Dispersing firm activities to ideal locations Individual activities eg assembly

Dispersing firm activities to ideal locations

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Dispersing firm activities to ideal locations Individual activities (e.g. assembly, R&D…) concentrated in most favourable locations Taking advantage of country's’ location advantages Minimising duplication ENTRY MODES EXPORT MODE Firms products are manufactured in the domestic market or a third country and then transferred either directly or indirectly to the host market. In establishing export channels a firm has to decide which functions will be the responsibility of the firm itself and which will be taken care of by external agents. There’s three major types of export modes: Indirect export Manufacturing firm does not take direct care of exporting activities. Instead another domestic company, such as an export house or trading company, performs these activities, often without the manufacturing firms involvement in the foreign sales of its products. Direct export The producing firm takes care of exporting activities and is in direct contact with the first intermediary in the foreign target market. The firm is typically involved in handling documentation, physical delivery and pricing policies, with the product being sold to agents and distributors. Cooperative export Firms involves collaborative agreements with other firms to produce product to export. Small firms do not achieve sufficient scale economies in manufacturing because of the size of the local market or the inadequacy of the management or marketing sources available. By cooperating firms achieve higher economies of scale cost savings ADVANTAGES Relatively low financial exposure Permit gradual market entry Acquire knowledge about the local market Avoid restrictions on foreign investment DISADVANTAGES Vulnerability to trade barriers Logistical complexities Potential conflict with distributions LICENSING A formal permission or right offered to a firm located in a host country to use a home firm’s proprietary technology or other knowledge resources in return for payment. Another way for a firm to establish local production in foreign markets without capital investment. May give the licensee the right to use Patent Manufacturing know-how Technical advice and assistance Marketing advice and assistance The use of a trade mark/name
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LISA YANG IBUS20002 Business in the Global Economy ADVANTAGES Manufacturer is near the customers’ base licensee provides knowledge of local markets Little capital investment, low-cost to access potential market No danger of nationalisation / expropriation of assets Avoids tariffs and trade barriers Protects patents DISADVANTAGES Re-negotiation is expensive When agreement expires the licensee can be seen as competitor Licensee may not fully explore the market, leaving space for competitor entry Lack of control over licensee operations, quality control of the product is difficult Government often imposes conditions on royalties or supply FRANCHISING
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