Stratergic Methods of Entering International Market

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METHODS OF ENTERING

INTERNATIONAL MARKET


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Need of Entering in International Market?

The need to take any form of business beyond the national boundary arises due to

following reasons:

Expansion of the current business.- Tata-Jaguar-Land Rover

Saturation in the current business.

Saturation in the current market.

Disposal of excess production in the domestic market-Export Firms

Non-availability of a product in the domestic market-Import Firms, raw material,

spares, machinery.

Better business opportunity in foreign market- Better Prices.

Acquisition of better technology from overseas market.

Development of better sales & distribution channels in overseas market.


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International Trade

Licensing

Franchising

Joint Ventures

Acquisitions of Existing Operations

Establishing New Foreign Subsidiaries

1. International Business Methods


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Ways of International business ?

Export & Import Disposal of excess

production Production especially for

foreign market. Fulfillment of basic needs

for industry.

Catering increasing demandof domestic market.

Merger & Acquisitions Acquiring new similar

businesses. Forming a coalition for

specific purpose. Searching for new

business opportunities.

Overseas Expansion

Desire & need of a new market.

Reaping the overseas market for

profit.

Saturation of the domestic or thecurrent market.

Overseas Projects Construction Projects likeroads & bridge.

Consultancy Projects. Turnkey operations Management Contracts


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Resource Deployment

Controland

Fo

reignMarketPrese

nce

IndirectExporting

Direct

Exporting

LicensingFranchising

Joint

Ventures

Acquisition/

Wholly-Owned Subsidiary

Production in the

Home Market

Production Abroad

low high

low

high

STRATEGIC ALLIANCE

Market Entry Methods


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International trade is a relatively conservativeapproach involving exporting and/or importing.

The internet facilitates international trade by enabling

firms to advertise and manage orders through their

websites.

There are several methods by which firmscan conduct international business.

International Business Methods


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Licensing allows a firm to provide its technologyin exchange for fees or some other benefits.

Sprint telecommunications in UK

IGA supermarkets in China & Singapore

Franchising obligates a firm to provide a

specialized sales or service strategy, support

assistance, and possibly an initial investment in

the franchise in exchange for periodic fees.

McDonalds, PizzaHut



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Firms may also penetrate foreign markets byengaging in a joint venture (joint ownership andoperation) with firms that reside in those markets.

Gen Mills cereals sold throughNestles

distributionnetwork

Acquisitions of existing operations in foreign

countries allow firms to quickly gain control overforeign operations as well as a share of the foreignmarket.

P&G bought bleach company in Panama



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Firms can also penetrate foreign markets byestablishing new foreign subsidiaries.

In general, any method of conducting businessthat requires a direct investment in foreignoperations is referred to as a direct foreigninvestment (DFI).

The optimal international business method maydepend on the characteristics of the MNC.


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Factors Influencing Entry Mode

Decision

External Factors Target country market factors

Target country environmental factors Target country production factors, e.g. investment and

exchange control regulation

Home country factors

Internal Factors Company product factors

Company resource/commitment factors


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2. Regional Trade Agreements


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Regional Trade Agreements

Regional trade agreements, sometimes referred to as

RTAs, are increasingly important in global trade.

Essentially, a regional trade agreement involves one ormore countries deciding to liberalize the exchange of

goods and services across their borders.


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RTAs are an important exception to the World

Trade Organization's (WTO) multilateral trade

policy, which does not allow any country to bediscriminated against by another country's

trade regime.


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Preferential Trade Areas

First-level RTAs are also called preferential trade areas. A

preferential trade area is created when two countries lowertheir trade barriers with one another, but do not completely

eliminate them. This type of RTA does not involve any type

of integration of the two countries' labor, capital or money

markets. This type of RTA is not allowed by the WTO, andthey can have a harmful effect on multilateral trade

Types of Regional Trade Agreements


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Free Trade Areas

A second-level RTA is called a free trade area, or FTA. This

involves the complete removal of all trade barriers between two

countries, but still does not involve the integration of labor orcapital markets. In this system, each member of the agreement is

allowed to maintain its trade barriers with third parties not

involved in the agreement. FTAs represent 84 percent of all RTAs.


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Customs Unions

Third-level RTAs are also called customs unions. Under

this type of RTA, the member countries must eliminate

all trade barriers between one another, but also adopt the

same trade policy in regard to other countries not a partof the agreement. This is often referred to as a common

external tariff.

However, under this type of RTA capital and labor

markets remain un-integrated. This type of RTA

represents about 8 percent of all RTAs.


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Common Markets

Fourth-level RTAs are called common markets.

In this type of RTA, all barriers between the

movement of labor and physical capital areremoved. Essentially, this allows the movement

of production factors across borders along with

the products produced.


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3. Introduction to the WTO


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WTO: What is it?

An international Organization:

Organization created by the Marrakesh Agreement

Independent from the United Nation system

Replaces the GATT (created in 1947)


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World Trade Organization-

An international organization designed to

supervise and liberalize international trade.

The WTO came into being on January 1,1995, and is the successor to the General

Agreement on Tariffs and Trade (GATT),

which was created in 1947. Responsible fornegotiating and implementing new trade

agreements, around 150 members of WTO


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WTO Objectives:

Raising standards of living

Ensuring full employment Ensuring growth of real income and demand

Expanding production and trade

Sustainable development

Protection of the environment

WTO: What is its purpose?


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WTO Functions:

Administer and implement the WTO agreements

Forum for negotiations

Administer Settlement of Disputes

Administer Trade Policy Review Mechanism

Technical Assistance to developing countries

WTO: What is its purpose?


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Set of rules

The negotiated legal rules included in the various

WTO agreements cover the following topics:

Trade in Goods

Trade in Services

Trade-related aspects of intellectual property rights

Dispute Settlement Trade Policy Reviews

WTO: How does it Works?


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Ministerial Conference

Secretariat

AppellateBody

DisputeSettlement

Panels

Committees Committees

Goods Council Services Council

TRIPSCouncil

CTD (Development)CTE (Environment)CRTA (Regionalism)

BOPBudgetWG (Accessions,

Investment, competition,GovernmentProcurement)

General CouncilTPRB DSB

Director-General

WTO Structure


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Secretariat

About 750 staff

Headed by a Director-General (DG)

Budget 2009: 190 millions Swiss francs + extra-

budgetary funds (about 24 millions Swiss francs)

WTO: How does it work?


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Decision making

Member-driven organisation

Through consensus making

Consensus when no Member formally object to a

decision

WTO: How does it work?

Stratergic Methods of Entering International Market

Documents