foreign market servicing strategy

foreign market servicing strategy

the choice of EXPORTING, STRATEGIC ALLIANCES (including JOINT VENTURES), LICENSING and FOREIGN DIRECT INVESTMENT (FDI), or some combination of each, by a MULTINATIONAL ENTERPRISE (MNE) as a means of selling its products in overseas markets. Exporting involves production in one or more locations for sale overseas in target markets; licensing involves the assignment of production and selling rights by a MNE to producers in the target market; strategic alliances involve the combining together on a contractual or equity basis the resources and skills of two firms; foreign direct investment involves the establishment of the firm's own production (and selling) facilities in the target market. In resource terms, exporting from established production plants is a relatively inexpensive way of servicing a foreign market, but the firm could be put at a competitive disadvantage either because of local producers' lower cost structures and control of local distribution channels or because of governmental TARIFFS, QUOTAS, etc. and other restrictions on IMPORTS. Licensing enables a firm to gain a rapid penetration of world markets and can be advantageous to a firm lacking the financial resources to set up overseas operations, or where again local firms control distribution channels, but the royalties obtained may represent a poor return for the technology transferred. Strategic alliances can enable complementary resources and skills to be combined, enabling firms to supply products in a more cost-effective way and to increase market penetration. Foreign direct investment can be expensive and risky (although HOST COUNTRIES often offer subsidies, etc. to attract such inward investment), but in many cases the ‘presence’ effects of operating locally (familiarity with local market conditions and the cultivation of contacts with local suppliers, distributors and retailers) are important factors in building market share over the long run.

MNEs in practice tend to use various combinations of these modes to service global markets because of the added flexibility it gives to their operations. For example, if governments choose to act on imports by raising tariffs, etc. a MNE may substitute in-market FDI for direct exporting. See FOREIGN INVESTMENT, INTERNATIONAL MARKETING, EXCHANGE RATE EXPOSURE.

foreign market servicing strategy

the choice of EXPORTING, LICENSING, using STRATEGIC ALLIANCES (including JOINT VENTURES) or FOREIGN DIRECT INVESTMENT (FDI), or some combination of each, by a MULTINATIONAL COMPANY (MNC) as a means of selling its products in overseas markets. Exporting involves production in one or more locations for sale overseas in target markets; licensing involves the assignment of production and selling rights by an MNC to producers in the target market; strategic alliances involve the combining together on a contractual or equity basis of the resources and skills of two firms; foreign direct investment involves the establishment of the firm's own production (and selling) facilities in the target market. In resource terms, exporting from established production plants is a relatively inexpensive way of servicing a foreign market, but the firm could be put at a competitive disadvantage either because of local producers’ lower cost structures and control of local distribution channels or because of governmental TARIFFS, QUOTAS, etc., and other restrictions on IMPORTS. Licensing enables a firm to gain a rapid penetration of world markets and can be advantageous to a firm lacking the financial resources to set up overseas operations or where, again, local firms control distribution channels, but the royalties obtained may represent a poor return for the technology transferred. Strategic alliances can enable complementary resources and skills to be combined, enabling firms to supply products in a more cost-effective way and to increase market penetration. Foreign direct investment can be expensive and risky (although HOST COUNTRIES often offer subsidies, etc., to attract such inward investment), but in many cases the ‘presence’ effects of operating locally (familiarity with local market conditions and the cultivation of contacts with local suppliers, distributors and retailers) are important factors in building market share over the long run.

MNCs in practice tend to use various combinations of these modes to service global markets because of the added flexibility it gives to their operations. For example, if governments choose to act on imports by raising tariffs, etc., a MNC may substitute in-market FDI for direct exporting. See FOREIGN INVESTMENT, SCREWDRIVER OPERATION, LOCAL CONTENT RULE.

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