This lecture reviews options for international entry strategy. Common entry modes such as exporting, licensing, franchising, etc. are reviewed. We discuss in depth the pitfalls of exporting, and highlight important tools such as a letter of credit and bank intermediaries in foreign trade. We conclude the lecture with a review of foreign direct investment (FDI) and the pros and cons of such an approach.

1. Lecture 9
International Entry Strategy
Lecturer: Dr. Preston Teeter
BUSS 2067
International Business Environment

2. Before we start:
1) Phones/electronics silent, off, and away!
2) Say hello to the people around you;
you need a small group to discuss
questions
BUSS 2067
International Business Environment

3. Outline
• Lecture 8 quiz
• Foreign market entry modes
• The pitfalls of exporting
• Foreign direct investment (FDI)

4. LECTURE 8 QUIZ

5. Question 1
True or False:
Local responsiveness refers to when companies
respond to specific conditions in local markets,
as they manage diverse opportunities and risks
on a country-by-country basis.

6. Question 2
True or False:
Circa 2011, BBC Worldwide encountered
problems because they were not meeting the
individual, local needs of different markets.

7. Question 3
Which of the following best describes a multi-
domestic strategy?
A. The firm develops subsidiaries or affiliates in
each foreign market.
B. The firm views international business as separate
from its domestic business.
C. The firm seeks central control over country
operations to minimize redundancy.
D. The firm takes a coordinated approach to be
more responsive to local needs while retaining
sufficient central control.

8. Question 4
Which of the following is the best
organizational structure for a mature, global
company that seeks decentralization?
A. Product structure
B. Functional structure
C. Geographical area structure
D. Export department structure

9. FOREIGN MARKET
ENTRY MODES

10. Entry modes
Consider the case of RCA (Radio Corporation of
America). Founded in 1919, RCA was once the dominant
communications firm in the US. It developed the first
national radio network (NBC) and played a leading role in
the introduction of both black-and-white and color
television. But the 1970s, problems started to arise, and
the company went defunct in the mid 80s.
See video (first 2-3 minutes)
And the following article…

11. Source: http://spectrum.ieee.org/consumer-electronics/audiovideo/how-rca-lost-the-lcd

12. The Nipper Building, Camden, N.J.

13. Source: CQ Press' City Crime Rankings 2014

14. Entry modes
What happened to RCA? Answer the following:
1) What options did RCA have for entering foreign
markets? Which did it choose in this case?
2) Why did it make such a decision? What are the
pros and cons of each entry mode?
3) If you could go back in time, which entry mode
would you recommend for RCA?

15. Entry modes
• Exporting
– Produce in one country,
sell in another
• Turnkey Projects
– Firm sets up operating
plant, hands over “key”
• Licensing
– Grant rights to intangible
property for royalty fee
• Franchising
– Licensing with strict rules
of operation
• Joint Ventures
– Jointly owned firm
• Wholly Owned
Subsidiaries
– Firm owns 100%
(Greenfield and
Acquisition)

21. Source: https://hbr.org/2013/01/burberrys-ceo-on-turning-an-aging-british-icon-into-a-
global-luxury-brand

24. Source: https://hbr.org/2013/01/burberrys-ceo-on-turning-an-aging-british-icon-into-a-
global-luxury-brand

25. THE PITFALLS OF
EXPORTING

26. Exporting
Exporting remains one of the most commonly used
means of entering a foreign market. As opposed to
licensing, exporting allows you to maintain control
over intellectual property, product design, sales, etc.
However, exporting does have its drawbacks and
pitfalls…
See video
And the following articles…

27. Source: http://www.theaustralian.com.au/business/dairy-takes-a-hit-in-chinese-
crackdown/news-story/aa9ae5eae8965f228879e7523751ae50

28. Source: http://en.mercopress.com/2014/04/21/china-s-main-soy-bean-importers-in-
concerted-action-to-bring-prices-down

29. Preference of Exporter
Preference of Importer

30. Exporting
Is there anything that can be done about these issues? Answer
the following:
1) What are the main pitfalls or drawbacks of exporting?
What examples did we just see?
2) What are the solutions? Specifically for the soybean
example?
Please discuss in small groups, or, if online, consult your
textbook and other sources. We will reconvene in 5 minutes to
discuss as a class.

31. Exporting
Drawbacks
• Problems securing
financing
• Foreign exchange risks
• Trade barriers
• Extensive paperwork
and complex
procedures
• Limited learning
opportunities
Pitfalls
• Failure to customize
product offerings
• Poor market analysis
• Poor understanding of
foreign competition
• Lack of distribution
program
• Poorly executed
promotional campaign

32. Export finance
• Letter of Credit (L/C)
– The promise that a foreign importer obtains from its
bank to pay on its behalf
• Draft (Bill of Exchange)
– Order written by exporter instructing importer, or
agent, of payment
• Bill of Lading
– Issued to the exporter by carrier transporting the
merchandise (document of title)

33. Export finance
1. Importer obtains letter of credit from bank
2. Bank presents L/C to exporter
3. Exporter ships product, bill of lading given to
bank
4. Exporter presents draft, bank pays exporter
5. Bank gives product title to importer
6. Importer pays bank

35. Source: https://www.wsj.com/articles/SB10001424052702304447804576414202460491210

36. FOREIGN DIRECT
INVESTMENT (FDI)

37. FDI
Despite possessing one of the world’s largest
populations and economies, India has historically
ranked relatively low on inward FDI. In 2010,
India’s inward FDI was significantly lower than that
in countries such as Poland, Austria, and Ireland.
See video
And the following articles…

38. Source: http://www.business-standard.com/article/economy-policy/apple-asks-india-to-
relax-sourcing-norms-under-single-brand-retail-fdi-policy-114022400970_1.html

39. Source: http://blogs.cfr.org/asia/2014/02/04/a-closer-look-at-fdi-flip-flopping-in-india/
…continued on next slide

40. Source: http://blogs.cfr.org/asia/2014/02/04/a-closer-look-at-fdi-flip-flopping-in-india/

41. FDI
But why would India want to restrict foreign
investment? Answer the following:
1) What are the pros and cons of inward FDI?
2) With such restrictions, why would firms engage
in FDI?
3) Do you think India should make any changes to
its FDI policies?

42. FDI
Pros
• Resource-transfer
• Employment
• Balance-of-payments
• Competition and
growth
Cons
• Sovereignty/Autonomy
• Job transfers/not gains
• Outflow of earnings and
import of supplies
• Unfair competition
What are the host country pros and cons of FDI?

43. Source: CIA World Factbook (2013 figures)
Stock of FDI at home

44. Source: IHME
Gross domestic product (GDP) per capita, 1950-2015

47. Source: http://topforeignstocks.com/2017/06/12/the-worlds-top-100-non-financial-mnes-by-foreign-assets-2016/

48. Source: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2198rank.html
Stock of FDI at home
See video

49. Questions?