Transcript ch12 Hollensen - Warsaw School of Economics

Svend Hollensen
GLOBAL MARKETING
4th Edition
Lecture by Ewa Baranowska-Prokop, Ph.D.
Hierarchical modes and
international sourcing decisions
Learning objectives (1)
Describe the main hierarchical modes
Compare and contrast the two investment
alternatives: acquisition versus greenfield
Explain the different determinants that
influence the decision to withdraw
investments from a foreign market
Hollensen, Global Marketing 4e, © Pearson Education 2008
What is this?
The entry modes by which the firm
completely owns and controls the
foreign entry mode are called ______.
Hierarchical modes
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Hierarchical modes
Domestic-based representatives
Resident sales representatives
Foreign sales subsidiary
Sales and production subsidiary
Region centres
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What is this?
What type of sales representative
resides in the home country of the
manufacturer and travels abroad to
perform the sales function?
Domestic-based sales representative
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Figure 12.1 Domestic-based
sales representatives/
manufacturer’s own sales force
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Figure 12.1 Resident
sales representatives/
sales subsidiary
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What is this?
What term is used to refer to a local
company owned and operated by a
foreign company under the laws and
taxation of the host country?
Subsidiary
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Figure 12.1 Sales and
production subsidiary
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Reasons for establishing
local production facilities
To defend existing business
To gain new business
To save costs
To avoid government restrictions
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Figure 12.1 Region centre
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Roles of
regional headquarters
Coordination role is to
ensure that
country and business
strategies are
mutually coherent
One subsidiary does
not harm another
Synergies are
identified and
exploited
Stimulator role is to
facilitate the
translation of global
products into local
country strategies
the development of
local subsidiaries
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Figure 12.3 The lead
country concept
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What is this?
What term is used to refer to an
organization which has integrated and
coordinated its operations across
national boundaries in order to achieve
synergies on a global scale?
Transnational organization
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Methods of establishing a
wholly-owned subsidiary
Acquisition
Greenfield
investment
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Site selection criteria (1)
Corporate tax advantages
Investment incentives
Investment climate
Company law
Operational costs
Workforce considerations
Quality of living
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Site selection criteria (2)
Infrastructure in place
Business services available
Sufficient office space
Presence of other companies
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Strategic motives driving
the location decision
Mergers
and acquisitions
Internationalization
of leadership and ownership
Strategic renewal
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Summary of domestic-based
sales representatives
Advantages
Better control of sales
Close contact with
customers
Disadvantages
High travel expenses
Too expensive for
markets far from home
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Summary of foreign sales,
sales and production subsidiary
Advantages
Full control of
operation
Market access
Market knowledge
Reduced transport
costs
Access to raw
materials
Disadvantages
High initial capital
investment
Loss of flexibility
High risk
Taxation problems
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Summary of region centres
Advantages
Synergies on
regional/global scale
Scale efficiency
Ability to leverage
learning on crossnational scale
Disadvantages
Potential for
increased
bureaucracy
Limited national level
responsiveness
Missing
communication
between head office
and centre
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Summary of acquisition
Advantages
Quick access to
Distribution channels
Labour force
Management
experience
Local knowledge
Local contacts
Established brand
names
Disadvantages
Expensive option
High risk
Integration concerns
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Summary of
greenfield investment
Advantages
Optimum format
possible
Optimum technology
possible
Disadvantages
High investment cost
Slow entry of new
markets
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For discussion (1)
 Is the establishment of wholly-owned
subsidiaries abroad an appropriate international
market development mode for SMEs?
 Why is acquisition often the preferred way to
establish wholly-owned operations abroad?
What are limitations of acquisition as an entry
method?
 What are the key problems associated with profit
repatriation from subsidiaries?
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Subcontractors
A person or firm that agrees to provide semi-finished
products or services needed by another party to perform
another contract to which the subcontractor is not a
party
Subcontractors differ from other SMEs in that
Products are usually part of the end product, but not
the complete product
They do not have contact with end customers
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Figure 13.1 Subcontractor’s
position in the vertical chain
Markets for end products
Customers
End products
Main contractors
Components
Sub-contractors
Refined materials
Material suppliers
Raw materials
Source: Source: adapted from Lehtinen, 1991, p. 22.
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What is this?
An original equipment manufacturer
(OEM) is the _____ of a _____.
Customer of a subsupplier
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Reasons for
international sourcing
Concentration on inhouse core
competences
Lower
product/production
costs
General cost
efficiency
Increased potential for
innovation
Fluctuating demand
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Figure 13.4 Typology of
subcontracting
Partnershipbased
subcontracting
Strategic
development
subcontracting
High
Expanded
subcontracting
Degree
of
Coordination
Simple
subcontracting
Low
Standard
subcontracting
Low
Source:Source: adapted from Blenker and Christensen, 1994.
Task Complexity
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Organizational dimensions
which influence the relationship
between buyer and seller
Characteristics
of
each firm’s
technology
Complexity
of
products sold
Relationship
characteristics
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Relationship
development phases
Awareness
Exploration
Expansion
Commitment
Dissolution
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Figure 13.7 The five-phase
relationship model
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Causes of Dissolution
Operational and cultural differences
Incompatibility among other employees
Lack of capacity among other employees
Opposition from people in power below
CEOs
Termination of personal relations
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What is this?
What term is used to describe action on
the part of the buyer to search for a
supplier that is able to fulfill his or her
needs?
Reverse marketing
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Changes in
the purchasing function
Reduction in the number of subcontractors
Shorter product life cycles
Upgraded demands on subcontractors
Purchase that no longer just serves the
purpose of getting lower prices
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Routes of
internationalization
Route 1: Follow domestic customers
Route 2: Internationalization through
supply chain of MNC
Route 3: Internationalization in
cooperation with domestic or foreign suppliers
Route 4: Independent internationalization
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Mazda splits its seat purchases
between
Delta Kogyo and Toyo Seat Company
Source: http://www.deltakogyo.co.jp/english/index.html
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What is this?
What term refers to the complex
international activity involving supplies
or deliveries that contain a combination
of hardware and software, which upon
delivery, will constitute an integrated
system that is able to produce the
products the buyer requires?
Project export
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Software in project exports
Software includes know-how and service.
Three types of know-how:
Technology
Project
Management
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Possible buyers
in project exports
Multilateral
organizations
Bilateral
organizations
Government
institutions
Private
persons
or firms
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Buyer-seller relationships,
contractor perspective
Advantages
 Flexibility
 Cheaper sources
 Focus on in-house
competences
 Complement to product
range
 New ideas for product
innovation
Disadvantages
 Questionable availability
of suitable subcontractors
 Less stable than in-house
production
 Less control
 Potential to prepare
competition
 Quality concerns
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Buyer-seller relationships,
subcontractor perspective
Advantages
Access to new export
markets
Exploit economies of
scale
Learn product
technology
Learn marketing
practices
Disadvantages
Risk of dependence
on contractor
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Eaton: A case study
 What are Eaton’s key challenges in
establishing long-term relationships with its
new global OEM-customers?
 Why is the fast-changing marketing
environment so crucial to Eaton’s
international marketing plan?
 What makes Eaton’s channel management
challenging? Why does the company
continue to sell through multiple global
channels?
Requires web access
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For discussion (1)
What are the reasons for the increasing
level of outsourcing to international
subcontractors?
Explain the shift from seller to buyer
initiative in subcontracting.
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For discussion (2)
 Explain the main differences between the US
and the Japanese subsupplier systems.
 How are project exports/turnkey projects
different from general subcontracting in the
industrial market?
 Project export is often characterized by a
complex and time-consuming decision-making
process. What are the marketing implications of
this for the potential sub-contractor?
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