CHAPTER 8

In depth with entry modes

Learning outcomes
In Chapter 8, we discuss:
● indirect exporting using independent organizations: types of organizations and
evaluation of advantages and disadvantages
— home-country-based merchants (take title)
— home-country-based agents (do not take title)
— cooperative organizations
● direct export by company to overseas buyer: types of organizations and
evaluation of advantages and disadvantages
— home-country-based departments
— foreign sales branch or subsidiary; traveling salespersons
— foreign-based distributors and agents/representatives
● relations with, and agreements with, foreign-based distributors and agents
● the importance of the Internet and e-commerce as entry modes
● gray market exporting
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Four cases are presented at the end of the chapter. Case 8.1, Sinova Management Con-
sultancy Ltd., provides services to companies in Europe and elsewhere interested in doing
business in China. In Case 8.2, the owner of Quint Winery in Germany is considering the pos-
sibility of exporting to Japan. Case 8.3 is about Nestlé’s expanding e-commerce initiatives
to improve its global management of e-procurement, supply chain management, customer
relationships, and financials. Case 8.4, Urban Outfitters, discusses the export expansion into
Europe by a retailing firm.

Introduction

Several entry modes available to the export marketer were identified and categorized in
Chapter 7 as indirect or direct. These two basic forms of exporting are distinguished on
the basis of how the exporting firm carries out the transactions flow between itself and the
importer or foreign buyer. In this chapter we discuss these entry modes in detail.

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Albaum, G., Duerr, E., & Josiassen, A. (2016). International marketing and export management. Retrieved from http://ebookcentral.proquest.com
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 Chapter 8  In depth with entry modes

The decision between the two forms involves determining the level of vertical control
desired by the exporter, and this involves considering two types of costs: (1) the costs of
actually performing necessary functions and (2) transaction costs that arise in the organi-
zation of an activity or of contracting with other parties.
As an illustration of the two approaches, Figure 8.1 outlines both indirect and direct
export by a manufacturer of consumer goods, and Figure 8.2 shows a broader view of the
paths that export can take. Exhibit 8.1 provides an interesting example (from Germany) that
may be a model for similar companies elsewhere to follow. In Japan, for instance, the small
and medium-sized companies represented 99.7% of companies in 2008 (The ­Economist,
2008). These companies tend to specialize in fields such as electronics ­manufacturing,
precision engineering, and fine chemicals. Unlike Germany, however, Japan’s Mittelstand
is becoming the exception rather than the rule, due in part to world economic conditions
during the past few years.

Foreign
manufacturer

Exporter

Import

Importer
manufacturer,
wholesaler
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Retailers

Consumer

Large consumer

Figure 8.1  Indirect and direct export of consumer goods

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Albaum, G., Duerr, E., & Josiassen, A. (2016). International marketing and export management. Retrieved from http://ebookcentral.proquest.com
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 Introduction

COUNTRY A Border COUNTRY X

Area

Export Import Direct Export

Merchant Merchant Indirect Export

Manufacturer Buyer X
A

Export Import
Agent Agent

Sales
Subsidiary

Figure 8.2  Direct and indirect exporting

Exhibit 8.1  Germany’s export champions

Although Germany is now the second largest exporter in the world, having been replaced by
China, its exporting prowess remains undimmed (The Economist, 2010a). In order to get a
good look at one aspect of Germany’s export strengths, one does not have to go any farther
Copyright © 2016. Pearson Education Limited. All rights reserved.

than the Glasbau Hahn factory on the outskirts of Frankfurt. Glasbau Hahn is the top of the
line of glass showcases. Its products protect the world’s most valuable art objects. Cus-
tomers such as New York’s Metropolitan Museum of Art and London’s British Museum have
paid up to US$100,000 apiece for custom-built wall-size showcases from Hahn, complete
with heat-free, fiber-optic lighting and precision climate control.
Founded in 1836 and with affiliates in 30 countries, Hahn is an example of the Mittelstand
(midranking) company in Germany. These are small and medium-sized companies. Although
large companies such as Volkswagen and Siemens are best known abroad, it is these
smaller ones with less than 500 employees or with a turnover between e25 million and more
than e1 billion that produce a large percentage of Germany’s business turnover, train more
than half of all apprentices, employ a large share of the workers in the private sector and
generate a significant amount of German exports. They make everything from motors and
machine tools to such consumer goods as camping equipment and high-fashion garments.
Many specialize in making complex and valuable equipment for factories, such as cigarette
rolling machines or printing presses. Doing this has helped these companies dominate their
niches, with global market shares as high as 90%. Concentrating on such products, how-
ever, makes these companies vulnerable to deteriorating economies as orders for them tend ➨
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Albaum, G., Duerr, E., & Josiassen, A. (2016). International marketing and export management. Retrieved from http://ebookcentral.proquest.com
Created from hud on 2020-03-10 03:29:02.