Prepare a 35 page paper based on your online research You ar

Prepare a 3-5 page paper based on your on-line research.

You are a senior executive of a firm that is seeking to expand globally. The CEO has tasked you to develop a Business Plan.   During this case study, analyze the product/service that you identified in Global Business Plan Activity #1.

For this case study, the CEO asked you to analyze the best approach for establishing the facility for your global product/service. If you are studying a product, you might propose to open a manufacturing or distribution plant. If you will provide a global service, you could study the best way to establish a call center or service center. During this case study, apply and refine your preliminary plans presented in Global Business Plan Activity #2.

Review Chapters 8, 13 and 14 of your Global Business Today text. For each of the following entry modes, (a) describe the approach, (b) discuss the general pros and cons, and (c) analyze whether the entry mode might be a good choice (or not) for your product/service. Use Table 13.1 on page 381 as a guide.

Exporting

Turnkey Project

Licensing

Franchising

Joint Venture

Wholly-owned Subsidiary

Finally, propose one entry mode for the country you have identified in your Business Plan . Explain your rationale.

Solution

Suppose the mentioned company operates in the manufacturing industry. For global expansion of the company, analyze the pros and cons of using different entry modes as shown below:   

1. Exporting: There are two modes for exporting including direct and indirect exporting. Direct exporting is done with the help of distributors or agents. Contrary to this, indirect exporting is done using export buying agent, broker or export management companies.

Pros and cons of both the exporting techniques are provided below:

Indirect exporting:

Advantages of the indirect exporting include its limited investments. Besides this, it also enables a firm to get high degree of market diversification.

Disadvantage of the indirect exporting includes lack of control over marketing mix elements than the product.

Direct cost:

Advantages of direct exporting: It provides access to local market experience and contacts with the potential customers.

Disadvantages: reduces a company’s control over the market price due to lack of distributor controls and tariff.

2. In a turnkey contract owner of an incomplete project pays a certain amount of fees to an independent agent to complete the project. The main advantage of this contract for the agent is that the project may prove to be easier than thought originally. In this way a big profit can be made.

The main disadvantage of this contract for the agent is that the project may prove to be difficult than thought originally. In this way there could be a big loss of money, time and material.

3. Licensing is an agreement between licensor and licensee which provides licensee to use or sell the product or technology of licensor.

Advantages of licensing for licensor

Licensor gets payment from licensee which it can use to finance its business expansion.

Licensor needs to invest less in expansion. So business expansion becomes easy and quick for licensor through licensing.

Disadvantages of licensing for licensor

The product or technology of licensor may be copied.

Any bad step by the licensor may taint the brand image of licensor.

Licensees may not maintain quality control over the business as licensor expects.

After the expiry of term of license, the licensee may make a similar product of its own, rather than entering into license agreement again.

4. A franchise is an agreement between the franchisor and franchisee in which the franchisee gets the right to duplicate the business model of franchisor in a specific area. Usually a franchisee has a protected area in which franchisor can’t sell another franchisee.

5. A Joint Venture is a partnership which has been formed for a limited purpose. Thus it can be described an association of two or more individuals or companies engaged in a business enterprise for profit without merging together and becoming a single company or entity.

Benefits of joint venture –

Existing company can gain local knowledge and political influence with the help of other company.

Existing company can share risk and costs of opening new project in foreign market with the help of other company.

Potential risks associated with joint venture are –

Lack of tight control over the operations from either of the company.

Lack of knowledge regarding the foreign country would impact the business of the company.

6. In wholly owned subsidiary, the parent company owns 100% shares of the company. Minority shareholders are not there in the company. The wholly owned subsidiary operates independently but the parent company has full control over the operations and management.

Advantages of wholly owned subsidiaries

The parent company can use the earnings from wholly owned subsidiary in its business expansion.

The parent company can make one consolidated financial statement for all its wholly owned subsidiaries.

The overall business size of the parent company increases. It increases its bargaining power with suppliers.

Disadvantages of wholly owned subsidiaries

Any financial error at the subsidiary may have negative impact on the financial performance of its parent company.

In a foreign market, the success of wholly subsidiary company depends upon the decisions taken by its managers. Entire risk in its business operations is borne by the parent company.

Cultural differences in wholly owned subsidiaries may lead to serious problems in their integration with parent company.

The need for control over foreign operations strategies and a company’s distinctive competencies has direct relationship with its mode of entry to that particular market. The entry modes like joint ventures and franchising can increase the risk of losing control over the new innovation or technology. Therefore, entry mode of a company should be properly structured before its implementation. Apart from joint venture and franchising, the company may also adopt wholly owned subsidiary mode for entry into foreign markets. Licensing should be done for newly invented products or technologies, in order to reduce their imitation that is one of the major risks involved in global business.