Foreign Operations Methods
From Supply Chain Management Encyclopedia
Russian: Международные операции: методы и формы
Introduction
An integrity of global supply chains across borders is accomplished with help of main international operations [1]understood also as modes of entry. An existing areas of international business evolve, or new areas emerge, the process tends to spill over into questions that pertain to the use of foreign operations modes [2] The class of managerial decisions concerning choosing and implementing international operations is often classified as strategy decisions or the global market entry strategies [3] [4]. However, supposing any strategic decision has to answer questions "What?", "Where?", and, sometimes, "When?" to sell (to deliver), we propose to classify (to term) the entry mode decisions answering the questions "How?" as operative decisions whereas all decisions concerning marketing mix adjustments are named as tactic decisions.
An entry mode is understood in terms of international marketing as an approach to international expansion a company chooses based on desired control and on the risk it can afford. Nevertheless, in terms of international logistics, the entry mode should be defined as a means to connect and match arms of a global supply chain belonging to different national marketing environments [5]. The main task of international logistics efforts is to overcome integrity disruptions on the way of international supply chain generated by dissimilarities between different national marketing environments (Fig. 1.). For this purpose an international logistics manager has to create such a combination of method and form of international operation (Table 2) that could fit the nature ща the product under consideration and other marketing/logistics factors (accomplishing marketing eco-balance [6]).
Any product movement across borders is to be arranged as an international sale-purchase transaction. This absolute rule is in power due to the fact of export/import customs formalities and government regulations presented as tariff and non-tariff barriers in international trading. Therefore, the first step of international logistics managers in any international (foreign) operations is to reveal and interpret the differences between national marketing environments of (as minimum) two countries ("home country" and "host country" on Fig. 1.). The second step consists of executing export/import customs clearance, home and host country export/import government regulations and contractual requirements.
An approach to construct the unified classification table for all known (simple but not compound) international operations is based on the fact that an initial and main category of marketing exists.As it is well-known this category is an exchange. In traditional export-import operations this exchange is presented by the sale-purchase transactions while the simplest form of the countertrading is presented by barter involving no exchange of currency. Transmutated forms of international operations (Table 2) are more sophisticated but again there is the exchange in the very center of such forms. Besides, the subject of the transmutated forms is a composition of intangible (services), virtual (intellectual property), and tangible (goods) components of a product to be exchanged.
Contents |
Table 1. Entry Mode Factors vs International Logistics Considerations
Entry Mode Factors | Commentary |
The size of the market | While there is no easy rule, the method of entry is different for a market in which combined sales amount to €10,000,000 (U.S. $14,159,000 – MAY22, 2011 exchange rate) per year and a market that exhibits sales in billions of euros. |
The growth of the market | A stable market, growing at a moderate rate, will call for a different entry strategy than one in which there is a substantial potential for growth. |
The potential market share of the exporter | A market in which the exporter can become a major player will call for a different strategy than one in which the exporter has no chance to be much more than a niche player. |
The type of product | Products with technology and a need for after-sale service and parts will require a different entry strategy than a disposable consumer good. |
The marketing strategy of the firm. | Although self-evident, a firm whose strategy is to provide a top-of-the-line product will have a different entry strategy than a firm that has chosen to be the lowest cost provider. |
The characteristics of the country considered | The level of development, the infrastructure of the country, the business sophistication of potential trade partners, the overall climate under which business is conducted, the culture of the market, and the culture of customers should all be considered in the decision of an entry strategy. |
The time horizon considered | Products that have a short life cycle, or products that are likely to generate a lot of “me-too” competitors, demand a different entry strategy than products that are patent protected or are likely to have a long life cycle or engender a long line of complementary products. |
The willingness of the firm (its relevant managers) to get involved. | Firms that actively want to develop foreign markets should have a different entry strategy than firms that believe that their domestic market is their primary concern and consider foreign sales as “bothersome.” |
Table 2. Unified classification (methods-forms-subjects) of international operations (See LEGEND under the bottom-line)
Forms of International Operations: | Methods of International Operations: | |||||||
Direct | Cooperative:
Piggybacking Consortium | Own or
Intracorporative | Indirect:
Agency*) Distributorship**) Consignment***) | Countertrading | Institutionally-Competitive****) | E-commerce | ||
TRADITIONAL METHODS - "PRODUCT" GROUP: | ||||||||
Importing (Reimporting) | 1, 2A, 5, 6 | 1, 2A, 4, 5, 6, 7 | ||||||
Importing (Reimporting) | 1, 2A, 5, 6 | Commodity Exchange:
1B, 1C Auction: 1B, 1C Tender: 1A, 1B, 3 | ||||||
Exporting (Reexporting) | 1, 2A, 5, 6 | 1, 2A, 4, 5, 6, 7 | ||||||
Exporting (Reexporting) | 1, 2A, 5, 6 | Commodity Exchange:
1B, 1C Auction: 1B, 1C Tender: 1A, 1B, 3 | ||||||
TRANSMUTATED METHODS - "KNOW-HOW" GROUP: | ||||||||
Foreign Assembling[7] | 1 | 1 | ||||||
International Licensing[8] | 1A, 1B, 2A, 2B, 3, 4 | 1C | 7 | |||||
International Franchising[9] | 1A, 1B, 1C, 2A, 2B, 3, 4 | 7 | ||||||
International Engineering[10] | 3 | |||||||
Foreign Manufacturing[11] | 1B, 2 | 1, 2 | ||||||
TRANSMUTATED METHODS - "FOREIGN DIRECT INVESTMENTS" GROUP: | ||||||||
International Contractual Joint Venture[12] | 1, 2, 3, 4, 5, 6 | 1, 2, 3, 4, 5, 6 | 7 | |||||
International Equity (Incorporated) Joint Venture[13] | 1, 2, 3, 4, 5, 6 | 1, 2, 3, 4, 5, 6 | 7 | |||||
Foreign Subsidiary[14] | 1, 2, 3, 4, 5, 6 | 1, 2, 3, 4, 5, 6 | ||||||
Foreign Branch[15] | 1, 2, 3, 4, 5, 6 | 1, 2, 3, 4, 5, 6 | ||||||
International Strategic Alliance[16] [17] | 1, 2, 3, 4, 5, 6 | 1, 2, 3, 4, 5, 6 | 7 | |||||
TRANSMUTATED METHODS - "RENT" GROUP: | ||||||||
International Operating Leasing[18] [19] | 1 | 1A, 2 | ||||||
International Financial Leasing[20] [21] [22] [23] | 1 | 1A, 2 | ||||||
International Management Contract [24] [25] | 1 | 1A, 2 | ||||||
LEGEND: | *) International Agency means that an Agent and its Principal are residents of different countries; **) International Distributorship means that a Distributor (Dealer, Reseller, Merchant, Jobber, etc.)and its Principal (Supplier, Vendor, etc.) are residents of different countries; ***) International Consignment means that a Consignee and its Consignor are residents of different countries; ****) "Institutionally-competitive method of international operations" term has to display two facts: 1) there is a special institute (commodity exchange, auction, tender committee, etc.) involved into trade transactions; 2) item prices are quoted as a result of buyers' price offering competition. |
Table 3. Entry modes: Advantages and Disadvantages. Reasons for Switching
Exporting | |||
Advantages | Disadvantages | ||
|
| ||
Reasons to switch the entry mode | Socio-cultural | Political-Law | Economic |
From PRODUCT Group to KNOW-HOW Group |
|
|
|
Licensing | |||
Advantages | Disadvantages | ||
|
| ||
Franchising | |||
Advantages | Disadvantages | ||
|
| ||
Reasons to switch the entry mode | Socio-cultural | Political-Law | Economic |
From KNOW-HOW Group to FDI Sub-Group One: Overseas Assembling to Turnkey Contracts |
|
|
|
Overseas Assembling to Turnkey Contracts | |||
Advantages | Disadvantages | ||
|
| ||
International Alliancing: Joint ventures | |||
Advantages | Disadvantages | ||
|
| ||
Reasons to switch the entry mode | Socio-cultural | Political-Law | Economic |
From FDI Sub-Group One: Overseas Assembling to Turnkey Contracts to FDI Sub-Group Two: Overseas Wholly Owned Subsidiaries |
|
|
|
Overseas Wholly Owned Subsidiaries | |||
Advantages | Disadvantages | ||
|
| ||
Rest of problems | Socio-cultural | Political-Law | Economic |
with Overseas Wholly Owned Subsidiaries |
|
|
|
References
- ↑ Cherenkov, V.I. International Business: Main Operations. Phoenix,Rostov-on-Don, 2007.[Printed in Russian]
- ↑ Welch, L.S., Benito, G.R.G., Petersen, B.: Foreign Operation Methods: Analysis, Strategy, and Dynamics: Edward Elgar, London, 2007 - p.8
- ↑ Gillespie, K, Jeannet, J-P., Hennessey, H.D. Global Marketing - Houghton Mifflin Company, Boston, New York, 2007 - Ch.9.
- ↑ Keegan, W.J., Green, M.C. Global Marketing - Pearson Education, Boston, etc., 2013 - Ch.9.
- ↑ Cherenkov, V.I. Global Marketing Environment: Essays on Conceptual Integration - SPSUS Publishing House, St. Petersburg, 2003.[Printed in Russian]
- ↑ Cherenkov, V.I. Marketing Ecology // Innovations Journal. – 2002. – № 9-10 (56-57) [Printed in Russian]
- ↑ Techakanonta, Terdudomthamb, K. Evolution of Inter-firm Technology Transfer and Technological Capability Formation of Local Parts Firms in the Thai Automobile Industry // Journal of Technology Innovation 12, 2 (2004) - http://www.google.ru/url?sa=t&rct=j&q=evolution%20of%20inter-firm%20technology%20transfer&source=web&cd=1&sqi=2&ved=0CEwQFjAA&url=http%3A%2F%2Fciteseerx.ist.psu.edu%2Fviewdoc%2Fdownload%3Fdoi%3D10.1.1.126.9583%26rep%3Drep1%26type%3Dpdf&ei=1lD6T-yRK4eE4gT6kuXgBg&usg=AFQjCNGQVl4IPoDghDfMfERh_tFRcuiHcw&cad=rjt - accessed 05/09/2012
- ↑ Basics of Licensing Booklet - Licensing Executives Society (U.S.A. and Canada), Inc. // http://lesusacanada.dev.vtcus.com/docs/default-document-library/basicsoflicensing.pdf?sfvrsn=0 - accessed: 05/09/2012
- ↑ Konigsberg,A.S. International Franchising - Juris Publishing, Inc, New York, USA, 1999 - http://www.lapointerosenstein.com/fichier/listelibrary/21/ako-franchising.pdf - accessed: 05/09/2012
- ↑ Engineering: Issues, Challenges, and Opportunities - UNESCO Publishing, Paris, 2010 - http://unesdoc.unesco.org/images/0018/001897/189753e.pdf - accessed: 05/09/2012
- ↑ Moran, T.H. Foreign Manufacturing Multinationals and the Transformation of the Chinese Economy: New Measurements, New Perspectives - Peterson Institute for International Economics, Working Papers Series, Washington, April 2011 - http://www.piie.com/publications/wp/wp11-11.pdf - accessed 05/09/2012
- ↑ ITC Contractual Joint Venture Model Agreements - International Trade Centre UNCTAD/WTO, Geneve, 2004 - http://www.jurisint.org/doc/orig/con/en/2004/2004jiconen2/2004jiconen2.pdf - accessed 05/09/2012
- ↑ Hunoldt, M. Factors Influencing International Equity Joint Venture Performance: A Meta-analytical Review - http://www.hendrix.edu/uploadedFiles/Departments_and_Programs/Business_and_Economics/AMAES/IJV_Meta-analysis_MAERS_20100915.pdf - accessed 05/09/2012
- ↑ Mahlendorf, M.D., Rehring, J., Schäffer, U., Wyszomirski, E. Influencing foreign subsidiary decisions through headquarter performance measurement systems // Management Decision, 2012, Volume 50 (4): 30 - http://www.deepdyve.com/lp/emerald-publishing/influencing-foreign-subsidiary-decisions-through-headquarter-LBDtTLLmiq - accessed 05/09/2012
- ↑ Starting a branch // Invest: Sweden, Published in January 2012 - http://www.investsweden.se/Global/Global/Downloads/Fact_Sheets/Starting-a-branch.pdf - accessed 05/09/2012
- ↑ Lendrum, T. The Strategic Partnering Handbook: The Practitioners' Guide to Partnerships and Alliances - The McGraw-Hill Companies, Sydney, etc., 2003
- ↑ Lendrum, T. The Strategic Partnering Pocketbook: Building Strategic Partnerships and Alliances - The McGraw-Hill Companies, Sydney, etc., 2009
- ↑ Lister, R. Classification and Treatment of Leases // QFINANCE - http://www.qfinance.com/contentFiles/QF02/g1xtn5q6/12/4/classification-and-treatment-of-leases.pdf - accessed 05/09/2012
- ↑ Hamilton, S. A practical guide to operating leasing - http://www.transeuroasset.com/info_downloads/directoroffinance.pdf - accessed 05/09/2012
- ↑ Faber, D., Schuijling, B. Financial Leasing and Its Unification by Unidroit // Electronic Journal of Comparative Law, vol. 14.3 (December 2010), http://www.ejcl.org - accessed 05/09/2012
- ↑ Unidroit Convention on International Financial Leasing (20 May 1988) - http://www.jus.uio.no/lm/unidroit.financial.leasing.convention.1988/portrait.pdf - accessed 05/09/2012
- ↑ Simon, A. Economic Aspects of Financial Leasing in Business Investments // Scientific Bulletin – Economic Sciences, Vol. 9 (15) - Finance - http://economic.upit.ro/repec/pdf/F1.pdf - accessed 05/09/2012
- ↑ Sposeep, S., Sedova, I. Leasing: A Potential Solution for SME Expansion and Rural Financial Sector Depending: A Study of Russia - microREPORT #46, United States Agency for International Development, March, 2006 - http://pdf.usaid.gov/pdf_docs/PNADF943.pdf - accessed 05/09/2012
- ↑ Welch, L.S., et al., op. cit. - Ch.5.
- ↑ Faber, D., Schuijling, B. Enhancing the Role of Tourism SMEs in Global Value Chain: A Preliminary Case Study of Korean Hotel Industries // Global Tourism Growth: A Challenge for SMEs, 2005 OECD & Korea Conference - http://www.suntransco.com/data/upload_file/File/Online%20Library/Supply%20Chain%20Intelligence%20Solutions.pdf - accessed 05/09/2012