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Ch09 Kotabe

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  • 1. Global Marketing Management, 5e
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    1
    Chapter 9
    Global Market Entry Strategies
  • 2. Chapter Overview
    1. Target Market Selection
    2. Choosing the Mode of Entry
    3. Exporting
    4. Licensing
    5. Franchising
    6. Contract Manufacturing (Outsourcing)
    7. Expanding through Joint Ventures
    8. Wholly Owned Subsidiaries
    9. Strategic Alliances
    10. Timing of Entry
    11. Exit Strategies
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    2
  • 3. 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.
    Global marketers have to make a multitude of decisions regarding the entry mode which may include:
    (1) the target product/market
    (2) the goals of the target markets
    (3) the mode of entry
    (4) The time of entry
    (5) A marketing-mix plan
    (6) A control system to check the performance in
    the entered markets
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    3
  • 4. 1. Target Market Selection
    A crucial step in developing a global expansion strategy is the selection of potential target markets (Exhibit 9-1).
    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 in the pool on each
    indicator
    4. Compute overall score for each country
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    4
  • 5. Exhibit 9-1: Logical Flowchart of the Entry Decision Process
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    5
  • 6. 2. Choosing the Mode of Entry
    Decision Criteria for Mode of Entry:
    Market Size and Growth
    Risk
    Government Regulations
    Competitive Environment/Cultural Distance
    Local Infrastructure
    (See Exhibits 9-2 and 9-3.)
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    6
  • 7. Chapter 9
    Copyright (c) 2007 John Wiley & Sons, Inc.
    7
    Exhibit 9-2: Method for Prescreening Market Opportunities
  • 8. Exhibit 9-3: Opportunity Matrix for Henkel in Asia Pacific
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    8
  • 9. 2. 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)
    Company Objectives
    Need for Control
    Internal Resources, Assets and Capabilities
    Flexibility
    (See Exhibit 9-4.)
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    9
  • 10. Exhibit 9-4: Entry Modes and Market Development
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    10
  • 11. 2. 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)
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    11
  • 12. 3. Exporting
    Indirect Exporting
    Export merchants
    Export agents
    Export management companies (EMC)
    Cooperative Exporting
    Piggyback Exporting
    Direct Exporting
    Firms set up their own exporting departments
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    12
  • 13. 4. Licensing
    Licensor and the licensee
    Benefits:
    Appealing to small companies that lack resources
    Faster access to the market
    Rapid penetration of the global markets
    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
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    13
  • 14. 4. 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)
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    14
  • 15. 5. 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
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    15
    • Caveats:
    • 16. Revenues may not be adequate
    • 17. Availability of a master franchisee
    • 18. Limited franchising opportunities overseas
    • 19. Lack of control over the franchisees’ operations
    • 20. Problem in performance standards
    • 21. Cultural problems
    • 22. Physical proximity
  • Exhibit 9-5: International Efforts of Ten Well-Known Franchise Companies
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    16
  • 23. Chapter 9
    Copyright (c) 2007 John Wiley & Sons, Inc.
    17
    Exhibit 9-6: International Franchising with Papa John’s
  • 24. 6. Contract Manufacturing (Outsourcing)
    Benefits:
    Labor cost advantages
    Savings via taxation, lower energy costs, raw materials, and overheads
    Lower political and economic risk
    Quicker access to markets
    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
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    18
  • 25. 6. Contract Manufacturing (Outsourcing)
    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
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    19
  • 26. 7. 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
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    20
  • 27. 7. 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 (Exhibit 9-7)
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    21
  • 28. Chapter 9
    Copyright (c) 2007 John Wiley & Sons, Inc.
    22
    Exhibit 9-7: Conflicting Objective in Chinese Joint Ventures
  • 29. 7. 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
    Create a launch team during the launch phase:
    (1) Build and maintain strategic alignment
    (2) Create a governance system
    (3) Manage the economic interdependencies
    (4) Build the organization for the joint venture
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    23
  • 30. Chapter 9
    Copyright (c) 2007 John Wiley & Sons, Inc.
    24
    Exhibit 9-8: Starbuck’s Coffee’s Criteria in Selecting Partners
  • 31. 8. Wholly Owned Subsidiaries
    Acquisitions and Mergers
    Quick access to the local market
    Good way to get access to the local brands
    Greenfield Operations
    Offer the company more flexibility than acquisitions in the areas of human resources, suppliers, logistics, plant layout, and manufacturing technology.
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    25
  • 32. Chapter 9
    Copyright (c) 2007 John Wiley & Sons, Inc.
    26
    8. Wholly Owned Subsidiaries
    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
  • 33. 8. 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
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    27
  • 34. 9. Strategic Alliances
    Types of Strategic Alliances
    Simple licensing agreements between two partners
    Market-based alliances
    Operations and logistics alliances
    Operations-based alliances
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    28
  • 35. 9. Strategic Alliances
    The Logic Behind Strategic Alliances
    Defend
    Catch-Up
    Remain
    Restructure
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    29
  • 36. Exhibit 9-9: Generic Motives for Strategic Alliances
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    30
  • 37. 9. Strategic Alliances
    Cross-Border Alliances that Succeed:
    Alliances between strong and weak partners seldom work.
    Autonomy and flexibility
    Equal ownership
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    31
  • 38. 9. Strategic Alliances
    Other 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
    Have similar cultures, asset sizes and venturing experience
    Tend to start on a narrow basis and broaden over time
    A shared vision on goals and mutual benefits
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    32
  • 39. 10. 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, and breadth of product & service offerings.
    Mode of entry issues, market knowledge, various economic attractiveness variables, etc.
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    33
  • 40. Chapter 9
    Copyright (c) 2007 John Wiley & Sons, Inc.
    34
    Exhibit 9-10: Timeline of Wal-Mart’s International Expansion
  • 41. 11. Exit Strategies
    Reasons for Exit:
    Sustained losses
    Volatility
    Premature entry
    Ethical reasons
    Intense competition
    Resource reallocation
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    35
  • 42. 11. 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
    Chapter 9
    Copyright (c) 2009 John Wiley & Sons, Inc.
    36
  • 43. Chapter 9
    Copyright (c) 2007 John Wiley & Sons, Inc.
    37
    Exhibit 9-11: Advantages and Disadvantages of Different Modes of Entry

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