Market entry

1,351 views

Published on

Published in: Education
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,351
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
8
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • Management Contracting
    The firm provides the management know-how and may or may not have an equity stake in the enterprise being managed.
    MC is a low risk method of getting into foreign market and it starts yielding returns right from the beginning. The arrangement is even more attractive if the contracting firm is given an option to purchase some shares in the managed company within the stated period.
    E.g. Tata Tea, Harrison Malayalam etc have contracts to manage a number of plantations in Sri Lanka
    Turnkey contracts
    TC are common in IB in the supply, erection and commissioning of plants as in the case of oil refineries, steel mills, cement etc.
    Ä turnkey operation is an agreement by a seller to a buyer with a facility fully equipped and ready to be operated by the buyer’s personnel, who will be trained by the seller.
  • Market entry

    1. 1. Foreign Market EntryForeign Market Entry
    2. 2. Why enter foreign markets?Why enter foreign markets?  Increase market shareIncrease market share:Domestic market may lack the:Domestic market may lack the size to support efficient scale manufacturing facilities.size to support efficient scale manufacturing facilities. Example: AExample: Automobile manufacturersutomobile manufacturers  Mature or saturated home markets:Mature or saturated home markets:  Preferential trading agreements: India-PakistanPreferential trading agreements: India-Pakistan  Weak patent protectionWeak patent protection in some countries implies thatin some countries implies that firms should expand overseas rapidly in order to preemptfirms should expand overseas rapidly in order to preempt imitatorsimitators
    3. 3. Why enter foreign marketsWhy enter foreign markets  Economies of scaleEconomies of scale:: • Expanding size or scope of markets helps to achieve economies of scale inExpanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, R & D or distributionmanufacturing as well as marketing, R & D or distribution • Can spread costs over a larger sales baseCan spread costs over a larger sales base • Increase profit per unitIncrease profit per unit New Market creation:Channel, HidesignNew Market creation:Channel, Hidesign Competitor attacking all markets: Mercedes and BMW, Dell and: Mercedes and BMW, Dell and Toshiba.Toshiba. Location AdvantagesLocation Advantages::Low cost markets may aid in developingLow cost markets may aid in developing competitive advantagecompetitive advantage May achieve better access to: raw materials, low cost labor, key suppliers, KeyMay achieve better access to: raw materials, low cost labor, key suppliers, Key customers, Natural resourcescustomers, Natural resources
    4. 4. Deciding whether to goDeciding whether to go International or notInternational or not  Not all companies need an internationalNot all companies need an international presencepresence  Globalization may be triggered by severalGlobalization may be triggered by several factorsfactors  Risk and the ability to operate globallyRisk and the ability to operate globally must be carefully assessed.must be carefully assessed.  One of the most important decisions in IBOne of the most important decisions in IB is the mode of entering foreign marketis the mode of entering foreign market
    5. 5. Foreign Market EntryForeign Market Entry  ExportingExporting  Licensing/FranchisingLicensing/Franchising  Contract manufacturingContract manufacturing  Management contractManagement contract  Assembly operationsAssembly operations  Fully owned manufacturing processFully owned manufacturing process  Joint venturesJoint ventures  Counter tradeCounter trade  Strategic AlliancesStrategic Alliances
    6. 6.  ExportingExporting  The most traditional mode of enteringThe most traditional mode of entering international marketsinternational markets Exporting is the appropriate strategy when oneExporting is the appropriate strategy when one or more of the following conditions prevail :or more of the following conditions prevail :  The volume of foreign business is not largeThe volume of foreign business is not large enough to justify production in the foreignenough to justify production in the foreign market.market.  Cost of production is highCost of production is high  There are political or other risks of investment inThere are political or other risks of investment in that countrythat country
    7. 7.  The market may not big enough in theThe market may not big enough in the long termlong term  Exporting is attractive when the concernedExporting is attractive when the concerned company has excess capacity.company has excess capacity.  Also exports ensure that the company hasAlso exports ensure that the company has other markets to cater when faced withother markets to cater when faced with stiff competition in home market or whenstiff competition in home market or when home market reaches saturation levels.home market reaches saturation levels.
    8. 8. The two ways of exportingThe two ways of exporting  Indirect exportingIndirect exporting  Direct exportingDirect exporting  Direct exporting :Direct exporting : refers to the sale in therefers to the sale in the foreign market directly by theforeign market directly by the manufacturer. The sale is directly to themanufacturer. The sale is directly to the foreign customer or through a middlemanforeign customer or through a middleman located in the foreign market.located in the foreign market.
    9. 9.  A number of organizational arrangementsA number of organizational arrangements are available to a company for carrying onare available to a company for carrying on direct export.direct export.  Export departmentExport department  Overseas sales branchesOverseas sales branches  Establishing contacts with foreign basedEstablishing contacts with foreign based distributors or agentsdistributors or agents
    10. 10.  Indirect export :Indirect export : Here the company transfers theHere the company transfers the responsibility of the selling job to some otherresponsibility of the selling job to some other organization .organization . Advantages :Advantages :  Firm does not have to build up an internationalFirm does not have to build up an international infrastructure.infrastructure.  The risk involved is very lessThe risk involved is very less  Ideal for companies starting exporting for the firstIdeal for companies starting exporting for the first timetime  Also ideal for small sized companiesAlso ideal for small sized companies DisadvantagesDisadvantages  The development of overseas market depends to aThe development of overseas market depends to a very large extent on the middlemen and not on thevery large extent on the middlemen and not on the firm producing the export goods.firm producing the export goods.
    11. 11.  The two alternative channels available for Int.The two alternative channels available for Int. Exports are :Exports are :  1) International Marketing middlemen:1) International Marketing middlemen: There are two important middlemen- merchants andThere are two important middlemen- merchants and agents. The basic distinction between the merchantagents. The basic distinction between the merchant and the agent is that the merchant takes title to theand the agent is that the merchant takes title to the product he sells , while the agent does not.product he sells , while the agent does not.  Export merchants: The domestic based exportExport merchants: The domestic based export merchant buys the manufacturer’s product and sellsmerchant buys the manufacturer’s product and sells it abroad on his own.it abroad on his own.  Export/trading houses: They buy from domesticExport/trading houses: They buy from domestic manufacturers and export abroad.manufacturers and export abroad.
    12. 12.  Trading companies :they are into exports andTrading companies :they are into exports and imports for e.g Mitsubishiimports for e.g Mitsubishi  Agents /brokersAgents /brokers 2) Co-operative organizations:2) Co-operative organizations:  Piggyback marketing : (allied companyPiggyback marketing : (allied company arrangement)– one manufacturer uses itsarrangement)– one manufacturer uses its overseas distribution facilities to sell theoverseas distribution facilities to sell the products of one or more companies including itsproducts of one or more companies including its ownown
    13. 13. Licensing and FranchisingLicensing and Franchising::  The licensor issues a license to a foreignThe licensor issues a license to a foreign company to use manufacturing process,company to use manufacturing process, trademark, patent, trade secret or othertrademark, patent, trade secret or other item of value for a fee or royalty. Theitem of value for a fee or royalty. The licensor gains entry at little risk, thelicensor gains entry at little risk, the licensee gains production expertise.licensee gains production expertise.
    14. 14. Disadvantages:Disadvantages:  The licensor has less control over theThe licensor has less control over the licensee than it does over its ownlicensee than it does over its own production and sales facilities.production and sales facilities.  If the licensee is very successful, it hasIf the licensee is very successful, it has given up profits.given up profits.  Also when the contract ends, it couldAlso when the contract ends, it could result in creation of a competitor.result in creation of a competitor.  To avoid this licensor usually suppliesTo avoid this licensor usually supplies some proprietary ingredients orsome proprietary ingredients or components needed in the product (ascomponents needed in the product (as coca-cola does)coca-cola does)
    15. 15. AA number of foreign companies have enterednumber of foreign companies have entered the Indian market by licensing.the Indian market by licensing.  IFB washing machine was manufacturedIFB washing machine was manufactured under license from Bosch of Germany.under license from Bosch of Germany.  Nike International ltd entered India byNike International ltd entered India by licensing to Sierra Industrial Enterprises. Thelicensing to Sierra Industrial Enterprises. The licensee would take care of quality control,licensee would take care of quality control, marketing and distribution operation andmarketing and distribution operation and would pay Nike 5% royalty on ex-factory pricewould pay Nike 5% royalty on ex-factory price on both footwear and apparel.on both footwear and apparel.  Arvind Mills owns Indian marketing rights forArvind Mills owns Indian marketing rights for leading US brands like Arrow, Lee andleading US brands like Arrow, Lee and Wrangler.Wrangler.
    16. 16.  BAT (British American Tobacco Company)BAT (British American Tobacco Company) has given licenses in many countries for thehas given licenses in many countries for the manufacture of their brand “555”.manufacture of their brand “555”.  In India ITC is the licensed producer of “555”In India ITC is the licensed producer of “555”  Pepsi granted license to Heineken of HollandPepsi granted license to Heineken of Holland giving them the exclusive right to produce andgiving them the exclusive right to produce and sell Pepsi in Holland.sell Pepsi in Holland.
    17. 17.  Franchising is a more complete form ofFranchising is a more complete form of licensing.licensing.  The franchiser offers a complete brand conceptThe franchiser offers a complete brand concept and operating system.and operating system.  The franchiser also supports in terms of trainingThe franchiser also supports in terms of training of employees, quality assurance and advertising.of employees, quality assurance and advertising.  The franchisee invests the money and paysThe franchisee invests the money and pays certain fees to the franchiser.certain fees to the franchiser.
    18. 18.  McDonald’s has entered many countries byMcDonald’s has entered many countries by franchising their retail concepts and making surefranchising their retail concepts and making sure that their marketing is culturally relevant.e.gthat their marketing is culturally relevant.e.g  In Holland they serve burgers with beer.In Holland they serve burgers with beer.  In India they cater to vegetarian tastes- McAlooIn India they cater to vegetarian tastes- McAloo Tikki and McPuff.Tikki and McPuff.  Other examples are Dairy Queen, Domino’sOther examples are Dairy Queen, Domino’s Pizza and KFC.Pizza and KFC.
    19. 19.  NIIT and Aptech (SSI) have franchisees inNIIT and Aptech (SSI) have franchisees in Africa, South east Asia dn Middle eastAfrica, South east Asia dn Middle east countries.countries.  Hotel chains like Hilton also operate theHotel chains like Hilton also operate the franchise way.franchise way.
    20. 20. Contract ManufacturingContract Manufacturing  Under contract manufacturing a company doingUnder contract manufacturing a company doing international marketing contract with firm’s ininternational marketing contract with firm’s in foreign countries to manufacture or assembleforeign countries to manufacture or assemble the products while retaining the responsibility ofthe products while retaining the responsibility of marketing the product. This is a commonmarketing the product. This is a common practice in IB.practice in IB.  There are a number of multinationals whichThere are a number of multinationals which employ this strategy in India.employ this strategy in India.  E.g. HUL, Ponds,DellE.g. HUL, Ponds,Dell  Samsung when it first entered India usedSamsung when it first entered India used Videocon facilities for manufacturing theirVideocon facilities for manufacturing their products. The marketing was done by Samsungproducts. The marketing was done by Samsung personnel.personnel.
    21. 21. Advantages:Advantages:  The company doesn’t have to commit resourceThe company doesn’t have to commit resource for setting up production facilities.for setting up production facilities.  It frees the company from the risks of investingIt frees the company from the risks of investing in foreign markets.in foreign markets.  If idle production capacity is readily available inIf idle production capacity is readily available in foreign country, it enables the marketer to getforeign country, it enables the marketer to get started immediately.started immediately.
    22. 22.  In many cases the cost of the product obtained byIn many cases the cost of the product obtained by contract manufacturing is lower than if it werecontract manufacturing is lower than if it were manufactured by the international firm.manufactured by the international firm.  It’s a less risky way to start by CM. If the business doesIt’s a less risky way to start by CM. If the business does not pick up sufficiently, dropping it is easy. But when younot pick up sufficiently, dropping it is easy. But when you have your own production facility , the exit is difficult.have your own production facility , the exit is difficult. e.g For many years Godrej Soaps manufactured Dettole.g For many years Godrej Soaps manufactured Dettol for Reckitt and Coleman, Johnson’s Baby soap for J& Jfor Reckitt and Coleman, Johnson’s Baby soap for J& J and Ponds Dreamflower and Cold cream for Pondsand Ponds Dreamflower and Cold cream for Ponds (HUL)(HUL)
    23. 23.  DisadvantagesDisadvantages Less control on manufacturing so qualityLess control on manufacturing so quality could get compromised.could get compromised. Big risk of developing potential competitorsBig risk of developing potential competitors
    24. 24. Management ContractingManagement Contracting  The firm provides the management know-how and mayThe firm provides the management know-how and may or may not have an equity stake in the enterprise beingor may not have an equity stake in the enterprise being managed.managed.  MC is a low risk method of getting into foreign marketMC is a low risk method of getting into foreign market and it starts yielding returns right from the beginning.and it starts yielding returns right from the beginning.  The arrangement is even more attractive if theThe arrangement is even more attractive if the contracting firm is given an option to purchase somecontracting firm is given an option to purchase some shares in the managed company within the statedshares in the managed company within the stated period.period.
    25. 25.  E.g. Tata Tea, Harrison Malayalam etc have contracts toE.g. Tata Tea, Harrison Malayalam etc have contracts to manage a number of plantations in Sri Lankamanage a number of plantations in Sri Lanka  Turnkey contractsTurnkey contracts  TC are common in IB in the supply, erection andTC are common in IB in the supply, erection and commissioning of plants as in the case of oil refineries,commissioning of plants as in the case of oil refineries, steel mills, cement etc.steel mills, cement etc.  Ä turnkey operation is an agreement by a seller to aÄ turnkey operation is an agreement by a seller to a buyer with a facility fully equipped and ready to bebuyer with a facility fully equipped and ready to be operated by the buyer’s personnel, who will be trained byoperated by the buyer’s personnel, who will be trained by the seller.the seller.
    26. 26. Fully owned manufacturingFully owned manufacturing facilitiesfacilities  Companies with long term and substantialCompanies with long term and substantial interest in the foreign market establish fullyinterest in the foreign market establish fully owned manufacturing facilities.owned manufacturing facilities. Advantages:Advantages:  It provides the firm with complete control overIt provides the firm with complete control over production and qualityproduction and quality  It doesnot have the risk of developing potentialIt doesnot have the risk of developing potential competitors as in the case of licensing andcompetitors as in the case of licensing and contract manufacturing.contract manufacturing.
    27. 27. DisadvantagesDisadvantages Cost of production could beCost of production could be higher in the foreign market.higher in the foreign market. There could be supply relatedThere could be supply related problems like shortage of skilledproblems like shortage of skilled manpower, raw materialsmanpower, raw materials There could be union related orThere could be union related or political problems.political problems.
    28. 28. Assembly operations:Assembly operations:  In this concept , the company ships the parts toIn this concept , the company ships the parts to the foreign country and only assembles thethe foreign country and only assembles the product there (taking advantage of the labourproduct there (taking advantage of the labour cost).cost).  The final product could be sold in the foreignThe final product could be sold in the foreign country and/or also taken back to the homecountry and/or also taken back to the home country.country.
    29. 29. Joint VenturesJoint Ventures  Any form of association which impliesAny form of association which implies collaboration for more than a transitory period iscollaboration for more than a transitory period is a JV. Such a broad definition encompassesa JV. Such a broad definition encompasses many diverse types of joint overseas operationsmany diverse types of joint overseas operations  Sharing of ownership and management in anSharing of ownership and management in an enterpriseenterprise  Licensing/franchising agreementsLicensing/franchising agreements  Contract manufacturingContract manufacturing  Management contractsManagement contracts  As per most experts JV encompasses jointAs per most experts JV encompasses joint ownership venture .ownership venture .
    30. 30. Joint VenturesJoint Ventures  The essential feature of a joint ownershipThe essential feature of a joint ownership venture is that the ownership and managementventure is that the ownership and management are shared between a foreign firm and a localare shared between a foreign firm and a local firm.firm.  In some cases more than two parties areIn some cases more than two parties are involved. e.g. Pepsi’s Indian joint ventureinvolved. e.g. Pepsi’s Indian joint venture involved Voltas and Punjab Agro Industriesinvolved Voltas and Punjab Agro Industries Corporation.Corporation. e.g. in India aree.g. in India are  Maruti Suzuki and Hero Honda.Maruti Suzuki and Hero Honda.
    31. 31. Strategic AlliancesStrategic Alliances There are different types of alliances according toThere are different types of alliances according to purpose or structure .Alliances as per purposepurpose or structure .Alliances as per purpose are as follows :are as follows :  Technology development alliancesTechnology development alliances likelike research consortia , simultaneous engineeringresearch consortia , simultaneous engineering agreementsagreements  Marketing, sales and service alliancesMarketing, sales and service alliances inin which a company makes use of the marketingwhich a company makes use of the marketing infrastructure of another company in the foreigninfrastructure of another company in the foreign market for its products.market for its products.
    32. 32.  Multiple activity allianceMultiple activity alliance which involves thewhich involves the combining of two or more types of alliances.combining of two or more types of alliances. While marketing alliances are often singleWhile marketing alliances are often single country alliances ,as international firms take oncountry alliances ,as international firms take on different allies in each country , technologydifferent allies in each country , technology development and operations alliances aredevelopment and operations alliances are usually multicountry since these kinds ofusually multicountry since these kinds of activities can be employed over severalactivities can be employed over several countries.countries.
    33. 33. Strategic AlliancesStrategic Alliances Strategic alliances as per structure are :Strategic alliances as per structure are :  Equity based (Joint venture) and b) Non-equityEquity based (Joint venture) and b) Non-equity based.based.  Non equity based alliances such as technologyNon equity based alliances such as technology transfer agreementstransfer agreements , licensing agreements, marketing agreements are, licensing agreements, marketing agreements are proving to beproving to be more dynamic more constructive and more strategic.more dynamic more constructive and more strategic.  e.g The Star Alliance brings together many airlines –e.g The Star Alliance brings together many airlines – Lufthansa, United Airlines, Mexicana, Air Canada,Lufthansa, United Airlines, Mexicana, Air Canada, Austrian Airlines, British Midland, Singapore Airlines,Austrian Airlines, British Midland, Singapore Airlines, ,Thai Airways, Air NewZeland, Asiana Airlines and,Thai Airways, Air NewZeland, Asiana Airlines and Spainair-into a huge global partnership that allowsSpainair-into a huge global partnership that allows travelers to make nearly seamlesstravelers to make nearly seamless connection to about 700 destinations.connection to about 700 destinations.
    34. 34. Many strategic alliances take the form of marketing alliances . TheseMany strategic alliances take the form of marketing alliances . These fall into three major categories :fall into three major categories :  Promotional Alliances : One company agrees to carry aPromotional Alliances : One company agrees to carry a promotion for another company’s products or service.promotion for another company’s products or service. McDonald’s for e.g has often teamed up with Disney toMcDonald’s for e.g has often teamed up with Disney to offer products related to current Disney films as part ofoffer products related to current Disney films as part of its meals for children.its meals for children.  Logistics Alliances : One company offers logisticalLogistics Alliances : One company offers logistical services for another company’s product.services for another company’s product. For e.g Abbott laboratories warehouses and delivers allFor e.g Abbott laboratories warehouses and delivers all of 3M’s medical and surgical products to hospitalsof 3M’s medical and surgical products to hospitals across the US.across the US.  Pricing Alliances: One or more companies join in aPricing Alliances: One or more companies join in a special pricing collaboration.special pricing collaboration. Hotel and rental car companies often offer mutual priceHotel and rental car companies often offer mutual price discounts.discounts.
    35. 35. Counter trade:Counter trade:  It is a form of international trade in which certainIt is a form of international trade in which certain export and import transactions are directly linkedexport and import transactions are directly linked with each other and in which import of goods arewith each other and in which import of goods are paid for by exports of goods , instead of moneypaid for by exports of goods , instead of money payments.payments.  Countertrade takes several forms. The followingCountertrade takes several forms. The following are the most common among them.are the most common among them.
    36. 36.  Barter : In this system , goods and services are mutuallyBarter : In this system , goods and services are mutually exchanged between two countries depending upon theirexchanged between two countries depending upon their bargaining strengthbargaining strength  For e.g a countertrade deal between the MMTC and aFor e.g a countertrade deal between the MMTC and a Yugoslavian company involved import of 50,000 tonnesYugoslavian company involved import of 50,000 tonnes of rails of the value of about $38 million by the MMTCof rails of the value of about $38 million by the MMTC and the purchase by the Yugoslavian company of ironand the purchase by the Yugoslavian company of iron ore concentrates and pellets of the same value.ore concentrates and pellets of the same value.
    37. 37.  Russia supplied newsprint and crude oil toRussia supplied newsprint and crude oil to India and India in turn supplied tea,India and India in turn supplied tea, garments, medicines to Russia.garments, medicines to Russia.
    38. 38. Counter trade:Counter trade:  Compensation deal : Under this arrangement , the sellerCompensation deal : Under this arrangement , the seller receives a part of the payment in cash and the rest inreceives a part of the payment in cash and the rest in products.products.  Counter purchase: Under the counter purchaseCounter purchase: Under the counter purchase agreement the seller receives the full payment in cashagreement the seller receives the full payment in cash but agrees to spend an equivalent amount of money inbut agrees to spend an equivalent amount of money in that country within a specified period.that country within a specified period.  e.g. Pepsi cola’s trade with erstwhile USSR – Pepsi gote.g. Pepsi cola’s trade with erstwhile USSR – Pepsi got paid in roubles for the sale of its concentrates in thepaid in roubles for the sale of its concentrates in the USSR , but spent the amount for purchase of RussianUSSR , but spent the amount for purchase of Russian products like Vodka and wine.products like Vodka and wine.
    39. 39.  Daimler-Benz sold 30 trucks to Romania. From RomaniaDaimler-Benz sold 30 trucks to Romania. From Romania in exchange it got 150 jeeps.These jeeps were sold inin exchange it got 150 jeeps.These jeeps were sold in Ecuador in exchange for bananas. The bananas wereEcuador in exchange for bananas. The bananas were brought back by Benz into West Germany which wasbrought back by Benz into West Germany which was sold to a supermarket chain which finally paid them insold to a supermarket chain which finally paid them in Deutsch Marks.Deutsch Marks.  In early 1980s , Boeing exchanged 10 747s for 34 millionIn early 1980s , Boeing exchanged 10 747s for 34 million barrels of Crude oilbarrels of Crude oil
    40. 40. THANKYOUTHANKYOU 

    ×