WHAT IS INTERNATIONAL BUSINESS? – ENTERING OVERSEAS MARKETS part 8

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The article on entering international markets continues, part 8

6. Direct EXPORTING
A. DIRECT: selling a product or service directly to a foreign firm by the home-country firm. Costs and prices may be lowest if production occurs in only a few locations around the world and the efficiently produced goods are exported to most markets. Pharmaceutical and clothing companies use this mode frequently for globalizing.
1. Sales Representatives/Paid by seller: foreign-based representatives who work on a salary/retainer plus incentive basis to locate buyers for a company’s products.

2. Distributors/Agents: purchase merchandise directly from the home-country firm to re-sell at a profit.

3. Direct Sales to End-User: A manufacturer of medical equipment, may be able to sell directly to hospitals. Other major end-users include foreign governments, schools, businesses and individual consumers.

ADVANTAGEOUS WHEN: there is limited sales potential in target country; little product adaptation is required; distribution channels are close to plants; there are high target-country production costs; there are liberal import policies; high political risk exists.

PROS:
1) No investment in foreign production facilities is required;
2) Maintain more control; minimized risk and investment; speedy entry;
3) Maximize economies of scale; to prevent competitors from gaining ‘first-mover’ advantages in new markets;
4) Gain information about foreign competition;
5) Stabilize seasonal market fluctuations;
6) Reduces dependence on existing markets.

CONS:
1) More expensive due to tariffs, marketing expenses, transport costs;
2) Sometimes difficult to coordinate the cooperation of exporter, importer, transport provider, and government;
3) Limited access to local information; company viewed as “outsider”;
4) Need to develop customer base and logistics of moving the goods overseas;
5) May be difficult to overcome trade barriers;
6) May lose control over product’s pricing and marketing;
7) Task of finding customers.

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