Modes of Entry in International Business
Chapter 6 Modes of Entry
Non-exporting modes of entry h Three main non-exporting modes of entry non-
• Licensing (including franchising) • Strategic Alliances • Wholly owned manufacturing subsidiaries
Three modes of entry
Host Country Home country LICENSING
Blueprint : “how to do it”
Ho st
WHOLLY-OWNED SUBSIDIARY
A replica of home
Host County
Co un
try
STRATEGIC ALLIANCE (J.V.)
A “joint effort”
1
The Impact of Entry Barriers h The non-exporting modes of entry basically non-
represent alternatives for the firm when entry barriers to a foreign market are high. h These entry barriers involve not only artificial barriers such as tariffs, but also involve lack of knowledge of the foreign market and a need to outsource the marketing to local firms with greater understanding of the market.
Licensing: What Is It? h A license is a contractual agreement whereby the
licensor transfers to a licensee the right to use a proprietary asset for a fee. h Examples of proprietary assets include… include…
• • • • • Process know-how or technology knowTrademarks and tradenames Patents Designs Intellectual property
Licensing
• Advantages for the new exporter
– Requires little depth of market knowledge – Can be put in place fairly quickly – Requires relatively little investment – The need for local market research is reduced – The licensee may support the product strongly in the new market
• Disadvantages
– Can lose control over the core competitive advantage of the firm. – The licensee can become a new competitor to the firm.
2
Licensing: When Is It Likely To Be Used? h In technology-intensive and process industries technologyh When the technology is not central to the licensor’s licensor’
core h Between companies in developed countries h When the licensor lacks the capital, managerial
resources, or knowledge of foreign markets required for exporting or FDI h When there is a desire to test and proactively
Non-exporting modes of entry h Three main non-exporting modes of entry non-
• Licensing (including franchising) • Strategic Alliances • Wholly owned manufacturing subsidiaries
Three modes of entry
Host Country Home country LICENSING
Blueprint : “how to do it”
Ho st
WHOLLY-OWNED SUBSIDIARY
A replica of home
Host County
Co un
try
STRATEGIC ALLIANCE (J.V.)
A “joint effort”
1
The Impact of Entry Barriers h The non-exporting modes of entry basically non-
represent alternatives for the firm when entry barriers to a foreign market are high. h These entry barriers involve not only artificial barriers such as tariffs, but also involve lack of knowledge of the foreign market and a need to outsource the marketing to local firms with greater understanding of the market.
Licensing: What Is It? h A license is a contractual agreement whereby the
licensor transfers to a licensee the right to use a proprietary asset for a fee. h Examples of proprietary assets include… include…
• • • • • Process know-how or technology knowTrademarks and tradenames Patents Designs Intellectual property
Licensing
• Advantages for the new exporter
– Requires little depth of market knowledge – Can be put in place fairly quickly – Requires relatively little investment – The need for local market research is reduced – The licensee may support the product strongly in the new market
• Disadvantages
– Can lose control over the core competitive advantage of the firm. – The licensee can become a new competitor to the firm.
2
Licensing: When Is It Likely To Be Used? h In technology-intensive and process industries technologyh When the technology is not central to the licensor’s licensor’
core h Between companies in developed countries h When the licensor lacks the capital, managerial
resources, or knowledge of foreign markets required for exporting or FDI h When there is a desire to test and proactively