Professional Documents
Culture Documents
STRATEGIES
CHAPTER 9
INTERNATIONAL M&A DATA
Rank Industry Number Value (billion USD)
1 Metals & Mining 48963 3060
2 Professional Services 46900 1094
3 Other Financials 35446 1388
4 Food & Beverage 34577 2326
5 Software 34362 1049
6 Building/Construction/Engineering 33208 758
7 Oil & Gas 32903 4891
8 Banks 27932 5072
9 Transportation & Infrastructure 27577 1995
10 Machinery 26093 891
KEY QUESTIONS?
How firms can service foreign markets through indirect exports (via third
parties) or using direct exporting.
The ways that companies can contract with foreign firms to use home market
technologies or marketing methods to produce goods or services in foreign
countries.
What investment options are available to companies to manufacture in
foreign markets, including joint ventures (usually with local partners), mergers
and acquisitions, and custom-building their own subsidiaries.
What factors determine the choice of market entry and servicing strategy.
MEANS OF MARKET ENTRY & SERVICING STRATEGIES
Contractual Methods
Licensing Investment Options
Franchising International Joint-
Exporting Strategies Management ventures
Indirect Exporting Contracts Mergers & Acquisition
Direct Exporting Contract Greenfield Operations
Manufacturing Siting Research &
Co-production Development Facilities
Agreements
EXPORTING STRATEGIES
INDIRECT EXPORTING & USE OF TRADING COMPANIES
Many firms lack the resources, expertise, and market contacts to cover world
markets.
When this occurs, many turn to trading companies to get their products into
foreign markets and handle the intricacies involved in gaining market access.
Trading companies provide:
COMMERCIAL FOREIGN
CONTACTS TRADE EXPERTISE QUALITY CONTROL
FINANCING DISTRIBUTION
They vary in sizes from being very small to being very large
DIRECT EXPORTING
For small & medium companies, export is a cheap and flexible way to develop
foreign markets and to learn about customers.
Many use Internet to gain international access.
Advantages of Internet powered trade???
A disadvantage of Internet-based exporting has been its limited ability to
conduct the more sophisticated international business transactions.
LARGE FIRMS EXPORTS
Global export strategies are used in industries where there are significant
manufacturing scale economies.
In these cases, global production is centralized to service world or regional
markets.
Autos, medical equipment, and machine tools all use export-based strategies
as they use a single production site to serve multiple markets.
In addition, industries with country-specific production advantages (French
wines, Indian or Chinese teas, Italian fashions) place great reliance on export-
based strategies.
DOCUMENTATION REQUIRED FOR EXPORTS 1
International Proforma Invoice: a quotation to a prospective buyer. Outlines
the price of goods, cargo weights and dimensions, export packaging charges,
inland freight costs, freight-forwarders fee, dock and loading charges, and
ocean freight and insurance costs.
International Purchase Order: The importer uses the export quotation to
arrange financing either in shape of an open letter of credit at the importers
bank or a bill of exchange in favor of the exporter. Export quotations are also
used to get import licenses.
The exporter receives the international purchase order, packs the goods, and
often uses a freight forwarder to ship to the port and onto a carrier.
DOCUMENTATION REQUIRED FOR EXPORTS 2
Responsibility for the cargo is transferred to the trucking company via an inland bill
of lading.
At the port, the cargo is inspected and transferred to a cargo vessel that issues a
clean on board bill of lading specifying that the goods have been safely placed
onboard ship.
The exporter or freight-forwarder collects the ocean bill of lading, the international
commercial invoice (issued by the exporter), and other required documents.
These may include packing lists (to facilitate customs clearances and prevent
pilferage); insurance certificates; certificates of origin, (to verify place of
manufacture for import duty assessment), and other, often industry-specific
documents.
DOCUMENTATION REQUIRED FOR EXPORTS 3
Bills of exchange are reverse checks requiring payment and are issued
through international banks.
They may be payable immediately (a sight draft) or after a specified period (a
time draft).
These are used when exporters and importers know each other and mutual
trust exists.
CONTRACTUAL METHODS
OF MARKET ENTRY &
SERVICING
CONTRACTUAL FORM OF MARKET ENTRY
Franchising is similar to licensing except that there is less freedom for the
franchisee than there is for a licensee.
Franchisers exert considerable control over both the production process (with
operating manuals, procedures, and quality standards) and marketing strategy
(how the product or service is presented to customers).
Franchising is a useful strategy where rapid international expansion is needed,
but it requires significant amounts of investment capital.
TWO ISSUES WITH FRANCHISING (CONTROLLING
FOREIGN FRANCHISES)
There are two different ways for head offices to manage control issues over
affiliates.
They can either allow master franchisers to manage a number of franchisees
simultaneously and give themselves fewer owners to control, or they can
reduce the power of individual franchisees by not giving any individual more
than a single business.
The master franchiser strategy concentrates ownership by having individuals
supervise and develop a number of franchises within a country or region.
Master franchisers are usually wealthy local business people who can afford
to buy numerous franchises and exercise centralized control over market
development, including the recruitment and training of individual franchise
entrepreneurs.
TWO ISSUES WITH FRANCHISING (MANAGING LOCAL
PROBLEMS)
The second problem international franchisers face is dealing with local market
environments, including archaic legal frameworks and bureaucracies, political
unrest, and major cultural differences.
MANAGEMENT CONTRACTS
Flexibility
Cost Advantage
Manufacturing Expertise
Resource Outlays
Continuous Improvements
Relationship Advantages
DISADVANTAGES OF SUBCONTRACTING
Joint ventures occur when international corporations and local firms join
forces to share ownership and management responsibilities in specially
created enterprises.
Joint ventures are mandated by the law in some countries/sectors like China
and Saudi Arabia and in power sectors.
Typically for most IJVs, local partners provide market knowledge, familiarity
with government regulations, local manufacturing facilities, and a trained
workforce. Foreign partners bring process and product technologies,
management expertise, capital, and access to international markets.
KEY ISSUES IN IJV NEGOTIATIONS
Evaluation Post-
M&A
of acquisition
assessment
Prospects strategies
EVALUATION OF PROSPECTS
Stand-alone option: leave the acquired company alone. Done if the acquired
company is more experienced than the acquiring company. Done if there is
nothing to gain from merging operations or strategies.
Integration option: for many acquirers, though, some degree of integration is
necessary. For the integration to occur smoothly, differences in corporate
cultures and modus operandi should be evaluated and differences bridged
between the two companies.
ASSESSING ACQUISITION
Financing needs are low for example in service industries (e.g., advertising
agencies, accounting, consulting) where there are few or no major fixed investments
to be made in factories, equipment, and distribution.
Markets are developing slowly and industry competition levels are low (in emerging
markets, for example).
Firms have leading-edge products and process technologies and do not want to risk
intellectual property theft that can occur with acquisitions or joint ventures (e.g.,
high-tech firms).
Companies have global brands and reputations they can leverage into local markets
without outside help.