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Marketing Basics - Kotler Philip

Joint venture

Another common direction of entering the foreign market is to join efforts with commercial enterprises of the partner country in order to create production and marketing capacities. Joint business activity differs from export in that a partnership is formed, as a result of which one or another production capacity is created abroad. And it differs from direct investment in the fact that in the partner country an association is formed with any local organization. There are four types of joint ventures.

LICENSING . This is one of the easiest ways to engage a manufacturer in international marketing. The licensor enters into an agreement with the licensee in the foreign market, offering the right to use the production process, trademark, patent, trade secret or some other valuable value in exchange for a fee or license fee. The licensor gets access to the market with minimal risk, and the licensee does not have to start from scratch, because he immediately receives production experience, a well-known product or name. Using licensed operations, Gerber introduced its baby food products to the Japanese market. The Coca-Cola company carries out its international marketing activities by granting licenses to various enterprises in different parts of the world or, more precisely, by providing them with trade privileges, since the company provides the concentrate necessary for the production of the drink.

The potential disadvantages of licensing are that with it, the company has less control over the licensee than over its newly created enterprise. In addition, if the licensee succeeds significantly, profits will go to him, and at the end of the contract, the company may find that it has created a competitor.

CONTRACTING PRODUCTION . Another option is to conclude a contract with local manufacturers for the release of goods. Sears used this method to open its department stores in Mexico and Spain, finding qualified local manufacturers who could manufacture many of the products it sold.

The disadvantage of contract manufacturing is the less control of the company over the production process and the loss of potential profits associated with this production. At the same time, it gives the company the opportunity to expand its business faster, with less risk and with the prospect of entering into a partnership with a local manufacturer or purchasing its enterprise.

CONTRACT MANAGEMENT . In this case, the company provides the foreign partner with know-how in the field of management, and he provides the necessary capital. Thus, the company does not export goods, but rather management services. This method is used to organize the operation of hotels in different parts of the world by the Hilton company.

Contract management is a way to enter the foreign market with minimal risk and income from the very beginning of the activity. However, resorting to it is impractical if the company has a limited staff of qualified managers who can be used with greater benefit for themselves, or in the case when the independent implementation of the entire enterprise will bring much greater profits. In addition, the management of the contract for some time deprives the company of the opportunity to expand its own enterprise.

JOINT VENTURE COMPANIES . A joint venture is a combination of the efforts of foreign and local investors to create a local commercial enterprise, which they own and manage together. A foreign investor can buy a stake in a local company, a local company can buy a stake in an existing local company of a foreign company, or both parties can jointly create a completely new company.

A joint venture may be necessary or desirable for economic or political reasons. A firm may lack financial, physical, or managerial resources to carry out a project alone. And perhaps joint ownership is a condition by which a foreign government stipulates admission to the market of its country.

Co-ownership has certain disadvantages. Partners may disagree on investment, marketing, and other business principles. While many American firms tend to use their earnings to reinvest their business, local firms often prefer to take these revenues out of circulation. While US firms play a large role in marketing, local investors can often rely solely on marketing. Moreover, joint ownership can make it difficult for a multinational company to implement specific political policies and the global production and marketing sector.