Discussion Exercises
Discussion Questions
Chapter 9 Foreign Market Entry Strategies
- Briefly explain these market entry strategies: exporting, licensing, joint venture, manufacturing, assembly operations, management contract, turnkey operations, and acquisition.
Exporting is a strategy in which a company, without any marketing or production organization overseas, exports a product from its home base.
Licensing is an agreement that permits a foreign company to use industrial property (i.e., patents, trademarks, and copyrights), technical knowhow and skills, architectural and engineering designs, or any combination of these in a foreign market.
A joint venture is a partnership at corporate level formed for a specific business purpose by two or more investors (from more than one country) sharing ownership and control.
Manufacturing is a strategy which involves all or some manufacturing in a foreign country.
An assembly operation involves producing parts or components in various countries in order to gain each country's comparative advantage and the subsequent assembly of these parts into a finished product.
Management contract is a strategy used by a company with management experience with the idea of managing the business or investment of a foreign owner/government for a fee.
A turnkey operation is an agreement by a seller to supply a buyer with a facility fully equipped and ready to be operated by the buyer's personnel, who will be trained by the seller.
An acquisition is a direct investment in a foreign country through the purchase of a local company.
- What is cross-licensing or grantback?
Cross-licensing or grantback is a two-way license. It allows an original licensor to gain access to a licensee's technology and product. This is important because the licensee may be able to build on the information supplied by the licensor. A smart licensor may even lower the royalty rate in return for product improvements and potentially profitable new products. An intelligent practice is to stipulate in a contract that licenses for new patents or products covered by the return grant are to be made available at reasonable royalties.
- What are the factors that should be considered in choosing a country for direct investment?
In choosing a country for direct investment, a number of factors must be considered. Some of these factors are product image, competition, local resources (raw materials, manpower, infrastructure, etc.), labor costs, type of product, taxation, foreign exchange and investment climate.
- What is an FTZ? What are its benefits?
An FTZ (free trade zone) is a secured domestic area in international commerce, considered to be legally outside a country's customs territory. It is an area designated by a government for the duty-free entry of goods.
The benefits of FTZ use are numerous. One benefit is job retention and creation. The use of an FTZ improves the cash flow for a company, and it provides a means to circumvent import restrictions. Furthermore, FTZs provide a means to facilitate imports and exports. Finally, FTZs lower production costs, duties, and freight charges.