Deck 4: Methods of Entry Into Foreign Markets

Question 1

What are the principal differences between an agent and a distributor?

Answer 1

The main characteristics that differentiate an agent from a distributor are that agents do not take titles to goods that it sells as distributors do. Rather, agents merely represent firms and are not generally given the authority to make compulsory decisions or stipulations regarding certain factors of a sale (i.e., price, trade terms, delivery, sale terms, or collection), granted the agents are not binding agents. The chief role of agents is to serve as the face of firm working as a liaison to expedite negotiations between firms and the exporter; they receive commission for any sales completed.
Alternatively, distributors take on greater responsibility because these entities take on titles of goods from exporters, sell them to consumers, and then acquire profits from the sales. The inventory distributors posses gives them the ability to actively take part in trade, both in purchasing from exporters and in competing with exporters by providing consumers with after-sale services. Distributors are also involved in marketing costs, attending trade shows, and more concrete aspects of trade (determining price points, discussing trade conditions with customers, and managing external copyright and trademark issues not dealing with the exporter). Distributors are deemed long-term partnership entities within trade because of their expansive involvement in trade both with exporters and domestic customers.

Question 2

What are the different methods of entry regrouped under the term "indirect export"?

Answer 2

In regards to indirect export, the various approaches of entry include utilizing an Export Trading Company (ETC), an Export Management Corporation (EMC), or Piggy-Backing. An ETC employs the most hands-off approach for embarking in foreign export. Simply, a company can use ETCs to purchase goods within a country and then resell them to customers within that same country. The transactions between exporter and importer are seamless and domestically based under ETC frameworks.
EMCs functions as an agent within the exporting country on behalf of a corporation seeking to engage in export operations. EMCs gain commissions for sales and are highly involved in the negotiations and trade transactions between exporters and domestic buyers located within the country of interest.
Piggy-Backing operates by creating manufacturing facilities in new foreign markets or by incorporating successful suppliers into markets previously developed by exporters.

Question 3

Using a product of your choice and a country of your choice, determine what would be the best method of entry for an exporter interested in that market. Justify your decision using the guidelines provided in the chapter.

Answer 3

An example of a product one could introduce into a foreign market would be smart phones and the country of choice would be Nigeria. There is already great demand and usage of GSM (Global System for Mobile Communication) frameworks within this country; hence, I would adopt the method of entry of Piggy-Backing. I would create manufacturing facilities for these phones and encourage suppliers to facilitate the development of cell phone market in Nigeria. Many basic type phones have already been introduced into the market, thus encouraging the smart phone market and supplying its accessory devices would be possible through Piggy-Backing.

Question 4

Why would a company decide to franchise abroad?

Question 5

What advantages would a foreign trade zone represent for an importer/exporter?

Question 6

What are the advantages and disadvantages of using a subsidiary rather than a joint venture for a firm interested in manufacturing abroad