South Korea - Mode of Entry

Topics: Wine, International trade, Risk Pages: 5 (956 words) Published: December 6, 2012

SLIDE 1: Motivations for Michigan Cellars to Go Abroad:
* Proactive Motivation Factors:
* Obtaining additional profits
* Capitalizing on technological advantage,
* Strengthening core competencies,
* Achieving tax benefits,
* Achieving economies of scale
* Reactive Motivations
* Local competition is increasing,
* Experiencing excess capacity of wine production,
* Saturated local wine market

SLIDES 2-5: Four Possible Modes of Entry:
* 1. Exporting
* Indirect Exporting
* Direct Exporting
* Advantages:
* Avoids cost of establishing manufacturing operations * May help achieve experience curve and location economies * Disadvantages:
* May compete with low-cost location manufacturers
* Possible high transportation costs
* Tariff barriers
* Possible lack of control over marketing reps
* 2. Licensing
* Licensing
* Franchising
* Turnkey Contracts
* Contract Manufacturing
* Refers to offering a firm’s know-how or other intangible asset to a foreign company for a fee, royalty, and/or other type of payment * Advantages for the new exporter
* The need for market research is reduced
* The licensee may support the product strongly in the new market * 3. Strategic Alliances (SA)
* Typically a collaborative arrangement between firms, sometimes potential or actual competitors, across borders * Based on sharing of vital information, assets, and technology between the partners * Have the effect of weakening the tie between potential ownership advantages and company control * Advantages:

* Facilitate entry into market
* Share fixed costs
* Bring together skills and assets that neither company has or can develop * Establish industry technology standards
* Disadvantages:
* Competitors get low cost route to technology and markets * 3a. Joint Venture
* Entails the creation of a new entity that is separate from the “parent” firms. * Involve the transfer of capital, manpower, and usually some technology from the foreign partner to an existing local firm * 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
* 4. Wholly Owned Manufacturing Subsidiary
* The company commits investment capital in plant and machinery * Subsidiaries could be Greenfield investments or acquisitions * Advantages:
* No risk of losing technical competence to a competitor * Tight control of operations.
* Realize learning curve and location economies.
* Disadvantage:
* Bear full cost and risk

Mode of Entry Selection:
When choosing which foreign market entry method we wanted to use we had to consider many factors, including risk factors, local laws and regulations, etc. The degree of control we wanted to possess in the partnership was an important factor, which was weighed mainly on who the company was and how desperate our need was for them. We decided to start operating in a simple Direct Export mode as it seemed the least riskiest mode with most benefits. Initially we decided to choose two partners to work with in South Korea; upon few years of exporting activities, we will evaluate our evolved relationships, and will consider changing our entry mode from simply exporting to forming a joint venture with one of our partners.

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