Which Of The Following Modes Of Entering A Foreign Market Allows For The Lowest Level Of Control?

International-Expansion Entry Modes

Learning Objectives

After reading this department, students should be able to …

describe the five common international-expansion entry modes.
know the advantages and disadvantages of each entry fashion.
understand the dynamics among the choice of different entry modes.

The Five Common International-Expansion Entry Modes

What is the best way to enter a new market? Should a visitor first institute an export base of operations or license its products to proceeds feel in a newly targeted country or region? Or does the potential associated with first-mover status justify a bolder move such as entering an brotherhood, making an conquering, or even starting a new subsidiary? Many companies move from exporting to licensing to a higher investment strategy, in consequence treating these choices as a learning curve. Each has singled-out advantages and disadvantages. In this section, we will explore the traditional international-expansion entry modes. Beyond importing, international expansion is accomplished through exporting, licensing arrangements, partnering and strategic alliances, acquisitions, and establishing new, wholly owned subsidiaries, also known every bit greenfield ventures. These modes of entering international markets and their characteristics are shown in Tabular array 7.1 "International-Expansion Entry Modes".^one Each style of market entry has advantages and disadvantages. Firms need to evaluate their options to choose the entry mode that best suits their strategy and goals.

Table 7.1 International-Expansion Entry Modes

Type of Entry	Advantages	Disadvantages
Exporting	Fast entry, low adventure	Low control, low local noesis, potential negative environmental affect of transportation
Licensing and Franchising	Fast entry, low toll, low risk	Less control, licensee may become a competitor, legal and regulatory environment (IP and contract law) must be audio
Partnering and Strategic Brotherhood	Shared costs reduce investment needed, reduced hazard, seen as local entity	College toll than exporting, licensing, or franchising; integration problems between 2 corporate cultures
Acquisition	Fast entry; known, established operations	High cost, integration issues with dwelling house role
Greenfield Venture (Launch of a new, wholly owned subsidiary)	Gain local market knowledge; can be seen as insider who employs locals; maximum control	High cost, high run a risk due to unknowns, slow entry due to setup time

Exporting

Exporting is the marketing and straight sale of domestically produced goods in another country. Exporting is a traditional and well-established method of reaching foreign markets. Since it does not require that the goods be produced in the target state, no investment in foreign production facilities is required. Most of the costs associated with exporting take the form of marketing expenses.

While relatively depression risk, exporting entails substantial costs and limited control. Exporters typically have little control over the marketing and distribution of their products, face loftier transportation charges and possible tariffs, and must pay distributors for a variety of services. What is more, exporting does non give a company firsthand experience in staking out a competitive position abroad, and it makes it difficult to customize products and services to local tastes and preferences.

Exporting is a typically the easiest way to enter an international market place, and therefore most firms begin their international expansion using this model of entry. Exporting is the sale of products and services in foreign countries that are sourced from the domicile state. The reward of this fashion of entry is that firms avoid the expense of establishing operations in the new country. Firms must, yet, take a fashion to distribute and market their products in the new country, which they typically do through contractual agreements with a local visitor or distributor. When exporting, the firm must give thought to labeling, packaging, and pricing the offering appropriately for the market. In terms of marketing and promotion, the house volition need to let potential buyers know of its offerings, be information technology through advert, merchandise shows, or a local sales force.

Agreeable Anecdotes

1 common factor in exporting is the need to translate something about a product or service into the language of the target country. This requirement may exist driven past local regulations or by the visitor'due south wish to market the product or service in a locally friendly mode. While this may seem to exist a elementary task, information technology's often a source of embarrassment for the company and sense of humor for competitors. David Ricks's book on international business organization blunders relates the post-obit chestnut for United states companies doing business in the neighboring French-speaking Canadian province of Quebec. A company boasted oflait frais usage, which translates to "used fresh milk," when it meant to brag oflait frais employé, or "fresh milk used." The "terrific" pens sold by some other company were instead promoted every bitterrifiantes, or terrifying. In another instance, a company intending to say that its appliance could apply "whatsoever kind of electrical electric current," actually stated that the apparatus "wore out any kind of liquid." And imagine how one visitor felt when its product to "reduce heartburn" was advertised as one that reduced "the warmth of heart"!ⁱⁱ

Amidst the disadvantages of exporting are the costs of transporting goods to the country, which can be loftier and can take a negative impact on the environment. In addition, some countries impose tariffs on incoming goods, which will impact the house's profits. In addition, firms that market and distribute products through a contractual agreement have less control over those operations and, naturally, must pay their distribution partner a fee for those services.

Ethics in Action

Companies are starting to consider the environmental impact of where they locate their manufacturing facilities. For case, Olam International, a cashew producer, originally shipped nuts grown in Africa to Asia for processing. Now, however, Olam has opened processing plants in Tanzania, Mozambique, and Nigeria. These locations are close to where the nuts are grown. The upshot? Olam has lowered its processing and shipping costs past 25 percent while profoundly reducing carbon emissions.ⁱⁱⁱ

As well, when Walmart enters a new market, it seeks to source produce for its food sections from local farms that are almost its warehouses. Walmart has learned that the savings information technology gets from lower transportation costs and the do good of being able to restock in smaller quantities more start the lower prices information technology was getting from industrial farms located farther abroad. This practice is also a win-win for locals, who have the opportunity to sell to Walmart, which tin increase their profits and let them abound and hire more people and pay better wages. This, in plow, helps all the businesses in the local community.⁴

Firms export by and large to countries that are close to their facilities because of the lower transportation costs and the often greater similarity between geographic neighbors. For example, United mexican states accounts for 40 per centum of the appurtenances exported from Texas.^five The Internet has likewise made exporting easier. Fifty-fifty small firms tin admission critical information about foreign markets, examine a target market, research the contest, and create lists of potential customers. Even applying for export and import licenses is becoming easier as more than governments utilize the Internet to facilitate these processes.

Because the cost of exporting is lower than that of the other entry modes, entrepreneurs and pocket-size businesses are most likely to use exporting as a way to become their products into markets effectually the earth. Even with exporting, firms withal face the challenges of currency exchange rates. While larger firms have specialists that manage the exchange rates, small businesses rarely have this expertise. I factor that has helped reduce the number of currencies that firms must deal with was the formation of the European Spousal relationship (European union) and the move to a single currency, the euro, for the first time. Every bit of 2011, seventeen of the 20-seven EU members use the euro, giving businesses access to 331 million people with that single currency.^six

Licensing and Franchising

A company that wants to get into an international market quickly while taking simply limited fiscal and legal risks might consider licensing agreements with foreign companies. An international licensing agreement allows a foreign visitor (thelicensee) to sell the products of a producer (thelicensor) or to employ its intellectual property (such equally patents, trademarks, copyrights) in exchange for royalty fees. Hither'south how information technology works: You ain a visitor in the U.s.a. that sells coffee-flavored popcorn. Y'all're sure that your product would be a big hit in Japan, just you lot don't accept the resources to prepare up a factory or sales office in that country. You can't make the popcorn here and ship it to Japan considering it would go stale. Then you enter into a licensing understanding with a Japanese visitor that allows your licensee to manufacture coffee-flavored popcorn using your special process and to sell it in Nihon under your make name. In substitution, the Japanese licensee would pay yous a royalty fee.

Licensing essentially permits a company in the target land to apply the property of the licensor. Such property is usually intangible, such every bit trademarks, patents, and production techniques. The licensee pays a fee in exchange for the rights to use the intangible belongings and maybe for technical assistance besides.

Because piddling investment on the part of the licensor is required, licensing has the potential to provide a very large return on investment. Yet, because the licensee produces and markets the product, potential returns from manufacturing and marketing activities may be lost. Thus, licensing reduces toll and involves limited take a chance. However, information technology does not mitigate the substantial disadvantages associated with operating from a distance. As a rule, licensing strategies inhibit control and produce but moderate returns.

Some other popular way to expand overseas is to sell franchises. Under an international franchise agreement, a company (thefranchiser) grants a foreign visitor (thefranchisee) the right to utilize its make name and to sell its products or services. The franchisee is responsible for all operations simply agrees to operate co-ordinate to a business model established by the franchiser. In plow, the franchiser usually provides advertising, training, and new-product aid. Franchising is a natural course of global expansion for companies that operate domestically co-ordinate to a franchise model, including restaurant bondage, such as McDonald's and Kentucky Fried Chicken, and hotel bondage, such equally Holiday Inn and All-time Western.

Contract Manufacturing and Outsourcing

Considering of high domestic labor costs, many U.S. companies manufacture their products in countries where labor costs are lower. This arrangement is called international contract manufacturing or outsourcing. A U.South. company might contract with a local company in a strange country to manufacture one of its products. Information technology will, nonetheless, retain control of product design and development and put its ain label on the finished product. Contract manufacturing is quite common in the U.Due south. clothes business organization, with about American brands being made in a number of Asian countries, including Mainland china, Vietnam, Republic of indonesia, and India.[4]

Thank you to xx-first-century information technology, nonmanufacturing functions can too be outsourced to nations with lower labor costs. U.S. companies increasingly describe on a vast supply of relatively inexpensive skilled labor to perform various business organization services, such every bit software development, bookkeeping, and claims processing. For years, American insurance companies accept candy much of their claims-related paperwork in Ireland. With a big, well-educated population with English language language skills, India has become a heart for software development and client-phone call centers for American companies. In the case of India, as you can encounter in Tabular array 7.1 "Selected Hourly Wages, United States and India" , the attraction is not only a big pool of knowledge workers just besides significantly lower wages.

Table vii.ane Selected Hourly Wages, United States and India

Occupation	U.Due south. Wage per Hour (per yr)	Indian Wage per Hour (per year)
Middle-level managing director	$29.40 per hour ($threescore,000 per year)	$half-dozen.xxx per hour ($xiii,000 per yr)
Information technology specialist	$35.10 per hour ($72,000 per yr)	$seven.50 per hour ($15,000 per year)
Manual worker	$13.00 per hour ($27,000 per twelvemonth)	$2.twenty per hour ($5,000 per yr)

Source: Data obtained from "Huge Wage Gaps for the Same Work Between Countries – June 2011," WageIndicator.com, http://www.wageindicator.org/main/WageIndicatorgazette/wageindicator-news/huge-wage-gaps-for-the-aforementioned-piece of work-between-countries-June-2011 (Links to an external site.)Links to an external site.(accessed September twenty, 2011).

Partnerships and Strategic Alliances

Some other way to enter a new market is through a strategic alliance with a local partner. A strategic alliance involves a contractual agreement between 2 or more than enterprises stipulating that the involved parties will cooperate in a certain way for a certain fourth dimension to achieve a common purpose. To determine if the alliance approach is suitable for the firm, the firm must determine what value the partner could bring to the venture in terms of both tangible and intangible aspects. The advantages of partnering with a local firm are that the local firm likely understands the local culture, market, and ways of doing business improve than an outside house. Partners are especially valuable if they accept a recognized, reputable brand proper name in the country or take existing relationships with customers that the firm might desire to admission. For example, Cisco formed a strategic alliance with Fujitsu to develop routers for Japan. In the brotherhood, Cisco decided to co-brand with the Fujitsu proper name then that it could leverage Fujitsu's reputation in Nihon for It equipment and solutions while still retaining the Cisco name to benefit from Cisco's global reputation for switches and routers.⁷ Similarly, Xerox launched signed strategic alliances to grow sales in emerging markets such equally Primal and Eastern Europe, India, and Brazil.⁸

Strategic alliances and articulation ventures have become increasingly popular in recent years. They allow companies to share the risks and resource required to enter international markets. And although returns also may accept to be shared, they give a company a degree of flexibility non afforded by going it alone through straight investment.

In that location are several motivations for companies to consider a partnership as they expand globally, including (a) facilitating market entry, (b) risk and reward sharing, (c) technology sharing, (d) joint product evolution, and (e) conforming to authorities regulations. Other benefits include political connections and distribution aqueduct access that may depend on relationships.

Such alliances often are favorable when (a) the partners' strategic goals converge while their competitive goals diverge; (b) the partners' size, market ability, and resource are modest compared to the manufacture leaders; and (c) partners are able to learn from ane another while limiting access to their own proprietary skills.

What if a company wants to do business in a foreign country just lacks the expertise or resources? Or what if the target nation's government doesn't allow strange companies to operate within its borders unless it has a local partner? In these cases, a firm might enter into a strategic brotherhood with a local company or even with the regime itself. A strategic alliance is an agreement betwixt ii companies (or a company and a nation) to pool resource in order to reach business organization goals that do good both partners. For case, Viacom (a leading global media visitor) has a strategic brotherhood with Beijing Television to produce Chinese-linguistic communication music and entertainment programming.[5]

An brotherhood can serve a number of purposes:

Enhancing marketing efforts
Building sales and market share
Improving products
Reducing production and distribution costs
Sharing engineering science

Alliances range in scope from informal cooperative agreements to joint ventures—alliances in which the partners fund a separate entity (maybe a partnership or a corporation) to manage their joint operation. Magazine publisher Hearst, for instance, has articulation ventures with companies in several countries. And then, immature women in Israel can readCosmo Israel in Hebrew, and Russian women can pick up a Russian-language version ofCosmo that meets their needs. The U.S. edition serves every bit a starting point to which nationally appropriate cloth is added in each different nation. This arroyo allows Hearst to sell the mag in more than 50 countries.[6]

Strategic alliances are besides advantageous for small entrepreneurial firms that may be besides small to make the needed investments to enter the new market themselves. In improver, some countries crave foreign-owned companies to partner with a local firm if they want to enter the market. For example, in Saudi Arabia, non-Saudi companies looking to do business in the land are required by police to take a Saudi partner. This requirement is mutual in many Eye Eastern countries. Fifty-fifty without this blazon of regulation, a local partner often helps foreign firms span the differences that otherwise make doing business locally impossible. Walmart, for example, failed several times over nigh a decade to finer abound its business organization in Mexico, until it found a strong domestic partner with similar business concern values.

The disadvantages of partnering, on the other manus, are lack of straight control and the possibility that the partner's goals differ from the firm's goals. David Ricks, who has written a volume on blunders in international business organisation, describes the instance of a U.s.a. company eager to enter the Indian market place: "It quickly negotiated terms and completed arrangements with its local partners. Certain required documents, even so, such as the industrial license, foreign collaboration agreements, capital issues permit, import licenses for machinery and equipment, etc., were slow in being issued. Trying to expedite governmental approval of these items, the United states firm agreed to accept a lower royalty fee than originally stipulated. Despite all of this extra effort, the project was not greatly expedited, and the lower royalty fee reduced the firm's profit by approximately one-half a million dollars over the life of the agreement."⁹ Failing to consider the values or reliability of a potential partner tin can exist costly, if non disastrous.

To avoid these missteps, Cisco created one globally integrated team to oversee its alliances in emerging markets. Having a dedicated team allows Cisco to invest in preparation the managers how to manage the circuitous relationships involved in alliances. The team follows a consistent model, using and sharing best practices for the benefit of all its alliances.¹⁰

Did You Know?

Partnerships in emerging markets can be used for social skillful as well. For example, pharmaceutical company Novartis crafted multiple partnerships with suppliers and manufacturers to develop, test, and produce antimalaria medicine on a nonprofit footing. The partners included several Chinese suppliers and manufacturing partners as well as a farm in Kenya that grows the medication's central raw ingredient. To date, the partnership, called the Novartis Malaria Initiative, has saved an estimated 750,000 lives through the delivery of 300 meg doses of the medication.¹¹

The fundamental issues to consider in a joint venture are ownership, control, length of understanding, pricing, technology transfer, local firm capabilities and resources, and government intentions. Potential bug include (a) conflict over disproportionate new investments, (b) mistrust over proprietary noesis, (c) performance ambivalence, that is, how to "divide the pie," (d) lack of parent house support, (eastward) cultural clashes, and (f) if, how, and when to finish the relationship.

Ultimately, most companies will aim at building their own presence through visitor-owned facilities in of import international markets.Acquisitions or greenfield beginning-ups represent this ultimate commitment. Acquisition is faster, but starting a new, wholly owned subsidiary might be the preferred choice if no suitable acquisition candidates can exist found.

Acquisitions

An acquisition is a transaction in which a firm gains command of another firm by purchasing its stock, exchanging the stock for its own, or, in the case of a individual firm, paying the owners a buy price. In our increasingly flat world, cross-border acquisitions have risen dramatically. In recent years, cross-border acquisitions have fabricated up over 60 percentage of all acquisitions completed worldwide. Acquisitions are appealing because they give the visitor quick, established access to a new market. Even so, they are expensive, which in the past had put them out of attain as a strategy for companies in the undeveloped earth to pursue. What has changed over the years is the strength of different currencies. The higher interest rates in developing nations has strengthened their currencies relative to the dollar or euro. If the acquiring house is in a country with a stiff currency, the conquering is comparatively cheaper to make. As Wharton professor Lawrence G. Hrebiniak explains, "Mergers neglect because people pay too much of a premium. If your currency is strong, y'all can get a bargain."¹²

When deciding whether to pursue an acquisition strategy, firms examine the laws in the target country. Cathay has many restrictions on foreign ownership, for example, but even a developed-world state like the United states has laws addressing acquisitions. For example, you lot must be an American citizen to own a Tv set station in the U.s.. Likewise, a strange firm is non allowed to ain more than 25 percent of a U.s.a. airline.¹³

Acquisition is a good entry strategy to choose when scale is needed, which is peculiarly the case in sure industries (e.g., wireless telecommunications). Acquisition is besides a adept strategy when an industry is consolidating. Yet, acquisitions are risky. Many studies have shown that betwixt 40 percent and 60 percent of all acquisitions neglect to increment the market value of the caused company by more than the amount invested.^xiv

Strange Directly Investment and Subsidiaries

Many of the approaches to global expansion that we've discussed so far let companies to participate in international markets without investing in foreign plants and facilities. As markets expand, withal, a firm might make up one's mind to enhance its competitive reward by making a straight investment in operations conducted in some other country.

As well known every bit foreign direct investment (FDI), acquisitions and greenfield kickoff-ups involve the direct ownership of facilities in the target state and, therefore, the transfer of resources including capital, applied science, and personnel. Direct ownership provides a high caste of command in the operations and the ability to better know the consumers and competitive environment. All the same, information technology requires a high level of resources and a high degree of delivery.

Foreign direct investment refers to the formal institution of business concern operations on strange soil—the building of factories, sales offices, and distribution networks to serve local markets in a nation other than the visitor's home land. On the other hand offshoring occurs when the facilities set up up in the foreign state replace U.South. manufacturing facilities and are used to produce goods that will be sent back to the United States for auction. Shifting product to low-wage countries is ofttimes criticized as it results in the loss of jobs for U.South. workers.[7]

FDI is by and large the most expensive commitment that a firm can make to an overseas market, and it's typically driven by the size and attractiveness of the target market. For example, German and Japanese automakers, such as BMW, Mercedes, Toyota, and Honda, have made serious commitments to the U.S. marketplace: nigh of the cars and trucks that they build in plants in the South and Midwest are destined for sale in the United States.

A mutual form of FDI is the foreign subsidiary: an independent company owned by a foreign firm (called theparent). This approach to going international not just gives the parent company full access to local markets only also exempts it from whatever laws or regulations that may hamper the activities of foreign firms. The parent visitor has tight control over the operations of a subsidiary, merely while senior managers from the parent company oftentimes oversee operations, many managers and employees are citizens of the host country. Not surprisingly, most very large firms have foreign subsidiaries. IBM and Coca-Cola, for example, have both had success in the Japanese marketplace through their foreign subsidiaries (IBM-Japan and Coca-Cola–Japan). FDI goes in the other direction, too, and many companies operating in the United States are in fact subsidiaries of foreign firms. Gerber Products, for example, is a subsidiary of the Swiss company Novartis, while Terminate & Store and Giant Food Stores vest to the Dutch company Royal Ahold.

Where does most FDI capital end upward? Figure 7.3 "Where FDI Goes" provides an overview of amounts, destinations (developed or developing countries), and trends.

Figure 7.3 Where FDI Goes

All these strategies have been successful in the arena of global business organisation. But success in international concern involves more than but finding the all-time way to attain international markets. Doing global business is a complex, risky try. As many companies have learned the hard way, people and organizations don't do things the same way abroad as they practise at home. What differences make global business concern so catchy? That's the question that we'll turn to next.

Wholly Endemic Subsidiaries

Firms may want to have a direct operating presence in the foreign country, completely under their control. To reach this, the visitor can establish a new, wholly owned subsidiary (i.e., a greenfield venture) from scratch, or it tin buy an existing company in that land. Some companies purchase their resellers or early partners (equally Vitrac Egypt did when it bought out the shares that its partner, Vitrac, endemic in the equity joint venture). Other companies may buy a local supplier for direct control of the supply. This is known as vertical integration.

Establishing or purchasing a wholly owned subsidiary requires the highest commitment on the part of the international firm, because the firm must assume all of the risk—financial, currency, economic, and political.

The procedure of establishing of a new, wholly endemic subsidiary is oft complex and potentially plush, simply it affords the business firm maximum control and has the almost potential to provide above-boilerplate returns. The costs and risks are high given the costs of establishing a new business operation in a new country. The house may have to acquire the knowledge and expertise of the existing market by hiring either host-state nationals—possibly from competitive firms—or costly consultants. An advantage is that the firm retains control of all its operations.

Did Yous Know: McDonald's International

McDonald's has a plant in Italy that supplies all the buns for McDonald's restaurants in Italy, Greece, and Malta. International sales has accounted for as much as sixty percent of McDonald's annual revenue.¹⁵

Cautions When Purchasing an Existing Strange Enterprise

As we've seen, some companies opt to buy an existing company in the strange state outright as a way to get into a foreign market quickly. When making an acquisition, due diligence is important—not only on the financial side only also on the side of the land's civilization and business organization practices. The almanac disposable income in Russia, for example, exceeds that of all the other BRIC countries (i.e., Brazil, India, and Cathay). For many major companies, Russia is too big and too rich to ignore as a marketplace. Notwithstanding, Russia besides has a reputation for abuse and red tape that even its highest-ranking officials admit. In aBusinessWeek commodity, presidential economical advisor Arkady Dvorkovich (whose office in the Kremlin was once occupied by Soviet leader Leonid Brezhnev), for example, advises, "Investors should choose wisely" which regions of Russia they locate their concern in, alarm that some areas are more than corrupt than others. Abuse makes the earth less flat precisely considering it undermines the viability of legal vehicles, such as licensing, which otherwise lead to a flatter earth.

The civilisation of corruption is fifty-fifty embedded into some Russian company structures. In the 1990s, laws inadvertently encouraged Russian firms to establish legal headquarters in offshore tax havens, like Cyprus. A revenue enhancement haven is a country that has very advantageous (low) corporate income taxes.

Businesses registered in these offshore tax havens to avoid certain Russian taxes. Even though companies could obtain a refund on these taxes from the Russian government, "the procedure is and then complicated y'all never actually become a refund," said Andrey Pozdnyakov, cofounder of Siberian-based Elecard, in the sameBusinessWeek article.

This offshore registration, unfortunately, is a danger sign to potential investors like Intel. "We can't invest in companies that have even a slight shadow," said Intel'southward Moscow-based regional director Dmitry Konash about the complex structure predicament. ¹⁶

Did You Know: Business Collaborations in People's republic of china

Some foreign companies believe that owning their own operations in China is an easier choice than having to deal with a Chinese partner. For example, many strange companies nevertheless fear that their Chinese partners volition acquire too much from them and become competitors. However, in most cases, the Chinese partner knows the local culture—both that of the customers and workers—and is better equipped to deal with Chinese bureaucracy and regulations. In improver, fifty-fifty wholly owned subsidiaries can't exist totally independent of Chinese firms, on whom they might have to rely for raw materials and aircraft equally well as maintenance of regime contracts and distribution channels.

Collaborations offer dissimilar kinds of opportunities and challenges than self-handling Chinese operations. For most companies, the local nuances of the Chinese market make some form of collaboration desirable. The companies that opt to self-handle their Chinese operations tend to be very large and/or have a proprietary applied science base, such as high-tech or aerospace companies—for case, Boeing or Microsoft. Even and then, these companies tend to rent senior Chinese managers and consultants to facilitate their market entry and so help manage their expansion. Nevertheless, navigating the local Chinese hierarchy is tough, even for the most-experienced companies.

Let'due south accept a deeper expect at one company's entry path and its wholly endemic subsidiary in China. Embraer is the largest aircraft maker in Brazil and i of the largest in the earth. Embraer chose to enter China as its showtime strange market, using the joint-venture entry mode. In 2003, Embraer and the Aviation Industry Corporation of China jointly started the Harbin Embraer Shipping Industry. A twelvemonth later, Harbin Embraer began manufacturing aircraft.

In 2010, Embraer announced the opening of its first subsidiary in China. The subsidiary, called Embraer China Shipping Technical Services Co. Ltd., will provide logistics and spare-parts sales, likewise equally consulting services regarding technical issues and flight operations, for Embraer aircraft in Red china (both for existing aircraft and those on lodge). Embraer will invest $eighteen one thousand thousand into the subsidiary with a goal of strengthening its local customer support, given the steady growth of its business in China.

Guan Dongyuan, president of Embraer Cathay and CEO of the subsidiary, said the establishment of Embraer China Aircraft Technical Services demonstrates the company'southward "long-term delivery and confidence in the growing Chinese aviation marketplace."¹⁷

Building Long-Term Relationships

Developing a expert relationship with regulators in target countries helps with the long-term entry strategy. Building these relationships may include keeping people in the countries long plenty to grade good ties, since a deal negotiated with one person may fall apart if that person returns too quickly to headquarters.

Did You Know: Guanxi

One of the most important cultural factors in China isguanxi (pronouncedguan shi), which is loosely divers equally a connexion based on reciprocity. Even when simply meeting a new company or potential partner, it's all-time to have an introduction from a mutual business partner, vendor, or supplier—someone the Chinese will respect. China is a relationship-based society. Relationships extend well beyond the personal side and tin can drive business besides. With guanxi, a person invests with relationships much similar i would invest with capital. In a sense, it's alike to the Western phrase "You owe me one."

Guanxi tin potentially exist beneficial or harmful. At its all-time, it can help foster potent, harmonious relationships with corporate and government contacts. At its worst, it can encourage bribery and corruption. Whatever the case, companies without guanxi won't accomplish much in the Chinese market. Many companies address this need by entering into the Chinese market in a collaborative arrangement with a local Chinese company. This entry option has likewise been a useful way to circumvent regulations governing bribery and corruption, but it tin raise ethical questions, particularly for American and Western companies that accept a different cultural perspective on gift giving and blackmail.

Mini Case: Coca-Cola and Illy Caffé^xviii

In March 2008, the Coca-Cola company and Illy Caffé Spa finalized a joint venture and launched a premium set up-to-potable espresso-based java beverage. The articulation venture, Ilko Coffee International, was created to bring 3 set up-to-drink java products—Caffè, an Italian chilled espresso-based coffee; Cappuccino, an intense espresso, blended with milk and nighttime cacao; and Latte Macchiato, a polish espresso, swirled with milk—to consumers in ten European countries. The products will be available in stylish, premium cans (150 ml for Caffè and 200 ml for the milk variants). All three offerings will be available in 10 European Coca-Cola Hellenic markets including Austria, Croatia, Hellenic republic, and Ukraine. Additional countries in Europe, Asia, North America, Eurasia, and the Pacific were slated for expansion into 2009.

The Coca-Cola Company is the earth's largest drink company. Along with Coca-Cola, recognized every bit the world's nigh valuable brand, the company markets four of the world'due south top v nonalcoholic sparkling brands, including Diet Coke, Fanta, Sprite, and a wide range of other beverages, including diet and light beverages, waters, juices and juice drinks, teas, coffees, and energy and sports drinks. Through the globe's largest drink distribution system, consumers in more 200 countries enjoy the visitor'south beverages at a rate of 1.5 billion servings each day.

Based in Trieste, Italia, Illy Caffé produces and markets a unique alloy of espresso coffee under a unmarried brand leader in quality. Over 6 million cups of Illy espresso java are enjoyed every day. Illy is sold in over 140 countries effectually the world and is bachelor in more than than 50,000 of the best restaurants and coffee bars. Illy buys green coffee direct from the growers of the highest quality Arabica through partnerships based on the mutual creation of value. The Trieste-based company fosters long-term collaborations with the world's all-time coffee growers—in Brazil, Central America, India, and Africa—providing know-how and applied science and offer higher up-market place prices.

In summary, when deciding which mode of entry to cull, companies should ask themselves two key questions:

How much of our resources are we willing to commit? The fewer the resource (i.east., money, time, and expertise) the company wants (or tin can afford) to devote, the better it is for the company to enter the strange market on a contractual basis—through licensing, franchising, management contracts, or turnkey projects.
How much control do we wish to retain? The more command a visitor wants, the better off it is establishing or buying a wholly owned subsidiary or, at least, inbound via a joint venture with carefully delineated responsibilities and accountabilities between the partner companies.

Regardless of which entry strategy a company chooses, several factors are always important.

Cultural and linguistic differences. These touch on all relationships and interactions inside the company, with customers, and with the government. Agreement the local business organisation civilization is disquisitional to success.
Quality and training of local contacts and/or employees. Evaluating skill sets and so determining if the local staff is qualified is a primal gene for success.
Political and economic issues. Policy can change frequently, and companies need to determine what level of investment they're willing to make, what'southward required to make this investment, and how much of their earnings they tin can repatriate.
Feel of the partner visitor. Assessing the feel of the partner company in the market—with the product and in dealing with foreign companies—is essential in selecting the correct local partner.

Companies seeking to enter a strange market need to practice the post-obit:

Research the foreign market thoroughly and larn about the country and its civilisation.
Understand the unique business and regulatory relationships that touch on their industry.
Use the Net to identify and communicate with advisable foreign merchandise corporations in the land or with their own regime'south embassy in that country. Each embassy has its ain merchandise and commercial desk. For example, the US Diplomatic mission has a strange commercial desk with officers who aid The states companies on how all-time to enter the local market. These resources are best for smaller companies. Larger companies, with more money and resources, usually hire top consultants to exercise this for them. They're also able to have a dedicated team assigned to the foreign country that can travel the state ofttimes for the later-phase entry strategies that involve investment.

Once a company has decided to enter the foreign market, it needs to spend some fourth dimension learning well-nigh the local business civilisation and how to operate within it.

Entrepreneurship and Strategy

The Chinese have a "Why not me?" mental attitude. As Edward Tse, writer ofThe China Strategy: Harnessing the Power of the World'southward Fastest-Growing Economy, explains, this means that "in all corners of Mainland china, there volition be people asking, 'If Li Ka-shing [the chairman of Cheung Kong Holdings] tin be so wealthy, if Pecker Gates or Warren Buffett can exist so successful, why not me?' This cuts across China'due south demographic profiles: from people in big cities to people in smaller cities or rural areas, from older to younger people. There is a huge dynamism among them."^nineteen Tse sees entrepreneurial China as "entrepreneurial people at the grassroots level who are very independent-minded. They're very quick on their feet. They're prone to fearless experimentation: imitating other companies here and in that location, trying new ideas, and then, if they neglect, rapidly adapting and moving on." As a consequence, he sees China becoming non only a very large consumer market but also a strong innovator. Therefore, he advises US firms to enter China sooner rather than after and then that they can have advantage of the opportunities there. Tse says, "Companies are coming to realize that they need to integrate more than and more of their value chains into China and India. They need to be close to these markets, considering of their size. They need the power to empathise the needs of their customers in emerging markets, and turn them into production and service offerings quickly."²⁰

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