Direct Exporting

To get its product into a foreign target market, a company can use any one of several export modes or channels. The principal export channels are depicted in Figure 11. The key distinction among these alternative channels is the presence or absence of independent export agencies located in the home country. When a manufacturing

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Determining the Direct Export Channel

To make a rational determination of a direct export channel for a target country/market, managers need to make decisions on three levels. First, they must decide what the channel is intended to accomplish (determining performance specifications). Second, they need to decide which channel (or channel mix) is optimum by matching their performance specifications against

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Choosing a Foreign Agent/Distributor

When a company decides that its most attractive export channel is an agent or distributor channel, it must then initiate a screening process to choose individual agents or distributors.6 Finding good foreign distributors and agents is a major problem for manufacturers, and demands considerable attention and effort. In this section, we shall focus on

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Export Operations

It is beyond the scope of this text to describe export operations in any detail. Instead, this section highlights three key aspects of the export trans­action: (1) documentary requirements, (2) price quotations, and (3) pay­ments arrangements. The section closes with some observations on organizing for export. 1. Documentary Requirements The documentary requirements of international

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Letting Started in Export

This section is addressed to the company that wants to enter export mar­kets but has no prior experience in international business. To obtain information on foreign markets and how to go about export­ing, the U.S. manufacturer can contact many sources, but three sources deserve special mention: (1) the U.S. Department of Commerce and its

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Licensing as a Primary Entry Mode

As is true of any entry mode, licensing offers both advantages and disad­vantages to manufacturers. 1. Advantages of Licensing The most obvious advantage of licensing as an entry mode is the circum­vention of import barriers that increase the cost (tariffs) or limit the quan­tity (quotas) of exports to the target market. Instead of transferring

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Protecting Industrial Property Rights Abroad

A company can use licensing to enter a foreign target market only if it can secure legal protection of its industrial property rights in the target country. Unfortunately, patents, trademarks, service marks, and trade names regis­tered in the home country do not afford protection in foreign countries. Nor is there a single international authority

Profitability Analysis of a Proposed Licensing Venture

Many manufacturers regard licensing as an entry mode to be used only when they cannot use exporting or equity investment to penetrate a foreign target country. As a consequence, they treat licensing as a marginal activity undeserving of any careful evaluation of its benefits and costs. This casual approach encourages bad decisions of two

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Negotiating the Licensing Agreement

If the manufacturer decides to go ahead with a licensing venture, the pro­fitability analysis will also provide guidelines for negotiating the licensing agreement. The first task is to select the prospective licensee in the target country. 1. Selecting the Prospective Licensee The screening process used to select a licensee candidate resembles that used to

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Legal and Government Constraints on Licensing

Licensing agreements are subject to industrial property laws and antitrust (restrictive practices) laws in all national jurisdictions.12 But in addition, licensing agreements may be constrained by technology control systems, which are particularly burdensome in Latin America. Furthermore, these control systems are spreading to developing countries in Asia and Africa. Any detailed treatment of national

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International Franchising

Franchising is a form of licensing in which a company (franchisor) licenses a business system as well as other property rights to an independent com­pany or person (franchisee). The franchisee does business under the franchi­sor’s trade name and follows the policies and procedures laid down by the franchisor. Essentially, therefore, the franchisor licenses a

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Other Contractual Entry Modes

In addition to licensing, technical assistance, and franchising agreements, other contractual entry modes have become prominent in international business, particularly with the developing and Communist countries. We offer here some comments on the more important ones. 1. Contract Manufacturing Contract manufacturing is a cross between licensing and investment entry. In contract manufacturing, an international

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General Appraisal of the Investment Entry Mode

As is true of other entry modes, investment offers both advantages and disadvantages to a company. The probability of a successful investment entry can be enhanced by building on experience gained through prior export to the target country/market. The investment entry decision is a complex process that requires an evaluation of both the investment

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The Decision to Invest in a Target Country

The investment entry decision process involves several subdecisions taken over a lengthy period of time, with multiple feedbacks that stimulate the reconsideration of earlier decisions. Figure 13 seeks to structure this com­plex decision process by means of a sequence of checkpoints that must be passed if an investment proposal is to gain acceptance. The

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Analyzing the Foreign Investment Climate: Assessing Political Risk

A foreign investment project must be analyzed in the context of its political, legal, economic, social, and cultural environments—the investment climate of the target country. Although sensitivity to particular environmental fac­tors varies from one project to another, all projects are subject to the influence of some set of environmental factors. Managers, therefore, should raise

Analyzing the Foreign Investment Project: Assessing Profitability

The investment project has passed the first three checkpoints in Figure 13: management has decided that investment is the most appropriate entry strategy to build or strengthen a long-term market position and that the actual and prospective investment climates of the target country are accept­able. Now management can move on to checkpoint 4 in

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Investment Entry through Acquisition

Many investment proposals are proposals to acquire a foreign company rather than start a new foreign venture. Although the steps outlined in Figure 13 apply to acquisition entry as well as new-venture entry, acquisi­tions have special features that deserve some additional comment. An investor may acquire a foreign company for any of several reasons

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Investment Entry through Equity Joint Venture

Joint-venture entry takes place when an international company shares in the ownership of an enterprise in a target country with local private or public interests. Most commonly, an international company agrees to share capital and other resources with a single local company in a common endeavor. Depending on the equity share of the international

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Entry Negotiations with Host Governments

In closing this chapter, it is fitting to make some brief comments on entry negotiations with host governments. Increasingly, the developing countries are adopting comprehensive laws and regulations on foreign investment that cover application procedures for investment authorization, screening criteria for the approval of investment applications, obligations imposed on approved investments, benefits availa­ble to

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The Naive Rule for Deciding on the Right Entry Mode

Managers follow the naive rule when they consider only one way to enter foreign markets.1 Statements such as “We only export” or “We only li­cense” are examples of the naive rule. Commonly, this rule is implicit in the behavior of managers rather than explicit in a policy statement. Whatever its expression, the naive rule

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