Foreign Market Analysis
•
Assess
alternative markets
•
Evaluate
the respective costs, benefits, and risks of entering each
•
Select
those that hold the most potential for entry or expansion
Factors in Assessing New Market
Opportunities
•
Product-market
dimensions
•
Major
product-market differences
•
Structural
characteristics of the national product market
•
Competitor
analysis
•
Potential
target markets
•
Relevant
trends
•
Explanation
of change
•
Success
factors
•
Strategic
options
Exporting
Advantages
•
Relatively
low financial exposure
•
Permit
gradual market entry
•
Acquire
knowledge about local market
•
Avoid
restrictions on foreign investment
Disadvantages
•
Vulnerability
to tariffs and NTBs
•
Logistical
complexities
•
Potential
conflicts with distributors
The Licensing Process
LICENSOR
•
Leases
the right to use its intellectual property
•
Earns
new revenues with relatively low investment
LICENSEE
•
Uses
the intellectual property to create products for local sale
•
Pays
a royalty back to the licensor
Licensing
Advantages
•
Low
financial risks
•
Low-cost
way to assess market potential
•
Avoid
tariffs, NTBs, restrictions on foreign investment
•
Licensee
provides knowledge of local markets
Disadvantages
•
Limited
market opportunities/ profits
•
Dependence
on licensee
•
Potential
conflicts with licensee
•
Possibility
of creating future competitor
Franchising
Advantages
•
Low
financial risks
•
Low-cost
way to assess market potential
•
Avoid
tariffs, NTBs, restrictions on foreign investment
•
Maintain
more control than with licensing
•
Franchisee
provides knowledge of local market
Disadvantages
•
Limited
market opportunities/ profits
•
Dependence
on franchisee
•
Potential
conflicts with franchisee
•
Possibility
of creating future competitor
Contract Manufacturing
Advantages
•
Low
financial risks
•
Minimize
resources devoted to manufacturing
•
Focus
firm’s resources on other elements of the value chain
Disadvantages
•
Reduced
control (may affect quality, delivery schedules, etc.)
•
Reduce
learning potential
•
Potential
public relations problems
Management
Advantages
•
Focus
firm’s resources on its area of contracts
•
Minimal
financial exposure
Disadvantages
•
Potential
returns limited by contract expertise
•
May
unintentionally transfer proprietary knowledge and techniques to contractee
Turnkey Projects
Advantages
•
Focus
firm’s resources on its area of expertise
•
Avoid
all long-term operational risks
Disadvantages
•
Financial
risks
–
Cost
overruns
•
Construction
risks
–
Delays
–
Problems
with suppliers
Foreign Direct Investment
Advantages
•
High
profit potential
•
Maintain
control over operations
•
Acquire
knowledge of local market
•
Avoid
tariffs and NTBs
Disadvantages
•
High
financial and managerial investments
•
Higher
exposure to political risk
•
Vulnerability
to restrictions on foreign investment
•
Greater
managerial complexity
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