G L O B A L M A R K E T E N TCHAPTER

RY
MODES 6
LEARNING OBJECTIVE
Know about target market selection.
Choosing the mode of entry-decision criteria.
Exporting.
Licensing.
Franchising.
Contract manufacturing.
Joint venture.
TARGET MARKET
SELECTION
A crucial step in developing a global expansion strategy is
the selection of potential target markets.
Companies adopt many different approaches to pick
target markets.
 FOUR STEP PROCEDURE THAT A FIRM CAN
EMPLOY FOR THE INITIAL SCREENING
PROCESS
1. Indicator selection and data collection :
company needs to identify a set of socioeconomic and political indicators it
believes are critical.
2. Determine the importance of country indicators :
to determine the importance weights of each of the different country
indicators identified in the previous step.
3. Rate the countries in the pool on each indicators :
each country in the pool is assigned a score on each of the indicators.
4. Compute overall score for each country :
to derive an overall score for each prospect country.
DECISION CRITERIA TO CHOOSING
THE MODE OF ENTRY
Several decision criteria will influence the choice of entry mode.
Major external criteria in • Major internal criteria in
choosing mode of entry : choosing mode of entry :
Market size and growth.
Risk.
• Company objectives.
Government regulation. • Need for control.
Competitive environment. • Internal resources, asset
Cultural distance. and capabilities.
Local infrastructure. • Flexibility.
EXPORTING
Exporting is very often the sole alternative for selling their
goods in foreign markets.
Companies that plan to engage in exporting have a choice
between three broad options :
Indirect exporting.
Cooperative exporting.
Direct exporting.
INDIRECT EXPORTING
means that the firm uses a middleman based in its
home market to handle the exporting.
Indirect exporting happens when the firm decides to
sell its products in the foreign market through
independent intermediaries.
COOPERATIVE EXPORTING
The firm enters into an agreement with another company
(local or foreign) where the partner will use its
distribution network to sell the exporter’s goods.
Companies that are unwilling to commit the resources to
set up their own distribution organization but still want to
have some control over their foreign operations should
consider cooperative exporting.
DIRECT EXPORTING
The company sets up its own export organization and
relies on a middleman based in a foreign market (e.g., a
foreign distributor).
Under direct exporting, the firm sets up its own exporting
department and sells its products via a middleman located
in the foreign market.
LICENSING
Is a contractual transaction where the firm (licensor) offers some proprietary
assets to a foreign company (licensee) in exchange for royalty fees.
For example: Tokyo Disneyland

TYPES OF LICENSING
•Patent licensing
•Trademark licensing
•Copyright licensing
•Trade secret licensing
PATENT LICENSING
Patent licensing agreements are the documents through which a patent
owner allows someone else to use their patent. 
In practice, patent owners choose to license their patents so that they can
have it manufactured and distributed widely. The individuals and businesses
that create patentable material (like new inventions) aren’t usually the same
parties that can easily manufacture and distribute it. It’s easier to allow
someone else to handle the business side of the patent while continuing to
earn royalty payments.
These are generally the most complex types of license agreements because
of everything involved in obtaining and maintaining a patent.
TRADEMARK LICENSING
Trademarks are signifiers of commercial source, namely, brand
names and logos or slogans. Trademark licensing agreements
allow trademark owners to let others use their IP (Intellectual
property).
Most often, trademark owners license their trademarks for
commercial goods, like clothing, iPhone cases, or food products.

https://pintas-ip.com/trademark-application-for-daging-
harimau-menangis/
COPYRIGHT LICENSING
Copyright is the artwork of the IP world. Copyrights exist in, for
example, works of visual art, like paintings, or movies, or songs.
Copyrights also exist in characters, like Mickey Mouse.
Copyright licensing agreements are often used for consumer goods,
just like trademark licenses. They are also used for distributorships,
such as with musical works or movies.
https://www.thestar.com.my/news/nation/2011/08/26/fined-for-
having-upin--ipin-tees
 TRADE SECRET LICENSING
Trade secrets are unique, in that they are not registered with the government.
Patents, trademarks, and copyrights are most valuable when they have been
registered with the federal government. Trade secrets are protected only
through their secrecy. 
Two of the most famous examples of trade secrets are the formulas for Coca-
Cola and the recipe for KFC chicken.
Trade secret licensing agreements often come with non-disclosure agreements
(or NDAs). NDAs state that the party receiving certain confidential
information cannot share it with anyone. 
DISADVANTAGES OF
LICENSING
Lack of control.
Potential opportunity cost.
Need for quality control.
Risk of creating competitors.
Limits market development.
FRANCHISING
It is an arrangement whereby the franchisor gives the franchisee
the right to use the franchisor’s trade names, trademarks, business
model in a given specific time period.
Companies can capitalize on a winning business formula by
expanding overseas with a minimum of investment.
For example: KFC, MCD
 CONTRACT
TheMANUFACTURING
company arranges with a local firm to manufacture or assemble parts of
the product or even the entire product.
The marketing of the products is still the responsibility of the international
firm.
Cost savings is the prime motivation behind contract manufacturing.
Significant cost savings can be achieved for labor-intensive production
processes by sourcing the product in a low-wage country.
Can save cost because taxation benefits, lower energy costs, raw materials
costs or overhead.

https://www.nationthailand.com/international/30289734
 JOINT VENTURES
With a joint venture, the foreign company agrees to share equity
and other resources with other partners to establish a new entity in
the host country.
The partners typically are local companies, but they can also be
local government authorities, other foreign companies, or a
mixture of local and foreign players.
https://www.theedgemarkets.com/article/touch-n-go-mobile-
wallet-venture-ant-financial
1) COOPERATIVE JOINT
VENTURE
is an agreement for the partners to collaborate but does not
involve any equity investments.
one partner might contribute manufacturing technology whereas
the other partner provides access to distribution channels.
quite common for partnerships between well-heeled
multinational companies and local players in emerging markets.
2) EQUITY JOINT
VENTURE
it an arrangement in which the partners agree to raise
capital in proportion to the equity stakes agreed upon.
DRIVER BEHIND SUCCESSFUL
INTERNATIONAL JOINT VENTURE (1)
Pick the right partner
most joint venture marriages prosper by choosing a suitable partner.
MNC (multinational company) should invest the time in identifying
proper candidates.
Establish clear objectives for the joint venture from
beginning
it is important to clearly spell out the objectives of the joint venture from
day one
partners should know what their respective contributions and
responsibility
DRIVER BEHIND SUCCESSFUL
INTERNATIONAL JOINT VENTURE (2)

Bridge cultural gaps

many join venture disputes stem from cultural differences between local
and foreign partners.
Much agony can be avoided when foreign investor bridge cultural
differences.
Top management commitment and respect
short of a strong commitment from the parent companies’ top
management, most international joint ventures are doomed to become a
failure.
 WHOLLY OWNED
SUBSIDIARIES
A wholly owned subsidiary is a company whose common stock is 100%
owned by a parent company.
Having a wholly owned subsidiary may help the parent company maintain
operations in diverse geographic areas and markets or separate industries
Wholly owned subsidiaries allow the parent company to diversify,
manage and possibly reduce its risk.
In general, wholly owned subsidiaries retain legal control over operations,
products, and processes.
 STRATEGIC ALLIANCES
A strategic alliance is an arrangement between two companies to undertake a mutually
beneficial project while each retains its independence. The agreement is less complex
and less binding than a joint venture, in which two businesses pool resources to create a
separate business entity.
Each alliance is a joint venture where two or more entities work together to achieve a
shared goal while remaining separate and independent.
•A strategic alliance is an arrangement between two companies that have decided to
share resources to undertake a specific, mutually beneficial project.
•A strategic alliance agreement could help a company develop a more effective process.
•Strategic alliances allow two organizations, individuals or other entities to work toward
common or correlating goals.
TYPES OF STRATEGIC
ALLIANCE
Joint venture
Equity strategic alliance
Non-equity strategic alliance
• Joint venture
• A joint venture is a child company of two parent companies. It’s maintained by sharing resources and equity
with a binding agreement. Whether it’s formed for a specific purpose or an ongoing strategy, a joint venture
has a clear objective, and profits are split between the two companies.
• Equity strategic alliance
• An equity strategic alliance occurs when one company purchases equity in another business (partial
acquisition), or each business purchases equity in each other (cross-equity transactions).
• An example of an equity strategic alliance is Tesla’s relationship with Panasonic. Their relationship began
with a $30 million investment from Panasonic to accelerate battery technology for electric vehicles and grew
to include building a lithium-ion battery plant in Nevada.
• Non-equity strategic alliance
• In a non-equity strategic alliance, organizations create an agreement to share resources without creating a
separate entity or sharing equity. Non-equity alliances are often more loose and informal than a partnership
involving equity. These make up the vast majority of business alliances.
• Taking equity-sharing out of the equation can be a strategic advantage in research and development,
production, and sales and marketing. In the previously mentioned example of Galvani Bioelectronics, there
are many non-equity strategic alliances that have grown out of the original joint venture through Project
Baseline. This is a connected ecosystem of organizations all working together to create “a more
comprehensive, precise map of human health.”
ADVANTAGES OF STRATEGIC
ALLIANCE
Sharing resources and expertise.
New-market penetration.
Expanded production.
Drive innovation.
• Sharing resources and expertise :
• A strategic alliance should combine
the best both companies have to
offer. This can be a deeper
understanding of the product, sales,
or marketing knowledge, or even
just more hands on deck to increase
speed to market.
• New-market penetration :
• In some cases, a strategic alliance
gives access to new markets with a
solution that wouldn’t have been
possible for either company on their
own. For instance, companies going
global often work with a trusted
local partner to get an advantage in
an emerging market.
• Expanded production :
• When it comes to manufacturing and
distributing products, strategic alliances
allow partners to increase their
capabilities and scale quickly to meet
demand.
• Drive innovation :
• With the right alliance, partners can
outpace the competition with new
solutions that are a complete package
for their customers. These alliances are
creative and revolutionary and change
the market landscape in a dramatic way.