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Assembly facilities Manufacturing facilities

Amount of commitment, risk, control, and profit potential

Licensing: Tokyo Disneyland Resort is owned and operated by the Oriental Land Company (a Japanese development company), under license from The Walt Disney Company, headquartered in the United States to use the company's manufacturing process, trademark, patent, trade secret, or other item of value. The company thus gains entry into the market at little risk; the licensee gains production expertise or a well-known product or name without having to start from scratch.

Coca-Cola markets internationally by licensing bottlers around the world and supplying them with the syrup needed to produce the product. In Japan, Budweiser beer flows from Kirin breweries and Marlboro cigarettes roll off production lines at Japan Tobacco, Inc. A Tokyo Disneyland Resort is owned and operated by Oriental Land Company under license from The Walt Disney Company.

Licensing has potential disadvantages, however. The firm has less control over the licensee than it would over its own operations. Furthermore, if the licensee is very successful, the firm has given up these profits, and if and when the contract ends, it may find it has created a competitor.

Contract Manufacturing

Another option is contract manufacturing—the company contracts with manufacturers in the foreign market to produce its product or provide its service. Sears used this method in opening up department stores in Mexico and Spain, where it found qualified local manufacturers to produce many of the products it sells. The drawbacks of contract manufacturing are decreased control over the manufacturing process and loss of potential profits on manufacturing. The benefits are the chance to start faster, with less risk, and the later opportunity either to form a partnership with or to buy out the local manufacturer.

Contract manufacturing

A joint venture in which a company contracts with manufacturers in a foreign market to produce the product or provide its service.

Management contracting

A joint venture in which the domestic firm supplies the management know-how to a foreign company that supplies the capital; the domestic firm exports management services rather than products.

Joint ownership

A joint venture in which a company joins investors in a foreign market to create a local business in which the company shares joint ownership and control.

Management Contracting

Under management contracting, the domestic firm supplies management know-how to a foreign company that supplies the capital. The domestic firm exports management services rather than products. Hilton uses this arrangement in managing hotels around the world.

Management contracting is a low-risk method of getting into a foreign market, and it yields income from the beginning. The arrangement is even more attractive if the contracting firm has an option to buy some share in the managed company later on. The arrangement is not sensible, however, if the company can put its scarce management talent to better uses or if it can make greater profits by undertaking the whole venture. Management contracting also prevents the company from setting up its own operations for a period of time.

Joint Ownership

Joint ownership ventures consist of one company joining forces with foreign investors to create a local business in which they share joint ownership and control. A company may buy an interest in a local firm, or the two parties may form a new business venture. Joint ownership may be needed for economic or political reasons. The firm may lack the financial, physical, or managerial resources to undertake the venture alone. Or a foreign government may require joint ownership as a condition for entry.

Hershey recently formed a joint venture with Indian-based Godrej Beverages and Foods to make and distribute its chocolates in that country. AWhen it comes to selling chocolate in India, Hershey will need all the help it can get from its new local partner.31

"Humans may have first cultivated a taste for chocolate 3,000 years ago," comments one observer, "but India [has] just gotten around to it. Compared to the sweet-toothed Swiss and Cadbury-crunching Brits, both of whom devour about 24 pounds of chocolate per capita annually, Indians consume a paltry 5.8 ounces." Indian consumers currently favor a traditional candy known as mithai, and it will take a significant and culturally savvy marketing effort to persuade them to transfer their

Hershey recently formed a joint venture with Indian-based Godrej Beverages and Foods to make and distribute its chocolates in that country.

allegiance to chocolate. To make things even tougher, two global giants—Nestle and Cadbury—already hold a 90 percent share of Indian chocolate between them. Still, given the sheer size of the Indian population, if consumers can be persuaded to acquire a taste for chocolate, the rewards for Hershey and Godrej could be substantial. Either company could have decided to go it alone, but both will likely benefit greatly from the joint venture. Godrej gains a highly respected global brand; Hershey reaps the benefits of a local partner that understands the intricacies of the Indian market.

Joint ownership has certain drawbacks. The partners may disagree over investment, marketing, or other policies. Whereas many domestic firms might like to reinvest earnings for growth, some foreign firms might prefer to take out these earnings; and whereas domestic firms might emphasize the role of marketing, foreign companies might rely on personal selling.

Direct investment

Entering a foreign market by developing foreign-based assembly or manufacturing facilities.

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