Exporting

International marketing - Exporting, Licensing and Franchising

Why Firms Go International

PROACTIVE Motivators

* Profit

* Unique products (competitive edge)- but may not be on global scale

* Technological advantages - but firms can copy

* Exclusive information (through contacts) - competitors catch up with time

* Tax Benefit

* Economies of scale (increased production globally = lower domestic)

REACTIVE Motivators

* Competitive pressures (insufficient preparation = hasty entry/ quick withdrawal) and fear of domestic/foreign market

* Overproduction (in recession provide domestic but once returned excess goods)

* Declining domestic sales (may be in decline stage of cycle - but good use in developing economies)

* Excess capacity (unused equipment)

* Saturated domestic markets (Sales decline)

* Proximity to customers and ports (Physical US and Mexico) or (psychological UK and US - Language )

* R & D

* High start up costs

* Marketing

Change agent

- Someone/thing initiates change and helps through implementation (e.g. marketing dept)

Internal factors to the firm

* New management

* Significant internal event

* Managers best if have urge/desire to succeed and are enthusiastic of change

* High level of commitment from manager

External factors to the firm

* Demand

* Other firms

* Domestic Distributors

* Banks (accountants can alert domestic clients to international opportunities)

* Governmental activities (help growth/get tax/create jobs in government sector)

Export Intermediaries

* Specialize in bringing firms or their products and services to the global market.

* Cover the international marketing knowledge and performance gaps of firms.

* Provide contacts with buyers abroad, call on customers, and handle delivery of goods.

Export Management Companies

* Domestic firms that specialize in performing international marketing services as commission representatives or distributors.

* Acquire/develop/deploy resources e.g. new foreign market knowledge/export processes (Help lower clients export costs)

- Perform service as agents

Trading Companies

* Reasons for success

- Development of information systems to identify market opportunities.

- Economies of scale in the vast transaction volume to obtain preferential treatment.

- Large internal global markets creating opportunities for barter trade.

- Access to vast quantities of capital on a global scale.

Export Trading Companies in the U.S.

* Bank participation in ETCs allows

- Better access to capital.

- More trading transactions.

- A wide variety of possible structures.

* ETC legislation has improved the performance of small- and medium-sized firms.

* ETC can

- Deliver a wide variety of services.

- Be an agent.

- Purchase products.

- Act as a distributor abroad.

* ETC must balance the demands of the market and the supply of the members to be successful.

Licensing

* The licensor permits the licensee to use its intellectual property (an intangible) in exchange for a royalty payment. (Czinkota)

*

Advantages of licensing

- No capital investment, knowledge, or marketing strength.

- Huge profit potential, recovered costs.

- Minimal risk of government intervention.

- A stage in internationalization.

- Preempt market entry before competition.

- Increasing intellectual property rights protection.

Disadvantages of licensing

-Leaves most international marketing to licensee

-Licensor = limited expertise

Licensing Compensation Issues

* Transfer costs (VC when transferring tech to licensee and costs of maintaining agreement)

* R & D costs (Looking at licensed tech)

* Opportunity costs

Franchising

-In 2002 global franchise sales by almost 16,000 franchisors and more than 1 million franchisees were estimated to be close to $1.5 trillion.

-A licensing arrangement where the licensor grants the licensee the right to do business in a prescribed manner. (Selling products/use name/production) e.g. manufacturer - retailer