Selecting and Managing Entry Modes

1
Selecting and Managing Entry Modes
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Chapter Preview

• Discuss the essential aspects of exporting
• Define each form of countertrade
• Explain each type of export/import financing
• Describe the advantages and disadvantages of each
  contractual entry mode
• Identify the pluses and minuses of each
  investment entry mode
• Identify strategic factors in selecting entry
  modes

3
Developing an Export Strategy
Step 1
Step 2
Step 3
Step 4
Identify a potential market
Match needs to abilities
Initiate meetings
Commit resources
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Degree of Export Involvement
Direct exporting (sell to buyers)
Indirect exporting (sell to intermediaries)

• Sales representatives
• Distributors

• Agents
• Export management companies
• Export trading companies

5
Avoiding Export Blunders
Conduct market research
Obtain export advice
Consider a freight forwarder
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Forms of Countertrade
Barter Counterpurchase Offset agreement Switch
trading Buyback
Direct exchange without money Sale to a country
in return for promise of future purchase from
it Offset a hard-currency sale to a nation with
future hard-currency purchase Sale by a company
of an obligation to purchase from a
country Export of industrial equipment in return
for products the equipment produces
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Export/Import Financing
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High-Risk Approaches
Advance payment Importer pays exporter for
merchandise before it ships
Open account Exporter ships merchandise
and later bills importer
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Documentary Collection
Bank acts as intermediary without accepting
financial risk
Draft (bill of exchange)
Bill of lading
Document that orders an importer to pay an
exporter a specified sum of money at a specified
time
Contract between an exporter and
shipper specifying destination and shipping
costs for merchandise
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Documentary Collection Process
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Letter of Credit

• Importers bank issues a document stating that
  the bank will pay the exporter when exporter
  fulfills documents terms

• Irrevocable

• Revocable

• Confirmed

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Letter of Credit Process
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Licensing
Company owning intangible property (licensor)
grants another firm (licensee) the right to use
it for a specified time
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Franchising
Company (franchiser) supplies another
(franchisee) with intangible property over an
extended period
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Management Contract
Company supplies another with managerial
expertise for a specific period of time

• Advantages
• Few assets risked
• Nations finance projects
• Develops local workforce

• Disadvantages
• Personnel at risk
• Create competitor

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Turnkey Project
Company designs, constructs and tests a
production facility for a client
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Wholly Owned Subsidiary
Facility entirely owned and controlled by a
single parent company

• Advantages
• Day-to-day control
• Coordinate subsidiaries

• Disadvantages
• Expensive
• High risk

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Joint Venture

• Separate company created and jointly owned by two
  or more independent entities to achieve a common
  business objective
• Forward Backward Buyback Multistage

• Advantages
• Reduce risk level
• Penetrate markets
• Access channels
• Protect interests

• Disadvantages
• Partner conflict
• Lose control

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Strategic Alliance
Entities cooperate (but do not form a separate
company) to achieve strategic goals of each
Advantages Share project cost Tap
competitors strengths Gain channel access
Protect interests
Disadvantages Create competitor Partner
conflict
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Entry Modes Strategic Factors
Cultural environment
Political/Legal environments
Market size
Production and shipping costs
International experience
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Risk, Control, Experience
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Chapter Review

• Discuss the essential aspects of exporting
• Define each form of countertrade
• Explain each type of export/import financing
• Describe the advantages and disadvantages of each
  contractual entry mode
• Identify the pluses and minuses of each
  investment entry mode
• Identify strategic factors in selecting entry
  modes

23
Selecting and Managing Entry Modes