When an organisation has made a decision to enter an overseas market, there are a variety of options open to it.

These options vary with cost, risk and the degree of control which can be exercised over them. The simplest form of entry strategy is exporting using either a direct or indirect method such as an agent, in the case of the former, or countertrade, in the case of the latter. More complex forms include truly global operations which may involve joint ventures, or export processing zones. Having decided on the form of export strategy, decisions have to be made on the specific channels. Many agricultural products of a raw or commodity nature use agents, distributors or involve Government, whereas processed materials, whilst not excluding these, rely more heavily on more sophisticated forms of access. These will be expanded on later. Entry strategies Licensing- A contractual agreement in which one firm permits another to produce and market its products and use its brand name in return for royalty or other compensation. Advantages are: An Inventive Incentive: A "Licensing Agreement" accomplishes this by rewarding an inventor with a reasonable royalty for his or her creativity, innovation, and development investment. "Licensing", tried and true: Licensing Agreements are widely used in many industries with great success. They are well developed legal contracts that specify the terms and conditions, rights and responsibilities of both parties and they have evolved to anticipate most every contingency. Fair and Balanced: The royalty can vary with each product in order to consider such factors as the Licensee's tooling, manufacturing, and promotional expenses, in order to maintain a fair balance of profit for both parties. Product Exclusivity: A license can grant to a manufacturer exclusive rights to make and sell products relating to the license and any associated patents. Inventions of interest to you. You are free to view inventions. An informed business decision. ejekj Exporting- organization manufactures in the home country to export to other countries Disadvantages are:

Joint venture- a partnership between two entities for a business operation in a country (guest country)

Totally owned facility- with total ownership of the business

Strategic Alliance- partnership formed to create competitive advantage on a worldwide business Trading company- These companies provide a link between the international buyer and the seller Counter Trade- International barter transactions

Multinational Firms- A firm that operates on a worldwide scale without ties to any specific nation or region

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Title: Global agricultural marketing

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Chapter 7: Market Entry Strategies

Chapter Objectives Structure Of The Chapter Entry strategies Special features of commodity trade Chapter Summary Key Terms Review Questions

Review Question Answers References Bibliography When an organisation has made a decision to enter an overseas market, there are a variety of options open to it. These options vary with cost, risk and the degree of control which can be exercised over them. The simplest form of entry strategy is exporting using either a direct or indirect method such as an agent, in the case of the former, or countertrade, in the case of the latter. More complex forms include truly global operations which may involve joint ventures, or export processing zones. Having decided on the form of export strategy, decisions have to be made on the specific channels. Many agricultural products of a raw or commodity nature use agents, distributors or involve Government, whereas processed materials, whilst not excluding these, rely more heavily on more sophisticated forms of access. These will be expanded on later.

Chapter Objectives
The objectives of the chapter are:

Structure Of The Chapter

The chapter begins by looking at the concept of market entry strategies within the control of a chosen marketing mix. It then goes on to describe the different forms of entry strategy, both direct and indirect exporting and foreign production, and the advantages and disadvantages connected with each method. The chapter gives specific details on "countertrade", which is very prevalent in global marketing, and then concludes by looking at the special features of commodity trading with its "close coupling" between production and marketing. Basic issues An organisation wishing to "go international" faces three major issues:

i) Marketing - which countries, which segments, how to manage and implement marketing effort, how to enter - with intermediaries or directly, with what information? ii) Sourcing - whether to obtain products, make or buy? iii) Investment and control - joint venture, global partner, acquisition? Decisions in the marketing area focus on the value chain (see figure 7.1). The strategy or entry alternatives must ensure that the necessary value chain activities are performed and integrated. Figure 7.1 The value chain -marketing function detail In making international marketing decisions on the marketing mix more attention to detail is required than in domestic marketing. Table 7.1 lists the detail required1. Table 7.1 Examples of elements included in the export marketing mix
1. Product support- Product sourcing- Match existing products to markets - air, sea, rail, road, freight- New products- Product management- Product testing- Manufacturing specificationsLabelling- Packaging- Production control- Market information 2. Price support- Establishment of prices- DiscountsDistribution and maintenance of pricelists- Competitive information- Training of agents/customers 3. Promotion/selling support- Advertising- Promotionliterature- Direct mail- Exhibitions, trade shows- Printing- Selling (direct)- Sales force- Agents commissions- Sale or returns 4. Inventory support- Inventory management- WarehousingDistribution- Parts supply- Credit authorisation 5. Distribution support- Funds provision- Raising of capitalOrder processing- Export preparation and documentationFreight forwarding- Insurance- Arbitration 6. Service support- Market information/intelligence- Quotes processing- Technical aid assistance- After sales- GuaranteesWarranties/claims- Merchandising- Sales reports, catalogues literature- Customer care- Budgets- Data processing systemsInsurance- Tax services- Legal services- Translation 7. Financial support- Billing, collecting invoices- Hire, rentals-

Planning, scheduling budget data- Auditing

Details on the sourcing element have already been covered in the chapter on competitive analysis and strategy. Concerning investment and control, the question really is how far the company wishes to control its own fate. The degree of risk involved, attitudes and the ability to achieve objectives in the target markets are important facets in the decision on whether to license, joint venture or get involved in direct investment. Cunningham1 (1986) identified five strategies used by firms for entry into new foreign markets:

i) Technical innovation strategy - perceived and demonstrable superior products ii) Product adaptation strategy - modifications to existing products iii) Availability and security strategy - overcome transport risks by countering perceived risks iv) Low price strategy - penetration price and, v) Total adaptation and conformity strategy - foreign producer gives a straight copy. In marketing products from less developed countries to developed countries point iii) poses major problems. Buyers in the interested foreign country are usually very careful as they perceive transport, currency, quality and quantity problems. This is true, say, in the export of cotton and other commodities. Because, in most agricultural commodities, production and marketing are interlinked, the infrastructure, information and other resources required for building market entry can be enormous. Sometimes this is way beyond the scope of private organisations, so Government may get involved. It may get involved not just to support a specific commodity, but also to help the "public good". Whilst the building of a new road may assist the speedy and expeditious transport of vegetables, for example, and thus aid in their marketing, the road can be put to other uses, in the drive for public good utilities. Moreover, entry strategies are often marked by "lumpy investments". Huge investments may have to be undertaken, with the

investor paying a high risk price, long before the full utilisation of the investment comes. Good examples of this include the building of port facilities or food processing or freezing facilities. Moreover, the equipment may not be able to be used for other processes, so the asset specific equipment, locked into a specific use, may make the owner very vulnerable to the bargaining power of raw material suppliers and product buyers who process alternative production or trading options. Zimfreeze, Zimbabwe is experiencing such problems. It built a large freezing plant for vegetables but found itself without a contract. It has been forced, at the moment, to accept sub optional volume product materials just in order to keep the plant ticking over. In building a market entry strategy, time is a crucial factor. The building of an intelligence system and creating an image through promotion takes time, effort and money. Brand names do not appear overnight. Large investments in promotion campaigns are needed. Transaction costs also are a critical factor in building up a market entry strategy and can become a high barrier to international trade. Costs include search and bargaining costs. Physical distance, language barriers, logistics costs and risk limit the direct monitoring of trade partners. Enforcement of contracts may be costly and weak legal integration between countries makes things difficult. Also, these factors are important when considering a market entry strategy. In fact these factors may be so costly and risky that Governments, rather than private individuals, often get involved in commodity systems. This can be seen in the case of the Citrus Marketing Board of Israel. With a monopoly export marketing board, the entire system can behave like a single firm, regulating the mix and quality of products going to different markets and negotiating with transporters and buyers. Whilst these Boards can experience economies of scale and absorb many of the risks listed above, they can shield producers from information about, and from. buyers. They can also become the "fiefdoms" of vested interests and become political in nature. They then result in giving reduced production incentives and cease to be demand or market orientated, which is detrimental to producers. Normal ways of expanding the markets are by expansion of

product line, geographical development or both. It is important to note that the more the product line and/or the geographic area is expanded the greater will be the managerial complexity. New market opportunities may be made available by expansion but the risks may outweigh the advantages, in fact it may be better to concentrate on a few geographic areas and do things well. This is typical of the horticultural industry of Kenya and Zimbabwe. Traditionally these have concentrated on European markets where the markets are well known. Ways to concentrate include concentrating on geographic areas, reducing operational variety (more standard products) or making the organisational form more appropriate. In the latter the attempt is made to "globalise" the offering and the organisation to match it. This is true of organisations like Coca Cola and MacDonald's. Global strategies include "country centred" strategies (highly decentralised and limited international coordination), "local market approaches" (the marketing mix developed with the specific local (foreign) market in mind) or the "lead market approach" (develop a market which will be a best predictor of other markets). Global approaches give economies of scale and the sharing of costs and risks between markets.

Entry strategies
There are a variety of ways in which organisations can enter foreign markets. The three main ways are by direct or indirect export or production in a foreign country (see figure 7.2). Exporting Exporting is the most traditional and well established form of operating in foreign markets. Exporting can be defined as the marketing of goods produced in one country into another. Whilst no direct manufacturing is required in an overseas country, significant investments in marketing are required. The tendency may be not to obtain as much detailed marketing information as compared to manufacturing in marketing country; however, this does not negate the need for a detailed marketing strategy. Figure 7.2 Methods of foreign market entry

The advantages of exporting are:

manufacturing is home based thus, it is less risky than overseas based gives an opportunity to "learn" overseas markets before investing in bricks and mortar reduces the potential risks of operating overseas. The disadvantage is mainly that one can be at the "mercy" of overseas agents and so the lack of control has to be weighed against the advantages. For example, in the exporting of African horticultural products, the agents and Dutch flower auctions are in a position to dictate to producers. A distinction has to be drawn between passive and aggressive exporting. A passive exporter awaits orders or comes across them by chance; an aggressive exporter develops marketing strategies which provide a broad and clear picture of what the firm intends to do in the foreign market. Pavord and Bogart2 (1975) found significant differences with regard to the severity of exporting problems in motivating pressures between seekers and non-seekers of export opportunities. They distinguished between firms whose marketing efforts were characterized by no activity, minor activity and aggressive activity. Those firms who are aggressive have clearly defined plans and strategy, including product, price, promotion, distribution and research elements. Passiveness versus aggressiveness depends on the motivation to export. In countries like Tanzania and Zambia, which have embarked on structural adjustment programmes, organisations are being encouraged to export, motivated by foreign exchange earnings potential, saturated domestic markets, growth and expansion objectives, and the need to repay debts incurred by the borrowings to finance the programmes. The type of export response is dependent on how the pressures are perceived by the decision maker. Piercy (1982)3 highlights the fact that the degree of involvement in foreign operations depends on "endogenous versus exogenous" motivating factors, that is, whether the motivations were as a result of active or aggressive behaviour based on the firm's internal situation (endogenous) or as a result of reactive

environmental changes (exogenous). If the firm achieves initial success at exporting quickly all to the good, but the risks of failure in the early stages are high. The "learning effect" in exporting is usually very quick. The key is to learn how to minimise risks associated with the initial stages of market entry and commitment - this process of incremental involvement is called "creeping commitment" (see figure 7.3). Figure 7.3 Aggressive and passive export paths Exporting methods include direct or indirect export. In direct exporting the organisation may use an agent, distributor, or overseas subsidiary, or act via a Government agency. In effect, the Grain Marketing Board in Zimbabwe, being commercialised but still having Government control, is a Government agency. The Government, via the Board, are the only permitted maize exporters. Bodies like the Horticultural Crops Development Authority (HCDA) in Kenya may be merely a promotional body, dealing with advertising, information flows and so on, or it may be active in exporting itself, particularly giving approval (like HCDA does) to all export documents. In direct exporting the major problem is that of market information. The exporter's task is to choose a market, find a representative or agent, set up the physical distribution and documentation, promote and price the product. Control, or the lack of it, is a major problem which often results in decisions on pricing, certification and promotion being in the hands of others. Certainly, the phytosanitary requirements in Europe for horticultural produce sourced in Africa are getting very demanding. Similarly, exporters are price takers as produce is sourced also from the Caribbean and Eastern countries. In the months June to September, Europe is "on season" because it can grow its own produce, so prices are low. As such, producers are better supplying to local food processors. In the European winter prices are much better, but product competition remains. According to Collett4 (1991)) exporting requires a partnership between exporter, importer, government and transport. Without these four coordinating activities the risk of failure is increased. Contracts between buyer and seller are a must. Forwarders and agents can play a vital role in the logistics

procedures such as booking air space and arranging documentation. A typical coordinated marketing channel for the export of Kenyan horticultural produce is given in figure 7.4. In this case the exporters can also be growers and in the low season both these and other exporters may send produce to food processors which is also exported. Figure 7.4 The export marketing channel for Kenyan horticultural products.

Exporting can be very lucrative, especially 'if it is of high value added produce. For example in 1992/93 Zimbabwe exported 5 338,38 tonnes of flowers, 4 678,18 tonnes of horticultural produce and 12 000 tonnes of citrus at a total value of about US$ 22 016,56 million. In some cases a mixture of direct and indirect exporting may be achieved with mixed results. For example, the Grain Marketing Board of Zimbabwe may export grain directly to Zambia, or may sell it to a relief agency like the United Nations, for feeding the Mozambican refugees in Malawi. Payment arrangements may be different for the two transactions. Nali products of Malawi gives an interesting example of a "passive to active" exporting mode.
CASE 7.1 Nali Producers - Malawi Nali group, has, since the early 1970s, been engaged in the growing and exporting of spices. Spices are also used in the production of a variety of sauces for both the local and export market. Its major success has been the growing and exporting of Birdseye chilies. In the early days knowledge of the market was scanty and thus the company was obtaining ridiculously low prices. Towards the end of 1978 Nali chilies were in great demand, yet still the company, in its passive mode, did not fully appreciate the competitive implications of the business until a number of firms, including Lonrho and Press Farming, started to grow and export. Again, due to the lack of information, a product of its passivity, the firm did not realise that Uganda, with their superior product,

and Papua New Guinea were major exporters, However, the full potential of these countries was hampered by internal difficulties. Nali was able to grow into a successful commercial enterprise. However, with the end of the internal problems, Uganda in particular, began an aggressive exporting policy, using their overseas legations as commercial propagandists. Nali had to respond with a more formal and active marketing operation. However it is being now hampered by a number of important "exogenous" factors. The entry of a number of new Malawian growers, with inferior products, has damaged the Malawian chili reputation, so has the lack of a clear Government policy and the lack of financing for traders, growers and exporters. The latter only serves to emphasise the point made by Collett, not only do organisations need to be aggressive, they also need to enlist the support of Government and importers. It is interesting to note that Korey (1986) warns that direct modes of market entry may be less and less available in the future. Growing trading blocs like the EU or EFTA means that the establishing of subsidiaries may be one of the only means forward in future.

It is interesting to note that Korey5 1986 warned that direct modes of market entry may be less and less available in the future. Growing trading blocks like the EU or EFTA means that the establishment of subsidiaries may be one of the only ways forward in future. Indirect methods of exporting include the use of trading companies (very much used for commodities like cotton, soya, cocoa), export management companies, piggybacking and countertrade. Indirect methods offer a number of advantages including:

Contracts - in the operating market or worldwide Commission sates give high motivation (not necessarily loyalty) Manufacturer/exporter needs little expertise Credit acceptance takes burden from manufacturer. Piggybacking

Piggybacking is an interesting development. The method means that organisations with little exporting skill may use the services of one that has. Another form is the consolidation of orders by a number of companies in order to take advantage of bulk buying. Normally these would be geographically adjacent or able to be served, say, on an air route. The fertilizer manufacturers of Zimbabwe, for example, could piggyback with the South Africans who both import potassium from outside their respective countries. Countertrade By far the largest indirect method of exporting is countertrade. Competitive intensity means more and more investment in marketing. In this situation the organisation may expand operations by operating in markets where competition is less intense but currency based exchange is not possible. Also, countries may wish to trade in spite of the degree of competition, but currency again is a problem. Countertrade can also be used to stimulate home industries or where raw materials are in short supply. It can, also, give a basis for reciprocal trade. Estimates vary, but countertrade accounts for about 20-30% of world trade, involving some 90 nations and between US $100150 billion in value. The UN defines countertrade as "commercial transactions in which provisions are made, in one of a series of related contracts, for payment by deliveries of goods and/or services in addition to, or in place of, financial settlement". Countertrade is the modem form of barter, except contracts are not legal and it is not covered by GATT. It can be used to circumvent import quotas. Countertrade can take many forms. Basically two separate contracts are involved, one for the delivery of and payment for the goods supplied and the other for the purchase of and payment for the goods imported. The performance of one contract is not contingent on the other although the seller is in effect accepting products and services from the importing country in partial or total settlement for his exports. There is a

broad agreement that countertrade can take various forms of exchange like barter, counter purchase, switch trading and compensation (buyback). For example, in 1986 Albania began offering items like spring water, tomato juice and chrome ore in exchange for a contract to build a US $60 million fertilizer and methanol complex. Information on potential exchange can be obtained from embassies, trade missions or the EU trading desks. Barter is the direct exchange of one good for another, although valuation of respective commodities is difficult, so a currency is used to underpin the item's value. Barter trade can take a number of formats. Simple barter is the least complex and oldest form of bilateral, non-monetarised trade. Often it is called "straight", "classical" or "pure" barter. Barter is a direct exchange of goods and services between two parties. Shadow prices are approximated for products flowing in either direction. Generally no middlemen are involved. Usually contracts for no more than one year are concluded, however, if for longer life spans, provisions are included to handle exchange ratio fluctuations when world prices change. Closed end barter deals are modifications of straight barter in that a buyer is found for goods taken in barter before the contract is signed by the two trading parties. No money is involved and risks related to product quality are significantly reduced. Clearing account barter, also termed clearing agreements, clearing arrangements, bilateral clearing accounts or simply bilateral clearing, is where the principle is for the trades to balance without either party having to acquire hard currency. In this form of barter, each party agrees in a single contract to purchase a specified and usually equal value of goods and services. The duration of these transactions is commonly one year, although occasionally they may extend over a longer time period. The contract's value is expressed in nonconvertible, clearing account units (also termed clearing dollars) that effectively represent a line of credit in the central bank of the country with no money involved.

Clearing account units are universally accepted for the accounting of trade between countries and parties whose commercial relationships are based on bilateral agreements. The contract sets forth the goods to be exchanged, the rates of exchange, and the length of time for completing the transaction. Limited export or import surpluses may be accumulated by either party for short periods. Generally, after one year's time, imbalances are settled by one of the following approaches: credit against the following year, acceptance of unwanted goods, payment of a previously specified penalty or payment of the difference in hard currency. Trading specialists have also initiated the practice of buying clearing dollars at a discount for the purpose of using them to purchase saleable products. In turn, the trader may forfeit a portion of the discount to sell these products for hard currency on the international market. Compared with simple barter, clearing accounts offer greater flexibility in the length of time for drawdown on the lines of credit and the types of products exchanged. Counter purchase, or buyback, is where the customer agrees to buy goods on condition that the seller buys some of the customer's own products in return (compensatory products). Alternatively, if exchange is being organised at national government level then the seller agrees to purchase compensatory goods from an unrelated organisation up to a pre-specified value (offset deal). The difference between the two is that contractual obligations related to counter purchase can extend over a longer period of time and the contract requires each party to the deal to settle most or all of their account with currency or trade credits to an agreed currency value. Where the seller has no need for the item bought he may sell the produce on, usually at a discounted price, to a third party. This is called a switch deal. In the past a number of tractors have been brought into Zimbabwe from East European countries by switch deals. Compensation (buy-backs) is where the supplier agrees to take the output of the facility over a specified period of time or to a

specified volume as payment. For example, an overseas company may agree to build a plant in Zambia, and output over an agreed period of time or agreed volume of produce is exported to the builder until the period has elapsed. The plant then becomes the property of Zambia. Khoury6 (1984) categorises countertrade as follows (see figure 7.5): One problem is the marketability of products received in countertrade. This problem can be reduced by the use of specialised trading companies which, for a fee ranging between 1 and 5% of the value of the transaction, will provide trade related services like transportation, marketing, financing, credit extension, etc. These are ever growing in size. Countertrade has disadvantages:

Not covered by GATT so "dumping" may occur Quality is not of international standard so costly to the customer and trader Variety is tow so marketing of wkat is limited Difficult to set prices and service quality Inconsistency of delivery and specification, Difficult to revert to currency trading - so quality may decline further and therefore product is harder to market. Figure 7.5 Classification of countertrade Shipley and Neale7 (1988) therefore suggest the following:

Ensure the benefits outweigh the disadvantages Try to minimise the ratio of compensation goods to cash - if possible inspect the goods for specifications

 Include all transactions and other costs involved in countertrade in the nominal value specified for the goods being sold Avoid the possibility of error of exploitation by first gaining a thorough understanding of the customer's buying systems, regulations and politics, Ensure that any compensation goods received as payment are not subject to import controls. Despite these problems countertrade is likely "to grow as a major indirect entry method, especially in developing countries. Foreign production Besides exporting, other market entry strategies include licensing, joint ventures, contract manufacture, ownership and participation in export processing zones or free trade zones. Licensing: Licensing is defined as "the method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, processing, trademark, know-how or some other skill provided by the licensor". It is quite similar to the "franchise" operation. Coca Cola is an excellent example of licensing. In Zimbabwe, United Bottlers have the licence to make Coke. Licensing involves little expense and involvement. The only cost is signing the agreement and policing its implementation. Licensing gives the following advantages:

Good way to start in foreign operations and open the door to low risk manufacturing relationships Linkage of parent and receiving partner interests means both get most out of marketing effort Capital not tied up in foreign operation and Options to buy into partner exist or provision to take royalties

in stock. The disadvantages are:

Limited form of participation - to length of agreement, specific product, process or trademark Potential returns from marketing and manufacturing may be lost Partner develops know-how and so licence is short Licensees become competitors - overcome by having cross technology transfer deals and Requires considerable fact finding, planning, investigation and interpretation. Those who decide to license ought to keep the options open for extending market participation. This can be done through joint ventures with the licensee. Joint ventures Joint ventures can be defined as "an enterprise in which two or more investors share ownership and control over property rights and operation". Joint ventures are a more extensive form of participation than either exporting or licensing. In Zimbabwe, Olivine industries has a joint venture agreement with HJ Heinz in food processing. Joint ventures give the following advantages:

Sharing of risk and ability to combine the local in-depth knowledge with a foreign partner with know-how in technology or process Joint financial strength May be only means of entry and May be the source of supply for a third country. They also have disadvantages:

 Partners do not have full control of management May be impossible to recover capital if need be Disagreement on third party markets to serve and Partners may have different views on expected benefits. If the partners carefully map out in advance what they expect to achieve and how, then many problems can be overcome. Ownership: The most extensive form of participation is 100% ownership and this involves the greatest commitment in capital and managerial effort. The ability to communicate and control 100% may outweigh any of the disadvantages of joint ventures and licensing. However, as mentioned earlier, repatriation of earnings and capital has to be carefully monitored. The more unstable the environment the less likely is the ownership pathway an option. These forms of participation: exporting, licensing, joint ventures or ownership, are on a continuum rather than discrete and can take many formats. Anderson and Coughlan8 (1987) summarise the entry mode as a choice between company owned or controlled methods - "integrated" channels - or "independent" channels. Integrated channels offer the advantages of planning and control of resources, flow of information, and faster market penetration, and are a visible sign of commitment. The disadvantages are that they incur many costs (especially marketing), the risks are high, some may be more effective than others (due to culture) and in some cases their credibility amongst locals may be lower than that of controlled independents. Independent channels offer lower performance costs, risks, less capital, high local knowledge and credibility. Disadvantages include less market information flow, greater coordinating and control difficulties and motivational difficulties. In addition they may not be willing to spend money on market development and selection of good intermediaries may be difficult as good ones are usually taken up anyway. Once in a market, companies have to decide on a strategy for expansion. One may be to concentrate on a few segments in a few countries - typical are cashewnuts from Tanzania and horticultural exports from Zimbabwe and Kenya - or

concentrate on one country and diversify into segments. Other activities include country and market segment concentration typical of Coca Cola or Gerber baby foods, and finally country and segment diversification. Another way of looking at it is by identifying three basic business strategies: stage one international, stage two - multinational (strategies correspond to ethnocentric and polycentric orientations respectively) and stage three - global strategy (corresponds with geocentric orientation). The basic philosophy behind stage one is extension of programmes and products, behind stage two is decentralisation as far as possible to local operators and behind stage three is an integration which seeks to synthesize inputs from world and regional headquarters and the country organisation. Whilst most developing countries are hardly in stage one, they have within them organisations which are in stage three. This has often led to a "rebellion" against the operations of multinationals, often unfounded. Export processing zones (EPZ) Whilst not strictly speaking an entry-strategy, EPZs serve as an "entry" into a market. They are primarily an investment incentive for would be investors but can also provide employment for the host country and the transfer of skills as well as provide a base for the flow of goods in and out of the country. One of the best examples is the Mauritian EPZ12, founded in the 1970s.
CASE 7.2 The Mauritian Export Processing Zone Since its inception over 400 firms have established themselves in sectors as diverse as textiles, food, watches. And plastics. In job employment the results have been startling, as at 1987, 78,000 were employed in the EPZ. Export earnings have tripled from 1981 to 1986 and the added value has been significantThe roots of success can be seen on the supply, demand and institutional sides. On the supply side the most critical factor has been the generous financial and other incentives, on the demand side, access to the EU, France, India and Hong Kong was very tempting to investors. On the institutional side positive schemes were put in place, including finance from the Development Bank and the cutting of red tape. In setting up the export processing zone the Mauritian government displayed a number of characteristics which in hindsight, were crucial to its

success. The government intelligently sought a development strategy in an apolitical manner It stuck to its strategy in the long run rather than reverse course at the first sign of trouble It encouraged market incentives rather than undermined them It showed a good deal of adaptability, meeting each challenge with creative solutions rather than maintaining the status quo It adjusted the general export promotion programme to suit its own particular needs and characteristics. It consciously guarded against the creation of an unwieldy bureaucratic structure.

Organisations are faced with a number of strategy alternatives when deciding to enter foreign markets. Each one has to be carefully weighed in order to make the most appropriate choice. Every approach requires careful attention to marketing, risk, matters of control and management. A systematic assessment of the different entry methods can be achieved through the use of a matrix (see table 7.2). Table 7.2 Matrix for comparing alternative methods of market entry
Entry mode Evalu Indir Dire Mark Coun ation ect ct etin ter criter expo expo g trad ia rt rt subs e idiar y a) Comp any goals b) Size Lice nsin g Joint Whol vent ly ure own ed oper atio n EPZ

of comp any c) Resou rces d) Produ ct e) Remit tance f) Comp etition g) Middl emen chara cterist ics h) Enviro nment al chara cterist ics i) Numb er of marke ts j) Marke t k) Marke t

feedb ack l) Intern ationa l marke t learni ng m) Contr ol n) Marke ting costs o) Profits p) Invest ment q) Admin istrati on perso nnel r) Foreig n proble ms s) Flexibi lity t) Risk

Details of channel management will appear in a later chapter.

Special features of commodity trade

As has been pointed out time and again in this text, the international marketing of agricultural products is a "close coupled" affair between production and marketing and end user. Certain characteristics can be identified in market entry strategies which are different from the marketing of say cars or television sets. These refer specifically to the institutional arrangements linking producers and processors/exporters and those between exporters and foreign buyers/agents. Institutional links between producers and processors/exporters One of the most important factors is contract coordination. Whilst many of the details vary, most contracts contain the supply of credit/production inputs, specifications regarding quantity, quality and timing of producer deliveries and a formula or price mechanism. Such arrangements have improved the flow of money, information and technologies, and very importantly, shared the risk between producers and exporters. Most arrangements include some form of vertical integration between producers and downstream activities. Often processors enter into contracted outgrower arrangements or supply raw inputs. This institutional arrangement has now, incidentally, spilled over into the domestic market where firms are wishing to target higher quality, higher priced segments. Producer trade associations, boards or cooperatives have played a significant part in the entry strategies of many exporting countries. They act as a contact point between suppliers and buyers, obtain vital market information, liaise with Governments over quotas etc. and provide information, or even get involved in quality standards. Some are very active, witness the Horticultural Crops Development Authority (HCDA) of Kenya and the Citrus Marketing Board (CMD) of Israel, the latter being a Government agency which specifically got involved in supply quotas. An example of the institutional arrangements13 involved is given in table 7.3.

Table 7.3 Institutional arrangements linking producers with processors/exporters

Commo dity Marke tcoordina tion X Contra ctcoordina tion X Owner ship intera ction X Associ ation coordina tion Gover nment coordina tion Marke ting risk reduct ion X

Kenya vegetab les Zimbab we horticult ure Israel fresh fruits Thailand tuna Argentin a beef

XX X

X X

X X

XX = Dominant linkage Institutional links between exporters and foreign buyers/agents Linkages between exporters and foreign buyers are often dominated by open market trade or spot market sales or sales on consignment. The physical distances involved are also very significant. Most contracts are of a seasonal, annual or other nature. Some products are handled by multinationals, others by formal integration by processors, building up import/distribution firms. In the case of Kenyan fresh vegetables familial ties are very important between exporters and importers. These linkages have been very important in maintaining market excess, penetrating expanding markets and in obtaining market and

product change information, thus reducing considerably the risks of doing business. In some cases, Government gets involved in negotiating deals with foreign countries, either through trade agreements or other mechanisms. Zimbabwe's imports of Namibian mackerel were the result of such a Government negotiated deal. Table 7.413 gives examples of linkages between exporters and foreign buyers/agents. Table 7.4 Linkages between exporters and foreign buyers/agents.
Commo dity Marke tcoordina tion X Contra c ctcoordina tion X Owner ship intera ction X Associ a ation coordina tion Gover n nment coordina tion Marke ting risk reduct ion X

Kenya vegetab les Zimbab we horticult ure Israel fresh fruits Thailand tuna Argentin a beef

X XX

XX X

XX XX

X X X

X X

XX = Dominant linkage Once again, it can not be over-emphasized that the smooth flow between producers, marketers and end users is essential. However it must also be noted that unless strong relationships or contracts are built up and product qualities maintained, the smooth flow can be interrupted should a more competitive supplier enter the market. This also can occur by Government

decree, or by the erection of non-tariff barriers to trade. By improving strict hygiene standards a marketing chain can be broken, however strong the link, by say, Government. This, however, should not occur, if the link involves the close monitoring and action by the various players in the system, who are aware, through market intelligence, of any possible changes.

Chapter Summary
Having done all the preparatory planning work (no mean task in itself!), the prospective global marketer has then to decide on a market entry strategy and a marketing mix. These are two main ways of foreign market entryeither by entering from a home market base, via direct or indirect exporting, or by foreign based production. Within these two possibilities, marketers can adopt an "aggressive" or "passive" export path. Entry from the home base (direct) includes the use of agents, distributors, Government and overseas subsidiaries and (indirect) includes the use of trading companies, export management companies, piggybacking or countertrade. Entry from a foreign base includes licensing, joint ventures, contract manufacture, ownership and export processing zones. Each method has its peculiar advantages and disadvantages which the marketer must carefully consider before making a choice.

Key Terms
Aggressive exporter Barter Countertrade Exporting Export processing zones Joint ventures Licensing Market entry Passive exporter

Review Questions
1. Review the general problems encountered when building market entry strategies for agricultural commodities. Give examples.

2. Describe briefly the different methods of foreign market entry. 3. What are the advantages and disadvantages of barter, countertrade, licensing, joint venture and export processing zones as market entry strategies?

Review Question Answers

1. General problems:

i) Interlinking of production and marketing means private investment alone may not be possible, so Government intervention may be needed also e.g. to build infrastructure e.g. Israeli fresh fruit. ii) Licensing Definition: Method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, processing, trademark, knowhow or some other skill by the licensor.

ii) "Lumpy investment" building capacity long before it may be currently utilised e.g. port facilities Advantages:

entry point with risk reduction, benefits to both parties, capital not tied up, opportunities to buy into partner or royalties on the stock. iii) Time - processing, transport and storage - so credit is needed e.g. Argentina beef. iv) Transaction costs - logistics, market information, regulatory enforcement.

Disadvantages:

limited form or participation, potential returns from marketing and manufacturing may be lost, partner develops knowhow and so license is short, partner becomes competitor, requires a lot of planning beforehand. v) Risk - business, non-business iv) Joint ventures Definition: An enterprise in which two or more investors share ownership and control over property rights and operation. vi) Building of relationships and infrastructural developments "correct formats" 2. Different methods These are either "direct", "indirect" or "foreign" based. Advantages:

sharing of risk and knowhow, may be only means of entry, may be source of supply for third country. Direct - Agent, distributor, Government, overseas subsidiary Disadvantages:

partners do not have full control or management, may be impossible to recover capital, disagreement between purchasers or third party - served markets,

 partners have different views on exported benefits. Indirect - Trading company, export management company, piggyback, countertrade v) Export processing zones Definition: A zone within a country, exempt from tax and duties, for the processing or reprocessing of goods for export Foreign - Licensing, joint venture, contract manufacture, ownership, export processing zone. Students should give a definition and expand on each of these methods. Advantages:

host country obtains knowhow, capital, technology, employment opportunities; foreign exchange earnings; "reputation", "internationalisation". 3i) BarterDefinition: Direct exchange of one good for another. (may be straight or closed or clearing account method) Disadvantages:

short term investments, capital movements, employment movements, transaction costs and benefits, not part of economy so alienisation, labour laws may be different,

 bureaucracy creation. Advantages:

simple to administer, no currency, commodity based valuation or currency based valuation. Disadvantages:

risk of non delivery, poor quality, technological obsolescence, unfulfilled quantities, risk of commodity price rise thus losing out on an increased valuation, depressed valuation, marketability of products. ii) Countertrade Definition: Customer agrees to buy goods on condition that the seller buys some of the customer's own products in return (may be time, method of financing, balance of compensation or pertinence of compensating product based) Advantages:

method of obtaining sales by seller and getting a slice of the order, method of breaking into a "closed" market. Disadvantages:

not covered by GATT, so dumping may occur,

 usuality differences, variety differences, difficult to set price and service quality, inconsistency of delivery and specification, difficult to revert to currency trading. Exercise 7.1 Market entry strategies Take a major non-traditional crop or agricultural product which your country produces with sales potential overseas. Devise a market entry strategy for the product, clearly showing which you would use and justify your choice indicating why the method chosen would give benefits to your country and the intended importing country(s).

Global Business Entry: Strategies and Alliances

Team: Global Integration Greg Florey, Cherry Greene, Laurie Hackett, Clayton Mitchell, Ben Mosby, Tony Peralta University of Maryland, University College Dr. Monica Bolesta/AMBA 606D Spring 2006 1 Executive Summary Global expansion is the foundation to becoming a multinational firm. When attempting to enter into foreign markets, selection of the proper strategies and alliances play a critical role in determining company success. The purpose of this report is to review the possible modes of entry that the Tastykake Baking Company can select in order to successfully expand its operations. These entry options include: franchising, joint ventures, and outsourcing/off shoring. In this report there will be a discussion of each of these concepts that will include a review of their advantages and disadvantages along with how each of them apply to the expansion of the Tastykake Baking Company into the Brazilian and Turkish foreign markets. 2

Franchising in Brazil (Clayton Mitchell)

Defining Franchising Over the years, the Tastykake Baking Company has experienced tremendous growth. With annual sales reaching over $200 million, global expansion needs to be considered. The next possible mode of entry to be discussed is that of franchising. In the Hill text (20005), he describes it as being very similar to licensing and defines it as a specialized form of licensing in which the franchisor not only sells intangible property (normally a trademark) to the franchisee, but also insists that the franchisee agree to abide by strict rules as to how it does business (p.492). Typically, most companies that provide a service choose franchising as a way to enter foreign markets. The reason being

is that this method is extremely cost effective and allows global identity to be established at a much faster pace. Some franchising examples include McDonalds, Marriott Hotels Inc., Hilton Hotels Corp., KFC, and Wendys. The companies that stand the best chance with franchising are those with strong brand recognition, solid marketing techniques, and an easily transferable operations system. 3 4
Why Franchise: Advantages and Disadvantages

When selecting the best mode of entry, the advantages and disadvantages at hand must be identified. According to www.franchiseek.com, the advantages and disadvantages of franchising are as follows: After reviewing the advantages and disadvantages of this mode of entry, companies have to determine whether they have what it takes to become a successful franchisor. Equal pressure is placed on franchisees as well. It is a must that franchisees generate enough money to pay for the services provided by the franchisor or they will face a possible Advantages of Franchising Disadvantages of Franchising Franchising enables your company to expand using capital raised through your franchises and, therefore, your own financial commitment is reduced. You do not own the branches, thus not earning the same as a company-owned chain. Less exposure to the problems associated with conventional business, such as recruiting and retaining staff and the security of stock and cash. You have less direct control over the network. You will however be able to terminate a contract with a franchisee who does not follow the system. Less staff are required to run the head office and sales team than a conventional business. Your rate of growth will depend on hour ability to attract new franchisees. You do not have to rely on your business making enough money for you to open new branches. Franchising is not a system to launch into to raise finance immediately. termination of contract. In the case of Tastykake, expanding into Brazil presents tremendous opportunity given the demand for American goods by Brazilian consumers which means there will be a chance to earn an enormous amount of sales. Franchising vs. Licensing Franchising and licensing are two modes of entry that are commonly used by companies when trying to enter into uncharted markets. Although they are similar in the use of intangible property (patents, copyrights, designs, etc...), the primary difference between a franchisee and a licensee is that franchisees can expect to have a much closer relationship with their parent company...(www.gaebler.com). A franchising agreement often calls for a lengthy commitment and also includes training and support in the effort to establish company presence. Franchised locations are often seen as mirror images of the parent company and tend to reflect the overall look, culture, and operations of the home base. Franchisees also benefit from territorial agreements with the parent company which often prohibit other locations from being placed in close proximity. This aides in the elimination of competition. The primary difference with licensing is that the relationship between the parent company and licensee is a lot less strict. Often in licensing agreements the licensee is required to generate its own brand awareness and does not

receive any training or support on behalf of the parent company. They are completely on their own! Although this type of agreement is less expensive than franchising, licensees do not benefit from territorial provisions and are rarely able to use a parent companys trademark and logo. 5 Franchising in Brazil Global expansion into Brazil presents a wonderful opportunity to increase sales and establish an international presence. As an emerging market, Brazil offers excellent franchising opportunities because of the high demand for American goods and increase entrepreneurship. The country has an upper class and upper-middle class of 30-40 million consumers who are interested in top-end U.S. products... (www.export.gov).The demand for American goods is not anything new. According to the Journal of Small Business Management, in 1997 the top 50 U.S. food chains had $33.1 billion in international sales because of the significant efforts made by large U.S. based food retail franchisors (proquest.umi.com.exproxy.umuc.edu). Establishing franchises in Brazil will be a positive addition to the Tastykake Baking Company portfolio. Over the past decade Brazil has shown improvement in economic growth, market governance, and political ideals that favor foreign investment. With the United States being responsible for purchasing more than a quarter of Brazilian exports, the country has a well established trade relationship. Brazil continues to be an ideal place for expansion through franchising because of its growing population, increasing income, and high consumer demand. Ultimately, franchising offers a great chance to expand globally. For the Tastykake Baking Company, it will allow Brazilian consumers to purchase its products much easier, establish a global presence, connect with the Brazilian community, and remain consistent with the quality of products and service offered. As a franchisor, Tastykake will be able to oversee the activities of its franchisees and provide the training 6 and support necessary to create a positive image within the Brazilian community. Franchising is an excellent mode of entry to choose just as long as the chosen franchisees are able to generate enough income to pay for the services provided by Tastykake and operate in a way that reflects the morals, mission, and vision of the company.

Franchising in Turkey (Cherry D. Greene)

For many companies franchising can be used to expand their growth potential and this is also true of Tasty Baking. This paper will first define exactly what franchising is. Next we will examine the differences between franchising and licensing since they are often used interchangeably but are not the same. Next there is an extensive chart illustrating the benefits and disadvantages of franchising and this paper will conclude with a discussion franchising in Turkey and Tasty Bakings opportunity to do so. We acknowledge that this is not the only manner to expand your business but among several that should be considered as an option. We will now begin our discussion into franchising. For those businesses that want to grow they often look at the various avenues available to them and franchising is one of the choices. This paper will define what franchising is and how it is different from licensing, the benefits and disadvantages of franchising, the guidelines for franchising in Turkey and if Tasty Baking might be able to use this avenue in its efforts to expand into the

international market. 7 Defining Franchising It is important to start this discussion by understanding exactly what franchising is. The following are some of the definitions that will enable our understanding of franchising: A continuing relationship in which the franchisor provides a licensed privilege to the franchisee to do business and offers assistance in organizing, training, merchandising, marketing, and managing in return for a consideration. Franchising is a form of business by which the owner (franchisor) of a product, service, or method obtains distribution through affiliated dealers (franchisees). www.business.gov/phases/launching/are_you_ready/glossary .html Business where individuals and/or corporations are provided with the rights to market a specific companys goods and/or services in a designated area for a designated fee. www.allieddomecq.com/en/Investors/ShareholderServices/Gl ossary.htm A form of licensing where a package of services (including product and trade name) is offered by the franchiser to the franchisee in return for payment. mcgrawhill.co.uk/he/web_sites/business/marketing/jobber/fil es/glossary/f.html Each of these explanations offers us an understanding of the framework that makes up franchising. We can see that the creator of a product of service allows others the right to use the name and method of delivery of that product or service for a fee. As also we see 8 in the third explanation that franchising is a form of licensing. Lets now determine what the differences between them are. Franchising vs. Licensing As we have previously defined franchising lets now define licensing so that we can make a comparison: Licensing involves obtaining permission from a company (licensor) to manufacture and sell one or more of its products within a defined market area. The company that obtains these rights (the licensee) usually agrees to pay a royalty fee to the original owner.http://www.cbsc.org There appears to be only a slight difference between franchising and licensing. In franchising the designer of the product decides to market his product or service outside of its current market. Also a franchisee maintains a closer relationship to the parent company, its trademark and logo. Name recognition and being associated with the parent company can boost your chances of success A licensing agreement occurs when a person or company approaches the developer of a product or service and seeks permission to sell or produce the product with a specific area. The licensee must establish his own identity in the marketplace. He does not have the training and support from the parent company or territorial rights. (www.gaebler.com) However, when you license a product: You get access to the experience and know-how of the company that developed the product. This company may be much larger than yours, with development capabilities that you cannot afford. You get to break into a new market with this new product, but with the benefit of the experience gained in another market.

 It makes competition easier if you're a small company with limited resources. You minimize your costs and risks. http://www.cbsc.org 9 10 Why Franchise: Advantages and Disadvantages
Although there are disadvantages to franchising the chart below shows that there are many more benefits to using this method: Benefits of Franchising Disadvantages of Franchising
Capital is always scarce in growing a business. In franchising the capital needed to expand the business is provided by the Franchisee. It is the classic case of using OPM, or other peoples money. Sales- All franchise companies are franchise sales driven in the beginning; this means you must have an effective franchise marketing program with very good sales people. Many variables can affect the franchise sales effort such as interest rates, banks willingness to make loans for your franchise, the condition of the national economy, competition, etc. In franchising, if you are not growing, you are dying. You have to have the franchise fee income to stay in business until you have enough franchise royalty income to reach your monthly break-even. Trained, motivated management is part and parcel of franchising. It is difficult to find and keep good experienced managers, who are so necessary to grow a business. With franchisees, you have people who are well trained in the franchise systems and who are also very motivated because their capital is at risk. Loss of Control- Of course, when you own it then you control it, but in franchising, the franchisee controls his unit and to varying degrees runs it his way. It's here that the operating system comes into play. If you have a polished system which guarantees success if adhered to, then the control issue becomes less important. If the franchisee sticks to your systems, then it's very much as if you are operating the unit yourself. It's here also that the value of a tightly written franchise agreement comes into play. It's best to have a franchise agreement which allows the franchisee little latitude to vary from your system. Efficient- Profitable, Franchise units tend to be better run, therefore more efficient and profitable than company owned units, for the simple reason that the Franchisees capital is at risk and they tend to be very motivated. Managing Growth- This is a nice problem to have but it can be fatal. Franchising, by its very nature is a very fast way to expand a business, because there are few limits which inhibit growth. It's absolutely necessary to be slightly overstaffed at all times, in order that you always have the staff to serve your franchisees. This is the real key to successful franchising. Tremendous effort and resources should be focused on doing all that is possible to help the franchisees be successful. Rapid Expansion- Today's marketplace changes very quickly, often if you don't move quickly on expanding a concept, someone else will. The window of opportunity will close, and you just miss it. There is no other way to grow as rapidly as franchising allows. Litigation- The biggest negatives in franchising are the conflicts between the franchisee and franchisor which are almost inevitable and worse still the litigations. As long as your franchisees are making money, everything is fine, but if they lose money, then conflict will arise and if you don't handle the situation well you could end up in court being accused of everything from not providing adequate training to misrepresentation and fraud. If it ends up in court, you will probably lose because our legal system creates a very uneven playing field for the franchisor in legal proceedings. It's the big business against the little guy. You don't want to end up in court. The way to avoid conflict and litigation is to do everything possible to support your franchises and make them successful. They simply must make money, each and every one. Achieve optimum size- maximum profits are realized by getting very large. Because there are few impediments to growth through franchising, it offers the opportunity to have 1000's of units through out the world, and no other business expansion model can offer that. Great buying power- The large number of units allowed by franchising enables the company to buy for the entire

11
system and at great savings to the individual franchisees. This greatly enhances profit margins and gives the franchisees a very strong advantage over all competitors. Securing locations- As a franchising system grows it begins to take on an image in the marketplace of size and success. Landlords like to have well known, successful Franchises in their shopping centers. It's simply much easier to secure great locations as a franchisor than it would be for a non-franchise business. Market Dominance- Because franchises tend to grow rapidly, they tend to locate many units in a given market and essentially squeeze out the competition. A franchise can do extensive advertising in a given market because the costs are spread among many units. This combination of having many high profile locations with large advertising budgets is a competitive advantage that can't be overcome. Development of advertising materials- Most franchisors require that the franchisees pay an ad royalty to the company. These monies are pooled to make top quality advertising materials for the franchisees. Again it's the advantage of spreading cost over a large number of franchisees, so that

everyone benefits. Maximum income- Franchises make money in a number of ways such as the following:

http://www.franinfo.com/infobus.html Franchising in Turkey Turkeys geographic position between the Middle East, Southeastern Europe, the Caucasus and Central Asia puts it in a unique position for trade. And since this concept is still relatively new to Turkey franchisors are often referred to as representatives, distributors and agents but operate just as a franchiser would. It has been over 20 years since franchising has been accepted in Turkey when McDonalds became the first foreign franchise in the country. Since that time their have been other franchisers both foreign and local that have spread into the major urban areas of greater Istanbul, Ankara, Izmir and Bursa and these fall under the Turkish Franchising Association (UFRAD). Research has shown that the fast food industry is quickly growing in Turkey due their desire for western style fast foods and Tasty Bakings products fall into this category. Foreign franchise proposals are generally accepted in Turkey because of their high-quality employment opportunities, transfer of technology and know-how, and providing a model for local quality standards, thus educating the Turkish consumer. They also make tax evasion difficult because of their inherent control mechanisms and paperwork requirements. (www.strategis.ic.gc.ca) We know that Tasty Baking has strong quality standards and prides itself on using fresh ingredients which may be readily available in Turkey and franchising may provide the avenue of expansion for Tasty Baking. Considering franchising as an option for entering the Turkey market would be judicious in view of the fact that they could maintain control of the product and establish greater name recognition in a foreign market. Furthermore, the United States is currently has the largest share of the foreign franchise market demonstrating an established relationship in the area. Hence Tasty Baking may be provided with a prime opportunity in franchising. 12

Outsourcing & Offshoring Brazil (Benjamin Mosby)

Introduction Outsourcing and offshoring are business methods where companies decide to purchase the services of another company to perform internal business operations on or offsite. Companies such as the United States Company, TastyKake can benefit from outsourcing and or offshoring for their business operations in countries such as Brazil. This location can be present opportunities for Tastykake based on the geographical location and the advanced accounting systems the country has to offer potential buyers. However, outsourcing and offshoring has both advantages and advantages, which must be examined. Advantages of Outsourcing/Offshoring When considering the advantages of outsourcing or offshoring with other organizations, the idea of what would entice a company into wanting to participate in outsourcing or offshoring should be presented. Organizations are motivated by these factors and have been noted and according to the studies of David G. Waller as cited directly in the source of Logistics Management (1996), the motivational factors for buyers are: Reduce costs. Improve service. Lower risk of initiating a new product, distribution channel, or service. Increase flexibility of distribution options. Gain access to new technology (Logistics Management, 1996)

13 Companies generally would like to reduce costs of business operations because those financial resources that are reduced can be used of other operations within the country. With improving service, if a company chooses to outsource or offshore with a company that is able to provide a service in which they are unable to then it can be an advantage because they would be able to provide expertise in an area, which was not present. In terms of lowering risk of initiating a new product, distribution channel, or service, by outsourcing, and or offshoring, a company is presented with the opportunity of lowering these risks. It would be the company that has been purchased to fulfill those requirements to maintain the contract that they currently have, if not then that organization is at risk of losing the contract and the company inquiring the contract will be forced to find another company to fulfill those required needs. By offshoring, it would definitely be an advantage in the distribution area within a company because it would present a different location for the company to sale their goods and or services. This new location would allow the company that offshores flexibility by being in one location and conducting business in a different location. In terms of gaining access to new technology, if the existing company that wants to outsource or offshore does not have the competitive technology within their industry than this can be seen as advantage by purchasing the goods and or services from a company that has that technological edge. Disadvantages of Outsourcing/Offshoring The action of outsourcing and or offshoring presents many disadvantages. Many jobs are affected within the existing company that plans to outsource or offshore. This fact of the number of jobs has been statistically noted, and according to Gomberg (2005), 14 "Roughly 61,000 jobs are moving offshore today from business operations" (Gomberg, 2005). This can be a disadvantage because current employees that carry out those operations that are being outsourced /off-shored will be forced to resign or be terminated or forced to learn a new job function within the company. Aside from the potential job loss, for existing employees of the company that chooses to outsource or offshore there needs to be truth defined in the disadvantages of outsourcing/offshoring. According to the studies of Lovelace (2004), these truths about outsourcing are: Outsourcing takes more management, not less. The economy of scale promised by outsourcers disappears very quickly. IT [information technology] remains an opportunity for competitive advantage. (Lovelace, 2004) With outsourcing, there will be more management needed, which may seem as a disadvantage because it would require the company that chooses to outsource to invest in time to meet the needs of this demand in management. This can be interpreted as a disadvantage because companies will be using time to manage new sources that were not required and that financial investment could be used for other sources. The second truth, can be seen as a disadvantage because the numerous amount of companies that similar services are available and selecting the less compatible company can be company disadvantage for many reasons specifically over paying and or not being able to receive the requested services

or goods a competitive outsource company can provide. With relation to the last truth of IT, an advantage with this truth is that the company selected for outsourcing or offshoring will be productive only if they are 15 knowledgeable of the technology used for the intended purpose. This can be a disadvantage if the company is not able to provide the technology services effectively due to their understanding level. TastyKake and Outsourcing/Offshoring Our group's chosen company TastyKake Inc. has currently participated in outsourcing and or offshoring. Specifically within training, Tastykake has outsourced areas such with Systems, Applications Products in data processing (SAP). According to the source of intelligence group.com, "Tasty Baking Company, based in Philadelphia, Pennsylvania, sent dozens of employees through their support partner's "SAP boot camp" to ensure that they were fully prepared to use SAP in each of their respective functions" (intelligencegroup.com). This form of outsourcing is common among many companies, Tastykake is able to educate their staff on training with the support of companies that master those areas and hence allow Tastykake to ensure that their employees are trained on the existing systems and data applications. Tastykake utilizes outsourcing and or offshoring are aside from training. It is noted that, "In late 2003 and during 2004, the company engaged certain specialists and/or outsourced certain functions not considered core competencies of the company including, but not limited to i) payroll processing and regulatory compliance, ii) spare parts maintenance, custody, accounting and reporting, and iii) tax compliance" (Tastykake 2004 Annual Report, p. 51). Tastykake has taken advantage of outsourcing and or offshoring in many areas of operation within their company. 16 TastyKake Outsourcing/Offshoring in Brazil Given that Tastykake performs in outsourcing and or offshoring now, there may be a possibility for the company to perform these business operations in the company of Brazil. Brazil's geographical location may be a factor alone. "Thiago Maia, executive vice president at IT outsourcing vendor Vetta Technologies Ltd. in Belo Horizonte, Brazil's third-biggest city, cites a number of the country's strengths: time zone (depending on the season, Rio de Janeiro is just one or three hours later than New York, since one's on daylight-saving time while the other's on standard time), a culture more similar to the U.S.'s than India's is, an expanding software industry and an oversupply of IT professionals" (Horwitz, 2003). Brazil's location may be one of the main factors Tastykake should consider in outsourcing and or offshoring in Brazil. In addition, there may be other factors such as their advance accounting systems that are currently in place. Brazil has implemented a sophisticated accounting system that may be beneficial to Tastykake. It is noted that, " The new Brazilian Payment System, SPB - Sistema de Pagamentos Brasileiro is now one of the most advanced in the world" (The Outsourcing Institute Brazil Trends & Opportunities Website). This accounting system is advanced and may be something to consider especially when wanting to perform real-time financial transactions within a foreign currency. "Today individuals and companies alike can make payments between banks in real time using TEDs (Transferncia eletrnica disponvel), which are settled using STR [Sistema de Transferncia de Reservas] through CIP [Cmara Interbancria de Pagamentos] and use of TEDs [Transferncia eletrnica

disponvel], has soared"(The Outsourcing Institute Brazil Trends & Opportunities Website). This ability has proven to be an upcoming advantage. Tastykake can benefit 17 by this new advancement in financial transactions in collaborating with a company within Brazil for outsourcing and or offshoring. Outsourcing and or offshoring has its advantages and disadvantages. Companies such as Tastykake can benefit from participating in these business operations. Tastykake currently participates in outsourcing certain job functions. Given Brazil's geographical location and financial capabilities, Tastykake can benefit and expanding their reputation, service, and goods in a region, they currently do not exist.

Off Shoring & Outsourcing Turkey (Greg Florey)

Introduction Out sourcing and off shoring are value creating activities that Multinational Corporations (MNCs) pursue to obtain cheaper labor, lower cost of resources, and attempt to enhance the value of their end product or service. Turkeys geographical location in the world of trade and commerce make it an ideal location for MNCs to access the European and Asian land-locked markets. As the world becomes more globally integrated and the boundaries between countries and cultures disappear, many developing countries, including Turkey, are turning into attractive centers for international firms because of their geographical locations (E., Aktas & F., Ulengin, 2005). With an increasing demand among of international businesses recognizing the need to focus on the effective and efficient processes of their core competencies and looking to international markets to expand business opportunities, the demand for third party logistics (3PLs) providers are dramatically increasing. Although currently, Turkish 3PL providers capabilities and know-how is only providing basic transportation services that 18 mainly include transporting company goods from the supplier to the customer. Value adding supply chain activities such as optimal warehousing inventory, the ability to track products in the supply chain utilizing real-time telecommunication technologies, and other value creating activities are neglected by Turkish 3PL providers. If efficiency in the Turkish logistical service industry does not improve on the horizon soon, to provide cost efficiency in warehousing, transportation, another value adding activities, MNCs, depending on Turkish laws could partner with local 3PL providers or possibly acquire efficient global 3PL providers that utilize the latest cost effective technology to enhance supply chain activities. To minimize cost risk and enter the Turkish economy effectively, Tastykake Baking Company (TBC) should partner with a 3PL provider within Turkey and position several seasoned TBC employees along side them to generate strategic thinking so effective and efficient actions are initiated timely to increase the probability of TBCs success in Turkey. Off shoring & Outsourcing What is off shoring? Off shoring is when a business activity makes a comparison of a service activity or commodity to another countrys similar activity or item, and conducts a cost benefit/value analysis. The results should

identify if the country, under consideration, can produce and deliver the desired activity or commodity, having the global mindset to lower the price of the end product or service, and or creating a value component. According to (Hill, 2007), off shoring is the Foreign Direct Investment 19 abroad by incorporating the comparative advantage product or service into the home countrys final output there by reducing the cost and or increasing value. Additionally, as stated by Wikipedia, Encyclopedia, Off shoring is similar to outsourcing when companies hire overseas subcontractors, but differs when companies transfer work to the same company in another country. What is outsourcing? Outsourcing is an activity when a company seeks a particular company that is equipped with a comparative advantage in manufacturing a product or producing a service that allows the outsourced corporation to produce the good or service for the home source company that create value factor. The contribution of the outsource company should decrease the cost or increase value of the final good or service. As reported by (Hill, 2007), Boeing in competition with Europes Airbus to lower its cost, increased outsourcing of the manufacturing of various aircraft components from 50% to 64%, a net increase of 14% over the past 10 years, as a means to reduce cost, increase value, and allow Boeing to concentrate on their core competencies of aircraft design and manufacturing. Current Services Turkish 3PL Providers Turkeys geographical placement within the global market makes it an ideal location for companies to gain access to both the European and Asian theaters. This is evident by the increase in global 3PL providers that supply transportation, logistic functions, and other supply chain value-added activities. To date though, Turkish 3PL providers have only recognized the need for the transportation side of the supply chain dimension and have foregone opportunities to provide value-added logistical activities such as inventory 20 management, accountability of goods in transient, and other activities that create value for customers and MNCs. A representation of the quality and cost of Turkish 3PL providers are reflected in Exhibit #1. According to (E. Aktas & F. Ulengin, 2005), Many Turkish firms understand logistics services as taking the transportation order from the manufacturer and delivering the goods to destination points, without thinking about the warehouse design, the optimum location of the warehouse or of inventory management. Such ways of thinking are concerned only with one side of the subject and reduce logistics services to a narrow transportation perspective. Turkish 3PL Providers Improvements With Turkey an ideal location with potential access to European and Asians markets, and a likely international hub of increasing business activity requiring advance logistical elements, MNCs will need to integrate outsourced logistical services into their global supply chain to create value synergies. To meet the value adding support of supply chain activities, logistical services in Turkey must understand logistical considerations are more than an intermediary transporting goods between the manufacture and customer. They must develop skills to manipulate the dimension of supply chain activities to create value. This can lead to cost reductions to the supply chain by designing optimal warehousing, streamlining order fulfillment, and integrating logistical activities with real-time information generated by technology into the companys

business processes to increase strategic competitiveness. Recently, it has been highlighted that successful logistics management depends more and more on the performance of 3PL providers. Accordingly, they can play a key integrative role in logistics functions by the management of 21 information flows connected with the entire delivery of goods. This has created an increasing need to support customers' logistics requirements through the effective use of information and computer technologies, as reported by, (E. Aktas, & F. Ulengin, 2005).
TBC Outsourcing

As reported in TBCs 2004 Annual Report, they are currently expanding their delivery routes in the Mid-Atlantic region, TBC has also utilized 3PL providers recently, distributing their baked goods throughout the North American region and Puerto Rico. Similarly, as an export strategy, in keeping with TBCs insight on what value 3PL providers bring to the table, I would recommend TBC implement a slow entry strategy into Turkey by outsourcing to a known and reliable Turkish 3PL provider. As reported by (Hill, 2007), they are several strategies that international corporations should purse to ensure a successful expansion into a foreign economy. What might sound obvious is the first step of researching how to conduct business, awareness of regulations, and accomplish the myriad of paperwork or know someone who does. Since TBC is a small company as compared to MNCs, TBC should enter Turkey on a small scale to reduce their cost risk and slowly build market share by promotional advertising (pull strategy) and distribute free samples at community or social gatherings such as soccer games and traditional festivals. Additional personnel should be hired to support this new business direction. TBC should initiate, build a solid trusting relationship, and seek a minority interest with a proven Turkish 3PL provider to established presence in their new environment. Several seasoned employees from TBCs home office should be co-located with the 3PL provider to generate strategic thinking concepts and ideas to increase the probability of initial success (Mintzberg, H., 2004). As TBS is successful in market 22 awareness and increasing sales, TBC should secure their foothold in Turkey by purchasing majority interest in the Turkish 3PL provider and pursue the next step of further expansion. Building relationships with your host country partner is a very important component to successfully carry out foreign business opportunities. I discovered this unintentionally during a massive earthquake in Turkey in 1999 where 30,000 people perished. While deployed to Istanbul, TU as an Air Force Contingency Contracting Officer from my home base in Andana, TU, I utilized one of my primary contractors that is one of the major logistical providers in Turkey. In one instance, I was able to contract to dismantle and relocate a temporary military hospital from a potential hostile area. Normally this would have taken several days; by building a mutual trust in prior negotiations at my home base on other contracts, I was able to utilize my local contractor and accomplish it in 12 hours! Conclusion More MNCs are looking to outsource or offshore logistical support to create value for their organizations. With Turkey located as a center distribution point for European and Asian markets it is an ideal hub for international commerce. MNCs will continue to focus on their core competencies, knowing to reduce cost and increase value must rely more on outsourcing to 3PL providers.

Turkish 3PL providers must realize that the demand for these value-added capabilities will be for 3PL providers that can efficiently an effectively utilize the latest supply chain methodologies and technologies, and seamlessly integrate these services to enhance business strategies. For the TBC to enter the Turkish market while minimizing financial risk, it is recommended they purchase a 23 24 limited interest in a reliable 3PL provider. To be postured for success in the Turkish economy, TBC should also co-locate several seasoned employee with the 3PL provider to develop and execute viable strategic ideas. Exhibit 1 Quality and Cost of Global Outsourcing
Source: A.T. Kearney

Joint Venture in Brazil (Tony Peralta)

Joint ventures represent a great strategy for organizations to enter foreign markets by participating and partnering with similar counterparts in a host country with the hopes of creating a relationship that benefits both parties from a skill and technological transfer perspective while providing each with the benefits the economies of scale bring with this partnership by immediately doubling supply chain networks and customer bases and reducing their production costs. Joint ventures come with risks, which historically indicate a 50-50 chance for success. Albeit, there are dynamics within the practice, that are important to highlight and consider when looking to create a joint venture with a company abroad. Researching the presence of previous joint ventures in the target market is also of importance to reassure the likelihood of an attainable success in light of an already established partnership in the region and alike markets. Finally this work will present the importance of determining the level of competition that may arise in light of an observed joint venture by competing factors in the regions. Large scale companies that have recent active interest in a target market could present challenges to a joint venture. Introduction When two independently owned organizations gather in talks to enter each others markets for the sake of establishing previously non existent market presence, expand growth and promote the synergy that takes place when core competencies unite to form a more robust company. The purpose of this piece is to investigate the dynamics of joint ventures across borders and determine the favorable and non favorable criteria in which these are recommended or not. The material presented will be considered as a study for 25 the plausible considerations for seeking joint ventures in Brazil by Tasty baking Company as a market entry strategy.

Definition
The momentum in which organizations are moving to become more involved in the international business arena, make joint ventures (JV) the means by which domestic firms can expand their operations abroad, learn and teach new skills related to their operations and all while gaining a new business partner. Joint ventures are the avenue by which local organizations can get to foreign markets and capitalize on the fruits of the economies of scale brought forth by the sharing of resources between the local and host country (Park, 1997). Moreover, the opportunity to offset the risk associated with joint venture initiatives by sharing any potential losses, and the ability to hit the floor

running when it comes to local knowledge or markets. Finally joint ventures are also the means by which political barriers to Foreign Direct Investment in the form of joint ventures are overcome, in part because the interpretation of such practice by political entities is viewed not as a foreign company coming in to exploit resources, but to collaborate in the enrichment of a local firm and the transfer of knowledge which in turn, by the theories of Porters Triangle, will benefit consumers, create competition, the emergence of related markets, among others.

Favorable Criteria
As suggested in the definition, some of the most important criteria favorable for joint ventures are the elimination of the learning curve associated with doing business abroad; most established host country organizations have a good understanding of how business is conducted in their host country, as well as customs and norms of business 26 operation. Moreover there is a considerable benefit in being able to, without delay, begin using established supply chain to get the newly established products and services brought forth by the joint venture. As a final example in the favorable criteria supporting joint ventures is the ability to share the risks associated with expanding operations in the host country. Most organizations have outlooks to expand but fail to execute in the fear of losses associated with the expansion process. Joint ventures brings the opportunity to share the risk and cut potential losses in half for the participating companies, while on the positive side, both participating companies can also reap the benefits in the presence of a successful implementation of a business strategy. Non Favorable Criteria First impressions of a joint venture might be captivating in that they suggest a win-win situation for the participating companies, but there are many risks associated with the execution of a successful join venture. Despite the increase of use of this FDI strategy to access foreign markets, Joint ventures are at times viewed as the merging of two companies to create on that is, during it's vulnerable initial stages, an unstable organization going through the motions of restructuring and determining just how the chemistry amongst them will play out. Moreover, Michael Porter suggested that joint ventures require a high amount of expenditures and coordination that has to find tradeoffs between their stated goals and while creating immediate competitors in the revelation of such collaboration (Inkpen, 1997). Numerous studies have found that on average, there is a 50% rate of unstable classification of joint ventures, determined by the imperial study of 49 foreign collaborations, in which one of both of the participating organizations have deemed it such (Inkpen, 1997). Finally, joint ventures create a rally for domination, in 27 which member of the venture, despite the agreement of collaboration; have an unexpressed desire to topple the other by racing to acquire the most knowledge and experience by originating members of each independent company. In short the nature of joint ventures has changed from that of equally distributed gains, to that non equal distribution where the collaborator who has the most to offer is usually the one calling the shots and potentially eating their young (Caloghirou, 2003).

Tasty Baking & JV in Brazil

To introduce the welcoming aspects of Joint ventures into Brazil, it is suffice to

look at a recent joint venture between a US company and a Brazilian company to demonstrate the equally available alternatives for Tasty Baking Company participating in a JV. Ironically enough, fresh Start Bakery headquartered in Brea, CA, who has 14 bakeries outside US borders and eight facilities in the US, has successfully participated in joint ventures in Brazil and their success story is a model and a great example of a successful joint venture (Berne, 2005). Vally rpoduto Alimenticios Ltda, Sau Paulo, Brazil was a primary supplier of bakery goods to the operating McDonalds restaurants in Brazil up until 1986 when the Brazilian economy was taking a hit and McDonalds was looking to partner with an alternative company for it's bakery products. Fresh Start Baking president and CEO Craig Olson and Charles Rothchild president of Vally Alimenticios determined that both companies had similar business values and within a short meeting determined the structure of the future venture between their two companies and since have established additional joint ventures in neighboring countries such as Chile (Berne, 2005). This type of partnership is a great example of what is attainable as 28 long as there is that alignment of values and business models associated with the execution of business processes. Another factor to consider in the search for international partnerships is the competitive landscape in the region and being able to determine or to a greater extent predict any plausible risks the competitors can play in influencing the success of a joint venture. When considering baking companies in the region and the likelihood of Tasty baking Company doing business in Brazil, we cant help to notice the presence of Grupo Bimbo of Mexico and their role in the baking industry in the country. with the recent buy out of one of the largest baking companies in Brazil. The brand Plus Vita, owned by Bunge Alimentos S.A., was bought out by Grupo Bimbo of Mexico for 63.5 million dollars. The purchases of this company by Grupo Bimbo Places them immediately with a strategic acquisition of 21% of the baking product market share in Brazil. Add to this their rather large presence in throughout Latin America with subsidiaries in Colombia, Venezuela, Peru, Argentina, Chile, and Uruguay (Grupo Bimbo, 2006); you have a recipe for a potential competitor that can leverage their weight against any threatening competition. Success stories like that of Fresh Start Bakery support the likelihood of Tasty Baking Company reaching a successful joint venture approach to foreign direct investment. The ideal scenario would be to determine a like size company in Brazil, that not only shares similar values in business but can strategically find alignment in their product lines and can translate to mutual gains in both foreign and domestic markets in light of the exchange of expertise and products. 29 Joint ventures have high failure rates of up to 50% and this adds to the complexity of reaching a successful venture. Brazil's economy is growing strong and they recently joined a sustainability index which reassures their commitment to the promotion of the critical factors that make for a desirable international business arena. The recommendation in light of these findings are that Tasty baking company, through Global Integration, determine a would be partner in the country and set up meetings to determine if there is a desire by both parties to part take in a joint venture.

Joint VenturesTurkey (Laurie Hackett)

Introduction A joint venture is one way an organization can choose to enter a foreign market to establish a presence in the country and introduce its product to the new market. This paper will first define joint venture; discuss the reasons for joint ventures, and the advantages and disadvantages of joint ventures. In addition, joint ventures in the country of Turkey will be discussed, as well as in-country policy and how it affects setting up a joint venture in Turkey. Finally, the paper will conclude with a discussion on the Tasty Baking Company, and the authors opinion on whether a joint venture would be advantageous for the organization when establishing a market in Turkey. Definition A joint venture is defined as a strategic alliance between two or more parties to undertake economic activity together (Wikipedia, 2006). Both organizations contribute equity and share in the revenues, expenses, and control of the company. Sometimes it is impossible for an organization to export a product to a foreign country because of import barriers, low priced foreign competition, transportation costs, and high production costs 30 (Licensing and Joint Ventures, n.d.). Joint ventures are one way for organizations to enter a foreign market. Joint ventures between the U.S. and foreign firms have increased an average of 27 percent since 1985 (Encyclopedia of Business website, 2006). It is estimated that 70 percent of joint ventures are failures. However, there are many reasons for pursuing a joint venture. Reasons for Joint Ventures Joint ventures are very common in capital-intensive industries such as oil and gas exploration, mineral extraction, and metals processing (Encyclopedia of Business website, 2006). The basic reason to form a joint venture is to save money. Forming this type of alliance allows a company to share risks and costs, and create scale economies. In addition, a joint venture allows the business to improve access to financial resources, new technologies, customers, and innovative managerial practices (Wikipedia, 2006). All of these resources allow the company to be more competitive by creating stronger competitive units, improved agility, and speed to market. Joint ventures allow a company to gain access to foreign markets without having to set up a Greenfield investment where the company will have to build the business from the ground up and invest significantly more money. In addition, forming a joint venture gives the company access to the expertise another country already possesses about the current local market. Some countries, such as China, will not allow a foreign company to own the majority of a domestic business. Other countries, such as Mexico, require that all foreign firms investing in the country have Mexican joint venture partners (Encyclopedia of Business website, 2006). This is another reason to form a joint venture when moving into an international market. 31 Advantages of Joint Ventures Thus far, this paper has discussed the reasons to form a joint venture, which has highlighted some advantages of joint ventures. As discussed, some advantages to forming a joint venture when entering an international market are to share risks and costs, create scale economies, and gain access to local market expertise. The local partner knows the buying habits and preference of buyers and suppliers, and understands the existing channels of distribution, as well as the language and culture of the market (Encyclopedia of Business

website, 2006). Another advantage to joint ventures is that each company brings complementary strengths to the table which results in a competitive advantage for the participants collectively (Encyclopedia of Business website, 2006). Joint ventures are also advantageous when an organization is seeking to enter a foreign country that will not allow a foreign company to enter on its own. Research shows that joint ventures with local partners face a low risk of being subject to nationalization or other forms of adverse government interference (Hill, 2007). Finally, since a joint venture allows the two companies to share resources and costs, it gives the company the opportunity to increase sales, gain access to wider markets, and enhance technological development thought research and development financed by more than one company (Encyclopedia of Business website, 2006). Disadvantages of Joint Ventures While there are many advantages of joint ventures, there are also some disadvantages. First, a company that enters into a joint venture risks giving control of its technology and experience to its partner (Hill, 2007). This may allow the partner company to eventually go out on its own and use the knowledge gained and become a 32 competitor. Second, the host country can create complications such as expropriation or nationalization that make it difficult for the venture to be successful (Encyclopedia of Business website, 2006). Another disadvantage is that a joint venture does not give the firm tight control over subsidiaries that it might need to realize experience curve or location economies (Hill, 2007). A shared ownership arrangement can also cause conflicts for control between the investing firms if their goals or objectives change (Hill, 2007). Joint ventures also take a significant amount of commitment from staff and management, are time consuming, may take time to achieve profitable returns, and are difficult to exit if not successful (Encyclopedia of Business website, 2006). Finally, different legal and commercial systems, language barriers, and cultural differences could hinder the project. Joint Ventures in Turkey Turkey does allow 100 percent foreign ownership, however, most U.S. investment in Turkey is in the form of a joint venture (U.S. Senate website, 2006). Most Turkish firms prefer to establish joint ventures with U.S. suppliers to overcome shipping costs and European competition. Especially in view of customs taxes applied to U.S. products vis--vis zero customs charges for European-origin goods (Turkey joined the European Customs Union in 1996), many U.S. firms have chosen local production as a way to profitably penetrate the Turkish market (U.S. Senate website, 2006). A highly sophisticated infrastructure of legal support and financial and consultancy services exists in Turkey, which is an advantage for U.S. firms seeking to enter into a joint venture. A study conducted by Dilber Ulas (2005) stated that one of the top reasons foreign firms form joint ventures in Turkey is to obtain lower labor costs. The same study also cited 33 that recent changes and additions have been implemented into Turkeys foreign investment legislations which have made the foreign investment environment become more attractive, efficient, and suitable for potential investors (Ulas, 2005). Until 2001, Turkey lacked a law concerning international arbitration, which kept the country from receiving a lot of foreign investment. The adoption of the Turkish International Arbitration Law 4686 was a significant step in modernization of Turkish law and benefits joint ventures since it

shortens the resolution time of their dispute (Rougier-Brierre, 2005). This law allows the foreign party to be represented by a non-Turkish lawyer and gives the foreign company the right to determine the language of arbitration. While Turkey looks favorable for joint ventures, one note needs to be mentioned. Turkey is not a member of the European Union (EU) and is not likely to join the EU before 2015 (Business Monitor International, 2006). Before the EU will allow Turkey membership, the country must improve the political and civil rights so it is in line with EU norms, and develop state institutions to enable them to design and implement reforms. While these issues dont mean a foreign country should refrain from seeking joint ventures in Turkey, they should be considered during the decision making process. Tasty Baking Company Tasty Baking Company is seeking to expand its business into foreign markets such as Turkey or Brazil so the company can seize opportunities such as increasing profits and gaining international recognition. The author believes that Turkey is a promising country to invest and bring its product to since the country provides a secure environment for foreign investors granting them the same rights and obligations as local capital, while guaranteeing the transfer of profits, fees and royalties, and the repatriation 34 of capital (Ulas, 2005). In addition, the expenditure on food, beverages and tobacco in Turkey accounted for 35% of total consumer expenditure in 2003 (PriceWatersHouseCoopers website, 2006). This demonstrates that Turkey has a good market for Tasty Baking Companys product, and that there is the potential for the product to be successful. While joint ventures have many advantages for a foreign firm seeking to enter a new market, the author does not recommend that Tasty Baking Company use a joint venture to enter the baked goods market in Turkey. Tasty Baking Company already has expertise in developing its baked goods products, and the author does not feel that a foreign firm would be able to add much know-how or technological expertise than the firm already possesses. In addition, establishing a joint venture has traditionally been seen in capital-intensive industries such as oil and gas companies. Since Tasty Baking Company is in the food market, the author does not feel a joint venture is best suited for this type of sector. Since the investment environment in Turkey is favorable, and trade barriers are low, the author suggests that Tasty Baking Company either export its product directly to Turkey, or set up a foreign direct investment (FDI) in the country. One issue with exporting the product from the U.S. to Turkey is that the product is perishable and would need to be delivered quickly to ensure the most time on the shelf. Since globalization has brought with it efficient and economical transportation, this may not be an issue for the company. Setting up FDI in Turkey would be advantageous since the company already has the expertise to produce the product. The author believes if Tasty Baking Company conducts thorough market research on customer tastes and preferences as well as research on business laws, that FDI would be a very viable alternative for the organization since 35 physical locations will help to establish a presence in Turkey. In addition, the company can utilize resources such as the Undersecretariat of the Treasury, General Directorate of Foreign Investment when establishing the business in Turkey. Joint ventures have many advantages for organizations wishing to establish their business in a foreign market. While this is an option for Tasty

Baking Company, the author believes that a better alternative is for the company to invest directly in Turkey or to export its product from the U.S. to Turkey.

Conclusion

Global expansion is the foundation to becoming a multinational firm. For the Tastykake Baking Company, selecting the right mode of entry plays an integral part to a successful expansion aboard. Whether its a franchise, joint venture, or outsourcing/offshoring agreement, human an financial capital also have to be addressed. Upon our research, Brazil and Turkey both offer excellent opportunities for growth. The selection of which mode of entry to use in these foreign markets will depend on additional factors such as future economic growth, market growth, consumer demand, and competitive advantage. 36

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