MODULE 2
SYLLABUS
MODES OF ENTRY
Exporting (direct and indirect)
licensing,
franchising,
contract manufacturing,
management contracts,
turnkey projects,
Joint ventures-
Mergers and Acquisitions-
Foreign direct investment –
Comparison of different modes of entry
INTRODUCTION:
• Companies desiring to enter foreign markets, face the dilemma while
deciding the method of entry into a given overseas location.
Companies can reduce the dilemma by analyzing the decision factors.
DECISION FACTORS:
This dilemma can be solved to some extent by considering the following
factors:
1. Ownership advantages
2. Location advantages
3. Internationalization advantages
1. Ownership advantages : Ownership advantages are those benefits
designed by a company by owing resources. These benefits provide
competitive advantages to the company over its competitors. These
advantages are both tangible and intangible
Examples
a. Coca – Cola : Coca-Cola possesses a strong ownership advantage
primarily due to its powerful brand equity.
Brand Recognition, Secret Formula & Distribution Network
1. Ownership advantages :
Examples
b. Tesla's core strength lies in its advanced technology and innovation in
electric vehicle (EV) production. This technological process constitutes
a significant ownership advantage.
Battery Technology , Autonomous Driving & Vertical Integration
2. Location advantages: Certain locational factors grant benefits to the company when the
manufacturing facilities are located in the host country rather than in the home country.
These locational factors include:
Customer Need, preferences and tastes
Logistic requirements
Cheap land acquisition cost
Cheap labour
Political stability
Low cost raw materials
Climatic conditions
• Tesla Gigafactory in Berlin
• Tesla's decision to build a Gigafactory in Berlin was largely driven by location
advantages:
• Access to Market: Germany and Europe represent significant electric vehicle markets.
By locating a factory in the heart of Europe, Tesla can reduce transportation costs and
delivery times, enhancing its competitiveness.
• Skilled Workforce: Germany has a strong reputation for engineering and
manufacturing expertise. This provides Tesla with access to a skilled workforce capable
of supporting its advanced production processes.
• Government Incentives: The German government has offered substantial incentives
to attract electric vehicle manufacturers. These subsidies can help offset initial
investment costs and improve profitability.
• Supply Chain Proximity: Germany is a hub for automotive components and suppliers,
enabling efficient procurement and reducing supply chain risks.
• These location advantages have allowed Tesla to strengthen its position in the
European market and accelerate its growth strategy.
3. Internationalisation advantages:
Internationalization advantages are those benefits that a company gets
by manufacturing goods or rendering services in the host country by
itself rather than through contract arrangements with the companies
in the host country.
• Tesla has significantly benefited from internationalization by
establishing its own manufacturing facilities in various countries rather
than relying solely on contract arrangements.
• Key Internationalization Advantages:
• Direct Control over Production: By owning and operating its own
factories, Tesla maintains complete control over production processes,
quality standards, and technology integration. This enables the
company to ensure that its vehicles meet the highest quality standards
and incorporate the latest innovations.
• Supply Chain Optimization: Establishing local manufacturing facilities
allows Tesla to optimize its supply chain by sourcing components from
nearby suppliers, reducing transportation costs and lead times. This also
helps mitigate risks associated with global supply chain disruptions.
• Knowledge Transfer and Innovation: Operating in different markets exposes
Tesla to diverse customer preferences, regulatory environments, and
technological advancements. This fosters knowledge sharing and innovation,
leading to the development of products tailored to specific regional markets.
• Government Incentives: Many countries offer incentives to attract electric
vehicle manufacturers. By establishing local production, Tesla can benefit
from these incentives, such as tax breaks, subsidies, and land grants,
reducing operational costs and improving profitability.
• Brand Building: Owning manufacturing facilities in key markets helps Tesla
strengthen its brand presence and build customer loyalty. It also
demonstrates the company's long-term commitment to these markets.
• By directly investing in international manufacturing, Tesla has gained a
competitive edge, expanded its market reach, and accelerated its growth
strategy.
https://www.youtube.com/watch?app=desktop&v=5tP4_M7jjq8
The Top 9 Benefits of Owning a Tesla!
