FOM_Project_Consolidation interrnational management

International management

1. Foreign Operation Modes Ahmed I. Abdou (7~9 min) – (Ch:14) Basic Types of FOMs Ahmed I. Abdallah (7~9 min) – (Ch:15) Export Modes Mahmoud Darwish (7~9 min) – (Ch:16) Outsourcing and Offshoring Karim ElAhmer (7~9 min) – (Ch:17) – International Alliances Marwa Ahmed (7~9 min) – (Ch:18) Wholly-Owned Sub, Gf Investment, Mergers and Acquisitions Agenda

2. Basic Types of Foreign Operation Modes Introduction Why Foreign Operation Mode? The choice of foreign operation mode is one of the most important components of an internationalization strategy , since the operation mode determines the type and intensity of control over foreign market activity, necessary resources and the associated risks , What is Foreign Operation Mode means? The foreign operation mode is defined as an institutional or organizational arrangement used for organizing and conducting an international business transactions , such as the manufacture of goods, servicing customers or sourcing various inputs. What is the Difference between Foreign Operation Modes and Market Entry Modes ?

3. Study by Morschett , Schramm-Klein and Swoboda (2008; 2010) Value-Added Dominantly in Host Country

4. Control refers to the authority over strategic and operational decisions during foreign operations. (risk and return) Resource commitment refers to the assets that an MNC needs to dedicate to the foreign market operations. Flexibility is closely linked to resource commitment . It refers to a company’s ability to switch the chosen operation mode rapidly and at comparatively low cost or even to withdraw from a foreign market when external conditions change. Dissemination risk refer to the risk that knowledge is absorbed by another company which then uses this knowledge against the MNC’s interests Characteristics of Foreign Operation Modes Source: Adapted from Driscoll/ Paliwoda 1997, p. 60. Cost and Profit Potential

5. Choice of Foreign Operation Mode Market factors, (i.e. market size , Foreign country GPD,…). Cost-related factors, (i.e. differences in labor costs , goods Prices, taxes). Country risks, (i.e. Political Situations , revolutions, War risks, nature crisis risks, regulations and LAWs issues,….)

6. Choice of Foreign Operation Mode Structure and Strategy should be aligned? - 🤔

7. FOMs Combinations and FOMs Changes Mode combinations Owned subsidiary for production activity and a joint-venture for distribution activity. companies may use their own sales force for one group of customers (e.g. large industrial companies) while selling via independent distributors to another group of customers it is not sufficient to recommend one specific foreign operation mode. A specific foreign operation mode for each value chain activity then links between them must be considered to create a specific combination. Mode Switches : one distributor could be exchanged with another – (Exporting) - Switching costs must also be considered AB InBev “leading global brewer and one of the world’s top five consumer product companies. Based in Leuven, Belgium, 100 countries and has geographically diversified operations in 25 countries on four continents. 200 beer brands and a beer volume of 400 million hectoliters.

8. Export Modes Export modes are strategies that companies use to enter international markets by selling their products or services across borders. There are two main types of export modes Indirect Channels Direct Channels

9. Channels of Distribution Indirect Exporting : This involves using intermediaries , such as export agents or trading companies, to handle the export activities. The manufacturing company does not directly engage with the foreign market. This method is low risk but offers less control over the marketing and distribution process. “the sale is like a domestic sale; in fact the firm is not really engaging in global marketing” Direct Exporting : the company takes full responsibility for exporting activities and directly interacts with clients in the foreign market. This includes handling documentation, delivery, and pricing policies. While it provides more control and potentially higher profits, it also involves higher risks and costs. “firm sells directly to foreign distributors, trading companies or final customers (buyers)”

10. Indirect Channels Types of Intermediaries 1. Exporters that Sell on Behalf of a Manufacturer 2. Exporters that Buy for Their Foreign/Overseas Customers 3. Exporters that Buy and Sell for Their Own Accounts

11. Indirect Channels (Types of Intermediaries) 1. Exporters that Sell on Behalf of a Manufacturer Manufacturer’s Export Agents Export Management Companies (EMCs) Role well-known logistics company that often acts as an export agent for manufacturers, handling the shipping and logistics of goods to international markets acting as an outsourced export department for manufacturers, managing the entire export process Ownership do not take ownership of the goods may or may not take ownership of the goods. They can act as agents, consultants, or distributors, depending on the agreement with the manufacturer Business Model short-term , non-exclusive relationships with manufacturers These companies manage the entire export process for manufacturers, from finding buyers to handling logistics and documentation “ L ong-term , exclusive partnerships ” services provide limited services focused on sales offer a full range of export management services. Example TAYT SOURCING : the textiles and apparel industry GEO Exporting : Specializes in growing, producing, and exporting agricultural products such as oranges, lemons, onions, potatoes, and sweet potatoes

12. Indirect Channels (Types of Intermediaries) 2. Exporters that Buy for Their Foreign/Overseas Customers Export Commission Agents Representatives of Foreign Buyers Role act as intermediaries between domestic manufacturers and foreign buyers. They representatives manufacturers find buyers and facilitate the sale of goods. representatives work directly for foreign buyers , sourcing products that meet specific requirements and negotiating terms with manufacturers. Ownership They do not take ownership of the goods. Instead, they facilitate the transaction and ensure that the goods are sold to the foreign buyer They do not take ownership of the goods. They act as agents, ensuring that the goods are purchased and shipped according to the buyer’s specifications. Business Model Focus on selling goods , They earn a commission from the manufacturer for their services, typically based on the value of the sales they generate. Focus on purchasing goods , They earn a commission from the foreign buyer for their services, which may include finding suitable suppliers, negotiating prices, and ensuring quality standards are met 2 .

13. Indirect Channels (Types of Intermediaries) 3. Exporters that Buy and Sell for Their Own Accounts Export Merchants International Trading Companies (ITCs) Role Focus on purchase goods directly from manufacturers and then sell them internationally “ assume all risks associated with the goods ” facilitate international trade by connecting foreign buyers with domestic manufacturers. They may provide various services such as market research, logistics, and financing with No Risk Ownership They take ownership of the goods, assuming all risks and responsibilities associated with the products T hey may or may not take ownership of the goods. Sometimes, they act as intermediaries without taking title to the products Business Model They operate independently , buying and reselling products for profit. They do not represent the manufacturer but act as independent traders. They represent manufacturers and facilitate trade on their behalf often work on a commission basis, earning fees for their services Example small business owner who buys handmade crafts from local artisans and sells them in foreign markets

14. Direct Channels manufacturer has different options for selling its products directly to foreign countries: Direct selling from the home country Selling through agents and distributors Selling through resident sales representatives, foreign sales branches and foreign sales subsidiaries.

15. Description Control Investment Presence Example Direct Selling from the Home Country The manufacturer sells products directly to foreign buyers from their home country without any intermediaries High control over sales and marketing strategies Low investment as there is no need for a physical presence in the foreign market. No physical presence in the foreign market online retailer selling products directly to international customers through their website. Selling through Agents and Distributors The manufacturer uses agents or distributors to sell products in the foreign market. Agents represent the manufacturer and earn a commission, while distributors buy products and resell them Moderate control, as agents and distributors handle sales and marketing. Moderate investment, mainly in finding and managing agents or distributors Indirect presence through agents or distributors A manufacturer of electronics using local distributors to sell products in different countries Apple, Samsung, Coca-Cola … Selling through Resident Sales Representatives The manufacturer employs sales representatives who reside in the foreign market to sell products High control over sales activities and strategies. Higher investment in hiring and maintaining sales representatives Direct presence through resident sales representatives IBM ,Microsoft Toyota , Ford …

16. Conclusion :Advantages and Disadvantages of Export Modes Export Mode Advantages Disadvantages Indirect Exporting limited commitment and investment required minimal risk little or no involvement or export experience needed good way to test-market products no control over marketing mix elements other than the product an additional costs and lower profit margin due to commissions and other payment to intermediaries lack of contact with the market limited contact/feedback from end users limited/no opportunity to learn international business know-how and develop marketing contacts Direct exporting better control of sales activities compared to independent intermediaries access to market experience shorter distribution chain (compared to indirect exporting) acquisition of market knowledge more control over marketing mix local service support available full control of operation high travel expenses less flexibility (subsidiary) high risk (market, political) taxation problems some investment in sales organization required (contact with distributors or agents) cultural differences, providing communication problems

17. Outsourcing and Offshoring: A Strategic Perspective

18. Outsourcing and Offshoring Insourcing : Bringing business processes or tasks back in-house that were previously outsourced, or performing new tasks within the company instead of outsourcing.

19. Outsourcing Advantages & Risks

20. Strategic Relevance/Competence-Matrix - Krüger and Homp (1997)

21. Strategic Relevance/Competence Matrix

22. A.T. Kearney’s Strategic Outsourcing Framework - Martin 2010 􀂄 outsource : Services are provided by a third party. 􀂄 co-source : Services are provided by one or more providers. 􀂄 contest : Services are contracted to multiple suppliers at the same time.

23. Location of Outsourced Services by Country

24. Outsourcing of It Services per Industry

25. International Alliances International Alliances or cross-border alliances are partnerships of organizations or companies from different countries. By setting up a partnership, the companies strive for a joint competitive advantage. Why do firms enter Strategic Alliances? Enter New Market Access to complementary Assets (Marketing & After Sales Services) Learn New Capabilities Strategic alliances result in a new economic phenomenon called “ co-opetition ” Ex: Samsung & Apple ( OLED Screen)

26. Types Strategic Alliances I. Non-Equity Alliances T wo companies sign a contract agreeing to pool resources, decision-making, and share core competencies without making a direct financial investment in each other. Examples: Supply and distribution agreements(Vertical Strategic Alliances) II. Equity Alliances At least one partner takes a partial ownership of the other partner It requires large investments, sharing of Tacit knowledge (Know how) III. Joint Venture A standalone organization created and jointly owned by two or more parent companies. Ex: BMV Brilliance Automotive

27. Selected forms of Strategic Alliances International Licensing International Franchising : Direct Franchising , Master Franchising & Indirect Franchising Management Service Contracts

28. Risks of Alliance Membership In 2002, a strategic alliance which led to unsatisfactory outcomes and cancelled was the joint venture called CCDA , which was formed by Danone and Coca-Cola Company. This joint venture was unique, The miscellaneous opponents in the non-alcoholic beverages markets chose to participate in a so called “ coopetition ”. The alliance was designed to enhance the Evian brand in the US by offering a wide distribution network and greater marketing campaigns to compete with lower priced brands of mineral water, including Coca-Cola’s own Dasani brand. Coca-Cola distributed Evian in 60% of the US market. In 2005, The alliance was suddenly dissolved . The alliance between Danone and Coca-Cola can be seen as a strategic misfit

29. Wholly-Owned Subsidiaries, Greenfield Investments and Mergers & Acquisitions Foreign Direct Investment and Wholly-Owned Subsidiaries : FDI is an internationalization strategy involving the transfer of equity funds to other nations to gain (whole or partial) ownership and control of foreign assets Wholly-owned subsidiaries, in contrast, represent full ownership (100%) and full control over foreign business entities

30. Types of Wholly-Owned Subsidiaries 1-Greenfield Investment 2-Mergers & Acquisitions

31. Types of Wholly-Owned Subsidiaries 1-Greenfield Investment Greenfield Investment The greenfield strategy involves starting operations in the host country “from scratch” . As the term “greenfield” implies, companies typically invest in empty plots of land and build new facilities such as production plants, logistics subsidiaries, or other facilities for their own use . This strategy gives the firm the ability to build the kind of subsidiary company needed to efficiently pursue its international strategy. Greenfield investments may be also favored by companies that operate in businesses where transferring skills, and expertise is difficult. By establishing companies can build an organization culture from scratch, which is much easier than changing the existing culture of an acquired unit. Also, it is easier to establish processes and procedural methods in a new venture than to convert existing operating routines of acquired units

32. However, greenfield ventures are slower to establish. They are often riskier because of a higher degree of uncertainty. For example, when firms establish new production plants, it is important that land in the desired location is available. Additionally, firms must comply with various local regulations, recruit staff from the local workforce and train them to meet the MNC’s performance standards

33. Types of Wholly-Owned Subsidiaries 2-Mergers & Acquisitions (“brownfield strategy”) In a merger, two (or more) firms join to form a new, larger entity. The corporations combine and share their resources and often the shareholders of the combining firms remain as joint owners of the combined company. In an acquisition, the acquired firm becomes a part of the acquirer.

34. Cross-border M&As can be accomplished across different types of industries. 1-horizontal M&As: A horizontal merger occurs when two companies operating in the same market (and selling similar products or services) come together to dominate market share. This type is attractive for merging companies aiming to build economies of scale and decrease market competition.  2-vertical M&A Vertical mergers involve two companies in the same industry who operate in different stages of production. 3-Conglomerate M&As  a conglomerate merger occurs between two companies whose business activities and industries may be completely unrelated. In pure conglomerate mergers, the two firms may continue to operate separately within their own markets, whereas in a mixed one, they may look to expand product or market reach.