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Exporting Through Own Marketing Facilities Abroad Economics Essay
通过自己的营销设施外出口的经济学论文
在今天，企业的国际化是一个普遍现象。越来越多的公司在超出他们的国界去寻求业务。在国际市场上努力，公司往往会通过不同的连续阶段。
企业国际化
一个企业的国际化过程可以看成是一系列的连续的发展阶段。一个纯粹的国内企业转型成为一个跨国企业的过程一般经历了以下几个阶段：
这种连续的阶段分类仅仅集中分布在市场营销方面，因此，在这里不能提供一个完整的演示图。更具体地来说，尽管它的描述是正确的，但是它不完全，所以在改进阶段它并不能解释企业的行为。
企业生命周期理论
一个公司通过的更敏锐地解释进化过程的理论被称为——在国际市场营销的企业的生命周期。在进化的周期阶段的公司可以通过承诺的程度已向出口市场决定。在进化周期阶段：
1阶段的机会主义
The internationalization of business is a widely observed phenomenon today. More and more firms are seeking business outside their national boundaries. In its effort to go international, a firm often grows through various successive stages.
Internationalization of Firms
The internationalization process of a firm can be visualized as a series of successive stages of development. A purely domestic firm graduates to a multinational enterprise stage through the following stages:
This classification of successive stages focuses only on the distribution aspect of marketing and, therefore, does not provide a complete picture. More specifically, while it does describe correctly, though incompletely, the growth stages, it does not explain the behavior of the firms.
Corporate Life Cycle Theory
A more perceptive theory explaining the evolutionary processes through which a company passes has been termed as ——corporate life cycle in international marketing'. The stage of a company in the evolutionary cycle can be determined by the degree of commitment it has towards export markets. The stages in the evolutionary cycle are:
Stage 1 Opportunism
Stage 2 Limited Commitments
Stage 3 Limited Fixed Investment for Exports
Stage 4 Substantial Dependence on Exports
Stage 5 Equal Treatments of Domestic and Export Business.
In the first stage, the attitude is essentially reactive; there may be some excess capacity at a point of time. If there are overseas enquiries, the firm takes advantage of it and exports. In stage 2, the firm discovers that exports can be a profitable long-term supplement to domestic business and decides to earmark a certain proportion of total production for the export market. Export business thus becomes a part of the corporate planning process. In the third stage, the firm gets sufficiently emboldened to invest specially for export production, i.e. it creates additional production capacity.
In the next stage, the extent of export business increases in quantitative terms. In the final stage, the distinction between domestic and export business ceases to exist and the firm becomes global.
Alternative Methods of Entry
Licensing
When a Company is unwilling to take any risks for the sake of international business, it sometimes opts for licensing as the mode of entry. Licensing is, simply put, nothing but entering into a contract to allow another firm to use an intellectual property, such as, patent or a trade mark. This definition clearly brings out the fact that as an entry mode, this option is not available to all firms. Only those which have saleable technology, know-how, can use the licensing route.
The attraction of licensing lies in the fact that it involves no investment and very little up-front expenditures. And if successful, it can generate a fairly high rate of return.
Under a licensing agreement, the holder of the knowledge (technology or know-how) transfers the same to the buyer for his use against the payment of. Fixed amounts, which can either, be a one-time lump-sum payment or a percentage of sales, or a combination of the two.
Licensing arrangements suffer from several disadvantages from the standpoint of the licensor. First, the licensor does not have any management control over the licensee and is therefore unable to control either the quality or price. An unscrupulous or inefficient licensee can therefore cause damage to the long-term development of the market potential. Second, licensing is extremely limited in its scope. The licensor cannot have a share of the returns from the manufacturing and marketing operations of the licensee. Third, the life of the successful licensing arrangements is normally short, as the licensee may develop his own manufacturing capability within a reasonable short period. But the most dangerous aspect of the licensing arrangement is that sometimes the licensees, after they internalize the technology and also in some cases improves upon it, turn into competitors of the licensors.
Franchising
A similar method of entry is franchising which is globally very common in the food, soft drinks and fast food business. Franchising is a form of marketing, under which the parent company allows the franchisee to use its methods, symbols, trademarks and architecture. The contract will specify the place of operation of the franchisee and the period for which the arrangement will remain valid. Several forms of franchising are in operation. One form is hundred per cent franchisee ownership; the second form envisages a concept of area or master franchisee who in turn can appoint sub-franchisee(s). The third is where the franchise is in fact owned by the parent firm itself. This happens essentially at the market-testing stage. The principal wants initially to find out the market potential himself before deciding whether large scale franchising will be profitable.
The basic advantage of this entry method is akin to that of licensing. The upfront expenditure is minimal while the return can be substantial. The disadvantage lies in the fact that unless strict monitoring is done, franchisees may default on quality and delivery, thus affecting the reputation of the principal.
International Joint Ventures
International joint venture involves creation of a separate legal entity by an association of two or more firms. Normally, one of the partners will be a local firm though it is not necessarily so. The choice of this entry method is dictated by several important considerations. First, it reduces the cost of entry because the equity will be divided between/among the partners. The foreign firm can thus make an entry into a market even with a minority participation and still can have substantial management control. Second, having a local partner can reduce the political risks. In an environment which may not be friendly to foreign investors, having a local partner can help in creating a more acceptable public perception. Third, the local partner is expected to have a good grasp of local operating conditions and therefore can be of great help to the foreign firm which is unaware of these details.
While these advantages can be substantial, the biggest danger of international joint venture lies in the inappropriate selection of a partner. If the choice is proper the strength of the parties will be complementary. But if the choice is wrong, either in terms of operative attributes or management cultures, the joint ventures are bound to break up. Several surveys have shown a considerable ‘divorce’ rate among the joint venture partners or taking over of the businesses by the dominant partners.
The choice of the joint ventures as the entry mode may, however, is dictated by the host country’s regulations. Some countries stipulate that foreign firms can set up facilities only in association with local firms.
Subsidiaries and Acquisitions
Wholly owned subsidiaries have been the preferred entry mode for large enterprises. The advantages of complete ownership are: avoidance of conflict of interest, as may happen in the case of joint venture, and fullest exploitation of the market potential in terms of both manufacturing and marketing. But these advantages are to be evaluated against the large scale commitment of financial and managerial resources. Some firms which are anxious to keep their competitive edge under the strictest control normally favor this entry mode. Examples are IBM and Coca Cola. But the recent attempts of these firms to enter the Indian market reveal that such firms may opt for any other mode, such as, joint ventures, if that facilitates the process of entry.
Acquisitions can be considered as the entry mode if ‘greenfield’ projects are time consuming, especially when the corporate strategy dictates an earlier entry in the market. The success of acquisition mode is strictly dependent upon the parent firm’s ability to integrate the acquisition in its organizational framework. There are several instances where the present firm failed miserably and had to sell the acquired firm later at a considerable loss.#p#分页标题#e#
Strategic Alliances
This has emerged as the latest tool in multinational business management, though it is also used sometimes as a specific entry mode.
To some extent, its popularity is due to the growing disenchantment with the tool of take-overs and mergers which dominated the last decade. Strategic alliances seek to create a synergy between two firms by complementing each other’s’ strengths. The urge to become a partner rather than a competitor is due to the need to become an insider in all the major markets simultaneously. This has become critical for several reasons including the astronomical costs of R&D, product launch and the increasingly slender lead time before which competitors catch up. Even for the largest companies in the world, the need to find partners in such a scenario is becoming critical.
An Indian Example
Larsen & Toubro and SPIC have forged a strategic alliance to jointly bid for a substantial part of the project contracts in the Middle East, Malaysia, Indonesia and Thailand. L&T and SPIC-SMO (the fertilizer giant's engineering division) have recently signed a three year memorandum of understanding for jointly taking up project works in these countries in the petrochemical, chemical, fertilizer, oil and gas sectors.
Once they emerge as successful bidders, the order will be shared between the companies on the basis of a 60:40 formula: The Company assuming the lead position will get 60 per cent of the project value while the balance will go to the other partner.
In case the project involves supplying a number of equipment’s, L&T will take the lead role because of its undisputed strength in the field. If it is a project for intermediate management like designing, processing, etc., SPIC-SMO will assume that role.
Models for Making Entry Made Choice
Several models have been developed in the literatures which help in bringing to the surface the variables which are to be considered in making a decision on the entry mode. We have outlined below the basic structure of the model, developed by Agnon, Hersch and Rugman which is the most accepted version now.
The model's basic hypothesis is very simple. Each mode of entry has a set of specific costs. Therefore, what a firm has to do is to quantity these costs and pick up that mode which promises to be the least costly.
There can be two conceptually distinct types of FDI decisions. First the FDI is being made to service a foreign market. This is the normal situation. But there can be a second type. This occurs when an enterprise is making the investment abroad to service the home market, by bringing back the output.
The analytical procedure for both cases is the same as shown below
Model 1: Servicing the foreign market
Export if: C + M* < C* + A*
(Exporting is cheaper than FDI)
and C + M* < C* + D*
(Exporting is cheaper than licensing)
FDI if: C*.
+ A* < C + M*
(FDI is cheaper than exporting)
and C*+A*<C*+D*
(FDI is cheaper than licensing)
iii) License if: C* + D* < C* + A*
(Licensing costs less than FIQ
and C* + D* < C* + M*
(Licensing costs less than exporting)
Notations are:
C Normal cost of production at home
C* Normal cost of production abroad
M* Additional cost to the firm to operate abroad, viz. environmental, culture,
Political, information costs.
D* Knowledge dissipation costs, as the licensee starts sharing the knowledge.
Model 2: Serving the Home market
The firm has three options:
Produce domestically
Produce abroad and bring back home the production
License a firm abroad for export to home market.
The decision, here too, will depend upon the comparison of cost relevant to each mode.
Specifically, the conditions will be:
produce at home if C < C* + M'* + A*
and C < C* + M* + D*
where M is the additional cost of importing the output from, the foreign location.
produce abroad if C* + M + A* < C
and C* 4
M + A* <C* + M + D*
license if C* + M + D* < C* + M + A*
and C* + M + D* < C
With respect to ABC Company I would like to suggest that there are many modes of entering into foreign market and the company should adopt the one which costs less as compared to other modes by doing cost-benefit analysis.
Moreover, the decision also depends upon the risk perceptions of a firm.
Q2.In what areas have technological advances had their greatest effect on facilitating world trade and investment?
Most important drivers of market globalization since the 1980s have been technological advances in communication, information, manufacturing, and transportation. While globalization makes internationalization an imperative, technological advances provided the means for internationalization. With the help of this, firms now interact more efficiently with foreign patterns and value-chain members than ever before. Firms transmit all variety of data, information, and vital communications that help ensure the smooth running of their operations worldwide.
Companies use information technology to improve the productivity of their operations, which provide substantial competitive advantages. Technological advances have made the cost of international operations affordable for all types of firms.
The most important activity underlying technological advances is innovation. Societies and organizations innovate in various ways, including new product designs, new production processes, new approaches to marketing, and new ways of organizing or training. Innovation results primarily from research and development.
An advance in technology provides the means for internationalization of firms.
Advances in technology:
Facilitates the development and spread new products and technologies;
Reduces the cost of doing business internationally;
Enables even smaller firms to go international
Helps coordinate worldwide activities;
Mitigates geographic distance by providing virtual interconnectedness with customers, subsidiaries, intermediaries, and suppliers.
Technological advances have had the greatest impact in several key areas:
Information technology.
Communication
Manufacturing, and Transportation.
Information Technology:
The cost of computer processing fell by 30% per year during the past two decades and continues to fall.
The remarkable performance of the U.S. economy in the 1990s was due in large part to aggressive integration of it into firm’s value chain activities, which accounted for 45% of total business investments at the time.
IT alters industry structure, changes the rules of competition, and creates new ways to outperform rivals, thus forming the basis for competitive advantage.
Data, information, and experience can be readily shared via collaboration software within a multinational company.
Smaller firms can leverage IT to design and produce customized products that can be targeted to narrow, cross-national niches.
The impact of IT on our daily lives has been profound-cell phones, Google, yahoo, etc.
Communication Technology:
The most profound technological advances have occurred in communications, especially telecommunications, satellites, optical fiber, wireless technology, and the internet.
The internet, and internet-dependent communications systems such as intranets, extranets, and e-mail, connects millions of people across the globe.#p#分页标题#e#
The dot-com boom of the 1990s led to massive investment in fiber-optic telecommunications cable.
Transmitting voices, data, and images is essentially costless, making Boston, Bangalore and Beijing next-door neighbors, instantly.
The internet opens up the global marketplace to companies that would normally not have the resources to do international business.
Manufacturing & Transportation Technologies:
Revolutionary developments now permit manufacturing that is both low-scale and low cost, with the support of computer-aided-design of product (CAD), robotics, and production lines managed and monitored by microprocessor-based control.
In the 1960s, technological advances have led to the development of fuel-efficient jumbo jets, giant ocean-going freighters, and containerized shipping.
Thus, the cost of transportation as a proportion of the value of product shipped internationally had declined substantially, which spurred rapid growth in cross- border trade.
The plunging costs of computing, communications, and transportation have greatly reduced the costs of doing business internationally, and successful firms continually search for new source of competitiveness.
Hence advances in technology are particularly important in driving market globalization. The most important advances in technology have occurred in information technology, communications, the internet, manufacturing and transportation. These system help create an interconnected networks of customer, supplier, and intermediaries worldwide. They have made the cost of international business affordable for all types of firms.
Q3. Suppose you get a job at Fossil Fuel, Inc, an oil company that has been severely been severely criticized for global business practice that are seen to exacerbate economic, political and social phenomena in some countries. Your boss directs you to increase your familiarity with market globalization, with a view to developing company strategies that are more sensitive to the firm’s globalization critics. In your investigation, you discover that there are five major dimensions associated with market globalization. What are these dimensions? What are the drivers of market globalization? Structure and elaborate your answer in the form of a memo to your boss.
GLOBALIZATION OF MARKETS:
Two mega trends have altered the international business landscape: the globalization of markets or economies and technological advances.
Market globalization is a broad term referring to the interconnectedness of national economies and the growing interdependence of buyers, producers, suppliers and governments in different countries.
Globalization allows firms to view the world as one large marketplace for goods, services, capital, labor, and knowledge.
DIMENSIONS OF MARKET GLOBALIZATION:
Integration and interdependence of national economies:
The aggregate of reconfigured and integrated value-chain activities gives rise to economic integration.
Governments contribute to this integration by:
Gradually lowering trade and investment barriers;
Increasingly harmonize their monetary and fiscal policies within regional economic integration blocs (also known as trade blocs), e.g. EU.
Establishing supranational institutions that transcend national borders and involve cooperation that seek further reductions in trade and investment barriers, e.g. the United Nations and the WTO.
Rise of regional trading blocs and economic unions:
Since the 1950s, the emergence of regional integration through trade blocs and economic unions.
Trade bloc: A free-trade area established by two or more countries through multiple tax, tariff, and trade agreements, designed to reduce or eliminate barriers to cross-border trade and investment.
Economic and monetary union: A single market with a common currency. This is characteristic of more advanced stages of economic integration.
Growth of Global investment and financial flows:
FDI has grown dramatically.
Firms and governments undertake global currency trading to finance cross-border trade and investment.
The free movement of capital around the world is extending economic activities across the globe and fostering interconnectedness among world economies.
Commercial and investment banking has become a global industry.
The bond market has gained worldwide scope, with foreign bonds representing a major source of debt financing for governments and firms.
Convergence of consumer lifestyle and preferences:
Lifestyles and preferences are converging, i.e. increasingly standardized, resulting in global markets segments.
Transnational media contributes to the convergence of buyer preferences, in part by emphasizing a particular lifestyle observed in the U.S., Europe, or elsewhere.
While converging tastes facilitate the marketing of standardized product/services to global consumers, they also signal the loss of traditional lifestyles and values in individual countries.
Globalization of production:
Intense global competition has made economies of scale a critical key success factor. Global players are forced to evaluate global sourcing to take advantage of national differences in the cost and quality of factor inputs.
This explains why off shoring to low labor-cost locations such as china, Mexico, and Eastern Europe is so popular.
Services shift: the services sector is also global sourcing.
Firms in retailing, banking, insurance, and data processing are all establishing off shore facilities and relationships.
The distribution of foreign direct investment has changed markedly, from an emphasis on manufacturing to services.
DRIVERS OF MARKET GLOBALIZATION:
Worldwide reduction of barriers to trade and investment:
National governments have sought to reduce trade and investment barriers, which has accelerated global economic integration.
The world trade organization (WTO) has facilitated this.
The WTO is a multilateral governing body empowered to regulate international trade and investment, and has been engaged in an ongoing liberalization of member states economies since the late 1940s.
Joining the WTO in 2001, even china has committed to make its market more accessible to foreign companies.
Market opening is closely associated with the emergence of regional trade blocs, a key dimension of market globalization.
Market liberalization and adoption of free markets:
The tearing down of the Berlin Wall in 1989, the collapse of the soviet union’s economy that same year, and china’s free-market reforms signaled the end of the 50- year cold war between communist regimes and democracy.
It was the transition of command economies to market-driven economies that facilitated their membership into the global economy.
The East Asian nations, stretching from South Korea to Malaysia and Indonesia, had already embarked upon an ambitious program of market liberalization in 1991.
These events opened roughly one-third of the world to freer international trade and investment.
With privatization of previously state-owned industries, these countries have enjoyed greater economic efficiency, simultaneously attracting foreign capital.
Industrialization, Economic Development, and Modernization:
Industrialization transitions emerging markets- Asia, Latin America, and Eastern Europe- from being low value-adding commodity producers, dependent on low-cost labor, to sophisticated competitive producers and exporters of premium products such as electronics, computers, and aircrafts.
The adoption of modern technologies, improvement of living standards, higher discretionary income levels and adoption of modern legal and banking practices increases the attractiveness of emerging markets as investment targets and facilitate the spread of ideas, and products.
International of world financial markets:
Integration of world financial markets enables international active firms to rise capital, borrow funds, and engage in foreign currency transactions wherever they go.
Cross-border transaction is made easier partly as a result of the ease with which funds can be transferred between buyers and sellers through a network of international commercial banks.#p#分页标题#e#
The globalization of finance enables firms to pay suppliers and collect payments from customers worldwide.
Technological advances as a Driver of Market Globalization:
Advances in technology provides the means for internationalization of firms
Advances in technology:
Facilitates the development and spread new products and technologies;
Reduces the cost of doing business internationally;
Enables even smaller firms to go international
Helps coordinate worldwide activities;
Mitigates geographic distance by providing virtual interconnectedness with customers, subsidiaries, intermediaries, and suppliers.
Technological advances have had the greatest impact in several key areas:
Information technology.
Communication
Manufacturing, and
Transportation
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