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Kevin Dennis MSB # 3 Oct-17-09 Glider’s Best Entry Strategy Internationally Under the circumstances of Glider, I have found that direct exporting would be the best way to expand internationally as an entry strategy. While any exporting method is popular in breaking into the international market, direct exporting shows that is will provide highest profits while keeping our startup cost very low. In addition, direct exporting is less risky than licensing and foreign direct investment and allows us to pull out of the market if we are not seeing profits as projected (387). Indirect exporting would have been a good choice as well because we would have to do less work in controlling the process over seas, however, the company (TESI) “lacks substantial international marketing capabilities� which would force us to put in an extra effort to market our product. Also the profits in turn are projected much lower than if we used the direct export method. In fact, the indirect method had the second lowest net profit numbers out of the five methods I had researched and we would have had to do a lot of work in providing the marketing tools along with marketing research in the targeted market. Licensing could have saved us a headache in researching the foreign market and having to deal with issues internationally, but does not provide the profits that I was hoping for. The profits would generate less than half of the net profits compared to the other four methods. Even though we would be receiving money immediately up front and Braunschweig may have connections in other parts of Europe, I feel that all of that profit could be tripled if we decided to use a different method. In addition, licensing proves to be risky on our part because if Braunschweig is careless in managing our product, it could ruin our reputation (459). Licensing also can create future competitor risk due to the fact we


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would be sharing intellectual property (460). This will make it impossible to exit the market if we begin to fail. Wholly-Owned Foreign Direct Investment and Joint Venture seem to be too big of a step in entering a market internationally. Though the net profits show to be the highest out of the five methods, it is the most risky and irreversible method if we begin to fail. We would have to invest a big chunk of money, (22 million), and we wouldn’t gain that money back until after the 4th year. This method may be a good option if direct exporting becomes a huge success, but I would advise away from buying the company directly from Kinski AG. I think it would be a better idea to construct a new facility from scratch which would be cheaper and we could take our time since we will be exporting while we are constructing the factory. Direct exporting will give us control over the export process which will allow us to potentially make higher profits (392). The only drawbacks are that we will have to dedicate more time into learning about all off the exporting rules and regulations including documentation, foreign currency, tariffs, trade barriers and fluctuations in the foreign exchange rates (391). The good news is that Weber AG has many connections to shoe and sportswear retailers throughout Germany which will help us get our product into the market. Also, starting up will be quite cheep! The only startup cost will be sending over an operational manager and a sales manager to train Weber. I estimated that it will cost us $2,200 Euros for flights and lodging. We will also have to do this once a year which I included in our budget. Below I have provided the spreadsheet analysis of each method for upper management to review. I also provided a table that will make it easier to understand why I chose the direct exporting method.


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Alternative 1: Indirect Exporting End of Time Period t Estimates (in euros)

Y e ar 0

Year 1

Year 2

Year 3

Year 4

Year 5

Revenue

0

1,500,000

1,800,000

2,160,000

2,592,000

Cost

0

0

0

0

0

Net Profit Contribution (Revenue – Cost)

0

1,500,000

1,800,000

2,160,000

2,592,000

3,110,400

Net Profit Contribution /

0

1,363,636

1,487,603

1,624,060

1,770,371

1,931,314

3,110,400 0

(1 + i)

Alternative 2: Direct Exporting End of Time Period t Estimates (in euros)

Year 1

Year 2

Year 3

Year 4

Year 5

Revenue

3,000,000

3,750,000

4,687,500

5,859,375

7,324,218

Cost

60,000 2,200

Net Profit Contribution (Revenue – Cost)

2,937,800

3,672,800

4,591,550

5,739,988

7,175,534

2,670,727

3,035,371

3,452,293

3,920,489

4,455,442

Net Profit Contribution /

Year 0

-2,200

+ 75,000 2,200

+ 93,750 2,200

+ 117,187+2, 200

(1 + i)

Alternative 3: Licensing End of Time Period t Estimates (in euros)

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

146,484+2200


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Revenue

100,000

525,000

630,000

756,000

907,200

1,088,640

Cost

10,000+ 2,200

12,200

Net Profit Contribution (Revenue – Cost)

87,800

512,800

617,800

743,800

895,000

1,076,440

Net Profit Contribution /

87,800

466,181

510,579

559,248

611,297

668,385

(1 + i)

Alternative 4: Wholly-Owned Foreign Direct Investment End of Time Period t Estimates (in euros)

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

22,000,000

26,000,000

32,000,000

40,000,000

50,000,000

22,000 17,000,000 ,000

21,000,000

25,000,000

30,000,000

36,000,000

Revenue Cost

Net Profit Contribution (Revenue – Cost)

5,000,000

5,000,000

7,000,000

10,000,000

14,000,000

Net Profit Contribution /

4,545,455

4,132,231

5,263,158

6,830,135

8,692,899

Year 2

Year 3

(1 + i)

Alternative 5: Joint Venture End of Time Period t Estimates (in euros)

Year 0

Revenue Cost

Net Profit Contribution (Revenue – Cost)

12,000, 000

Year 1

Year 4

Year 5


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Net Profit Contribution /

2,272,728

2,066,116

2,631,579

3,415,068

4,346,450

(1 + i)

Criteria

Amount of up-front Expected

Expected

Expected

revenue

Costs

profits

Control

Risk

Reversibility

None

Low

Low

Low

Low

Low

High

low

high

medium

medium

high

medium

high

none

high

low

low

low

medum

low

Wholly-owned foreign direct investment, acquire Kinski plant

high

high

high

high

high

high

low

Joint venture, with Kinski

meduim

medium

medium

medium

high

high

low

Investment Strategies Indirect exporting, TESI

via

Direct exporting, via Weber

Licensing, via Braunschweig

Reference: Strategy, Management and the New Realities. Cavusil, Knight, Riesenberger. Pearson Prentice Hall, 2008


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