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Transcript
Svend Hollensen GLOBAL MARKETING 4th Edition Lecture by Ewa Baranowska-Prokop, Ph.D. Hierarchical modes and international sourcing decisions Learning objectives (1) Describe the main hierarchical modes Compare and contrast the two investment alternatives: acquisition versus greenfield Explain the different determinants that influence the decision to withdraw investments from a foreign market Hollensen, Global Marketing 4e, © Pearson Education 2008 What is this? The entry modes by which the firm completely owns and controls the foreign entry mode are called ______. Hierarchical modes Hollensen, Global Marketing 4e, © Pearson Education 2008 Hierarchical modes Domestic-based representatives Resident sales representatives Foreign sales subsidiary Sales and production subsidiary Region centres Hollensen, Global Marketing 4e, © Pearson Education 2008 12-4 What is this? What type of sales representative resides in the home country of the manufacturer and travels abroad to perform the sales function? Domestic-based sales representative Hollensen, Global Marketing 4e, © Pearson Education 2008 12-5 Figure 12.1 Domestic-based sales representatives/ manufacturer’s own sales force Hollensen, Global Marketing 4e, © Pearson Education 2008 12-6 Figure 12.1 Resident sales representatives/ sales subsidiary Hollensen, Global Marketing 4e, © Pearson Education 2008 12-7 What is this? What term is used to refer to a local company owned and operated by a foreign company under the laws and taxation of the host country? Subsidiary Hollensen, Global Marketing 4e, © Pearson Education 2008 12-8 Figure 12.1 Sales and production subsidiary Hollensen, Global Marketing 4e, © Pearson Education 2008 12-9 Reasons for establishing local production facilities To defend existing business To gain new business To save costs To avoid government restrictions Hollensen, Global Marketing 4e, © Pearson Education 2008 12-10 Figure 12.1 Region centre Hollensen, Global Marketing 4e, © Pearson Education 2008 12-11 Roles of regional headquarters Coordination role is to ensure that country and business strategies are mutually coherent One subsidiary does not harm another Synergies are identified and exploited Stimulator role is to facilitate the translation of global products into local country strategies the development of local subsidiaries Hollensen, Global Marketing 4e, © Pearson Education 2008 12-12 Figure 12.3 The lead country concept Hollensen, Global Marketing 4e, © Pearson Education 2008 12-13 What is this? What term is used to refer to an organization which has integrated and coordinated its operations across national boundaries in order to achieve synergies on a global scale? Transnational organization Hollensen, Global Marketing 4e, © Pearson Education 2008 12-14 Methods of establishing a wholly-owned subsidiary Acquisition Greenfield investment Hollensen, Global Marketing 4e, © Pearson Education 2008 12-15 Site selection criteria (1) Corporate tax advantages Investment incentives Investment climate Company law Operational costs Workforce considerations Quality of living Hollensen, Global Marketing 4e, © Pearson Education 2008 12-16 Site selection criteria (2) Infrastructure in place Business services available Sufficient office space Presence of other companies Hollensen, Global Marketing 4e, © Pearson Education 2008 12-17 Strategic motives driving the location decision Mergers and acquisitions Internationalization of leadership and ownership Strategic renewal Hollensen, Global Marketing 4e, © Pearson Education 2008 12-18 Summary of domestic-based sales representatives Advantages Better control of sales Close contact with customers Disadvantages High travel expenses Too expensive for markets far from home Hollensen, Global Marketing 4e, © Pearson Education 2008 12-19 Summary of foreign sales, sales and production subsidiary Advantages Full control of operation Market access Market knowledge Reduced transport costs Access to raw materials Disadvantages High initial capital investment Loss of flexibility High risk Taxation problems Hollensen, Global Marketing 4e, © Pearson Education 2008 12-20 Summary of region centres Advantages Synergies on regional/global scale Scale efficiency Ability to leverage learning on crossnational scale Disadvantages Potential for increased bureaucracy Limited national level responsiveness Missing communication between head office and centre Hollensen, Global Marketing 4e, © Pearson Education 2008 12-21 Summary of acquisition Advantages Quick access to Distribution channels Labour force Management experience Local knowledge Local contacts Established brand names Disadvantages Expensive option High risk Integration concerns Hollensen, Global Marketing 4e, © Pearson Education 2008 12-22 Summary of greenfield investment Advantages Optimum format possible Optimum technology possible Disadvantages High investment cost Slow entry of new markets Hollensen, Global Marketing 4e, © Pearson Education 2008 12-23 For discussion (1) Is the establishment of wholly-owned subsidiaries abroad an appropriate international market development mode for SMEs? Why is acquisition often the preferred way to establish wholly-owned operations abroad? What are limitations of acquisition as an entry method? What are the key problems associated with profit repatriation from subsidiaries? Hollensen, Global Marketing 4e, © Pearson Education 2008 12-24 Subcontractors A person or firm that agrees to provide semi-finished products or services needed by another party to perform another contract to which the subcontractor is not a party Subcontractors differ from other SMEs in that Products are usually part of the end product, but not the complete product They do not have contact with end customers Hollensen, Global Marketing 4e, © Pearson Education 2008 13-25 Figure 13.1 Subcontractor’s position in the vertical chain Markets for end products Customers End products Main contractors Components Sub-contractors Refined materials Material suppliers Raw materials Source: Source: adapted from Lehtinen, 1991, p. 22. Hollensen, Global Marketing 4e, © Pearson Education 2008 13-26 What is this? An original equipment manufacturer (OEM) is the _____ of a _____. Customer of a subsupplier Hollensen, Global Marketing 4e, © Pearson Education 2008 13-27 Reasons for international sourcing Concentration on inhouse core competences Lower product/production costs General cost efficiency Increased potential for innovation Fluctuating demand Hollensen, Global Marketing 4e, © Pearson Education 2008 13-28 Figure 13.4 Typology of subcontracting Partnershipbased subcontracting Strategic development subcontracting High Expanded subcontracting Degree of Coordination Simple subcontracting Low Standard subcontracting Low Source:Source: adapted from Blenker and Christensen, 1994. Task Complexity Hollensen, Global Marketing 4e, © Pearson Education 2008 High 13-29 Organizational dimensions which influence the relationship between buyer and seller Characteristics of each firm’s technology Complexity of products sold Relationship characteristics Hollensen, Global Marketing 4e, © Pearson Education 2008 13-30 Relationship development phases Awareness Exploration Expansion Commitment Dissolution Hollensen, Global Marketing 4e, © Pearson Education 2008 13-31 Figure 13.7 The five-phase relationship model Hollensen, Global Marketing 4e, © Pearson Education 2008 13-32 Causes of Dissolution Operational and cultural differences Incompatibility among other employees Lack of capacity among other employees Opposition from people in power below CEOs Termination of personal relations Hollensen, Global Marketing 4e, © Pearson Education 2008 13-33 What is this? What term is used to describe action on the part of the buyer to search for a supplier that is able to fulfill his or her needs? Reverse marketing Hollensen, Global Marketing 4e, © Pearson Education 2008 13-34 Changes in the purchasing function Reduction in the number of subcontractors Shorter product life cycles Upgraded demands on subcontractors Purchase that no longer just serves the purpose of getting lower prices Hollensen, Global Marketing 4e, © Pearson Education 2008 13-35 Routes of internationalization Route 1: Follow domestic customers Route 2: Internationalization through supply chain of MNC Route 3: Internationalization in cooperation with domestic or foreign suppliers Route 4: Independent internationalization Hollensen, Global Marketing 4e, © Pearson Education 2008 13-36 Mazda splits its seat purchases between Delta Kogyo and Toyo Seat Company Source: http://www.deltakogyo.co.jp/english/index.html Hollensen, Global Marketing 4e, © Pearson Education 2008 13-37 What is this? What term refers to the complex international activity involving supplies or deliveries that contain a combination of hardware and software, which upon delivery, will constitute an integrated system that is able to produce the products the buyer requires? Project export Hollensen, Global Marketing 4e, © Pearson Education 2008 13-38 Software in project exports Software includes know-how and service. Three types of know-how: Technology Project Management Hollensen, Global Marketing 4e, © Pearson Education 2008 13-39 Possible buyers in project exports Multilateral organizations Bilateral organizations Government institutions Private persons or firms Hollensen, Global Marketing 4e, © Pearson Education 2008 13-40 Buyer-seller relationships, contractor perspective Advantages Flexibility Cheaper sources Focus on in-house competences Complement to product range New ideas for product innovation Disadvantages Questionable availability of suitable subcontractors Less stable than in-house production Less control Potential to prepare competition Quality concerns Hollensen, Global Marketing 4e, © Pearson Education 2008 13-41 Buyer-seller relationships, subcontractor perspective Advantages Access to new export markets Exploit economies of scale Learn product technology Learn marketing practices Disadvantages Risk of dependence on contractor Hollensen, Global Marketing 4e, © Pearson Education 2008 13-42 Eaton: A case study What are Eaton’s key challenges in establishing long-term relationships with its new global OEM-customers? Why is the fast-changing marketing environment so crucial to Eaton’s international marketing plan? What makes Eaton’s channel management challenging? Why does the company continue to sell through multiple global channels? Requires web access Hollensen, Global Marketing 4e, © Pearson Education 2008 13-43 For discussion (1) What are the reasons for the increasing level of outsourcing to international subcontractors? Explain the shift from seller to buyer initiative in subcontracting. Hollensen, Global Marketing 4e, © Pearson Education 2008 13-44 For discussion (2) Explain the main differences between the US and the Japanese subsupplier systems. How are project exports/turnkey projects different from general subcontracting in the industrial market? Project export is often characterized by a complex and time-consuming decision-making process. What are the marketing implications of this for the potential sub-contractor? Hollensen, Global Marketing 4e, © Pearson Education 2008 13-45