Various Method for the Business Planning for International Mkt

By Bhadresh Bundela

Contract Manufacture
In this method of market entry, manufacturer permits the production of his product abroad by a local party under contract with him but he reserves to himself the right of marketing that product in that market. It is obvious that this type of arrangement is possible if only there is a producer with the necessary capability to manufacture the product and maintain its quality. Normally firms with comparative advantage in marketing and service, rather than production, resort to contract manufacturing. Procter and Gamble is known to have many of its products manufactured abroad under contract. This method is advisable particularly in politically unstable countries where one would always like to pull out at short notice in case of trouble.

The disadvantages of contract manufacturing are:
1. The parent company has to forego the manufacturing profit to the local firm;
2. It is not always easy to locate a local party with the necessary capabilities to manufacture the product upto the requirements of the parent firm;
3. The possibility of the local party gaining experience in marketing in the course of time and posing a threat to the parent party; and
4. The difficulties faced in maintaining the quality of the product upto the standard required of the parent firm.

Licensing
As compared to contract manufacturing, licensing is for a longer term and involves must greater responsibilities on the part of the national party. Licensing is an arrangement wherein the licenser gives something of value to the licensee in return for certain performance and payments from the licensee. The licenser may agree to give one or more of the following:

1. Patent Right
2. Trade Mark Rights
3. Copy Rights
4. Know-how
In return, the licensee usually promises (a) to produce the licensor’s products covered by the rights; (b) to market these products in the assigned territory; and (c) to pay the licenser some amount related to the sales volume of such products. It may be noted that the licensee markets the products of the licenser in addition to producing it, whereas contract manufacturing covers only manufacturing.

Advantages of Licensing Arrangement
1. Licensing arrangement does not involve any capital outlay on the part of the licenser;
2. This is a very quick and easy way to enter the foreign market;
3. By this method, the licenser gains easy access to knowledge about the local market;
4. Licensing normally gains local government approval more quickly than foreign manufacturing because of inflow of technology with very little cost and strings; and
5. Licensing also has other advantages such as savings in shipping freight, avoidance of tariff and non-tariff barriers, etc.

Disadvantages of Licensing
1. As in the case of contract manufacturing, there is a possibility that the licensee might become competitor to the licenser in the long run;
2. The return normally in licensing is limited as compared to other forms of investment;
3. It is difficult to exercise much control on the licensee.

Joint Ventures
Joint Ventures are very much like licensing arrangements, but in the former the international firm has, normally, equity participation and management voice in the local firm.

Advantages of Joint Ventures:
As compared to the earlier three forms of overseas investment, joint venture has the following advantages:
1. Potentially greater returns from equity participation as opposed to royalties;
2. Greater control over production and marketing;
3. Better market feedback; and
4. More experience in international marketing.

Disadvantages of Joint Ventures:
The disadvantages of Joint Ventures as compared to licensing, contract manufacturing and assembly are:

1. Joint Ventures involve greater risks; and
2. They also involve greater investment of capital and management resource.

As compared to 100% ownership, joint ventures (a) require fewer capital and management resources and thus this arrangement is open to smaller companies, (b) a given amount of capital can be spread over many countries, and (c) the danger of appropriation is less, since a national partner is involved in a joint venture.
On the other hand, there is a possibility of conflict of interest with the national partner.

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