Test 4 4 3 Entry Mode and Internal Factors Export readiness the organization s ability to conduct international trade including o Prior experience o Management commitment to international expansion o The firm s financial strength o International knowledge Foreign market knowledge Internationalization process knowledge o Low Readiness less intense entry modes e g indirect export or export without FDI o High Readiness more intense entry modes e g FDI Competitive Position o Strong domestic market position and strong brand help foster international success Macro Industry Issues o Government policies such as product certifications and standards e g CE Mark or allowed foreign ownership Current and Future Market Potential o Greater market potential usually means more involved modes Indirect Exporting Exporting is manufacturing a product in one country and shipping it to another for final sale Indirect exporting is when a third party and not the manufacturer conducts the export Types of indirect exporting include piggybacking and export management companies EMCs Indirect exporting offers benefits of additional sales without risk and cost of direct involvement nor prior experience Indirect exporting provides the manufacturer with very little control or feedback and prevents the manufacturer from gaining important internationalization knowledge Major Modes of Market Entry Indirect Exporting Direct Exporting Direct Exporting with FDI Foreign Manufacturing Sales and or Distribution Licensing Joint Ventures and Strategic Alliances FDI Foreign Manufacturing Wholly Owned Foreign Production o Acquisition vs Greenfield Acquiring an existing local manufacturer is quicker eliminates a potential competitor and takes advantage of existing contacts with labor and government o o Greenfield building from the ground up takes longer but enables the use of the latest technology avoids organizational culture clashes and a fresh start on building the brand Wholly owned operations result in a greater percentage of the profits more control and increased experience and feedback However wholly owned operations are costly in terms of capital and management resources e g time and energy and put the firm at greater economic and political risk Partner Selection Financial and Pricing Considerations o What margins or commissions are needed o Which currency will be used o What payment terms will be used Marketing Support Considerations o What is the appropriate level of advertising and promotion o How much training of the partner is necessary Communication o What amount frequency and level email phone face to face of communication is necessary o Should regional and or global sales meetings be held Market Exclusivity o How to balance exclusivity with a partner s motivation and capabilities Finding Foreign Partners Step 1 Identify as many potential partners as possible o Primary and secondary research using online databases identifying distributors of complementary products and making use of trade associations trade shows and trade missions o Government resources such as the U S Commercial Service s Gold Key or state based resources Step 2 Visit the country and meet with potential partners o Meetings can be arranged at trade shows and trade missions o Meetings should include a visit to partner s facility Contract Negotiations Cultural Considerations o Differences in cultures impact how individuals negotiate Expectations of Each Partner o What does each partner want Win Win or Win Lose o Win win is best for both parties Distributor Agreements o Should spell out responsibilities and interests of each party Exclusive or Nonexclusive o o Exclusive allows for greater motivation in theory Nonexclusive may be more common when experienced Distribution Environment and Strategy Distribution Strategy o Standardization or adaptation Which channels in each market are most profitable Economies of scale and market similarity favor standardized approaches Local differences in regulations and availability of channels favor adaptation The firm s preferred level of involvement also impacts distribution choices o Direct vs indirect channels Direct channels are more effective and make sense when the potential sales volume is high however direct channels are more resource intensive o Selective vs intensive distribution Intensive is selling through any retailer that wants the product Selective is selling through only limited retailers 4 8 Bank Chamber of Commerce Customer Exporter Importer Consulate Insurance Company Domestic carrier Port Terminal International carrier Customs Research New Product 50 50 chance of making it in the first 36 months Select mkts co Product Life Cycle have to add in R D before start and the profit line will initially be a loss at this stage o It is all costs o If something is considered a novelty what does it look like Bring it in and it does extremely well in intro and then drops Intro Growth Maturity Decline the time between each stage is NOT equal o It will vary from market to market o Have to look at the numbers to see when you go from one stage to another evoked set brands that are in the same price class Get Tuesday notes 4 17 No Notes Handout 4 22 14 Product Line Extensions Product line extensions are the use of one product upon which further closely related products are developed Product line extensions o Broaden the appeal of a brand to customers o Offer additional products to domestic and international markets However the downside is that product line extensions o May become filler products without high value added o May have a limited impact on the firm s sales Table 9 4 in the textbook has more Pros and Cons of Product Line Extensions Managing New Product Development A Step Wise Approach to Manage NPD o Utilizes a project approval team PAT composed of employees from multiple departments o The PAT evaluates the NPD project in several phases 1 Idea generation 2 Feasibility study including market potential and return on investment 3 Product development prototyping and initial manufacturing for testing 4 Product Launch o This approach balances technological financial and marketing issues but may be difficult to coordinate if the PAT is globally geographically divided The Japanese Model of Managing NPD o Success factors include job rotation of engineers direct transfer of R D teams to production and the role of centers of excellence o Supplier relationships are a critical element of the Japanese approach to