Because there with the modes exports, a firm must have many bureaucratic things to do with the government.
The export mode does not allow closer control over production, marketing, and other business operations so to get over control a firm must use the mode of JVS.
There is going to be better domestic market information provided by domestic JV partner.
The major benefit of joint ventures is that the contributors of intermediate inputs get a claim on any residuals. This theory implies that international joint ventures would be undertaken when other modes of entry such as direct foreign investments and corporate acquisitions are costlier. (Janakiramanan, 2004)
So, exports and other entry modes can be costlier than JV and this is going to be related to the JVs.
But of course, there is also some kind of disadvantages compared to the exports. The major of disadvantage is a conflict of interest which cannot be found in the modes exports. For instance, issues such as profit shares amount invested, management of the business and marketing strategy can occur if there is no well-structured agreement. The thing is to be careful about the selection of the partner so that the risks are minimized. As said the formulation of the contract is the key
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But beyond the immediate legal reasons, it makes good business sense to test the concept before franchising it. Joint ventured locations between a franchisor and its future master franchise partner can test such things as customer tastes, location development, staffing, and sources of supply through the “test kitchen” of a jointly owned and operated unit. While the franchisor may give up an immediate development fee and royalty stream it will gain a valuable understanding of the best business practices for transferring a business concept to a new country. (Pearce,
It also requires more of an investment and commitment by the international company which creates a higher risk. There is also the down side of having difficulty managing local resources.
Joint ventures (JV) are a popular method of foreign market entry because they theoretically provide a way to join complementary skills and know-how, as well as a way for the foreign firm to gain an insider’s perspective on the foreign market. Since China began its market opening in 1978, joint ventures have been the most commonly used form of foreign direct investment (FDI), with about 70% of FDI in China in the 1980s and 1990s taking the form of joint ventures (Qui, 2005, p. 47). The Chinese company, as well as the foreign investor, has since 1978 been drawn to the joint venture form. Walsh, Wang & Xin (1999) note that from the Chinese
The foreign partner can also become a competitor by selling its production in places where the parental company is already in.
Ownership advantages could be intangible assets like technology and information, managerial, marketing and entrepreneurial skills, organisational systems, access to intermediate or final goods markets, a production process, patent and blueprint. The ownership advantage includes some firm specific valuable market power or cost advantage on the firm sufficient to outweigh the disadvantages of doing business abroad. They are closely related to the technological and innovative capabilities and the economic development levels of source countries.
simplicity of market entry: Advances in telecommunications, computer technology and transportation have made entry into foreign markets by
Exporting allows apple more opportunities but it also involves apple in greater risks. There are many forms of risks including political, legal, bribery, quarantine complication, exchange rate and non-payment risks.
The third circumstance for MNEs using IJV is to gain access to a specific market, where regulations favour domestic companies for example China, Russia (EU) (Dr. Ananthram. 2016). In this case the MNEs do not have the understanding of carrying out business activities in another country, which may include the taste of consumer products or appropriate methods of distribution which in turn can prove to be expensive and time
Direct exporting is more expensive than indirect exporting. The entry cost & ongoing cost are high for direct exporting. In direct exporting a company have greater chances to build up good relationship. Direct exporting is used by many famous companies in toady’s competitive world as a source of entering new international market. SAMSUNG is also one of the companies who uses direct exporting as a source of Marketing Strategy. Direct exporting is cheaper as compared to other ways of market entering strategy and biggest benefit of direct exporting is it helps in acquiring the information of local market. Potential conflicts with distributors is one of the biggest disadvantage which a company can face in Direct
The lesson learned from this is that sometimes it is easier and faster reach a new market via joint venture, even though the profit will be less, but the company can save a lot of money in studying the new market trying to understand the new culture and how they purchase and also it can minimize the risk because there is a national brand supporting the new international brand, which gives confidence and security to the customers.
Franchisors are increasingly having to be more and more selective in the adoption of franchisees with factors such as economic climate and the potential difficulty with growth playing key factors in the decision making process. It is not simply an ability to grow which creates a successful Franchise and nor is it the desire of any franchisor to adopt every potential franchisee. Franchisors are becoming more and more scrutinising as the global economy declines. There is a general understanding within any franchised
It is because through the joint venture, the company is more familiar with the situation of the company there. The negative outcome is that the management system different between the company. So it is hard to make a decision making. It is because there is different opinion of each person.
* To structure deal as joint venture, which would be an economical approach to entering the market with the access to the technology, cross-marketing and profits. May bring, however, the lack of control to achieving "Anywhere, Anytime" vision.
• It takes time and effort to build the right relationship and partnering with another business can be challenging. Problems are likely to arise if:
The reluctance of firms to change entry modes once they are in place, and the difficulty involved in doing so, make the mode of entry decision a key strategic issue for firms operating in today’s rapidly internationalizing market place.
• Exporting requires significantly lower level of investment than other modes of international expansion, such as FDI. As you might expect, the lower risk of export typically results in a lower rate of return on sales than possible though other modes of international business. In other words, the usual return on export sales may not be tremendous, but neither is the risk.