2003 Copyright by The McGrawHill Companies, Inc. All rights reserved.
Chapter
6
Licensing, Strategic Alliances, FDI
Copyright 2003 by The McGrawHill Companies, Inc. All rights reserved.
Introduction
Three
main non-exporting modes of entry
(including franchising) Alliances
Licensing Strategic Wholly
owned manufacturing subsidiaries
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The Impact of Entry Barriers
Entry
Barriers
Any
obstacle making it more difficult for a firm to enter a product market
Tariff
Barriers Barriers
Tariff Barriers are obvious obstacles to entry into the country Less visible nontariff barriers (e.g. slow customs procedure) can also make entry into the country difficult
Nontarrif
Copyright 2003 by The McGrawHill Companies, Inc. All rights reserved.
The Impact of Entry Barriers
The
Cost of Barriers
The
inefficiency created by barriers translates into higher prices for consumers hold the key to the market and have a chance to profit from a monopolistic position
Gatekeepers
The
Importer's View
An
importer will support the existence of barriers especially when combined with exclusive distribution contracts
Copyright 2003 by The McGrawHill Companies, Inc. All rights reserved.
The Impact of Entry Barriers
Tariff
and Nontariff Barriers
can be made
lobbying home or host governments
Reductions
By
When
the imported product has a certain level of "local content" or when imports involve production for reexport
Establishing
Is
manufacturing in a member country in the regional group
increasingly used as regional trade agreements proliferate
The firm can then export to the market country in the region at lower tariff rates from the transplant operation inside the region
Copyright 2003 by The McGrawHill Companies, Inc. All rights reserved.
The Impact of Entry Barriers
Government
The
Regulations
foreign firm can do little when addressing government regulations of business
Study
of the specific regulations affecting its industry and the sales of its product company may need a native partner who can carry out negotiations with government authorities and local regulators
The
Copyright 2003 by The McGrawHill Companies, Inc. All rights reserved.
The Impact of Entry Barriers
Distribution
In
Access
many countries it is very difficult to get members of the distribution channels to carry the firm's product
The The The
firm might compete with a disadvantage firm may have to consider a strategic alliance
firm may sell the product unbranded in an OEM arrangement with a firm already established firm may not be able to hire capable local talent
The
Copyright 2003 by The McGrawHill Companies, Inc. All rights reserved.
The Impact of Entry Barriers
Natural
Barriers
among brands tends to create natural barriers
Competition
Allowing
strong brand names to charge a premium price over more generic or no-name competitors
Market success and customer allegiance are the factors behind natural barriers
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The Impact of Entry Barriers
Advanced
In
versus Developing Nations
developing countries
important barriers are usually tariffs and other government interventions into the free market system is usually natural barriers that are high
The
In
advanced countries
It
Copyright 2003 by The McGrawHill Companies, Inc. All rights reserved.
The Impact of Entry Barriers
Exit
Barriers
firm usually faces exit barriers after entry
there is likelihood of a forced exit
A firm will be reluctant to commit investment in the country
The
If
Copyright 2003 by The McGrawHill Companies, Inc. All rights reserved.
The Impact of Entry Barriers
Effect
on Entry Mode
a joint venture in a distribution alliance managerial expertise with a particular mode of entry
Create
Engage
Develop
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Licensing
Licensing
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
Copyright 2003 by The McGrawHill Companies, Inc. All rights reserved.
Licensing
Franchising
Advantages The The The
basic "product" sold is a well-recognized brand name. franchisor provides various market support services to the franchisee
local franchisee raises the necessary capital and manages the franchise
A
disadvantage and continuous quality control is necessary
Careful
Copyright 2003 by The McGrawHill Companies, Inc. All rights reserved.
Licensing
Original
A
Equipment Manufacturing (OEM)
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-Packard's 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
Based
a collaborative arrangement between firms, sometimes competitors, across borders
on sharing of vital information, assets, and technology between the partners the effect of weakening the tie between potential ownership advantages and company control
Have
Copyright 2003 by The McGrawHill Companies, Inc. All rights reserved.
Strategic Alliances
Rationale
for Nonequity SAs
gains are tangible
Economic Speed
with which market presence is seen risk exposure lessened emphasis on the value of control need to compete in several country markets at once
Lessened Recent Urgent
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Strategic Alliances: Distribution Alliances
Distribution
Also
Alliances
called "piggybacking", "consortium marketing", and liscensing
Chrysler and Mitsubishi Motors SAS, KLM, Austrian Air, and Swiss Air STAR Alliance (United Airlines, Lufthansa, Air Canada, SAS, Thai Airways, and Varig Brazilian Airlines)
Examples
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Advantages and Disadvantages of Distribution Alliances for Both Partners
Advantages Improved Wider Disadvantages
capacity load access to a market
Time Can
product line access to a market are complimentary
arrangement can limit growth for the partners hinder learning more about the market, creating obstacles to further inroads
Inexpensive Quick Assets Each
partner can concentrate on what they do best
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Strategic Alliances: Manufacturing Alliances
Shared
manufacturing examples
and Renault share body parts and components engines made by GM Europe
Volvo Saab
Advantages
Convenient Money
saving
Disadvantages
The
organization must deal with two principals in charge of production, harder to communicate customer feedback put constraints on future growth
Copyright 2003 by The McGrawHill Companies, Inc. All rights reserved.
Can
Strategic Alliances
R&D
Alliances
Provide
favorable economics, speed of access, and managerial resources and are intended to solve critical survival questions for the firm
Joint
Ventures
Involve
the transfer of capital, manpower, and usually some technology from the foreign partner to an existing local firm
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Manufacturing Subsidiaries
Wholly
Owned Manufacturing Subsidiaries
by the international firm for several reasons
acquire raw materials operate at lower manufacturing costs avoid tariff barriers satisfy local content requirements
Undertaken
To To To To
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Manufacturing Subsidiaries Advantages and Disadvantages
Advantages
Disadvantages
Price escalation can be nullified or drastically reduced Production in the market country may lead to more uniform quality
The risk exposure with a resource commitment is usually high The p...