Question

Airbnb would like to penetrate another country -- Turkey. Please think aspects below and prepare answers for each section.

Entry Modes

Analyze different global business entry modes that a company might select when planning international business activities. Compare the benefits, costs, and risks associated with using exporting, turnkey projects, management contracting, licensing, franchising, contract manufacturing, joint venture, and wholly-owned subsidiaries. (In general, exporting has less risk than some of the other entry modes. The product or service, as well as the economic, social-cultural, and political-legal environment of the country will influence an organization’s entry mode.)

Infrastructure Analysis

Describe transportation, communication, and utility facilities in the country that might enhance or deter your organization’s ability to move goods from one destination to the end-user of the item. (In many countries, a lack of roads combined with mountainous areas make truck shipping very difficult and expensive.)

Distribution Barriers

Discuss cultural, political, or legal hurdles that might slow or block distribution in the country. (For example, import duties and documentation might add to the cost of selling products shipped from another country.) A synopsis of trade barriers or other restrictions that might be encountered.

International Intermediaries

Analyze the costs and benefits associated with using wholesalers, brokers, and agents for your global business operations.

Distribution Channel

Identify a channel of distribution for getting a product from the production site to the ultimate customer. (A common channel of distribution may include a wholesaler and retailer; global operations are likely to involve additional intermediaries.) Recommend a distribution channel and intermediaries that could be appropriate for the proposed international enterprise.

Answer 1

Global Business Entry Mode	Benefits	Costs	Risks
Exporting	Low risk Easy market entry or exit Low operational costs Low investment Local market knowledge acquisition	As per from country of export tariffs.	Lack of market control Inappropriate feedback from distributor Tariffs and quotas Transportation costs Multiple export intermediaries Possible distributor selection and relationship issues
Turnkey Projects	a. Firm specializes in core competency to exploit opportunities. b. Governments can obtain designs for infrastructure from the world’s leading companies.	Agreed Cost	a. Company may be awarded a project for political reasons rather than for technological know-how. b. Can create future competitors.
Management Contracting	a. Exploit an international opportunity but risk few physical assets. b. Nation can award contract to operate and upgrade public utilities when a nation is short of investment financing. c. Help nations develop skills of local workers and managers.	Agreed Cost	a. Places the lives of managers in danger in developing or emerging nations undergoing political or social turmoil. b. Suppliers of expertise may nurture a formidable new competitor in the local market.
Licensing	a. Finance international expansion. b. Less risky method of international expansion. c. Can reduce likelihood of product appearing on black market. d. Licensees can upgrade existing production technologies.	Agreed Cost	Can restrict a licensor’s future activities. Might reduce the global consistency of the quality and marketing of a product. Might amount to “lending” strategically important property to future competitors.
Franchising	a. Low-cost, low-risk mode of entry into new markets. b. Allows for rapid geographic expansion. c. Uses cultural knowledge and know-how of local managers.	Agreed Cost	a. Cumbersome to manage many franchisees in several nations. b. Franchisees can experience a loss of organizational flexibility in franchising agreements.
Contract Manufacturing	Contract Manufacturing supports international firms to manufacture commodities on a huge scale without a large investment in setting up manufacturing plants. It includes little investment outside national borders therefore, the risk is minimum. It helps an organization to get the items fabricated or assembled at a lower cost. It is helpful for local producers in foreign nations as they could use their potential production capabilities and also a ready market for their own items is provide It gives chance to local producers to get engaged in global business and gain profits without additional capital and with minimum hassles.	Agreed Cost	In any case, if the local producers do not follow the production techniques and quality range, it may cause serious product quality problems for the international firm. The local manufacturer needs to produce commodities as indicated by the terms and details of the agreement and thus, it loses his control over the producing process. A local producer isn’t permitted to sell the outcome according to his will and has to entirely depend on the firm or their sales.
Joint Venture	a. Managers have complete control over day-to-day operations in the target market and over access to valuable technologies, processes, and other intangible properties within the subsidiary. b. Firm can coordinate activities of its national subsidiaries.	As per agreed percentage	a. Expensive, so difficult for small and medium-sized firms. b. Requires substantial resources so risk exposure is high.
Wholly owned subsidiaries	a. Can reduce risk. b. Penetrate international markets that are otherwise off-limits. c. Access another company’s international distribution network. d. Defensiveness: Local government or government-controlled company gives authorities a direct stake in venture’s success.	As per agreed percentage	a. Can result in conflict between partners. b. Loss of control over a joint venture’s operations can also result when the local government is a partner in the joint venture.

As an emerging market Turkey has a competitive commercial infrastructure. However, the government faces a continual challenge to meet the demands of a rapidly growing economy, and gives special priority to major infrastructure projects, particularly in the transport and energy sectors.

By the end of 1999, Turkey had 118 airports, 22 of which were open to international traffic.
Shipping plays an important role in the Turkish economy. This is no surprise, since over 70 percent of Turkey's boundaries consist of 4 seas

The railway system is one of the weakest modes of transportation in Turkey. Although the country has 10,933 kilometers (6,778 miles) of railways running between its western and eastern borders, only 2,133 kilometers (1,322 miles) are electrified. The railroads are state-owned and operated, but rail expansion has not been politically popular for the last several decades and has lacked funding.

The highway transport system carries over 95 percent of passenger transport and over 90 percent of the surface transport of goods in Turkey. The country's road network is extensive, with over 382,000 kilometers (nearly 237,000 miles) of roads.

Turkish telecommunications services are undergoing rapid modernization and expansion. As of 1999, Turkey had more than 19 million telephone lines, exceeding a density of 25 percent. The target density for 2005 is 40 percent. Turk Telekom, a state-owned enterprise, provides basic telephone services in the country, utilizing a variety of communication systems including satellite, submarine cable, and fiber-optic cable. The government has announced plans to privatize up to 49 percent of the company in the near future. The country is also seeing a rapid expansion in cellular telephone services, with many licenses sold to private companies. The current cellular density is estimated at 15 percent and is expected to reach 30 percent by 2010. Cellular phones have received widespread acceptance in the large cities, where they have become a part of daily life among both business executives and teenagers. The Internet is also a well-accepted communication/information medium in Turkey, again primarily in the urban areas. At the end of 1999, Turkey had 1.7 million Internet users, 70 Internet service providers, and 8.06 Internet hosts per 10,000 people. Internet usage is seeing rapid growth, primarily due to cutting-edge Internet banking operations.

Turkey faces one of its biggest challenges in the energy sector. Rapid urbanization and strong economic growth have led to one of the fastest growing power markets in the world. It is no secret that Turkey is facing a major hurdle in trying to meet the demands of such growth. In 1999, imported energy supplied 60 percent of the country's primary energy consumption, and energy imports are expected to reach 75 percent by 2020. Turkey has an installed electric capacity of 26,500 megawatts, of which about 11,000 megawatts is hydroelectric and the balance is thermal power. This capacity not only cannot meet the 8-10 percent projected annual increase in demand, but is also insufficient for present needs. The Turkish government has been actively seeking investments and developing projects to triple energy production by 2010. The Southeastern Anatolia Project (GAP) is expected to be completed in 2005, and is the most crucial public project in Turkey. When complete, the 22 dams and 19 hydroelectric power plants that are a part of this project will produce 22 percent of Turkey's projected electricity requirements. Due to the current shortage of electric capacity, the 220-volt power system has suffered from occasional blackouts.

Distribution Barriers

1. Cultural and social barriers: A nation’s cultural and social forces can restrict international business. Culture consists of a country’s general concept and values and tangible items such as food, clothing, building etc. Social forces include family, education, religion and custom. Selling products from one country to another country is sometimes difficult when the culture of two countries differ significantly.
2. Political barriers: The political climate of a country plays a major impact on international trade. Political violence may change the attitudes towards the foreign firms at any time. And this impact can create an unfavorable atmosphere for international business.
3. Tariffs and trade restrictions: Tariffs and trade restrictions are also the barriers to international trade. They are discussed below:
   • Tariffs: A duty or tax, levied on goods brought into a country. Tariffs can be used to discourage foreign competitors from entering a digestive market. Import tariffs are two types-protective tariffs and revenue Tariffs.
   • Quotas: A limit on the amount of a product that can leave or enter a country.
   • Embargoes: A total ban on certain imports or exports.
4. Boycotts: A government boycott is an absolute prohibition on the purchase and importation of certain goods from other countries. For example, Nestle products were boycotted y a certain group that considered the way nestle promoted baby milk formula to be misleading to mothers and harmful to their babies in fewer development countries.
5. Standards: Non-tariff barriers of this category include standards to protect health, safety and product quality. The standards are sometimes used in an unduly stringent or discriminating way to restrict trade.
6. Anti-dumping Penalties: It is one kind of practice whereby a producer intentionally sells its products for less than the cost of the product in order to undermine the competition and take control of the market.
7. Monetary Barriers: There are three such barriers to consider:
   • Blocked currency: Blocked currency is used as a political weapon is response to difficult balance payments situation. Blockage is accomplished by refusing to allow importers to exchange their national currency for the seller’s currency.
   • Differential exchange rate: The differential exchange rate is a particularly ingenious method of controlling imports. It encourages the importance of goods the government deems desirable and discourage importation of goods the government does not want. The essential mechanism requires the importer to pay the varying amount of domestic currency for foreign currency with which to purchase products in different categories. Such as desirable and less desirable products.
   • Government approval for securing foreign exchange: Countries experiencing severe shortages of foreign exchange often use it. At one time or another, most Latin American and East European countries have required all foreign exchange transactions to be approved by the central bank. Thus importers who want to buy foreign goods must apply of ran exchange permit that is permission to exchange an amount of local currency for foreign currency.