1 Management of MNEs/MNCs Course Instructor: Ferdausi Sultana.

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Management of Management of MNEs/MNCsMNEs/MNCs

Course Instructor: Ferdausi Course Instructor: Ferdausi SultanaSultana

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Today’s TopicsToday’s Topics

Mode of International Business: ExportsMode of International Business: Exports

What products/services will you export?What products/services will you export?

What are the advantages of exports?What are the advantages of exports?

When to decide to engage in exports?When to decide to engage in exports?

Where should you export?Where should you export?

How can you export – broad strategiesHow can you export – broad strategies

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Which mode of international Which mode of international business to take up?business to take up?

The entry mode depends onThe entry mode depends on

Ownership advantages of the Ownership advantages of the companycompany

Location advantages of the marketLocation advantages of the market

Internalization advantagesInternalization advantages– that result from retaining a core that result from retaining a core

competency within the company rather competency within the company rather than opting to license, outsource, or sell than opting to license, outsource, or sell itit

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Who likes exporting?Who likes exporting?

Companies that have lower levels of Companies that have lower levels of ownership advantages either do not ownership advantages either do not enter foreign markets or use low-enter foreign markets or use low-risk strategies such as exporting.risk strategies such as exporting.

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What products will you export?What products will you export?

Is it going to be based on acquired advantage?Is it going to be based on acquired advantage?Is it going to be based on natural advantage?Is it going to be based on natural advantage?Traditionally the lower income countries have relied Traditionally the lower income countries have relied more on natural advantage rather than the high income more on natural advantage rather than the high income countriescountriesManufacturing is a sector that depends on Manufacturing is a sector that depends on acquired acquired advantageadvantage, largely technology which depends in turn on , largely technology which depends in turn on a large number of highly educated people and a large a large number of highly educated people and a large amount of capital to invest in research and development.amount of capital to invest in research and development.Lower income countries depend more on Lower income countries depend more on natural natural advantageadvantage, although these primary products may , although these primary products may encompass large amount of process technology, the encompass large amount of process technology, the products themselves involve little change from year to products themselves involve little change from year to year.year.

66Source:http://www.exporttradebrokers.com/about_us

What are the benefits of exports?What are the benefits of exports?Reduce Dependence on Existing Domestic Reduce Dependence on Existing Domestic Markets.Markets. By expanding into foreign markets, the By expanding into foreign markets, the firm will increase its marketing base and reduce firm will increase its marketing base and reduce internal country competition.internal country competition.Stabililze Market Fluctuations.Stabililze Market Fluctuations. By expanding By expanding into global markets, firms are no longer held into global markets, firms are no longer held captive to economic changes, consumer captive to economic changes, consumer demands, and seasonal fluctuations within the demands, and seasonal fluctuations within the domestic country. domestic country. Sell Excess Production Capacity.Sell Excess Production Capacity. By exporting, By exporting, production capacity and length of production runs production capacity and length of production runs may increase, thereby decreasing average per may increase, thereby decreasing average per unit costs and increasing economies of scale. unit costs and increasing economies of scale.

77Source:http://www.exporttradebrokers.com/about_us

What are the benefits of exports?What are the benefits of exports?

Enhance Competitiveness.Enhance Competitiveness. Exporting is proven Exporting is proven to enhance competitive advantage. While the firm to enhance competitive advantage. While the firm will benefit from exposure to new technologies, will benefit from exposure to new technologies, methods, and processes, the country will benefit methods, and processes, the country will benefit from an improved balance fo trade. from an improved balance fo trade. Create Domestic Jobs.Create Domestic Jobs. It is estimated that U.S. It is estimated that U.S. exports of goods and services supported a total of exports of goods and services supported a total of 1.3 million jobs. 1.3 million jobs. Help Reduce the Trade Deficit.Help Reduce the Trade Deficit. Exports Exports represent eight percent of the U.S. Gross represent eight percent of the U.S. Gross Domestic Product (GDP) out of $750 billion of Domestic Product (GDP) out of $750 billion of annually traded goods and services.annually traded goods and services.

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What are the benefits of exports?What are the benefits of exports?

International Exposure:International Exposure: You may You may want to ensure that your product is want to ensure that your product is kept up to date by exposure to kept up to date by exposure to competition in international markets competition in international markets

Source: http://www.enterprise-ireland.com/

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When to decide to engage in When to decide to engage in exportsexports

Pursuing export markets is recommended in a number of Pursuing export markets is recommended in a number of situations: situations: demonstrated international demand for your products demonstrated international demand for your products higher international prices for your manufactured goods higher international prices for your manufactured goods moderate or slow domestic market growth with strong, moderate or slow domestic market growth with strong, unsaturated or growing markets abroad unsaturated or growing markets abroad competitive pressures in your domestic market reducing competitive pressures in your domestic market reducing prices and margins prices and margins competitors leveraging their profitability in foreign competitors leveraging their profitability in foreign markets to increase their market share in your domestic markets to increase their market share in your domestic market market

Source: http://www.consultims.com/why_export.php

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When to decide to engage When to decide to engage in exportsin exports

Pursuing export markets is recommended in a Pursuing export markets is recommended in a number of situations: number of situations:

relatively low labor or capital costs as compared relatively low labor or capital costs as compared with foreign manufacturerswith foreign manufacturers

strategic needs: capital, technology, capacity, strategic needs: capital, technology, capacity, partners, government assistance, etc. partners, government assistance, etc.

intangible needs conforming with multi-cultural intangible needs conforming with multi-cultural or internationally oriented corporate cultureor internationally oriented corporate culture

Source: http://www.consultims.com/why_export.php

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When to decide to engage in When to decide to engage in exportsexports

Where long production runs are less Where long production runs are less important, we find a greater prevalence important, we find a greater prevalence of multiple production units scattered of multiple production units scattered around the world in different countries around the world in different countries so as to minimize the cost of so as to minimize the cost of transportation through exporting.transportation through exporting.

Thus, when production runs are long, Thus, when production runs are long, the manager of an international the manager of an international business should better think of business should better think of exporting.exporting.

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Where to Export: New Products - Where to Export: New Products - DevelopmentDevelopment

Can you engage in R&D to develop Can you engage in R&D to develop new products?new products?

If you can develop new products, If you can develop new products, then it would be feasible to try to then it would be feasible to try to export to those countries that have export to those countries that have high adoption tendency?high adoption tendency?

YesYes

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Where to Export: Closeness to Where to Export: Closeness to Markets and Manufacturing Markets and Manufacturing

OperationsOperationsHow far are your manufacturing How far are your manufacturing operations from the market you are operations from the market you are targeting to export to?targeting to export to?

If you are close, or if transportation If you are close, or if transportation costs are not overwhelmingly high, it costs are not overwhelmingly high, it would be a good idea to exportwould be a good idea to export

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Where would you export?Where would you export?

You may use country similarity (economic, You may use country similarity (economic, political, cultural) theory in deciding to political, cultural) theory in deciding to export.export.Cultural similarity also helps explain much of Cultural similarity also helps explain much of the direction of trade. Importers and the direction of trade. Importers and exporters find it easier to do business in a exporters find it easier to do business in a country they perceive as being culturally country they perceive as being culturally similar to their home countries, such as similar to their home countries, such as because they speak a common language.because they speak a common language.However, political relationship and economic However, political relationship and economic agreements among countries may discourage agreements among countries may discourage or encourage trade.or encourage trade.

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Is it always the biggies that Is it always the biggies that become exporters?become exporters?

The probability of being an exporter The probability of being an exporter increases with company size, as increases with company size, as defined by sales revenues.defined by sales revenues.

The biggest companies are the The biggest companies are the biggest exporters, but small biggest exporters, but small companies are expanding their companies are expanding their export capability.export capability.

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Is it always the biggies that Is it always the biggies that become exporters?become exporters?

Small Companies Can Be Successful Small Companies Can Be Successful Exporters:Exporters: It's a popular misconception that only It's a popular misconception that only large companies can succeed overseas. Indeed, large companies can succeed overseas. Indeed, many small companies have found that their many small companies have found that their competitive advantage lies in some form of competitive advantage lies in some form of technological or creative advantage. Many have technological or creative advantage. Many have "unique" or "niche-type" products that are always "unique" or "niche-type" products that are always in demand overseas!in demand overseas!An additional reminder is that, export intensity is An additional reminder is that, export intensity is not positively correlated with company size.not positively correlated with company size.– Export Intensity: The percentage exports revenue to Export Intensity: The percentage exports revenue to

total sales revenue. total sales revenue.

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Is it always the biggies that Is it always the biggies that become exporters?become exporters?

Some companies are born-global Some companies are born-global companiescompanies

From day one they look for markets From day one they look for markets and suppliers internationally.and suppliers internationally.

Usually these are small to medium Usually these are small to medium sized firms.sized firms.

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How to export?How to export?

Direct sellingDirect selling

Indirect sellingIndirect selling– Export Management CompaniesExport Management Companies– Export Trading CompaniesExport Trading Companies

Foreign Trading CompaniesForeign Trading Companies

Direct SellingDirect Selling– Sales representativesSales representatives– Foreign distributorsForeign distributors

Direct Selling through the InternetDirect Selling through the Internet

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How to export?How to export?

Direct sellingDirect selling

Goods and services are sold to an Goods and services are sold to an independent party outside the independent party outside the exporters home country.exporters home country.

Indirect sellingIndirect selling

Goods and services are sold to an Goods and services are sold to an intermediary in the domestic market, intermediary in the domestic market, which then resells the goods and which then resells the goods and services to the export market.services to the export market.

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How to export: Indirect ExportsHow to export: Indirect Exports

Export Management CompaniesExport Management CompaniesThese are usually the export arm of a These are usually the export arm of a manufacturer.manufacturer.It uses its own company name, and operates on It uses its own company name, and operates on a contractual basis, usually as an agent of the a contractual basis, usually as an agent of the exporter (manufacturer).exporter (manufacturer).They are usually small, entrepreneurial They are usually small, entrepreneurial ventures that specialize in a particular product, ventures that specialize in a particular product, function or market.function or market.They have been criticized on grounds that they They have been criticized on grounds that they do not have enough resources, they are overly do not have enough resources, they are overly controlling and often do not heed to the controlling and often do not heed to the manufacturers.manufacturers.Usually they are local or have local base.Usually they are local or have local base.

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How to export: Indirect ExportsHow to export: Indirect Exports

Export Trading CompaniesExport Trading Companies

These are like the EMC but they give These are like the EMC but they give more emphasis on the demand side more emphasis on the demand side rather than on the supply side.rather than on the supply side.

They identify suppliers who can fill They identify suppliers who can fill orders in overseas markets.orders in overseas markets.

Usually these are local or have local Usually these are local or have local partnerships.partnerships.

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How to export?How to export?

Foreign Trading CompaniesForeign Trading Companies

These are usually huge These are usually huge conglomerates with marketing, conglomerates with marketing, financial, and distribution arms that financial, and distribution arms that permit a truly global reach.permit a truly global reach.

Usually these firms can market and Usually these firms can market and distribute products more efficiently distribute products more efficiently than any single producer can.than any single producer can.

These do not have to be local.These do not have to be local.

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How to export: Direct SellingHow to export: Direct Selling

Direct sellingDirect selling involves the use of sales involves the use of sales representatives, distributors, or retailersrepresentatives, distributors, or retailers

Sales RepresentativesSales Representatives

The sales representatives usually operate on a The sales representatives usually operate on a commission basis. However, they occasionally commission basis. However, they occasionally can be salaried too.can be salaried too.

They are stationed in key markets around the They are stationed in key markets around the world. They deal with distributors, retailers or world. They deal with distributors, retailers or end-users.end-users.

Usually provide little or no after sales service.Usually provide little or no after sales service.

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How to export: Direct SellingHow to export: Direct Selling

Foreign DistributorsForeign Distributors

Direct selling can be done to foreign Direct selling can be done to foreign distributorsdistributors

In that case usually the distributor carries In that case usually the distributor carries stock of the direct seller and provides stock of the direct seller and provides after sales services, if necessary.after sales services, if necessary.

Usually the distributors that carry the Usually the distributors that carry the products of a certain firm have specific products of a certain firm have specific territories wherein they operate.territories wherein they operate.

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How to export: Direct SellingHow to export: Direct Selling

In-House Sales PersonnelIn-House Sales Personnel

Some firms decide to use their own Some firms decide to use their own in-house sales personnel.in-house sales personnel.

These personnel are given the task These personnel are given the task to monitor activities of foreign to monitor activities of foreign distributors/intermediaries.distributors/intermediaries.

Here the firm must aim to build its Here the firm must aim to build its own marketing capabilityown marketing capability

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Direct Selling through the InternetDirect Selling through the Internet

Direct Selling: Through E-Direct Selling: Through E-CommerceCommerce

Internet marketing allows Internet marketing allows companies --- both large and small --- companies --- both large and small --- to engage in direct marketing to engage in direct marketing quickly, easily, and cheaply.quickly, easily, and cheaply.

Does it not seem like a dream?Does it not seem like a dream?

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Please get ready forPlease get ready for

Case on Alibaba.com on Page 447Case on Alibaba.com on Page 447Answer the following:Answer the following:

Question 1 (first part only)Question 1 (first part only)Question 2Question 2Question 4Question 4Question 5Question 5Question 3 is your home assignment. Question 3 is your home assignment. But add eBay along with the given But add eBay along with the given sites and compare and contrast.sites and compare and contrast.