Page 248 - Foundations of Marketing

Reaching Global Markets | Chapter 8 215

when the political stability of a foreign country is in doubt. In addition, licensing is especially
advantageous for small manufacturers wanting to launch a well-known brand internationally.
For example, Questor Corporation owns the Spalding name but does not produce a single golf
club or tennis ball itself; all Spalding sporting products are licensed worldwide.
Franchising is a form of licensing in which a company (the franchiser) grants a franchi-
see the right to market its product, using its name, logo, methods of operation, advertising,
products, and other elements associated with the franchiser’s business, in return for a financial
commitment and an agreement to conduct business in accordance with the franchiser’s stan-
dard of operations. This arrangement allows franchisers to minimize the risks of international
marketing in four ways: (1) the franchiser does not have to put up a large capital investment;
(2) the franchiser’s revenue stream is fairly consistent because franchisees pay a fixed fee and
royalties; (3) the franchiser retains control of its name and increases global penetration of its
product; and (4) franchise agreements ensure a certain standard of behavior from franchisees,
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which protects the franchise name.
Contract Manufacturing

Contract manufacturing occurs when a company hires a foreign firm to produce a designated
volume of the firm’s product (or a component of a product) to specification and the final prod-
uct carries the domestic firm’s name. The Gap, for example, relies on contract manufacturing
for some of its apparel; Reebok uses Korean contract manufacturers to produce many of its
athletic shoes. Marketing may be handled by the contract manufacturer or by the contracting
company.
Three specific forms of contract manufacturing have become popular in the last decade:
outsourcing, offshoring, and offshore outsourcing. Outsourcing is defined as the contracting
of noncore operations or jobs from internal production within a business to an external entity
that specializes in that operation. For example, outsourcing certain elements of a firm’s opera-
contract manufacturing The
tions to China and Mexico has become popular. The majority of all footwear is now produced
practice of hiring a foreign firm
in China, regardless of the brand name on the shoe you wear. Services can also be outsourced.
to produce a designated volume
The Food and Drug Administration (FDA) announced that it plans to outsource more overseas of the domestic firm’s product
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safety inspections to third parties.
or a component of it to specifi-
Offshoring is defined as moving a business process that was done domestically at the local cation; the final product carries
factory to a foreign country, regardless of whether the production accomplished in the foreign the domestic firm’s name
country is performed by the local company (e.g., in a wholly owned subsidiary) or a third outsourcing The practice of
party (e.g., subcontractor). Typically, the production is moved to reap the advantages of lower contracting noncore opera-
cost of operations in the foreign location. Offshore outsourcing is the practice of contract- tions with an organization that
ing with an organization to perform some or all business functions in a country other than the specializes in that operation
country in which the product will be sold. Today, some clothing manufacturers that previously offshoring The practice of
engaged in offshore outsourcing are moving production back to the United States to maintain moving a business process that
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quality and tighter inventory control. was done domestically at the
local factory to a foreign coun-
Joint Ventures try, regardless of whether the
production accomplished in the
foreign country is performed
In international marketing, a joint venture is a partnership between a domestic firm and a foreign
by the local company (e.g., in a
firm or government. Joint ventures are especially popular in industries that require large invest-
wholly owned subsidiary) or a
ments, such as natural resources extraction or automobile manufacturing. Control of the joint
third party (e.g., subcontractor)
venture may be split equally, or one party may control decision making. Joint ventures are often
offshore outsourcing The prac-
a political necessity because of nationalism and government restrictions on foreign ownership.
tice of contracting with an orga-
Joint ventures also provide legitimacy in the eyes of the host country’s citizens. Local
nization to perform some or all
partners have firsthand knowledge of the economic and sociopolitical environment and the business functions in a country
workings of available distribution networks, and they may have privileged access to local other than the country in which
resources (raw materials, labor management, and so on). However, joint venture relationships the product will be sold
require trust throughout the relationship to provide a foreign partner with a ready means of joint venture A partnership
implementing its own marketing strategy. Joint ventures are assuming greater global impor- between a domestic firm and a
tance because of cost advantages and the number of inexperienced firms that are entering foreign firm or government

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