Target Markets and Modes of Entry


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Target Markets and Modes of Entry

  1. 1. TARGET MARKETS AND MODES OF ENTRY Prof. Sameer Mathur, Ph.D.
  2. 2. Agenda Target Market Selection Entry Strategies
  3. 3. Sameer Mathur Indian Institute of Management, Lucknow Marketing Professor 2013 – Marketing Professor 2009 – 2013 Ph.D. and M.S. (Marketing) 2003 – 2009
  4. 4. Recommended Reading
  5. 5. Target Market Selection • Even the world’s largest companies must exercise strategic discipline in choosing the markets they serve. • Small and midsized companies are often constrained to an indirect presence. • They must often create a worldwide resource network through alliances (with suppliers, customers etc.).
  6. 6. Strategy Dimension Market/ Segment Choice Customer Relationships Distribution Service Decisions Must/May Markets? Entry? (Timing, Scale, Mode) Communications Mix Distribution Structure/Partners Options Volume, Technology, Competition. First mover? Entry Scale? Mode? (Export, Turnkey, Licensing, Franchising, Joint Venture, Alliance, Own Subsidiary). Push/Pull, Global Accounts, Local vs. Global Brand. Partnering, After Service Market Participation
  7. 7. Target Market Selection • Western carmakers entered China far too early and overinvested, believing a “first-mover advantage” would produce superior returns. • Most companies lost money, had trouble with local partners, and saw their technological advantage erode.
  8. 8. What Makes Global Market Selection and Entry so Difficult? • Research shows a grass-is-always-greener effect that “infects” global strategic decision-making because firms overestimate of foreign markets’ attractiveness. • Cultural distance can making finding talent difficult. • Geographic distance impacts the effectiveness of communication. • Often, more resources and time are also invested.
  9. 9. Measuring Market Attractiveness Four key factors in selecting global markets are: (a) a market’s size and growth rate (b) a particular country or region’s institutional contexts, (c) a region’s competitive environment (d) a market’s cultural, administrative, geographic, and economic distance from other markets the company serves. This is the CAGE framework.
  10. 10. Market Size and Growth Rate • Country-level socioeconomic or demographic data is too heavily relied upon • In fact, segmenting by country or region may not be best. • Theodore Levitt’s vision of a global market for uniform products and services has not come to pass. • Research increasingly supports an alternative “global segmentation” approach to the issue of market selection, especially for branded products.
  11. 11. Market Size and Growth Rate • Consumers increasingly evaluate global brands in “cultural” terms and factor three global brand attributes into their purchase decisions: (a) What a global brand signals about quality (b) What a brand symbolizes in terms of cultural ideals (c) What a brand signals about a company’s commitment to corporate social responsibility.
  12. 12. Market Size and Growth Rate Consumers perceive global brands one of four groups: 1. Global citizens rely on the global success as a signal of quality and innovation but worry whether a company behaves responsibly 2. Global dreamers are less discerning about but more ardent in their admiration of transnational companies 3. Anti-globals are sceptical that global companies deliver higher-quality goods 4. Global agnostics judge a global product by the same criteria they use for local brands
  13. 13. Institutional Context • A five-dimensional framework to map a particular country or region’s institutional contexts. A careful analysis of a country’s: (a) Political and social systems (b) Openness, (c) Product markets (d) Labour markets (e) Capital markets • The more open a country’s economy, the more likely it is that global intermediaries can freely operate there • Strategically, openness is a double-edged sword: a government that allows local companies to access the global capital market neutralizes one key advantage of foreign companies.
  14. 14. Institutional Context: Challenges • Capital markets are inefficient • Cost of capital is high and venture capital is virtually nonexistent. • Lack of well-trained people because of a lack of high-quality educational institutions. • Because of underdeveloped communications infrastructure, building a brand name is difficult. • Strong relationships with government officials often is necessary to succeed. • Contracts may not be well enforced by the legal system.
  15. 15. Competitive Environment • The number, size, and quality of competitive firms in a particular target market compose a second set of factors that affect a company’s ability to successfully enter and compete profitably. Mary Kay Cosmetics (MKC) is a direct marketing company that distributes its products through independent “beauty consultants.” Read the case on the next slide. Should the company enter China or Japan first?
  16. 16. Competitive Environment: Example • Country-level data showed Japan to be the most attractive because of highest per capita spend on cosmetics and toiletries, a thriving direct marketing industry and many women outside the workforce. • MKC learned, however, that the market opportunity in China was far greater. • Chinese women were far more motivated than their Japanese counterparts to boost their income by becoming beauty consultants. • Thus, the entrepreneurial opportunity was a far better predictor of the true sales potential than high-level data on incomes and expenditures.
  17. 17. Entry Strategies: Modes of Entry Exporting • No investment in foreign production facilities required • Substantial costs and limited control • Difficult to customize to local markets Licensing • Potential returns from manufacturing and marketing may be lost • Low cost and limited risk Strategic alliances and joint ventures • Facilitate market entry, risk and reward sharing, technology sharing, joint production development, conforming to government regulations Acquisitions or greenfield start-ups (aka FDI) • High control • High cost and degree of commitment
  18. 18. Entry Strategies: Timing • First-mover advantage holds that the first entrant in a new market enjoys a unique advantage that later competitors cannot overcome. • Many companies have overestimated the first-mover advantage. • However, Procter & Gamble (P&G), has always trailed Unilever in certain large markets, including India, and the most obvious explanation is that its European rivals were participating long before P&G entered.
  19. 19. Which BRIC Countries? A Challenge for Carmakers • As per capita income rises in each BRIC country, so does per capita car ownership. • The automobile industry creates high revenue and employs many, and governments often heavily regulate it. • Brazil’s car usage per capita is nearly 10 times India’s, but growth projections are only 2% until 2013 (lower than the U.S.).
  20. 20. Which BRIC Countries? A Challenge for Carmakers • Russia is the smallest BRIC country but has the highest car adoption rate, possibly because it has adopted the European tastes of its neighbours. • However, there is political risk for manufacturers in Russia. • In November 2008, Russia implemented tariffs against car imports in hopes of avoiding layoffs that might spark labour unrest among the country’s 1.5 million car industry workers.
  21. 21. Which BRIC Countries? A Challenge for Carmakers
  22. 22. Which BRIC Countries? A Challenge for Carmakers • India is expected to have the highest growth rate, especially in sub-compact cars that appeal to the country’s energy shortages and pollution. • China has only 18 cars per 1,000, but growth rate is expected to be 10%. • The Chinese government mandates that foreign manufacturers join 50-50 joint ventures with local ones.
  23. 23. Tata Making Inroads into China • The maker of the $2,500 Nano small car is developing a small car for China. • In 2009, Nanjing Tata AutoComp Systems began supplying automotive interior products to Shanghai General Motors and Changan Ford Automobile Company. • Eventually, the plant will supply global automakers in North America and Europe as well as emerging markets such as China. • To become a $1 billion global automotive supplier, Tata had to expand into China where automotive sales were 5.2 million units as opposed to 1.4 million units in India.
  24. 24. Coca-Cola and IllyCaffé • Coca-Cola provides beverages to consumers in 200 countries at 1.5 million servings per day. • Illycaffé’s unique blend of espresso coffee is a brand leader in quality. Over 6 million cups are enjoyed every day in 140 countries. • In March 2008, the Coca-Cola company and Illycaffé Spa finalized a joint venture and launched premium ready-to-drink espresso-based coffee beverage. • Ilko Coffee International was designed to bring these to 10 European countries.
  25. 25. Starbucks’ Global Expansion • Starbucks decided to expand after exclusively focusing on the North American market. • By 2006,Starbucks operated approximately 11,000 stores, with 70% in the United States and 30% in international markets. • Offered the same basic coffee menu; however, food products and other items varied somewhat according to local customs and tastes. • Starbucks in Japan: With higher rent and the issue of transporting roasted coffee from Washington to Japan, Starbucks decided on a joint venture with Sazaby, a restaurant operator in a 50-50 deal.
  26. 26. Starbucks’ Global Expansion • Starbucks in the UK: Because the cultural and legal frameworks were similar to the USA, Starbucks acquired the Seattle Coffee Company, which had a presence in the UK, as a wholly-owned subsidiary. • Starbucks in China: In developing markets, Starbucks chose to enter into minority share licensing agreements with high-quality, experienced local partners in order to minimize market-entry risks. • Under these agreements, the local partners absorbed the capital costs, enabling to establish a presence in foreign markets much more quickly than it would have if it had to invest its own capital.
  27. 27. Points to Remember 1. Selecting global target markets, entry modes, and deciding how much to adapt the company’s basic value proposition are intimately related. 2. Picking the most attractive foreign markets, timing, the right partners and level of investment has proven difficult for many companies, especially when it involves large emerging markets such as China.
  28. 28. Points to Remember 3. Pervasive grass-is-always-greener effects causes companies to overestimate the attractiveness of foreign markets. 4. Four key factors in selecting global markets are: (a) A market’s size and growth rate (b) A particular country or region’s institutional contexts (c) A region’s competitive environment (d) A market’s cultural, administrative, geographic, and economic distance from other markets the company serves.
  29. 29. Points to Remember 5. There is a wide menu of options regarding market entry, from conservative strategies such as an export base or licensing to more aggressive options such as entering an alliance, making an acquisition, or even starting a new subsidiary. 6. Many companies justified their overseas’ expansion on the grounds of an urgent need to participate in the market early.
  30. 30. Summary Target Market Selection Entry Strategies
  31. 31. Recommended Reading
  32. 32. Over 1 Million views from more than 100 countries Prof. Sameer Mathur Top 1% most viewed Over 250 presentations on Marketing