Entry Modes

Loading.... (view fulltext now)

Loading....

Loading....

Loading....

Loading....

Full text

(1)

ENTRY MODES

 Exporting  Turnkey Projects  Licensing  Franchising  Joint Ventures

 Wholly Owned Subsidiaries  Merger and acquisitions

EXPORTING

It means the sale abroad of an item produced stored or processed in the supplying firm’s home country. It is a convenient method to increase the sales. Passive exporting occurs when a firm receives canvassed them. Active exporting conversely results from a strategic decision to establish proper systems for organizing the export functions and for procuring foreign sales.

 Advantages:

 Avoids cost of establishing manufacturing operations.  May help achieve experience curve and location economies.  Disadvantages:

 May compete with low-cost location manufacturers.  Possible high transportation costs.

 Tariff barriers.

 Possible lack of control over marketing reps. TURNKEY PROJECTS

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 remuneration like a fixed price, payment on cost plus basis. This form of pricing allows the company to shift the risk of inflation enhanced costs to the purchaser. E.g. nuclear power plants, airports, oil refinery, national highways, railway line etc. Hence they are multiyear project

(2)

 Advantages:

 Can earn a return on knowledge asset.  Less risky than conventional FDI.  Disadvantages:

 No long-term interest in the foreign country.  May create a competitor.

 Selling process technology may be selling competitive advantage as well. LICENSING

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. The cost of entering market through this mode is less costly. The domestic company can choose any international location and enjoy the advantages without incurring any obligations and responsibilities of ownership, managerial, investment etc.

 Advantages:

 Reduces costs and risks of establishing enterprise.  Overcomes restrictive investment barriers.

 Others can develop business applications of intangible property.  Disadvantages:

 Lack of control.

 Cross-border licensing may be difficult.  Creating a competitor

FRANCHISING

Under franchising an independent organization called the franchisee operates the business under the name of another company called the franchisor under this agreement the franchisee pays a fee to the franchisor. The franchisor provides the following services to the franchisee.1. Trade marks. 2. Operating System. 3. Product reputations. 4. Continuous support system like advertising, employee training, and reservation services quality assurances program etc

 Advantages:

(3)

 Disadvantages:

 May prohibit movement of profits from one country to support operations in another country.

 Quality control.

JOINT VENTURES

Two or more firm 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. It provides strength in terms of required capital. Latest technology required human talent etc. and enable the companies to share the risk in the foreign markets. This act improves the local image in the host country and also satisfies the governmental joint venture.

 Advantages:

 Benefit from local partner’s knowledge.  Shared costs/risks with partner.

 Reduced political risk.  Disadvantages:

 Risk giving control of technology to partner.

 May not realize experience curve or location economies  Shared ownership can lead to conflict.

WHOLLY OWNED SUBSIDIARY

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

 Advantages:

 No risk of losing technical competence to a competitor.  Tight control of operations.

(4)

 Realize learning curve and location economies.  Disadvantage:

 Bear full cost and risk.

MERGER AND ACQUISITIONS

 There are three basic legal procedures that one firm can use to acquire another firm:  Merger

 Acquisition of Stock  Acquisition of Assets

 Although these forms are different from a legal standpoint, the financial press frequently does not distinguish among them.

 In our discussions, we use the term merger regardless of the actual form of the acquisition.

Benefits:

 Combining operations may result in

 More or better competitive capabilities  More attractive line-up of products / services  Wider geographic coverage

 Greater financial resources to invest in R&D, or expand capacity  Cost-saving opportunities

 Filling in of resource or technological gaps  Stronger technological skills

 Greater ability to launch new products / services Pitfalls:

 Combining operations may result in

 Resistance from rank-and-file employees

(5)

 Tough problems in combining and integrating two very different operating systems

 Frequent failure in:

 Achieving expected cost-savings  Sharing of expertise

 Achieving greater competitive advantage

ECONOMY OF UK

 GDP (at current market prices; International Monetary Fund (IMF), 2011): $2.481 trillion.  Annual growth rate (IMF, 2010): +1.14%.

 Per capita GDP (at current market prices; IMF, 2011): $39,604.

 Natural resources: Coal, oil, natural gas, tin, limestone, iron ore, salt, clay, chalk, gypsum, lead, silica.

 Agriculture (0.6% of GDP; U.K. Office for National Statistics (ONS), 2011): Products--cereals, oilseed, potatoes, vegetables, cattle, sheep, poultry, fish.

 Industry (21.9% of GDP; ONS, 2011): Types--steel, heavy engineering and metal manufacturing, textiles, motor vehicles and aircraft, construction (7.0% of GDP), electronics, chemicals.

Services (77.4% of GDP; ONS, 2011): Types--financial, business, distribution, transport, communication, hospitality.

 Trade (at current prices, 2011 exchange rates; ONS, 2011): Exports of goods and services--$782.7 billion.

 Major goods exports--manufactured goods, fuels, chemicals, food, beverages, tobacco. Major export markets--U.S., European Union.

 Imports of goods and services--$827.6 billion. Major goods imports--manufactured goods, machinery, fuels, foodstuffs. Major import suppliers--U.S., European Union, and China.

POLITICAL CONDITIONS OF UK

The Labor government that had been in power since 1997, first under Prime Minister Tony Blair and then under his successor, Gordon Brown, lost its majority in the House of Commons in the May 6, 2010 election. For the first time since 1974, however, no party was able to win a full majority in the Commons, which led to several days of intense negotiations between the Conservatives (Tories), who won the most seats, and the Liberal Democrats (Lib Dems), who placed third in number of seats won. On May 11, when it became clear that Labor would be unable to form a government, Prime Minister Gordon Brown resigned, and David Cameron became the new Prime Minister. Cameron subsequently announced a formal coalition with the Liberal Democrats, which would ensure Liberal Democrat support for a

(6)

Conservative-led government in exchange for five Liberal Democrat cabinet seats and policy compromises. As part of the coalition deal, Liberal Democrat leader Nick Clegg became the Deputy Prime Minister. The Conservative-Liberal Democrat coalition has an 83-seat majority in the House of Commons, and the Labor Party forms the official opposition. Gordon Brown resigned as Labor leader on May 11, and was succeeded by Ed Miliband in a September 2010 Labor party election.

ECONOMY OF HUNGARY

 GDP: HUF 27,947 billion (approx. $115.96 billion, at year-end 2011 exchange rate of U.S. $1=HUF 241).

 Annual growth rate (2011): 1.9%.  Per capita GDP (2011): $11,596.

 Natural resources: bauxite, coal, natural gas, and arable land.

 Agriculture/forestry (2010, 2.94% of GDP): Products--meat, corn, wheat, sunflower seeds, potatoes, sugar beets, and dairy products.

 Industry and construction (2010, 25.9% of GDP): Types--machinery, vehicles, chemicals, precision and measuring equipment, computer products, medical instruments, pharmaceuticals, and textiles.

 Trade (2010): Exports ($112.7 billion)--machinery, vehicles, food, beverages, tobacco, crude materials, manufactured goods, fuels and electric energy. Imports ($103.11 billion)--machinery, vehicles, manufactured goods, fuels and electric energy, food, beverages, and tobacco.

 Major markets--EU (Germany, Austria, Italy, France, U.K., Romania, Poland).

 Major suppliers--EU (Germany, Austria, Italy, France, Netherlands, Poland), Russia, and China.

POLITICAL CONDITION OF HUNGARY

The president of Hungary, elected by the National Assembly every 5 years, has a largely ceremonial role, but powers include requesting the winner of a parliamentary election to form a cabinet. That person then presents his program to Parliament, and is in turn ratified by that body as prime minister. The prime minister selects cabinet ministers and has the exclusive right to dismiss them. Each cabinet nominee appears before one or more parliamentary committees in consultative open hearings and must be formally approved by the president. The unicameral, 386-member National Assembly is the highest state legislative body and initiates and approves legislation sponsored by the prime minister. The number of seats will decrease to 199 for the 2014 election. National parliamentary elections are held every 4 years (the last in April 2010). A party must win at least 5% of the national vote to enter Parliament. A 15-member Constitutional Court may challenge legislation on grounds of unconstitutionality; members are appointed by a two-thirds vote in Parliament for a 12-year term of office.

(7)

Barriers to Entry in the Global Pharmaceutical Industry

Like many industries, any new entrant into the pharmaceutical sector will be faced with various "hurdles" that have been previously erected by already established businesses and by national and international standards and regulations. These include, but are not limited to:

 economies of scale - manufacturing, R&D, marketing, sales

 distribution product differentiation - established products, brands and relationships  capital requirements and financial resources

 access to distribution channels: preferred arrangements  regulatory policy: patents, regulatory standards

 switching costs - employee retraining, new equipment, technical assistance

The barriers to entry are extremely high in the pharmaceutical industry. Many of the top firms have "significant manufacturing capabilities that are hard to replicate". Also, they have extensive patents that guarantee the protection of their products while they defend their brands with large marketing budgets. Since any emerging pharmaceutical company can expect a sharp retaliation from the established competitors in the pharmaceutical industry, the overall threat of entry into the global marketplace is relatively low in comparison to other international industries.

The largest factors that influence the success of many pharmaceutical companies are capital requirements and financial resources, regulatory policies, and research and development. All three of these factors can influence one another and a lapse in one area can be disastrous for the future of the company.

ENTRY BARRIERS IN THE MARKET OF HUNGARY

High costs of entry including investments, marketing costs are entry barriers. It was also acknowledged however that the profitability of the market or the low level of sunk costs is a factor to be taken into account at the analysis of the significance of financial entry barriers. The GVH established that in the case of rapidly growing markets investments can be quickly recovered reducing the significance of high up front investments. Low exit costs may also counterbalance the financial obstacles of entry. Similarly, concerning the wholesale of pharmaceutical products it was stated that low level of fixed margins of 5-7% may reinforce the restrictive effect of the need for high up front investments as reaching of minimum efficient scale and therefore profitability requires more time.

Many aspects of administrative entry barriers were identifiable. Legal provisions influenced entry through the establishment of obligatory notifications, standards, administrative qualifications and authorizations, required minimum level of professional expertise, minimum level of stock, minimum standard for storage. Due to the financial burden imposed on the party, the minimum time frame delaying the entry and other impediments, these provisions might constitute significant barriers.

The abolishment of a 5% custom was also considered as a reduction of entry barriers. The need for vertical integration and the necessity for the establishment of distribution channels was also

(8)

recognized as a barrier to entry. Access to or acquisition of intellectual property rights may also be crucial for successful entry as it was the case concerning the merger of two music publishers.

ENTRY BARRIERS IN THE MARKET OF UK  Huge competition

 A lot of capital is needed to invest

 The UK has no significant trade or investment barriers and no restrictions on the transfer of capital or repatriation of profits. The very few barriers that exist are almost all

 Attributable to UK implementation of EU Directives and regulations. CONCLUSION

As there is huge competition in UK but we have huge amount to invest. So we will invest in UK. Because there are very low barriers as compare to Hungary, and the political condition of UK is much better than Hungary as well as economy of UK is also better than Hungary.

Figure

Updating...

References

Updating...

Related subjects :