Exporting[edit]

Exporting is the process of selling of goods and services produced in one country to other
countries.[4]

There are two types of exporting: direct and indirect.

Direct Exports[edit]

Direct exports represent the most basic mode of exporting made by a (holding) company,
capitalizing on economies of scale in production concentrated in the home country and affording
better control over distribution. Direct export works the best if the volumes are small. Large
volumes of export may trigger protectionism. The main characteristic of direct exports entry
model is that there are no intermediaries.

Passive exports represent the treating and filling overseas orders like domestic orders.[5]

Types[edit]
Sales representatives
Sales representatives represent foreign suppliers/manufacturers in their local markets for
an established commission on sales. Provide support services to a manufacturer regarding
local advertising, local sales presentations, customs clearance formalities, legal
requirements. Manufacturers of highly technical services or products such as production
machinery, benefit the most from sales representation.
Importing distributors
Importing distributors purchase product in their own right and resell it in their local
markets to wholesalers, retailers, or both. Importing distributors are a good market entry
strategy for products that are carried in inventory, such as toys, appliances, prepared
food.[6]

Advantages[edit]

 Control over selection of foreign markets and choice of foreign representative

companies
 Good information feedback from target market, developing better relationships with
the buyers
 Better protection of trademarks, patents, goodwill, and other intangible property
 Potentially greater sales, and therefore greater profit, than with indirect exporting.[7]

Disadvantages[edit]

 Higher start-up costs and higher risks as opposed to indirect exporting

 Requires higher investments of time, resources and personnel and also organizational
changes
 Greater information requirements
 Longer time-to-market as opposed to indirect exporting.[8]

Indirect exports[edit]

Indirect export is the process of exporting through domestically based export

intermediaries. The exporter has no control over its products in the foreign market.

Types[edit]
Export trading companies (ETCs)
These provide support services of the entire export process for one or more suppliers.
Attractive to suppliers that are not familiar with exporting as ETCs usually perform all
the necessary work: locate overseas trading partners, present the product, quote on
specific enquiries, etc.
Export management companies (EMCs)
These are similar to ETCs in the way that they usually export for producers. Unlike
ETCs, they rarely take on export credit risks and carry one type of product, not
representing competing ones. Usually, EMCs trade on behalf of their suppliers as their
export departments.[9]
Export merchants
Export merchants are wholesale companies that buy unpackaged products from
suppliers/manufacturers for resale overseas under their own brand names. The advantage
of export merchants is promotion. One of the disadvantages for using export merchants
result in presence of identical products under different brand names and pricing on the
market, meaning that export merchant's activities may hinder manufacturer's exporting
efforts.
 Confirming houses
These are intermediate sellers that work for foreign buyers. They receive the product
requirements from their clients, negotiate purchases, make delivery, and pay the
suppliers/manufacturers. An opportunity here arises in the fact that if the client likes the
product it may become a trade representative. A potential disadvantage includes
supplier's unawareness and lack of control over what a confirming house does with their
product.
Nonconforming purchasing agents
These are similar to confirming houses with the exception that they do not pay the
suppliers directly – payments take place between a supplier/manufacturer and a foreign
buyer.[10]

Advantages[edit]

 Fast market access

 Concentration of resources towards production
 Little or no financial commitment as the clients' exports usually
covers most expenses associated with international sales.
 Low risk exists for companies who consider their domestic
market to be more important and for companies that are still
developing their R&D, marketing, and sales strategies.
 Export management is outsourced, alleviating pressure from
management team
 No direct handle of export processes.[11]

Disadvantages[edit]

 Little or no control over distribution, sales, marketing, etc. as

opposed to direct exporting
 Wrong choice of distributor, and by effect, market, may lead to
inadequate market feedback affecting the international success of
the company
  Potentially lower sales as compared to direct exporting (although
low volume can be a key aspect of successfully exporting
directly). Export partners that incorrectly select a specific
distributor/market may hinder a firm's functional ability.[12]

Companies that seriously consider international markets as a crucial

part of their success would likely consider direct exporting as the
market entry tool. Indirect exporting is preferred by companies who
would want to avoid financial risk as a threat to their other goals.

Licensing[edit]

An international licensing agreement allows foreign firms, either exclusively or non-exclusively

to manufacture a proprietor's product for a fixed term in a specific market.

In this foreign market entry mode, a licensor in the home country makes limited rights or
resources available to the licensee in the host country. The rights or resources may include
patents, trademarks, managerial skills, technology, and others that can make it possible for the
licensee to manufacture and sell in the host country a similar product to the one the licensor has
already been producing and selling in the home country without requiring the licensor to open a
new operation overseas. The licensor earnings usually take forms of one time payments,
technical fees and royalty payments usually calculated as a percentage of sales.

As in this mode of entry the transference of knowledge between the parental company and the
licensee is strongly present, the decision of making an international license agreement depend on
the respect the host government show for intellectual property and on the ability of the licensor
to choose the right partners and avoid them to compete in each other market. Licensing is a
relatively flexible work agreement that can be customized to fit the needs and interests of both,
licensor and licensee.

Following are the main advantages and reasons to use an international licensing for expanding
internationally:

 Obtain extra income for technical know-how and services

  Reach new markets not accessible by export from existing
facilities
 Quickly expand without much risk and large capital investment
 Pave the way for future investments in the market
 Retain established markets closed by trade restrictions
 Political risk is minimized as the licensee is usually 100% locally
owned
 Is highly attractive for companies that are new in international
business.

On the other hand, international licensing is a foreign market entry mode that presents some
disadvantages and reasons why companies should not use it as:

 Lower income than in other entry modes

 Loss of control of the licensee manufacture and marketing
operations and practices leading to loss of quality
 Risk of having the trademark and reputation ruined by an
incompetent partner
 The foreign partner can also become a competitor by selling its
production in places where the parental company is already in.

Franchising[edit]

The franchising system can be defined as: "A system in which semi-independent business
owners (franchisees) pay fees and royalties to a parent company (franchiser) in return for the
right to become identified with its trademark, to sell its products or services, and often to use its
business format and system." [13]Compared to licensing, franchising agreements tends to be
longer and the franchisor offers a broader package of rights and resources which usually
includes: equipment, managerial systems, operation manual, initial trainings, site approval and
all the support necessary for the franchisee to run its business in the same way it is done by the
franchisor. In addition to that, while a licensing agreement involves things such as intellectual
property, trade secrets and others while in franchising it is limited to trademarks and operating
know-how of the business.[14]
Advantages of the international franchising mode:

 Low political risk

 Low cost
 Allows simultaneous expansion into different regions of the
world
 Well selected partners bring financial investment as well as
managerial capabilities to the operation.

Disadvantages of franchising to the franchisor:[15]

 Maintaining control over franchisee may be difficult

 Conflicts with franchisee are likely, including legal disputes
 Preserving franchisor's image in the foreign market may be
challenging
 Requires monitoring and evaluating performance of franchisees,
and providing ongoing assistance
 Franchisees may take advantage of acquired knowledge and
become competitors in the future

Turnkey projects[edit]

A turnkey project refers to a project when clients pay contractors to design and construct new
facilities and train personnel. A turnkey project is a way for a foreign company to export its
process and technology to other countries by building a plant in that country. Industrial
companies that specialize in complex production technologies normally use turnkey projects as
an entry strategy.[16]

One of the major advantages of turnkey projects is the possibility for a company to establish a
plant and earn profits in a foreign country especially in which foreign direct investment
opportunities are limited and lack of expertise in a specific area exists.

Potential disadvantages of a turnkey project for a company include risk of revealing companies
secrets to rivals, and takeover of their plant by the host country. Entering a market with a turnkey
project CAN prove that a company has no long-term interest in the country which can become a
disadvantage if the country proves to be the main market for the output of the exported
process.[17]

Wholly owned subsidiaries (WOS)[edit]

A wholly owned subsidiary includes two types of strategies: Greenfield

investment and Acquisitions. Greenfield investmentand acquisition include both advantages and
disadvantages. To decide which entry modes to use is depending on situations.

Greenfield investment is the establishment of a new wholly owned subsidiary. It is often

complex and potentially costly, but it is able to provide full control to the firm and has the most
potential to provide above average return.[18] "Wholly owned subsidiaries and expatriate staff are
preferred in service industries where close contact with end customers and high levels of
professional skills, specialized know how, and customization are required."[19] Greenfield
investment is more likely preferred where physical capital intensive plants are planned.[20] This
strategy is attractive if there are no competitors to buy or the transfer competitive advantages that
consists of embedded competencies, skills, routines, and culture.[21]

Greenfield investment is high risk due to the costs of establishing a new business in a new
country.[22] A firm may need to acquire knowledge and expertise of the existing market by third
parties, such consultant, competitors, or business partners. This entry strategy takes much time
due to the need of establishing new operations, distribution networks, and the necessity to learn
and implement appropriate marketing strategies to compete with rivals in a new market.[23]

Acquisition has become a popular mode of entering foreign markets mainly due to its quick
access[24] Acquisition strategy offers the fastest, and the largest, initial international expansion of
any of the alternative.Acquisition has been increasing because it is a way to achieve
greater market power. The market share usually is affected by market power. Therefore,
many multinational corporations apply acquisitions to achieve their greater market power, which
require buying a competitor, a supplier, a distributor, or a business in highly related industry to
allow exercise of a core competency and capture competitive advantage in the market.[25]

Acquisition is lower risk than Greenfield investment because of the outcomes of an acquisition
can be estimated more easily and accurately.[26] In overall, acquisition is attractive if there are
well established firms already in operations or competitors want to enter the region.
On the other hand, there are many disadvantages and problems in achieving acquisition success.

 Integrating two organizations can be quite difficult due to

different organization cultures, control system, and
relationships.[27] Integration is a complex issue, but it is one of
the most important things for organizations.
 By applying acquisitions, some companies significantly
increased their levels of debt which can have negative effects on
the firms because high debt may cause bankruptcy.[28]
 Too much diversification may cause problems.[29] Even when a
firm is not too over diversified, a high level of diversification can
have a negative effect on the firm in the long-term performance
due to a lack of management of diversification.

Difference between international strategy and global strategy[edit]

However, some industries benefit more from globalization than do others, and some nations have
a comparative advantage over other nations in certain industries. To create a successful global
strategy, managers first must understand the nature of global industries and the dynamics of
global competition, international strategy (i.e. internationally scattered subsidiaries act
independently and operate as if they were local companies, with minimum coordination from the
parent company) and global strategy (leads to a wide variety of business strategies, and a high
level of adaptation to the local business environment). Basically there are three key differences
between them. Firstly, it relates to the degree of involvement and coordination from the Centre.
Moreover, the difference relates to the degree of product standardization and responsiveness to
local business environment. The last is that difference has to do with strategy integration and
competitive moves.

Joint venture[edit]

There are five common objectives in a joint venture: market entry, risk/reward sharing,
technology sharing and joint product development, and conforming to the government
regulations. Other benefits include political connections and distribution channel access that may
depend on relationships.[30] Such alliances often are favourable when:
  The partners' strategic goals converge while their competitive
goals diverge
 The partners' size, market power, and resources are small
compared to the Industry leaders
 Partners are able to learn from one another while limiting access
to their own proprietary skills

The key issues to consider in a joint venture are ownership, control,

length of agreement, pricing, technology transfer, local firm
capabilities and resources, and government intentions. Potential
problems include:[31]

 Conflict over asymmetric new investments

 Mistrust over proprietary knowledge
 Performance ambiguity - how to split the pie
 Lack of parent firm support
 Cultural clashes
 If, how, and when to terminate the relationship

Joint ventures have conflicting pressures to cooperate and compete:[32]

 Strategic imperative: the partners want to maximize the

advantage gained for the joint venture, but they also want to
maximize their own competitive position.
 The joint venture attempts to develop shared resources, but each
firm wants to develop and protect its own proprietary resources.
 The joint venture is controlled through negotiations and
coordination processes, while each firm would like to have
hierarchical control.

Strategic alliance[edit]
strategic alliance is a type of cooperative agreements between different firms, such as shared
research, formal joint ventures, or minority equity participation.[33] The modern form of strategic
alliances is becoming increasingly popular and has three distinguishing characteristics:[34]

1. They are frequently between firms in industrialized nations.

2. The focus is often on creating new products and/or
technologies rather than distributing existing ones.
3. They are often only created for short term duration, non
equity based agreement in which companies are separated
and are independent.

Advantages[edit]

Some advantages of a strategic alliance include:[35]

Technology exchange
This is a major objective for many strategic alliances. The reason for this is that many
breakthroughs and major technological innovations are based on interdisciplinary and/or inter-
industrial advances. Because of this, it is increasingly difficult for a single firm to possess the
necessary resources or capabilities to conduct their own effective R&D efforts. This is also
perpetuated by shorter product life cycles and the need for many companies to stay competitive
through innovation. Some industries that have become centers for extensive cooperative
agreements are:

 Telecommunications
 Electronics
 Pharmaceuticals
 Information technology
 Specialty chemicals
Global competition
There is a growing perception that global battles between corporations be fought between
teams of players aligned in strategic partnerships.[36] Strategic alliances will become key
tools for companies if they want to remain competitive in this globalized environment,
 particularly in industries that have dominant leaders, such as cell phone manufactures,
where smaller companies need to ally in order to remain competitive.
Industry convergence
As industries converge and the traditional lines between different industrial sectors blur,
strategic alliances are sometimes the only way to develop the complex skills necessary in
the time frame required. Alliances become a way of shaping competition by decreasing
competitive intensity, excluding potential entrants, and isolating players, and building
complex value chains that can act as barriers.[37]
Economies of scale and reduction of risk
Pooling resources can contribute greatly to economies of scale, and smaller companies
especially can benefit greatly from strategic alliances in terms of cost reduction because
of increased economies of scale.

In terms on risk reduction, in strategic alliances no one firm bears the full risk, and cost of, a
joint activity. This is extremely advantageous to businesses involved in high risk / cost activities
such as R&D. This is also advantageous to smaller organizations which are more affected by
risky activities.

Alliance as an alternative to merger

Some industry sectors have constraints to cross-border mergers and acquisitions, strategic
alliances prove to be an excellent alternative to bypass these constraints. Alliances often
lead to full-scale integration if restrictions are lifted by one or both countries.
 Sensitivity Training
Definition: The Sensitivity Training refers to the unorganized meeting held between the group
members, generally fewer in number, away from the workplace to gain the insights of their own
as well as others behavior.

Simply, the sensitivity training means, putting oneself in the other member’s shoes and behaving
in a given situation from his point of view. It is the mental ability than an individual possesses,
that enables him to be sensitive and understand the emotions of others, and at the same time,
being able to manage one’s own behavior and impulses.

The sensitivity training is known by varying names such as T-Groups, laboratory training, and
encounter groups. In a meeting, there is a passive leader, who tries to maintain a safe
psychological atmosphere, where each member feels free to share whatever is in his mind.

Three Steps essential for a sensitivity training program

1. Unfreezing the old values: The group members should keep their old beliefs or perceptions
about the other members aside and motivate them to speak freely, whatever is in their minds. By
doing so, there is a chance that each member will be heard carefully, and new relations can be
formed by eliminating the misconceptions, that were created in the past.
2. Development of New Values: Once the member is allowed to speak freely, the behavior of each
other can be determined easily, through the interactions in the form of feedback. Thus, at this
stage, the members start developing the values or beliefs about each other.
3. Re-Freezing the new ones: The beliefs formed through the interactions with each group
member, individual tries to freeze the perception or behavior in his mind. The success of
sensitivity training depends on how the trainees get an opportunity to practice their new
behaviors at their workplace.

Under the sensitivity training, each member is allowed to speak freely, whatever he feels about
the other member or the working conditions. The objective of sensitivity training is to enable
each member to know what is his behavior and how others perceive him.