Module 2.pptx
- 1. Modes of Entry into International Business
- 2. 1. Direct Exporting Direct exporting involves you directly exporting your goods and products to another overseas market. For some businesses, it is the fastest mode of entry into the international business. Direct exporting, in this case, could also be understood as Direct Sales. This means you as a product owner in India go out, to say, the middle east with your own sales force to reach out to the customers.
- 3. Advantages of Direct Exporting You can select your foreign representatives in the overseas market. You can utilize the direct exporting strategy to test your products in international markets before making a bigger investment in the overseas market. This strategy helps you to protect your patents, goodwill, trademarks and other intangible assets. Disadvantages of Direct Exporting For offline products, this strategy will turn out to be a really high cost strategy. Everything has to be setup by your company from scratch. While for online products this is probably the fastest expansion strategy, in the case of offline products, there is a good amount of lead time that goes into the market research, scoping and hiring of the representatives in that country.
- 4. 2. Licensing and Franchising Companies which want to establish a retail presence in an overseas market with minimal risk, the licensing and franchising strategy allows another person or business assume the risk on behalf of the company. In Licensing agreement and franchise, an overseas-based business will pay you a royalty or commission to use your brand name, manufacturing process, products, trademarks and other intellectual properties. While the licensee or the franchisee assumes the risks and bears all losses, it shares a proportion of their revenues and profits you.
- 5. Advantages of Licensing and Franchising Low cost of entry into an international market Licensing or Franchising partner has knowledge about the local market Offers you a passive source of income Reduces political risk as in most cases, the licensing or franchising partner is a local business entity Allows expansion in multiple regions with minimal investment Disadvantages of Licensing and Franchising In some cases, you might not be able to exercise complete control on its licensing and franchising partners in the overseas market Licensees and franchisees can leverage the acquired knowledge and pose as future competition for your business Your business risks tarnishing its brand image and reputation in the overseas and other markets due to the incompetence of their licensing and franchising partners
- 6. 3. Joint Ventures A joint venture is one of the preferred modes of entry into international business for businesses who do not mind sharing their brand, knowledge, and expertise. Companies wishing to expand into overseas markets can form joint ventures with local businesses in the overseas location, wherein both joint venture partners share the rewards and risks associated with the business. This mode of entry into international business is suitable in countries wherein the governments do not allow one hundred per cent foreign ownership in certain industries.
- 7. Advantages of Joint Venture Both partners can leverage their respective expertise to grow and expand within a chosen market The political risks involved in joint-venture is lower due to the presence of the local partner, having knowledge of the local market and its business environment Enables transfer of technology, intellectual properties and assets, knowledge of the overseas market etc. between the partnering firms Disadvantages of Joint Venture Joint ventures can face the possibility of cultural clashes within the organisation due to the difference in organisation culture in both partnering firms In the event of a dispute, dissolution of a joint venture is subject to lengthy and complicated legal process.
- 8. 4. Strategic Acquisitions Strategic acquisition implies that your company acquires a controlling interest in an existing company in the overseas market. This acquired company can be directly or indirectly involved in offering similar products or services in the overseas market. You can retain the existing management of the newly acquired company to benefit from their expertise, knowledge and experience while having your team members positioned in the board of the company as well.
- 9. Advantages of Strategic Acquisitions Your business does not need to start from scratch as you can use the existing infrastructure, manufacturing facilities, distribution channels and an existing market share and a consumer base Your business can benefit from the expertise, knowledge and experience of the existing management and key personnel by retaining them It is one of the fastest modes of entry into an international business on a large scale Disadvantages of Strategic Acquisitions Just like Joint Ventures, in Acquisitions as well, there is a possibility of cultural clashes within the organisation due to the difference in organisation culture Apart from that there mostly are problems with seamless integration of systems and process. Technological process differences is one of the most common issues in strategic acquisitions.
- 10. Issues with Organizational design Departmental Conflict: In a matrix structure, people report to two different managers - a functional manager and a divisional manager. For example, a human resources employee functions as an expert in recruiting, hiring and training personnel. He/she reports to the HR manager and also reports to the division head of the department he/she supports, such as sales, manufacturing or customer service.
- 11. Inconsistency : When each department functions independently, inconsistency may result. Employees who transition to other jobs in the company run into problems when they behave as they did in their old roles. Approvals take longer because no one knows who is in charge when multiple departments interact.
- 12. Poor Communication: As a small business grows, organizational structures that worked before no longer function productively. Lack of structure or an inflexible structure can impede the work force from achieving desired results. Additionally, poor communication among department leaders could filter down into the rest of the organization. Establishing good communication mechanisms -- alleviates organizational problems that stem from rapid growth. Implementing good project management practices can also formalize procedures that ensure good communication.
- 13. Unclear Goals: To enable agility, each organization may set its own goals. This minimizes the levels of approval. However, when each department sets its own goals, the whole company lacks a cohesive direction. Infighting results when limited resources must be shared. Setting a clear company strategy and having each department align its individual goals to the company's helps minimize the problems. In a divisional organizational structure, each employee works to meet the division's needs. This works well when each division works separately. However, when divisions need to interact, this works less effectively.