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7/31/2019 Chap006 (1)- Module 5 Imm
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Licensing, Strategic Alliances, FDI
Chapter
6
2006 The McGraw-Hill Com anies Inc. All ri hts reserved.McGraw-Hill/Irwin
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Outline
The non-exporting modes of entry
The Licensing Options, including Franchising
Strategic Alliances, including Joint Ventures.
FDI and Wholly Owned Subsidiaries
Marketing Strategy and Optimal Entry Mode
Takeaways
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Non-exporting modes of entry
Three main non-exporting modes of entry
Licensing (including franchising)
Strategic Alliances Wholly owned manufacturing subsidiaries
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STRATEGIC ALLIANCE (J.V.)
Home country
LICENSING
Blueprint : how to do it
WHOLLY-OWNED SUBSIDIARY
Host Country
H
ostCounty
A joint effortA replica of home
Three modes of entry
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The Impact of Entry Barriers
The non-exporting modes of entry basically represent
alternatives for the firm when entry barriers to a foreign
market are high.
These entry barriers involve not only artificial barrierssuch as tariffs, but also involve lack of knowledge of the
foreign market and a need to outsource the marketing to
local firms with greater understanding of the market.
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Licensing
LICENSING refers to offering a firms 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 local market research is reduced
The licensee may support the product strongly in the new
market
Disadvantages
Can lose control over the core competitive advantage of the
firm.
The licensee can become a new competitor to the firm.
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Franchising
A form of licensing where the franchisee in a localmarket pays a royalty on revenues - and sometimes aninitial fee - to the franchisor who controls the businessand owns the brand.
The local franchisee typically invests money in the localoperation and has the right to operate under thefranchisors brand name.
The franchisee gets help setting up the operation, usually
according to a well-developed blueprint. The business istypically very standardized (fast food operations is a casein point).
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Franchising Pros and Cons
Advantages
The basic product sold is a well-recognized brand name.
The franchisor provides various market support services to the
franchisee
The local franchisee raises the necessary capital and manages
the franchise
A disadvantage
Careful and continuous quality control is necessary tomaintain the integrity of the brand name.
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Licensing
Original Equipment Manufacturing (OEM)
A company enters a foreign market by selling its
unbranded product or component to another company in
the market country
Examples:
Canon provides cartridges for Hewlett-Packards
laser printers
Samsung sells unbranded television sets , microwaves,and VCRs to resellers such as Sears, Amana, and
Emerson in the U.S.
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Strategic Alliances
Strategic Alliances (SAs)
Typically a collaborative arrangement between firms,
sometimes 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
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Non-equity Strategic Alliances:
Distribution Alliances
Manufacturing Alliances
Research and Development Alliances
Equity Strategic Alliances
Joint Ventures
Equity and Non-Equity SAs
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Equity Alliances: Joint Ventures
Joint Ventures
Involve the transfer of capital, manpower, and usually some
technology from the foreign partner to an existing local
firm.
Examples include Rank-Xerox, 3M-Sumitomo, several
China entries where a government-controlled company is
the partner.
This was the typical arrangement in past alliances the
equity investment allowed both partners to share both risks
and rewards.
Today non-equity alliances are common.
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Rationale for Non-Equity Alliances
Tangible economic gains at lowerrisk
Access to technology
Markets are reached without a longbuildup of relationships in channels
Efficient manufacturing madepossible without investment in a
new plant
SAs allow two companies to undertake missions impossiblefor one individual firm to undertake.
Strategic Alliances constitute an efficient economic responseto changed conditions.
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Distribution Alliances
Also called piggybacking, consortium marketing
Examples
SAS, KLM, Austrian Air, and Swiss Air
STAR Alliance (United Airlines, Lufthansa, Air Canada,
SAS, Thai Airways, and Varig Brazilian Airlines)
Chrysler and Mitsubishi Motors
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Pros and Cons of DistributionAlliances
Advantages
Improved capacity load
Wider product line
Inexpensive access to amarket
Quick access to a market
Assets are complimentary
Each partner canconcentrate on what they
do best
Disadvantages
Time arrangement can
limit growth for the
partners
Can hinder learning more
about the market, creating
obstacles to further inroads
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Manufacturing Alliances
Shared manufacturing examples
Volvo and Renault share body parts and components
Saab engines made by GM Europe
Advantages Convenient
Money saving
Disadvantages
The organization must deal with two principals in charge of
production, harder to communicate customer feedback
Can put constraints on future growth
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R&D Alliances
R&D Alliances
Provide favorable economics, speed of access, and
managerial resources and are intended to solve critical
survival questions for the firm
Used to be seen as particularly risky, since technological
know-how is often the key competitive advantage of a
global firm
The risk of dissipation has become less of a concern,
however, as technology diffusion is growing ever faster
anyway.
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Manufacturing Subsidiaries
Wholly Owned Manufacturing Subsidiaries
Undertaken by the international firm for several reasons
To acquire raw materials
To operate at lower manufacturing costs
To avoid tariff barriers
To satisfy local content requirements
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ADVANTAGES
Local production lessenstransport/import-related costs,taxes & fees
Availability of goods can beguaranteed, delays may beeliminated
More uniform quality of productor service
Local production says that thefirm is willing to adapt products &services to the local customerrequirements
DISADVANTAGES
Higher risk exposure
Heavier pre-decisioninformation gathering &research evaluation
Political risk
Country-of-origin effectscan be lost by manufacturing
elsewhere.
Manufacturing Subsidiaries
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FDI: Acquisitions
Instead of a greenfield investment, the company can enter byacquiring an existing local company.
Advantages
Speed of penetration
Quick market penetration of the companys products
Disadvantages
Existing product line and new products to be introduced mightnot be compatible
Can be looked at unfavorably by the government, employees,or others
Necessary re-education of the sales force and distributionchannels
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marketing control
mode of entry independent agent joint with alliance partner own sales subsidiary
exporting Absolut vodka in the US Toshiba EMI in Japan Volvo in the US
licensing Disney in Japan Microsoft in Japan Nike in Asia
strategic alliance autos in China EuroDisney Black&Decker in China
FDI Goldstar in the US Mitsubishi Motors in US P&G in the EU
Entry Modes and Local Marketing Control
The local marketing can be controlled to varyingdegrees, quite independent of the entry mode chosen. The
typical global firm maintains a sales subsidiary to manage
the local marketing. Examples:
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Companystrategicposture Emerging High-growth Mature Services
Incremental Indirectexports
Indirect exports Direct exports Licensing/Alliance
Protected Joint venture Indirect exports Alliance/
Licensing
Licensing
Control Whollyowned
subsidiary
Acquisition/Alliance
Wholly ownedsubsidiary
Franchising/Alliance/Exporting
Product/Market Situation
Optimal Entry Mode Matrix
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Companystrategicposture Emerging High-growth Mature Services
Incremental Supervaluto Russia
North Americanfish to Japan
Rossignolskis to U.S.
Dialogue toEurope
Protected Pharmaceuticalsin China
Sun Energytechnology to
Europe
Coca-Colabottling;
Toyota-GM
tie-up
Disneylandin Japan
Control New FDIin India
Matsushita inU.S. TV market
IBMWorldwide;
autos in U.S.
Hilton,Sheraton;
McDonalds
Product/Market Situation
Illustrative Entry Strategies
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Trade barriers will typically force the firm to un-bundle its valuechain & engage in non-exporting modes of entry, such as
licensing or strategic alliances -
- or invest in a wholly owned manufacturing subsidiary.
Takeaway
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Licensing & strategic alliances may dilute firm specific
advantages through transfer of know-how, but the need forpartners with local knowledge and the need to reduce a
firms risk exposure offsets this.
Takeaway
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A global marketer needs good interpersonal skills to workeffectively with foreign partners, local subsidiary managers, &licensing/alliance partners who may be competitors in some
product markets.
Takeaway
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The optimal mode of entry is to find a way over entry barriers,then to make trade-offs between strategic posture and the
product/market situation.
Takeaway
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By establishing a sales subsidiary in the
market country, the firm can control thelocal marketing effort quite independentof which particular mode entry mode hasbeen chosen.
Controlling the local marketing effort:
Takeaway
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