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Chapter 12

Strategies for Analyzing and Entering Foreign Markets

Copyright â 2013 Pearson Education

Chapter 12 - 1

Learning Objectives
ῆ Learn how firms analyze foreign markets ῆ Explore how firms choose a mode for entering a foreign market ῆ Investigate exporting and types of intermediaries that help export goods ῆ Identify international licensing issues and Education Copyright â 2013 Pearsonpros and cons of

Chapter 12 - 2

Learning Objectives
ῆ Identify basic international franchising issues and pros and cons of franchising ῆ Analyze contract manufacturing, turnkey projects, and management contracts as entry modes for international business Copyright â 2013 Pearson Education

Chapter 12 - 3

Foreign Market Analysis

To successfully increase foreign market share, firms must assess alternative markets; evaluate the respective costs, benefits, and risks of entering each; and select those that hold the most potential for entry or expansion. Copyright â 2013 Pearson Education

Chapter 12 - 4

1.Assessing Alternative Foreign Markets

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Chapter 12 - 5

ῆ Market potential-include

population,

GDP, per capita GDP, public infrastructure, and ownership of goods such as automobiles and televisions. ῆ Firms must also consider the current and future level of competition in foreign markets. Firms assessing their competitive environment should identify the number and size of firms already competing in the potential market, their relative market shares, their pricing and distribution strategies, and their relative strengths and weaknesses. Copyright â 2013 Pearson Education

Chapter 12 - 6

ῆ Legal and Political Environment . It is important that a firm understand the host countryᾼs policies toward trade, as well as its general legal and political environment, prior to making an investment. ῆ Sociocultural Influences . In many cases, firms will attempt to minimize the potential impact of sociocultural differences by initially focusing on countries that are culturally similar to their home markets. Copyright â 2013 Pearson Education

Chapter 12 - 7

2.Evaluating Costs, Benefits, and Risks

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Chapter 12 - 8

Potential Costs
Start-Up Costs

Direct
Operating Costs Forfeit Profits

Opportunity
Delay Profits
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Chapter 12 - 9

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Chapter 12 - 10

Potential Risks
Exchange-Rate Fluctuations Operating Complexities

Direct Financial Losses
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Political Instability
Chapter 12 - 11

Choosing an Entry Mode

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Chapter 12 - 12

Copyright â 2013 Pearson Education

Chapter 12 - 13

DECISION FACTORS
ῆ Ownership advantages are the tangible or intangible resources owned by a firm that grant it a competitive advantage over industry rivals. Ex p346 ῆ Location advantages factors that affect the desirability of host country production relative to home country production. factors such relative wage rates, land acquisition costs, capacity in existing plants, access to R&D facilities, logistical requirements, customer needs, the administrative costs of managing a foreign subsidiary, political risk, and government Education Chapter 12 - 14 Copyright â 2013 Pearson restrictions. Ex p347

Copyright â 2013 Pearson Education

ῆ Internalization advantages factors that affect the desirability of a firm producing a good/service itself rather than relying on an existing local firm to handle production. If transaction costs are high, the firm may select FDI or a joint venture as an entry method. If transaction costs are low, franchising, contract manufacturing, or licensing may be a better choice. Ex p347 toyota ῆ Other factors that affect a firmᾼs choice of entry method include its need for control, the availability of resources, and the firmᾼs overall global strategy.

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