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Foreign market entry strategies
 

Foreign market entry strategies

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  • Dear sir/madam
    Thanks so much for reading my mail i hope we will do business together i am into gold business we are looking for a buyer who will buy from us Direct from the Village we have up to 25kg now ready to sell to any buyer who is interested to buy from us, we will like to do long term business with the buyer.Thanks hope to hear from you.
    William.
    williamsoforismith@yahoo.com
    +233 200 143320
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  • I find this material very useful. Thanks to the contributers...
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  • good material
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  • i think that is really useful, and pretty straight forward to export strategy
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  • Turnkey project is exporting the process technology to other country . It is most common in pharmaceutical, petroleum refining and material refining industries.

Foreign market entry strategies Foreign market entry strategies Presentation Transcript

  • Country evaluation, selection & Foreign market entry strategies
    GEETA SHIROMANI
    ASSOCIATE PROFESSOR
  • Basic foreign expansion entry decisions
    A firm contemplating foreign expansion must make three decisions
    Which markets to enter??
    When to enter these markets??
    What is the scale of entry??
    Which is the best mode of entry??
  • Basic Market Entry Decision- Which Market??
    200 nation-states
    Different long-run profit potential for firms
    Size of market
    Purchasing power (present wealth)
    Future wealth
    Benefits cost & risks trade off– rank markets
    Future economic growth rates
    Free market system & country’s capacity for growth
    Stable and developing
    markets without upsurge in inflation
    rates or private-sector debt
  • Basic Market Entry Decision- Which Market??
    Value an international business can create in a market
    Suitability of product for market
    Nature of indigenous competition
    Not widely available & satisfies an unmet need
    Greater value translates into an ability to charge higher prices & build sales volume more rapidly
  • Basic Market Entry Decision- Which Market??Process of country evaluation & selection
    Scan for alternatives
    Choose & weight variables
    Collect & analyze data for variables
    Use tools to compare variables & narrow alternatives
    Make final country Selection
  • Basic Market Entry Decision – Timing of Entry??
    Early entry - Firm enters foreign market before other foreign firms
    First mover advantage
    Ability to preempt rivals & capture demand by establishing strong brand name
    Build sales volume and ride down the experience curve with a cost advantage
    Create switching cost that tie customers into products & services
  • Basic Market Entry Decision – Timing of Entry??
    First mover disadvantages - Pioneering costs
    Time & effort in learning the rules of the game
    Mistakes due to ignorance
    Liability of being a foreigner
    Costs of promoting & establishing a product – educating customers (KFC in China -> benefit to McDonald’s)
  • Scale of Entry??
    Large scale entry
    Requires commitment of significant resources & implies rapid entry (Dutch ING spend billions to acquire US operations)
    Strategic commitment
    Decision that has long term impact & is difficult to reverse (entering market on large scale)
    Change the competitive playing field & unleash number of changes – e.g. how competitors might react
    Can limit strategic flexibility
  • Scale of Entry??
    Small Scale Entry:
    Advantages:
    Time to learn about the market.
    Limits company exposure.
    Disadvantages:
    May be difficult to build market share.
    Difficult to capture first-mover
  • Basic market entry decisions
    Discussion based on developing country considerations
    Can use MNEs to learn & bench mark against
    Can focus on niches the MNE ignores or can’t serve
    Can piggyback with MNEs (eg; Jollibee)
  • Which Foreign market entry mode?
  • EXPORTING
    The commercial activity of selling and shipping goods to a foreign country
    The most common overseas entry approach for small firms
  • EXPORTING
    Exporting can be either
    direct or indirect
    In direct exporting the company sells to a customer in another country
    In contrast, indirect exporting usually means that the company sells to
    a buyer (importer or distributor) in the home country who in turn exports the product
  • EXPORTING
    The Internet is becoming increasingly important as a foreign market entry method
    Initially, Internet marketing
    focused on domestic sales,
    however, a surprisingly large number of companies started receiving orders from customers in other countries, resulting in the concept of:
    international Internet marketing (IIM).
  • Exporting..
    Advantages:
    Easy implementation of strategy
    Less investment abroad which helps small firms also to enter international business
    Minimal risks
    Casual international marketing effort
    Firm may manufacture in centralized location & export to other national markets to realize scale economies from global sales volume (Sony/TV, Matsushita/VCR, Samsung/Chips)
  • Exporting..
    Disadvantages:
    Susceptibility to trade barriers
    Logistical difficulties
    Less suitable for service products
    Susceptibility to exchange-rate fluctuation
    Not appropriate if other lower cost manufacturing locations exist
    High transport costs can make exporting uneconomical especially bulk products
  • CONTRACTUAL AGREEMENTS
    Contractual agreementsare long-term, non-equity associations between a company and another in a foreign market
    Approaches:
    Licensing
    Franchising
    Contract manufacturing
    Management contracting
    Turnkey projects
  • LICENSING
    An arrangement whereby a licensor grants the rights to intangible property to another entity for a specified period and in return, the licensor receives a royalty fee from the licensee.
    Offers know-how, shares technology, and shares brand name with licensee; licensee pays royalties; lower-risk entry mode; permits access to markets
  • Licensing..
    Advantages:
    Helps company to spread out its R&D & investment costs with incremental income
    Little additional capital or time investment
    Legitimate means of capitalizing on intellectual property in a foreign market.
    Receive royalties for granting the rights to intangible property to licensee for specified period (patents, inventions, formulas, processes, designs, copyrights, trademarks)
  • Licensing..
    Advantages:
    Allows firm to participate where there are barriers to investment (Fuji-Xerox)
    Frequently used when firm possesses intangible property but does not want to develop the business application itself (Coco-Cola/clothing)
    Primarily used by manufacturing firms
  • Licensing..
    Disadvantages:
    Inconsistent product quality may effect product image negatively
    The agreement generally prohibits the originating firm from exploiting the assets in particular foreign markets
    Does not give firm tight control over manufacturing, marketing & strategy to realize experience curve & location economies
    Firms can lose control over the competitive advantage of their technological know-how.
    Solution: Cross licensing agreements
  • FRANCHISING
    Franchising is a specialized form of licensing in which the franchisor not only sells intangible property to the franchisee, but also insists that the franchisee agree to abide by strict rules as to how it does business
    Longer-term commitments
  • Franchising..
    Advantages:
    Important way of gaining foreign returns on certain kinds of customer-service and trade name assets
    Limited financial commitment
    Involves longer term commitment than licensing. Primarily used by service firms (McDonalds)
  • Franchising..
    Advantages:
    Franchiser sells intangible property (trademark) & insists franchisee agrees to abide by strict business rules (location, methods, design, staffing, supply chain)
    Royalty payments that are some percentage of franchisee’s revenues
    Firm relieved of many costs & risks of opening new market.
  • Franchising..
    Disadvantages:
    No manufacturing so no location economies & experience curve
    May inhibit the ability to take profits out of one country to support competitive attacks in another
    Risk of worldwide reputation if no quality control
    Firm can set up “master franchise” in each country – subsidiary which is JV (McDonalds & local firm)
  • TURNKEY PROJECTS
    A product or service which can be implemented or utilized with no additional work required by the buyer (just by 'turning the key')".
    The contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnel
  • Turnkey project..
    Advantages:
    A way of earning great economic returns from the know-how & exporting process technology
    This strategy is useful where FDI is limited by host government regulations
    Less risky than FDI in countries with unstable political and economic environment
    Means of exporting process technology (chemical, pharmaceutical, petroleum, mining)
  • Turnkey project..
    Disadvantages:
    Firm has no long term interest in the country – can take minority equity interest in company
    Firm may inadvertently create a competitor (middle east oil refineries)
    If firm’s process technology is a source of competitive advantage, then selling technology is also selling competitive advantage to potential competitors
  • Contract manufacturing
    Contract manufacturing is a process that establish a working agreement between two companies.
    As part of the agreement, one company will custom produce parts or other materials on behalf of their client.
  • Contract manufacturing
    Advantages:
    The client does not have to maintain manufacturing facilities, purchase raw materials, or hire labor in order to produce the finished goods so less capital investment is required
    Helps to achieve benefits of economies of scale
    Helps to achieve location economies
  • Contract manufacturing
    Disadvantages:
    Less management control
    Potential security or confidentiality issues
    Complexity
    Potential quality issues
  • Management contracting
    A management contract is an arrangement under which operational control of an enterprise is vested by contract in a separate enterprise which performs the necessary managerial functions in return for a fee.
  • Management contracting
    Management contracts involve not just selling a method of doing things (as with franchising or licensing) but involves actually doing them.
    A management contract can involve a wide range of functions, such as technical operation of a production facility, management of personnel, accounting, marketing services and training.
  • Management contracting
    Advantages:
    Management contracts are often formed where there is a lack of local skills to run a project.
    It is an alternative to foreign direct investment as it does not involve as high risk and can yield higher returns for the company when foreign government actions restrict other entry methods.
  • Management contracting
    Disadvantages:
    Loss of control
    Time delays
    Loss of flexibility
    Loss of quality
    Compliance
  • STRATEGIC ALLIANCE
    Cooperative agreements between potential or actual competitors
    A strategic international alliance (SIA) is a business relationship established by two or more companies to cooperate out of mutual need and to share risk in achieving a common objective
    SIAs are sought as a way to shore up weaknesses and increase competitive strengths.
    Licensing, Joint venture, consortia etc
  • Strategic alliances
    Firms enter SIAs for several reasons:
    Opportunities for rapid expansion into new markets
    Access to new technology
    More efficient production and innovation
    Reduced marketing costs
    Strategic competitive moves
    Access to additional sources of products and capital
  • Strategic alliances- JOINT VENTURES
    A JV entails establishing a firm that is jointly owned by two or more otherwise independent firms.
  • JOINT VENTURE
    Four Characteristics define joint ventures:
    JVs are established, separate, legal entities
    The acknowledged intent by the partners to share in the management of the JV
    There are partnerships between legally incorporated entities such as companies, chartered organizations, or governments, and not between individuals
    Equity positions are held by each of the partners
  • Strategic alliances- Consortia
    Consortia are similar to joint ventures and could be classified as such except for two unique characteristics:
    They typically involve a large number of participants
    They frequently operate in a country or market in which none of the participants is currently active.
    Consortia are developed
    to pool financial and
    managerial resources and
    to lessen risks.
  • Joint ventures..
    Advantages:
    Smaller investment 
    Local marketing and production/ procurement of expertise from local partner
    Better understanding of the host country
    Typically 50/50 with contributed team of managers to share operating control
  • Joint ventures..
    Advantages:
    Firm benefits from local partner’s knowledge of competitive conditions, culture, language, political system & business system
    Sharing market development costs & risks with local partner
    In some countries, political considerations make JVs the only feasible entry mode
  • Joint ventures..
    Disadvantages:
    Risk of giving control of technology to the partners
    Shared ownership arrangement can lead to conflicts and battles of control between the investing firms.
  • Structuring the alliance to reduce opportunism
  • WHOLLY OWNED SUBSIDIARY
    The firm owns 100% of the stock
    The firm can either set up a
    Green-field venture or
    It can acquire an established firm in the host nation
  • Wholly owned subsidiary
    Advantages:
    Reduces the risk of loosing control over technological competence
    Tight control over operations
    Helps to achieve location economies
  • Wholly owned subsidiary..
    Disadvantages:
    Larger commitment and risk
    Most costly method
    Risk of national expropriation
  • Selecting an entry mode
    Technological Know-How
    Wholly owned subsidiary, except:
    1. Venture is structured to reduce risk of loss of technology.
    2. Technology advantage is transitory.
    Then licensing or joint venture OK
    Management Know-How
    Franchising, subsidiaries (wholly owned or joint venture)
    Pressure for Cost Reduction
    Combination of exporting and wholly owned subsidiary