations of a company from a
scratch in a foreign market.

• The company conducts the market survey, selects the locations, buys or lease
land, creates the new facilities, erects the machinery , remits or transfers the HR
& starts the operations & marketing activities.

• This strategy is followed by Fuji in locating its manufacturing facilities in South

Carolina by Mercedes –Benz in locating automobile assembly plant in Alabama &
by Nissan in locating its factory in Sunderland, England.
Toyota Motor Corp.

• Toyota Motor Corp. spend nearly $1.5 billion on a new factory in Mexico and a
new line in China to support sales growth in key markets and underpin a global
overhaul in the way it builds vehicles.

• The expansions will boost Toyota’s global capacity by 300,000 vehicles a year,
from around 9.8 million units.

• Toyota has established 52 manufacturing facilities in 27 countries.

JOINT VENTURE

• A JVs is a firm jointly owned by two or more otherwise independent firms.

• An alliance (type of cooperative relationship among different firms)agreement

under which two or more partners own or control a business.

• It includes cross-marketing arrangements, technology sharing, production

contracting deals & equity agreements.

• The contribution of the equity may be in the form of cash, Machinery or

technology.
JVs Cont..

• To pool the strengths of different firms.

• One firm may have expertise in technology & manufacturing. The other firm
may be competitive in marketing & knowledge of the local conditions.

• The participating firm may like to share the risks involved in the venture.

• The Govt. policy in the country of operation may not permit complete
ownership of a firm by foreign investor.

• The parties agree to create a new entity by both contributing equity, and
they then share in the revenues, expenses, and control of the enterprise.
Company Company JV Name/Year/Agenda

Nestle R&R FRONERI (2016)

(Britain) Sell ice cream and frozen food in over 20 countries, its latest
attempt to adapt to a changing and more competitive
packaged food market.

Tata Power Exxaro Cennergi (2016)

(India) Resources Investigation of feasibility, development, ownership,
(South Africa) operation, maintenance, acquisition and management of
electricity generation projects in South Africa, Botswana and
Namibia.

https://www.youtube.com/watch?v=MpzdfpQYDf8
Chattisgarh Ministry of The expansion of railway tracks in the state. Currently it has
Govt. Railways 1,187-km long railway line network.

The construction of new 546-km long rail network including

95 kms long Dalli Rajhara-Rowghat rail project, 311-km long
East and East-West Rail Corridors and 140-km long Rowghat-
Jagdalpur rail project
MERGER AND ACQUISITIONS

• The cross border purchase of exchange of equity involving two or more

companies.

• An acquisition, also known as a takeover or a buyout, is the buying of one

company (the ‘target’) by another. An acquisition may be friendly or hostile.

• In the business or economics a merger is a combination of two companies into

one larger company.
Acquirer Target company Country Deal value ($) million Industry
Targeted

TATA STEEL CORUS GROUP UK 12,000 STEEL

HINDALCO NOVELLS CANADA 5,982 STEEL

VIDEOCON DAEWOO KOREA 729 ELECTRONICS

ELECTRONICS CORP

Dr. REDDY’s BETAPHARM GERMANY 597 PHARMACEUTICALS

LAB
WHOLLY OWNED SUBSIDIARY

• It is an overseas operations that is totally owned & controlled by

an MNC.

• The primary reason for the use of Fully WOS is a desire by the
MNC for total control & the belief that managerial efficiency will
be better without outside partner.

• In order to retain full control on management and operations.

• Many developed countries and developing prohibit Fully owned

subseries which they see as an “attempt to Export jobs”
Franchising

• A business arrangement • Trademark

under which one party
(franchisor) allows another
(franchisee) to operate an • Logo
enterprise using its
• Product line

• Methods of operations

• Product reputations
Cont..

• Continues support systems like • Mc Donald’s

Advt. , employees training ,
reservations services.
• Kentucky fried chicken

• In return the franchisor receives

the royalty at an agreed • Barista
percentage of franchise's
revenue.
• Burger King

• For ex.
• Pizza Hut
Contract manufacturing

• A company doing international marketing contracts with firms in foreign

countries to manufacture or assemble the products while retaining the
responsibility of marketing the product.

• A contract manufacturer ("CM") is a firm that manufactures

components or products for another "hiring" firm.

• For ex. Hindustan lever, Ponds, Nokia.

Management contracts

• It is an agreement between two companies , whereby one company

provides managerial assistance , technical expertise & specialized
services to the second company of the agreement for a certain agreed
period in return for monetary compensation.

• The firm provide the management know-how may not have any equity
stake in the enterprise being managed.

• Under the MC , a firm undertakes to manage the operations of a foreign

entity for a specified period of a fee, without involving in its ownership.
Management Contracts cont..

• It is a low risk method.

• It is seen often in service industry like airlines & Hotel industry.

• MC are mostly due to governmental interventions.

• Delta, Air France & KLM often provide technical & managerial assistance
to the small airlines companies owned by the Govt.
 Turn key projects
• Turnkey are undertaken by firms specializing in designing & setting up of
projects.

• Under a turnkey project a firm undertakes to render services like design ,

civil construction , creation, commissioning of plant , training the operating
personnel & handover to the client the project in operating state.

• The project is handed over on a condition on a condition that the client can
commence his commercial operations symbolically by just the turn of the
key.

• For ex: DMRC “METRO”

Turn Key Projects Cont..

• Indonesian Government during 1974 invited global tenders for

construction of a sugar factory in the country. Indonesia Government
received the tenders from the companies of the USA, UK France
,Germany & Japan.

• Indonesian Govt. studies the quotation of this Japanese company. This

quotation includes : development of the fields for growing sugarcane .

• Development of seedlings. Construction of sugar factory , roads,

communication, power, water etc. it also made a provision for the
transfer of the factory along the total package to the Indonesian Govt. &
follow up the activities after it’s transferred to the Indonesian Govt.

• The contract given to the Japanese firm.

Licensing

• A license is an agreement that allows one party to use an industrial

property right (IPR), brand, design or business program in exchange for
payment to the other party.

• The party giving the license (the licensor) will allow the other (the
licensee) to use a patent, a trademark or proprietary information in
exchange for a fee/royalty.
Thank you