“Let Your Mind Start a Journey Through a

Strange New World. Leave All Thoughts Of The World You Knew Before. Let Your Soul Take You, Where You Long To Be Close Your Eyes, Let Your Spirit Start To Soar, And You’ll Live As You’ve Never Live Before”.

PRESENTED BY:SANJAY YADAV

 Growth  Profitability

 Achieving

economies of scale  Risk spread  Access to imported inputs  Uniqueness of product or service  Marketing opportunities due to life cycles  Spreading R & D costs

There are some basic decisions that the firm must take before foreign expansion like:
 which

markets to enter

when to enter those markets

choice is based on nation’s long run profit potential.  Look in detail at economic and political factors which influence foreign markets.  Long run benefits of doing business in a country depend on following factors: Size of market (in terms of demographics)  The present wealth of consumer markets(purchasing power)  Nature of competition
 The

It is important to consider the timing of entry. It is said that..  Entry is early when an international business enters a foreign market before other foreign firms and late when it enters after other international businesses.  The advantage is when firms enters early in the foreign market commonly known as first-mover advantages First mover advantage: It’s the ability to prevent rivals and capture demand by establishing a strong brand name.  Ability to build sales volume in that country. So that they can drive them out of market.  Ability to create customer relationship


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Exporting Licensing Franchising Turnkey Project Acquisitions Amalgamation Merger Takeovers Joint Venture Wholly Owned Subsidiary Strategic Alliances Management Contracts Free Trade Zones

A function of international trade whereby goods produced in
one country are shipped to another country for future sale or trade.

The sale of such goods adds to the producing nation's gross
output. If used for trade, exports are exchanged for other products or services.

Exports are one of the oldest forms of economic transfer,
and occur on a large scale between nations that have fewer restrictions on trade, such as tariffs or subsidies.

 Need
 Less

for limited finance

Risks for exporting

 Motivation

 Indirect
 Direct

exporting

exporting transfers

 Intracorporate

©2004 Prentice Hall

12-11

 In

this mode of entry, the domestic manufacturer

leases the right to use its intellectual property (i.e.) technology, copy rights, brand name etc to a manufacturer in a foreign country for a fee.
 Here

the manufacturer in the domestic country is

called licensor and the manufacturer in the foreign
is called licensee.
 A licensee

ordinarily pays a royalty to the licensor.

 Low
 Low

investment on the part of licensor.
financial risk to the licensor can investigate the foreign market

 Licensor

without much effort on his part.
 Licensee

gets the benefits with less investment on

research and development
 Licensee

escapes himself from the risk of product

failure.

 It

reduces market opportunities for both.  Both parties have to maintain the product quality and promote the product. Therefore one party can affect the other through their improper acts.  Chance for misunderstanding between the parties.  Chance for leakages of the trade secrets of the licensor.  Licensee may develop his reputation.  Licensee may sell the product outside the agreed territory and after the expiry of the contract.

LICENSOR •Leases the right to use its intellectual property •Earns new revenues with relatively low investment

LICENSEE •Uses the intellectual property to create products for local sale •Pays a royalty back to the licensor

Basic Issues: 1. Set the boundaries of the agreement 2. Establish compensation rates 3. Agree on the rights, privileges, and constraints 4. Specify the duration of the agreement

 Is

a means of marketing goods and services in

which the franchiser grants the legal right to use brand name, trademark and products and the method of operation is transferred to third party- “the franchisee” in return of for a franchisee fee.
 Example:

Mc Donalds, Pizza Hut etc.

 Trade

marks System

 Operating  Products

 Continuous

support system like advertising,

employee training, reservation services and
quality assurances program etc.

 Low

investment and low risk  Franchisor can get the information regarding the market culture, customs and environment of the host country.  Franchisor learns more from the experience of the franchisees.  Franchisee gets the benefits of R& D with low cost.  Franchisee escapes from the risk of product failure.

 International

franchising may be more complicated

than domestic franchising.
 It  It

is difficult to control the international franchisee. reduce the market opportunities for both. the parties have the responsibilities to

 Both

maintain product quality and product promotion.
 There

is a problem of leakage of trade secrets.

A turnkey project is a contract under which a firm agrees to fully design , construct and equip a manufacturing/ business /services facility and turn the project over to the purchase when it is ready for operation for a remuneration. The form of remuneration includes.  A fixed price  payment on cost plus basis (i.e., total cost incurred plus profit)  Example : Once Indonesian Govt during 1974 invited global tenders for construction of sugar factory.

 


  

ACQUISITION AMALGAMATION MERGER TAKEOVERS JOINT VENTURES STRATEGIC ALLIANCES

 Acquisition

is acquiring or purchasing an existing venture. It is one of the easy means of expanding a business by entering new markets or new product areas.  An entrepreneur must be careful is structuring the payment so that he would not be financially overburdened.

 Tata

has recently acquired Jaguar, Land Rover and Fiat Motors  Videocon acquired Thomson SA of France at about US $ 290 million.  Ranbaxy Labs at a deal of US $ 324 million acquired Romania based Terapia SA.  Tata Steel acquired UK based Corus Group at a deal value of US $ 12 million.
 Fortis

Healthcare acquired Hong Kong's Quality Healthcare Asia Ltd for around Rs 882 Crore

 The

company immediately gets the ownership and control over the acquired firm’s factories, employee, technology, brand name and distribution networks.  The company can formulate international strategy and generate more revenues.  The method of expansion cost lower than other methods.  The knowledge, skill and expertise of existing employees will prove to be very beneficial to the company.

 Acquiring

a firm in a foreign country is a complex task involving bankers, lawyer’s regulation, mergers and acquisition specialists from the two countries.  This strategy adds no capacity to the industry.  Sometimes host countries impose restrictions on acquisition of local companies by the foreign companies.  Labor problem of the host country’s companies are also transferred to the acquired company

 Removal

of competitor  Reduction of the Company’s failure through spreading risk over a wider range of activities.  The desire to acquire business already trading in certain markets & possessing certain specialist employees & equipments.  Obtaining patents, license & intellectual property.

 Expert

use of resources  Desire to become involved with new technologies & management method particularly in high risk industries.  Economies of scale possibly made through more extensive operations  Acquisition of land, building & other fixed asset that can be profitably sold off.

Amalgamation is a restructuring phenomenon in which two or more companies are liquidated and a new company is formed to acquire business. In simpler terms, it means that a new company is formed that buys the business of minimum two companies.

The new company or the acquiring company is known as the amalgamated company. It acquires the assets and liabilities of the other

companies known as amalgamating company. Commonly, such
companies are also referred as target companies or merging companies.

Amalgamations are considered to be a safe route for sick units who want

to save their existence. Many other companies facing possible bankruptcy
also opt for amalgamations.

Similarly, cash-rich firms that have lot of liquid assets but no profitable business opportunities aim for it as a long-term investment.

The most challenging task in any amalgamation is to create a sense of cooperation among the employees of different amalgamating companies. Ultimately, the success of any venture depends upon people handling it.

 

NOTE: In India, mergers and amalgamations are used interchangeably in legal parlance. However, they are an entirely different accounting treatment. It is a complicated procedure involving lot of legal, tax, and accounting considerations Therefore, one need to be very careful while evaluating an amalgamation proposal.

Tax treatment is an important aspect of amalgamation. According to the Income Tax Act, the amalgamating companies are not liable to pay the capital gain tax levied on them following their liquidation. The incidence of tax falls

on the amalgamated company. Moreover, all expenses related to
amalgamation are not tax-deductible.

Hindalco targeted Canada to acquire Novelis at US $ 5982 million.  Reliance Power and Reliance Natural Resources combined their operations at a deal of US $11 billion.  ICICI Bank acquired Bank of Rajasthan at about Rs 3000 Crore.  Wipro bought US based Info Crossing at US $ 600 million.  GTL Infrastructure acquired Aircel Towers at US $ 1.8 billion.  Source:http://amalgamation.in/amalgamationmeaning.htm

A

merger happens when two firms agree to go forward as a single new company rather than remain separately owned and operated.  This kind of action is more precisely referred to as a "merger of equals". The firms are often of about the same size. Both companies' stocks are surrendered and new company stock is issued in its place.  TYPES OF MERGERS:  Vertical merger  Horizontal merger

Vertical merger involves integration of two companies producing intermediate products for the same finished product. Typically, it involves purchase of business of suppliers or distributors that provide raw materials or semi-finished goods for the production of a single good. The main aim is to shorten the supply chain and increase the profit margins. For instance, a two-wheeler manufacturer can purchase a tire company. Vertical mergers help firms in the same industry to create a monopolistic situation by restricting the supply of inputs to other players, or by providing the inputs at a very high cost. Moreover, it reduces the dependence on suppliers thereby giving more autonomy to the manufacturing firm.

Horizontal merger involves a merger between two firms producing similar goods and services in a market.  For instance, two car manufactures, can merge their business for greater benefits. Presently, most of the countries have open economies. This has led to cutthroat competition among companies for survival in the market.  Horizontal mergers, therefore, is a strategic initiative taken by firms to combine their market share to sustain and grow in the market.  Horizontal mergers help firms grow in size, enjoy economics of scale, and fight competition from other firms.  Such mergers can also be of small companies.

A company takeover generally refers to the purchase of a company, partially or wholly, by another company known as the acquirer.  The main objective of the acquirer is to exercise control over the management of the target company.  Practically, the acquirer struggles to buy approximately 30 percent of the equity held by major shareholders. The remaining equity holders are too small to refute the takeover, and they easily surrender their share. Like other forms of corporate restructuring, takeovers also have pros and cons.  On one hand, they are considered to be positive because they improve the working of management that leads to increasing productivity, profit margins, and ultimately maximizes earnings per share.  On the other hand, it is argued that takeovers lower employees' morale. They refuse to co-operate and accept their new boss.

When two or more firms join together to create a new business entity that is legally separate and distinct from its parents. It involves shared ownership. Various environmental factors like social, technological, economic and political encourage the formation of joint ventures. Joint Ventures are not permanent. Example : Hero Honda:- was an joint venture but due to it’s temporary nature it is no more a joint venture. Now Honda is Honda and Hero is Hero moto corp. Another example is: The most famous joint venture i.e., Wall Mart and The Bharti Group.

 Joint

venture provides large capital funds suitable for major projects.  It spread the risk between or among partners.  It provides skills like technical skills, technology, human skills, expertise, and marketing skills.  It makes large projects and turn key projects feasible and possible.  It synergizes due to combined efforts of varied parties.

 Conflict

may arise  Partner delay the decision making once the dispute arises. Then the operations become unresponsive and inefficient.  Life cycle of a joint venture is hindered by many causes of collapse  Scope for collapse of a joint venture is more due to entry of competitor’s changes in the partners strength  The decision making is slowed down in joint ventures due to the involvement of a number of parties.

Acc to Bronder and Pritzi “strategic alliances in terms of at least two companies combining value chain activities for the purpose of competitive advantage” Examples are:  Technology swaps  R & D exchanges  Distribution relationship  Marketing relationship  Manufacture- supplier relationship  Cross-licensing

Benefits Control

Independence of Participants

Technology Products

Shared Benefits

Ongoing Contributions

Markets 14-23


Subsidiary means individual body under parent body.
This Subsidiary or individual body as per their own generates revenue.

They give their own rent, salary to employees, etc. But
policies and trademark will be implemented from the Parent body.


There are no branches here.
Only the certain percentage of the profit will be given to the parent body.

A

subsidiary, in business matters, is an entity

that is controlled by a bigger and more powerful entity.
 The

controlled entity is called a company,

corporation, or limited liability company and the controlling entity is called its parent company.

 The

companies with low level technology and

managerial expertise may seek the assistance of a foreign company.
 Then

the foreign company may agree to provide

technical assistance and managerial expertise.
 This

agreement between two companies is called

Management Contract.

A

FTZs is a tax free area in a particular country that is not considered part of the respective country in terms of import regulations and restrictions.  Product can be shipped to a free trade zone, undergo additional manufacturing processes, and then be shipped further to the target market  There are two Free Trade Zone in India  Kandla Free Trade Zone  Santacruz Free Trade Zone

 To

facilitate cross border trade by removing

obstacles imposed by custom regulations.
 FTZs

ensure faster turnaround of planes and ships

by lowering custom related formalities.
 It

is beneficial for both importers and exporters, as

these zones are designed to reduce labor cost and tax related expenditure.

 http://amalgamation.in/amalgamation-

meaning.htm
 http://www.investopedia.com/university/mergers/  http://www.strategicalliance.org/  http://en.wikipedia.org/wiki/Franchising  http://www.businessdictionary.com/definition/man

agement-contract.html

I

have discussed total 13 modes on entry into the

International market for the entrepreneurs.
 With

their advantages, disadvantages, reasons and

factors to be considered.
I

have used 3 figures to explain three different

modes i.e., Exporting, Licensing and Strategic
Alliance.
I

have used a total of 48 slides.