Page 324 - DMGT408DMGT203_Marketing Management

Unit 14: The Global Marketplace

Many companies station their buying representatives, or send their buying teams in India and Notes
other countries to procure goods. In this type of exporting, as in case of selling to export
merchants, the company is not involved in completing any export procedures and avoids taking
any risks. Sometimes these representatives or visiting teams suggest ways to adapt products,
provide specifications, and designs or styling etc.
14.2.2 Contracting

Various approaches with regard to contracting involve legal relationship that international
marketers enter into, to quickly establish market presence in a foreign country. Licensing,
contract manufacturing, and franchising are fairly popular approaches.

!
Caution Licensing is an alternative to exporting, or involving any direct investment in
foreign markets. The company granting the license permits the licensee to manufacture
goods under the brand name of the company, and the use of patent rights, trademarks, raw
materials, production processes, and provides necessary technical know-how. This
arrangement involves making a down payment to licensor and may also include a royalty
on sales.
Licensing is an appropriate approach, when a company wants to avoid a direct involvement in
international marketing. This approach can help overcome tariff barriers and import restrictions.
This is a good approach to enter foreign market with little or no investment and risks. The
drawback is that licensee may learn all about the product and processes and start independently
after the expiry of license agreement.

Figure 14.1: Major Approaches to Operating in International Markets

Direct Multinational
Export
Corporation

Foreign Licensing Contract Joint Venture Direct
Sales Foreign Production Strategic Ownership
Branch Firm Alliance

Low High
Involvement Involvement
Abroad Abroad

Licensing arrangement may take a variety of forms, such as granting licenses for using production
processes, using trade name, or it could be for distributing the licensor’s imported products.
This arrangement poses problems of finding, controlling, and motivating licensees.

In case of contract manufacturing, the company enters into contract with a foreign firm to supply
products to the international company, which are sold in the producers’ country.

Example: Reebok gets its sports shoes manufactured by firms from Indonesia, China,
Taiwan, South Korea, Malaysia, Thailand, and Philippines. Indian firms include Phoenix Overseas,
Liberty, Woodland, and some others. Reebok provides technology and designs and buys the
entire output. The company aims to buy nearly thirty million pairs of shoes annually from
contract manufacturers.

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