Market Entry Stratgy 102

Business Development 102:
Market Entry Strategy

www.DonaldMcMichael.com

Scoping market entry


So what are the base strategies?


So what are the base strategies?
Licensing
Investment
Strategic Alliance


The options form a continuum based on risk and time commitment


Which is best for you?


Which is best for you?
It depends on
Vision
Attitude toward risk
Committed investment funds
How in control do you want to be


Licensing


Licensing
A contractual agreement whereby one company (the licensor) makes an
asset available to another company (the licensee) in exchange for royalties,
license fees, or some other form of compensation
- Patent
- Trade secret
- Brand name
- Product formulations


Licensing’s Advantages
Can provide proﬁt margin increase with little initial investment
Attractive Return on Investment (ROI)
Low Entry Barrier: small costs to implement

Note: If you’re looking to expand internationally this provides a way to get
around tariffs, quotas, and other export barriers


Licensing’s Disadvantages
Limited participation
Lack of control
Licensee may become competitor
Licensee may exploit company resources


Special Licensing Agreements


Contract Manufacturing
Franchising


Contract Manufacturing
- Technical speciﬁcations are provided to a subcontractor with the explicit purpose of having that
contractor only produce the product
- Allows company to specialize in product design while contractors accept responsibility for
manufacturing facilities


Franchising
Contract between a parent company–franchisor and a franchisee that allows the franchisee to
operate a business developed by the franchisor in return for a fee and adherence to franchise-
wide policies


Franchisor Evaluation Questions:
- Will local consumers buy your product?

- How tough is the local competition?

- Does the government respect trademark and franchiser rights?

- Can your proﬁts be easily repatriated?

- Can you buy all the supplies you need locally?

- Is commercial space available and are rents affordable?

- Are your local partners ﬁnancially sound and do they understand the basics of franchising?


Direct Investment


Direct Investment
Two key internal questions need to be answered


Direct Investment
1) How risk tolerant is the organization?


Direct Investment
1) How risk tolerant is the organization?
- partial or full ownership
- ability to undertake direct foreign investment


Direct Investment
2) What investment form will be pursued?


Direct Investment
2) What investment form will be pursued?
- Joint Venture
- Minority or Majority Equity Stake
- Outright Acquisition


Direct Investment
Joint Venture


Direct Investment

Entry strategy for a single target market in which the partners share
ownership of a newly created business entity


Joint Venture Advantages:
- Allows for sharing of risk (both ﬁnancial and political)
- Provides opportunity to learn new environment
- Provides opportunity to achieve synergy by combining strengths of partners
- May be the only way to enter market given barriers to entry


Joint venture investment in the big emerging markets (BEMs) is growing rapidly.


Direct Investment
Joint Venture Disadvantages:
- Requires more investment than a licensing agreement
- Requires strong coordination
- Must share rewards as well as risks
- Potential for conﬂict among partners
- Partner may become a competitor


Direct Investment
Investment by ownership stake
1) Start-up of new operations
✓ The key - lacks any constraints imposed by prior work
2) Merger with an existing enterprise
3) Acquisition of an existing enterprise


Direct Investment
Take note:
• Exporting, Licensing, joint venture, equity stake - are only points along a
continuum of alternate market entry strategies.
• A solid overall strategy design may call for combinations


Strategic Partnerships


Strategic Partnerships Alliances
Commonly Used Names:
- Business-to-Business Alliances
- Collaborative Agreement
- Strategic Alliance


A formal relationship between two or more parties to pursue a set of agreed upon
goals to meet a critical business need while remaining independent entities.


source: “Global Marketing 5th Edition”, Warren J. Keegan & Mark C. Green


It’s what each partner can offer that is important

Flickr.com photo via: circulating


Attributes of True Alliances:
- Two or more companies develop a joint long-term strategy
- Relationship is reciprocal
- Partners’ vision and efforts are global
- Relationship is organized along horizontal lines (not vertical)
- When competing in markets not covered by alliance, participants retain national
and ideological identities


6 Success Factors:
- Culture: Chemistry is important; shared set of values
- Organization: Innovative business structure
- Management: Divisive issues must be identiﬁed in advance, and clear, unitary
lines of authority must be established


6 Success Factors:
- Mission: A win-win situation, where participants pursue objectives on the basis
of mutual need or advantage
- Strategy: The strategy must be thought out up front to avoid conﬂicts
- Governance: Partners are viewed as equals


So, where do you fall?


DonaldMcMichael.com
Go to http://youtube.com/user/donaldmcmichael to view the video series that birthed this presentation

Market Entry Stratgy 102

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