MARMARA UNIVERSTY

LECTURE: Management in Multinational Organizations

LECTURE: Strategic Management of MNCs Entry into
Foreign Markets: Experience of Israel
LECTURER: Fatma Asl Ekmeki




Safa Gnen.............................................135708003
Yaz ngen...............................081000120070018
Yiit Akaln..............................................135708085







Definition of Multinational Corparation .................................................................................................1
Trade Strategy of Multinational Corparation ........................................................................................1
Export Process ......................................................................................................................................2
Designing an Export Strategy ...........................................................................................................3
Franchising ...............................................................................................................................................5
Steps of Franchising ..............................................................................................................................6
Advantages of Franchising ...............................................................................................................6
Disadvanges of Franchising ..............................................................................................................6
Franchise Models..................................................................................................................................7
Business Format Franchising ..........................................................................................................7
Product Franchising .........................................................................................................................7
Processing or Manufacturing Franchise ...........................................................................................7
Case Study : Franchising in Israel ...........................................................................................................7
Market Entry Strategy .........................................................................................................................8
Financing in Israel .................................................................................................................................9
References............................................................................................................................................. 10



1


Multinational Corporation (MNC)
A Multinational corporation (MNC) is a corporation that is registered in more than
one country or that has operations in more than one country. It is a large corporation which
both produces and sells goods or services in various countries. They play an important role
in globalization.
Multinational Trade Strategy
The trade consists of;
-exporting
-importing
In general, trade activities: are a natural extension of a firms distribution strategy.
Exporting and importing are necessary functions for the implementation of firms
multinational business strategies. MNCs play an important role in developing the economies
of developing countries like investing in these countries provide market to the MNC but
provide employment, choice of multi goods etc. Multinationals will certainly see a low tax
burden or low labor costs as an element of comparative advantage.
MNCs receives more than 25 percent of its total sales revenues from operations outside the
home country.
Exporting: The sale and delivery of goods and services by a firm based in home country to
customers residing in a foreign countries.
Firms export in order to;
increase revenues
achieve economies of scale
alleviate excess capacity
minimize risk and diversify markets



2


The Export Process
Direct exports: goods and services sold directly to an independent party (foreign customer)
outside of the exporters home country
Indirect exports: goods and services sold to or via an intermediary in the domestic market,
who in turn sells them to a foreign customer
Third-party intermediaries: independent, i.e., unrelated, firms that facilitate international
trade transactions by assisting both importers and exporters
Benefits of taking your business overseas;
Expands your business and spreads your risks
Reduces dependence
Uses excess production capacity
Buffers against seasonal demand
Broadens your skill base, management practices, marketing techniques, and ways of
competing.

Risks of taking your business overseas;
Political risk - instability may result in default or blockage of payment or confiscation
of property.
Legal risk - their legislation will affect all aspects of your business transactions.
Financing risk
Credit risk - whether the buyer will be able to pay.
Transfer risk - any economic, political or government restrictions.
Exchange risk - fluctuations in exchange rates.
Transport risk - damage, loss and theft.
Regulations and quarantine requirements - will vary between countries

3


Designing an Export Strategy
To design an effective export strategy, management must:
assess the companys export potential [examine market opportunities and firm
resources]
obtain expert counseling on exporting [get both government and specialized
assistance]
select target markets [passively or proactively pursue market opportunities]
formulate and implement an effective strategy [define objectives and tactics and
establish schedules and deadlines]
Why grow your business through exporting?
Exporting is a great way to expand your business and if done properly, can
significantly increase your profitability. Getting the right balance between international and
domestic trade can protect your business if there is a downturn in one of your markets.
Exporting will also expose you to new ideas, marketing techniques and ways of competing
that you wouldn't generally experience at a local or national level. The challenges and
victories you experience through exporting to overseas markets will help develop your skills
and ability to compete more robustly in your domestic market.
Export example: MC DONALDS
IN TURKEY MC TURCO&AYRAN
IN ITALY -EXPRESSO& COLD CAKE
IN HOLLAND -VEGETERAN MC BURGER
IN PHILIPPINES -MC SPAGETTI
IN INDIA -BIGMAC MUTTON
McDonalds expands overseas through franchises. Each franchise pays McDonalds a
franchisee fee and a percentage of its sales and is required to purchase certain products
from the franchiser. In return, the franchisee gets access to all of McDonalds products,
systems, services, and management expertise.

4


Export Example: BMW
BMW Manufacturing Co has been manufacturing the X5 and, more recently,
the X6 in South Carolina, USA. BMWs with a VIN starting with "NC0" are
manufactured in South Africa. Signing a deal in 2003 for the production of sedans in
China. Yanase Co., Ltd. is the exclusive retailer of all imported BMW products to
Japanese consumers BMW India was established in 2006 as a sales subsidiary
in Gurgaon, India.
Export example: iecam
iecam Group is an industrial group with the main activity fields of glass and
chemicals production. Their business lines covering all basic fields of glass such
as float glass, glass household articles, glass packaging and glass fiber as well as soda
and chromium compounds.
iecam products were exported to 140 countries in 2011 while the European
market maintained its conventional significance in the international sales. Stocks
of iecam, the parent company of the Group which has been carrying on its
activities at the facilities established in 8 countries and with its 18,000 employees.
Multinational Trade Strategy
Importing: the purchase of goods and services by a firm based in one country from
sellers that reside in a different country
-results in payments to the sellers
-affords less control over the production function
Strategic Advantages of Imports
Decrease costs and increase competitiveness and profitability
Secure essential inputs and products
Secure higher quality products, supplies, materials, and/or components
Minimize risk and investment
Diversify suppliers

5

The Role of Customs Agencies
Customs reflect a countrys import and export procedures and restrictions.
The primary duties of a customs agency are the assessment and collection of all
duties, taxes and fees on imported products, the enforcement of customs and related
laws and the administration of certain navigation laws and treaties.
Customs broker
A customs broker can help importer minimize duties by;
valuing products in such a way that they qualify for more favorable treatment,
qualifying for duty refunds through drawback provisions,
deferring duties by using bonded warehouses and foreign trade zones and
limiting liability by properly marking an imports country of origin.

Import example: Dous Otomotiv
The total assets of Dous Group are 28.5 billion USD, including 6.3 billion USD
abroad. The group makes 1.1 billion USD of its total sales of 5.1 billion USD from
abroad. The group employs 6,244 of its total 28,000 staff abroad. In the automotive
industry with a market share of 12.6%, the company is a leading distributor of
wholesale import market.
Franchising
Franchising is the practice of using another firm's successful business model. A
business owner (a franchisor) assigns independently owned outlets (a franchisee) the
right to market and distribute their products or services. As a means of starting or
developing a business, opening a franchise is one of the most stable and profitable
investment opportunities available.
Franchising allows an entrepreneur to take advantage of
a visible and recognized brand
know-how
provides established companies quick access to international and developing
markets.
6



Advantages of Franchising
Buying a name/reputation
Established markets
Technical/management assistance
Standardized procedures
Quality standards
Selection of location
Facility design
Quicker cash flow
Disadvantages of franchising
Loss of independence
High initial fees
High royalties and advertising allowances
Contractual restrictions
Inapplicable advertising
Termination clauses
Not receiving promised help
Unsuitable products
7

For a fee, the franchisor grants the right to operate a replicated business
under a trademarked name, using established management techniques, marketing
and operational procedures. In addition to this upfront capital fee, the franchisee is
normally required to pay ongoing royalty fees and/or a percentage of gross monthly
sales and agrees to comply with franchising procedures.
Types of Franchise Models
There are three major types of franchise models:
1. Business format franchise
2. Product franchise
3. Processing or manufacturing franchise
Business Format Franchise
This is the model that people most commonly think of as a franchise. As the
franchisee you would be given the rights to use the franchisor's intellectual property
in your own business. An example of this model is a fast food outlet.
Product Franchise
This is where the franchisee sells the franchisor's product from a wholesale or
retail outlet. As the franchisee you would be given exclusive rights to sell the product
within a specific area. An example of this model is a motor vehicle dealership.
Processing or Manufacturing Franchise
In this model the franchisee produces the product. The franchisor provides an
essential ingredient or "know-how" to the franchisee. An example of this model is
the soft-drink industry.
Franchising in Israel
Market overview; The U.S. is Israel's largest single country trade partner. Since signing a Free Trade
Agreement in 1985, IsraelUS trade has grown eight-fold. Since 1995 nearly all trade tariffs between
the U.S. and Israel have been eliminated. Israels 2010 inflation rate was 2.7%. This follows five
years of low inflation, including 3.9% in 2009, 3.5% in 2008, 2.1% in 2007, slightly negative
inflation in 2006, and 1.3% in 2005. Exports of U.S. goods to Israel in 2010 were $6.7 billion.
In 2009, exports of U.S. goods to Israel totaled US$5.8 billion. U.S. imports from Israel in
2010 totaled $18.5 billion. U.S. imports from Israel in 2009 totaled $16.8 billion.
8

Market Entry Strategy
Distribution methods vary by type of product.
Commissioned Agents: used mainly for industrial equipment, raw materials and
commodities.
Non-Stocking Agents: used mainly by manufacturers.
Stocking Agents: used mainly for high volume items.
Importers/distributors: used often for consumer goods.
Franchising: since its introduction to Israel in the mid-1980s, franchises/brand
licenses have increased in popularity. ACE Hardware, Office Depot, Re/MAX,
McDonalds, Toys-R-Us, UPS, FedEx all operate as franchisees/licensees in Israel.
Direct marketing is fairly common
Door-to-door salesmanship is uncommon in Israel and is considered a nuisance.
Cable and satellite TV offer shopping channels.
Direct marketing is common through mail order booklets that are distributed
monthly by credit card companies and through the Internet
Telephone marketing is increasingly common, but with mixed results.
Internet use in Israel is widespread and represents a good marketing avenue.
The Government of Israel encourages both joint ventures and licensing
Joint ventures are the most popular methods of cooperation for Israeli firms,
especially in technology-related industries.
Israeli businesses prefer obtaining five-year licensing agreements with automatically
renewable clauses that extend the agreement for another five years
Manufacturing under licensing agreements is common in Israel.
Israeli businesses prefer licensing agreements in which the licensor takes equity with
the licensee.
U.S. companies should seek advice from a respected law firm and accounting firm
when figuring tax liabilities.
The United States and Israel have signed a tax treaty to avoid double taxation.
9

Foreign direct invesment in Israel
NET INFLOWS (% OF GDP)

Investment Climate
Openness to Foreign Investment
Israel is open to foreign investment, and the government actively encourages and supports
the inflow of foreign capital. There are few ---restrictions on foreign investors, except for
parts of the defense or other industries that are closed to outside investors on national
security grounds.
Foreign investors are welcome to participate in Israel's privatization program. Investments in
regulated industries however, require prior government approval. Investments in certain
sectors may require a government license.
Financing
How Does the Banking System Operate
Israel has a modern and sophisticated banking system. The remaining government-owned
shares of the largest bank, Bank Hapoalim, were sold in 2000. In 2000, Citibank was the first
large international bank to set up a full branch in Israel. HSBC soon followed suit. Bank of
America also has a representative office in Israel. The government does not interfere in the
day-to-day management of the banks. Most types of loans and project financing traditionally
available in industrialized countries are available in Israel.
How Does the Banking System Operate
The government does not interfere in the day-to-day management of the banks. Most types
of loans and project financing traditionally available in industrialized countries are available
in Israel.
10


Stephen Tallman (2004), STRATEGIC MANAGEMENT AND THE ROLE OF THE MNC
IN A POST-INDUSTRIAL WORLD MARKET, in Michael A. Hitt and Joseph L.C.
Cheng (ed.) "Theories of the Multinational Enterprise: Diversity, Complexity and
Relevance" (Advances in International Management, Volume 16), Emerald Group
Publishing Limited, pp.53-64
Jacob Hallencreutz, Dawn-Marie Turner, (2011) "Exploring organizational change best
practice: are there any clear-cut models and definitions?", International Journal of
Quality and Service Sciences, Vol. 3 Iss: 1, pp.60 68
Alan M. Rugman, Cecilia Brain, (2003) "Multinational Enterprises Are Regional, Not
Global", Multinational Business Review, Vol. 11 Iss: 1, pp.3 12
Roger (Rongxin) Chen, (2008) "The Cost of Doing Business Abroad in Emerging Markets
and the Role of MNC Parent Companies", Multinational Business Review, Vol. 16 Iss:
3, pp.23 40
Khalil Abu Rabia, Elaine Solowey, Stefan Leu, (2008) "Environmental and economic
potential of Bedouin dryland agriculture: A case study in the Northern Negev, Israel",
Management of Environmental Quality: An International Journal, Vol. 19 Iss: 3, pp.353
366
Guy Harpaz, (2001) "Israel: Money Laundering: A Clean Break", Journal of Money
Laundering Control, Vol. 4 Iss: 3, pp.264 - 282
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