Module 1 International Market-Entry Strategies

International Market-Entry Strategies

Introduction The need for a solid market entry decision is an integral part of a global market entry strategy. Entry decisions will heavily influence the firm’s other marketing-mix decisions.

The need for a solid market entry decision is an integral part of a global market entry strategy.

Entry decisions will heavily influence the firm’s other marketing-mix decisions.

Introduction Global marketers have to make a multitude of decisions regarding the entry mode which may include: the target product/market the goals of the target markets the mode of entry the time of entry a marketing-mix plan a control system to check the performance in the entered markets

Global marketers have to make a multitude of decisions regarding the entry mode which may include:

the target product/market

the goals of the target markets

the mode of entry

the time of entry

a marketing-mix plan

a control system to check the performance in the entered markets

Target Market Selection A crucial step in developing a global expansion strategy is the selection of potential target markets. A four-step procedure for the initial screening process: 1. Select indicators and collect data 2. Determine importance of country indicators 3. Rate the countries on each indicator 4. Compute overall score for each country

A crucial step in developing a global expansion strategy is the selection of potential target markets.

A four-step procedure for the initial screening process:

1. Select indicators and collect data

2. Determine importance of country indicators

3. Rate the countries on each indicator

4. Compute overall score for each country

Choosing the Mode of Entry Decision Criteria for Mode of Entry Market Size and Growth Risk Government Regulations Competitive Environment Local Infrastructure Company Objectives Need for Control Internal Resources, Assets and Capabilities Flexibility

Decision Criteria for Mode of Entry

Market Size and Growth

Risk

Government Regulations

Competitive Environment

Local Infrastructure

Company Objectives

Need for Control

Internal Resources, Assets and Capabilities

Flexibility

Choosing the Mode of Entry Classification of Markets : Platform Countries (Singapore & Hong Kong) Emerging Countries (Vietnam & the Philippines) Growth Countries (China & India) Maturing and established countries (examples: South Korea, Taiwan & Japan)

Classification of Markets :

Platform Countries (Singapore & Hong Kong)

Emerging Countries (Vietnam & the Philippines)

Growth Countries (China & India)

Maturing and established countries (examples: South Korea, Taiwan & Japan)

Choosing the Mode of Entry Mode of Entry Choice: A Transaction Cost Explanation Regarding entry modes, companies normally face a tradeoff between the benefits of increased control and the costs of resource commitment and risk. Transaction Cost Analysis (TCA) perspective Transaction-Specific Assets (assets valuable for a very narrow range of applications)

Mode of Entry Choice: A Transaction Cost Explanation

Regarding entry modes, companies normally face a tradeoff between the benefits of increased control and the costs of resource commitment and risk.

Transaction Cost Analysis (TCA) perspective

Transaction-Specific Assets (assets valuable for a very narrow range of applications)

Carrefour in Japan

Exporting Indirect Exporting Export management companies Cooperative Exporting Piggyback Exporting Direct Exporting Firms set up their own exporting departments

Indirect Exporting

Export management companies

Cooperative Exporting

Piggyback Exporting

Direct Exporting

Firms set up their own exporting departments

Licensing Licensor and the licensee Benefits : Appealing to small companies that lack resources Faster access to the market Rapid penetration of the global markets

Licensor and the licensee

Benefits :

Appealing to small companies that lack resources

Faster access to the market

Rapid penetration of the global markets

Licensing Caveats : Other entry mode choices may be affected Licensee may not be committed Lack of enthusiasm on the part of a licensee Biggest danger is the risk of opportunism Licensee may become a future competitor

Caveats :

Other entry mode choices may be affected

Licensee may not be committed

Lack of enthusiasm on the part of a licensee

Biggest danger is the risk of opportunism

Licensee may become a future competitor

Licensing How to seek a good licensing agreement : Seek patent or trademark protection Thorough profitability analysis Careful selection of prospective licensees Contract parameter (technology package, use conditions, compensation, and provisions for the settlement of disputes)

How to seek a good licensing agreement :

Seek patent or trademark protection

Thorough profitability analysis

Careful selection of prospective licensees

Contract parameter (technology package, use conditions, compensation, and provisions for the settlement of disputes)

Franchising Franchisor and the franchisee Master franchising Benefits : Overseas expansion with a minimum investment Franchisees’ profits tied to their efforts Availability of local franchisees’ knowledge

Franchisor and the franchisee

Master franchising

Benefits :

Overseas expansion with a minimum investment

Franchisees’ profits tied to their efforts

Availability of local franchisees’ knowledge

Franchising Caveats : Revenues may not be adequate Availability of a master franchisee Limited franchising opportunities overseas Lack of control over the franchisees’ operations Problem in performance standards Cultural problems Physical proximity

Caveats :

Revenues may not be adequate

Availability of a master franchisee

Limited franchising opportunities overseas

Lack of control over the franchisees’ operations

Problem in performance standards

Cultural problems

Physical proximity

Contract Manufacturing Benefits : Labor cost advantages Savings via taxation, lower energy costs, raw materials, and overheads Lower political and economic risk Quicker access to markets

Benefits :

Labor cost advantages

Savings via taxation, lower energy costs, raw materials, and overheads

Lower political and economic risk

Quicker access to markets

Contract Manufacturing Caveats : Contract manufacturer may become a future competitor Lower productivity standards Backlash from the company’s home-market employees regarding HR and labor issues Issues of quality and production standards

Caveats :

Contract manufacturer may become a future competitor

Lower productivity standards

Backlash from the company’s home-market employees regarding HR and labor issues

Issues of quality and production standards

Contract Manufacturing Qualities of an ideal subcontractor: Flexible/geared toward just-in-time delivery Able to meet quality standards Solid financial footings Able to integrate with company’s business Must have contingency plans

Qualities of an ideal subcontractor:

Flexible/geared toward just-in-time delivery

Able to meet quality standards

Solid financial footings

Able to integrate with company’s business

Must have contingency plans

Joint Ventures Cooperative joint venture Equity joint venture Benefits : Higher rate of return and more control over the operations Creation of synergy Sharing of resources Access to distribution network Contact with local suppliers and government officials

Cooperative joint venture

Equity joint venture

Benefits :

Higher rate of return and more control over the operations

Creation of synergy

Sharing of resources

Access to distribution network

Contact with local suppliers and government officials

Joint Ventures Caveats : Lack of control Lack of trust Conflicts arising over matters such as strategies, resource allocation, transfer pricing, ownership of critical assets like technologies and brand names

Caveats :

Lack of control

Lack of trust

Conflicts arising over matters such as strategies, resource allocation, transfer pricing, ownership of critical assets like technologies and brand names

Joint Ventures Drivers Behind Successful International Joint Ventures : Pick the right partner Establish clear objectives from the beginning Bridge cultural gaps Gain top managerial commitment and respect Use incremental approach

Drivers Behind Successful International Joint Ventures :

Pick the right partner

Establish clear objectives from the beginning

Bridge cultural gaps

Gain top managerial commitment and respect

Use incremental approach

Wholly Owned Subsidiaries Acquisitions Greenfield Operations Benefits : Greater control and higher profits Strong commitment to the local market on the part of companies Allows the investor to manage and control marketing, production, and sourcing decisions

Acquisitions

Greenfield Operations

Benefits :

Greater control and higher profits

Strong commitment to the local market on the part of companies

Allows the investor to manage and control marketing, production, and sourcing decisions

Wholly Owned Subsidiaries Caveats : Risks of full ownership Developing a foreign presence without the support of a third part Risk of nationalization Issues of cultural and economic sovereignty of the host country Acquisitions and Mergers Quick access to the local market Good way to get access to the local brands

Caveats :

Risks of full ownership

Developing a foreign presence without the support of a third part

Risk of nationalization

Issues of cultural and economic sovereignty of the host country

Acquisitions and Mergers

Quick access to the local market

Good way to get access to the local brands

Strategic Alliances Types of Strategic Alliances Simple licensing agreements between two partners Market-based alliances Operations and logistics alliances Operations-based alliances

Types of Strategic Alliances

Simple licensing agreements between two partners

Market-based alliances

Operations and logistics alliances

Operations-based alliances

Strategic Alliances The Logic Behind Strategic Alliances Defend Catch-Up Remain Restructure

The Logic Behind Strategic Alliances

Defend

Catch-Up

Remain

Restructure

Strategic Alliances Cross-Border Alliances that Succeed: Alliances between strong and weak partners seldom work. Autonomy and flexibility Equal ownership

Cross-Border Alliances that Succeed:

Alliances between strong and weak partners seldom work.

Autonomy and flexibility

Equal ownership

Strategic Alliances Other success factors: Commitment and support of the top of the partners’ organizations Strong alliance managers are the key Alliances between partners that are related in terms of products, technologies, and markets Similar cultures, assets sizes and venturing experience A shared vision on goals and mutual benefits

Other success factors:

Commitment and support of the top of the partners’ organizations

Strong alliance managers are the key

Alliances between partners that are related in terms of products, technologies, and markets

Similar cultures, assets sizes and venturing experience

A shared vision on goals and mutual benefits

Timing of Entry International market entry decisions should also cover the following timing-of-entry issues: When should the firm enter a foreign market? Other important factors include: level of international experience, firm size Mode of entry issues, market knowledge, various economic attractiveness variables, etc.

International market entry decisions should also cover the following timing-of-entry issues:

When should the firm enter a foreign market?

Other important factors include: level of international experience, firm size

Mode of entry issues, market knowledge, various economic attractiveness variables, etc.

Exiting a Market Reasons for exit : Sustained losses Volatility Premature entry Ethical reasons Intense competition Resource reallocation

Reasons for exit :

Sustained losses

Volatility

Premature entry

Ethical reasons

Intense competition

Resource reallocation

Exit Strategies Risks of exit : Fixed costs of exit Disposition of assets Signal to other markets Long-term opportunities Guidelines: Contemplate and assess all options to salvage the foreign business Incremental exit Migrate customers

Risks of exit :

Fixed costs of exit

Disposition of assets

Signal to other markets

Long-term opportunities

Guidelines:

Contemplate and assess all options to salvage the foreign business

Incremental exit

Migrate customers

Thank You