【正文】 holly Owned Subsidiary The evaluation of four entry modes Hisamitsu China Market Entry Strategy September 19, 2020 Confidential, Copyright2020 by Sinotrust 15 ? Licensing is a nonequity, contractual mode with one or more local partner firms. ? A pany transfers to a foreign anization the right to use some or all of the following property : patents, trademarks, pany name, technology, and /or business methods. The licensee pays an initial fee and /or percentage of sales to the licensor. ? That is to say, one firm (the licensor) sells or leases the right to use its intellectual property (technology, patents, copyrights, trademarks, etc.) to another firm (the licensee), for a fee (royalty payment). Licensing is a nonequity, contractual mode with one or more local partner firms For example: Borden set up a licensing agreement with Meiji Milk to produce and market dairy products in Japan. Hisamitsu China Market Entry Strategy September 19, 2020 Confidential, Copyright2020 by Sinotrust 16 The contract spells out 5 main issues boundaries of the agreement pensation rights, privileges and constraints of two parties dispute resolution duration of the contract ? What is included? What is excluded? ? Who gets what? ? How to settle fights? ? To affect incentives and performance ?The right to use some or all of the following property : patents, trademarks, pany name, technology, and /or business methods. The contract of licensing spells out 5 main issues Hisamitsu China Market Entry Strategy September 19, 2020 Confidential, Copyright2020 by Sinotrust 17 ? low financial cost and risks ? can learn about foreign market potential ? access to foreign markets risk limited to value of exports Advantages of Licensing ? foreign market access is constrained by contract ? licensee may not perform up to expectations ? may be creating a future petitor Disadvantages of Licensing Advantages and Disadvantages of Licensing Hisamitsu China Market Entry Strategy September 19, 2020 Confidential, Copyright2020 by Sinotrust 18 Reasons of licensing as mode of entry Reasons of licensing Host government’s modal preferences Foreign firms Lack the capital Host government can protect intellectual property do not have the financial or human resources 1,One factor associated with the use of licensing is that the host government can easily find alternative panies to do business with. When many foreign petitors attempt to enter a market, the host government has more bargaining power than an individual MNC. The MNC must ply with the government’s modal preferences. 2,When a foreign firm wants to expand into a country, but lacks the capital to do so, the firm has no viable modal alternative. Thus, licensing is a quick and easy way for firms when the firm lack the resources to do it alone. 3,When host government supports foreign business and protect intellectual property, there is less likelihood of licensees reneging on contracts or stealing technology. This condition encourages the use of licensing as a mode of entry and licensing has low political risk. 4,Licensing, franchising or contractual joint ventures license Chinese firms the right to use technologies, use management systems or produce products that have been developed in Japan. The firm receives an initial payment and a fixed royalty for a period of time from the Chinese pany that has been licensed. Smaller Japan panies that do not have the financial or human resources to enter a foreign market often use this entry mode. Hisamitsu China Market Entry Strategy September 19, 2020 Confidential, Copyright2020 by Sinotrust 19 Licensing Exporting Joint Venture Wholly Owned Subsidiary The evaluation of four entry modes Hisamitsu China Market Entry Strategy September 19, 2020 Confidential, Copyright2020 by Sinotrust 20 Joint Ventures involve two or more anizations that share the ownership, management, risks and rewards of the newly formed entity ? A strategic alliance (SA): ? Two or more firms choose to cooperate for their mutual benefit, which involves two firms cooperating rather than one firm acting alone or hiring another firm. ?A joint venture: ? Special type of SA where two or more firms join together to create a new business entity that is legally separate and distinct from its parent firms. A JV is normally incorporated. The percent of ownership of each parent is negotiated between the two firms. ? Joint Ventures involve two or more anizations that share the ownership ,management, risks, and rewards of the newly formed entity. Each partner contributes equity that may take the form of money, plant and equipment, and/or technology. For example: Matsushita established a joint venture with Philips in Belgium to produce batteries Hisamitsu China Market Entry Strategy September 19, 2020 Confidential, Copyright2020 by Sinotrust 21 Advantages of JV as Mode of Entry Advantages of JV as Mode of Entry Ease of market entry Shared risk Shared knowledge and expertise Synergy and petitive advantage Other advantages Reduce costs of entry with foreign partners (financial costs, government regulatory barriers requiring foreign partner firm, lack of knowledge about local market, entrenched large petitor already in market). “Time to market” may also be reduced. Risk of entering a new market: reduces total financial investment and therefore potential financial loss。 may be able to coopt a potential rival and therefore reduce the risk of petition. Shared risks of new product development (risk that investment may fail). Firm may be able to gain knowledge and expertise that is lacking by a SA with a partner firm (. NUMMI). Access to plementary technology.