Market Entry Strategies
There are a variety of ways in which a company can enter a foreign market. No one market
entry strategy works for all international markets. Direct exporting may be the most
appropriate strategy in one market while in another you may need to set up a joint venture
and in another you may well license your manufacturing. There will be a number of factors
that will influence your choice of strategy, including, but not limited to, tariff rates, the
degree of adaptation of your product required, marketing and transportation costs. While
these factors may well increase your costs it is expected the increase in sales will offset
these costs. The following strategies are the main entry options open to you.
Direct exporting is selling directly into the market you have chosen using in the first instance
you own resources. Many companies, once they have established a sales program turn to
agents and/or distributors to represent them further in that market. Agents and distributors
work closely with you in representing your interests. They become the face of your company
and thus it is important that your choice of agents and distributors is handled in much the
same way you would hire a key staff person.
Licensing is a relatively sophisticated arrangement where a firm transfers the rights to the
use of a product or service to another firm. It is a particularly useful strategy if the purchaser
of the license has a relatively large market share in the market you want to enter. Licenses
can be for marketing or production. licensing).
Franchising is a typical North American process for rapid market expansion but it is gaining
traction in other parts of the world. Franchising works well for firms that have a repeatable
business model (eg. food outlets) that can be easily transferred into other markets. Two
caveats are required when considering using the franchise model. The first is that your
business model should either be very unique or have strong brand recognition that can be
utilized internationally and secondly you may be creating your future competition in your
Partnering is almost a necessity when entering foreign markets and in some parts of the
world (e.g. Asia) it may be required. Partnering can take a variety of forms from a simple comarketing arrangement to a sophisticated strategic alliance for manufacturing. Partnering is
a particularly useful strategy in those markets where the culture, both business and social, is
substantively different than your own as local partners bring local market knowledge,
contacts and if chosen wisely customers.
There are five common objectives in a joint venture: market entry, risk/reward sharing,
technology sharing and joint product development, and conforming to government
regulations. Other benefits include political connections and distribution channel access that
may depend on relationships.Such alliances often are favourable when:
The partners' strategic goals converge while their competitive goals diverge
The partners' size, market power, and resources are small compared to the Industry
Partners are able to learn from one another while limiting access to their own
The key issues to consider in a joint venture are ownership, control, length of agreement,
pricing, technology transfer, local firm capabilities and resources, and government
intentions. Potential problems include.
Conflict over asymmetric new investments
Mistrust over proprietary knowledge
Performance ambiguity - how to split the pie
Lack of parent firm support
If, how, and when to terminate the relationship
Joint ventures have conflicting pressures to cooperate and compete:
Strategic imperative: the partners want to maximize the advantage gained for the
joint venture, but they also want to maximize their own competitive position.
The joint venture attempts to develop shared resources, but each firm wants to
develop and protect its own proprietary resources.
The joint venture is controlled through negotiations and coordination processes,
while each firm would like to have hierarchical control.
Joint ventures are a particular form of partnership that involves the creation of a third
independently managed company. It is the 1+1=3 process. Two companies agree to work
together in a particular market, either geographic or product, and create a third company to
undertake this. Risks and profits are normally shared equally. The best example of a joint
venture is Sony/Ericsson Cell Phone.
International joint ventures allow for much faster and less costly access to foreign markets
than can be achieved by purchasing an existing company in the jurisdiction or starting a new
IJVs provide quick access to channels of distribution, and they provide access for the nonresident partner to knowledge and know-how of the local marketplace, which substantially
enhances the probability of success for the venture. The resident partner also often has
existing relationships with key suppliers and customers, and proficiency in the local
language and customs.
These benefits can be especially critical to a small or medium-sized business that does not
have the capital, resources or expertise necessary to pursue the opportunity unless it is able
to share the risks and the costs through an alliance such as an international joint venture.
IJVs allow the partners to move quickly, cost effectively and with credibility (provided by the
reputation of the resident partner) in the local marketplace.
The parties to an IJV can also take advantage of complementary lines of business and
synergies that may exist between the two companies.
An international joint venture can result in a frustrating experience and ultimately a failure if
it lacks adequate planning and strategy. Factors such as marketplace developments,
technology issues, regulatory uncertainties and economic downturns can be difficult to
anticipate and can have a debilitating impact on IJVs.
By their nature (and like all partnerships), profits derived from an IJV are diluted because
they are shared. Management issues can arise, in spite of having adequate mechanisms in
place to resolve disputes, because of different management philosophies of the partners.
The partners also may discover that they do not share expectations and are not flexible
enough to change and accommodate the evolving needs of the business.
Joint ventures are often difficult to capitalize as an entity, particularly in respect to debt,
because they are finite in their duration and therefore lack permanence. Unless an IJV is
adequately capitalized, its debt financing, if available at all, may have to be guaranteed, in
whole or in part, by the joint venture partners, which can increase their level of risk in the
Another potential disadvantage of an IJV is the possibility of the creation of a competitor or
a potential competitor in the form of one’s own joint venture partner. This can, as later
discussed, be addressed by non-competition, non-solicitation and confidentiality provisions
in the definitive joint venture agreement.
Buying a Company
In some markets buying an existing local company may be the most appropriate entry
strategy. This may be because the company has substantial market share, are a direct
competitor to you or due to government regulations this is the only option for your firm to
enter the market. It is certainly the most costly and determining the true value of a firm in a
foreign market will require substantial due diligence. On the plus side this entry strategy will
immediately provide you the status of being a local company and you will receive the
benefits of local market knowledge, an established customer base and be treated by the
local government as a local firm.
Piggybacking is a particularly unique way of entering the international arena. If you have a
particularly interesting and unique product or service that you sell to large domestic firms
that are currently involved in foreign markets you may want to approach them to see if your
product or service can be included in their inventory for international markets. This reduces
your risk and costs because you are essentially selling domestically and the larger firm is
marketing your product or service for you internationally.
Turnkey projects are particular to companies that provide services such as environmental
consulting, architecture, construction and engineering. A turnkey project is where the
facility is built from the ground up and turned over to the client ready to go – turn the key
and the plant is operational. This is a very good way to enter foreign markets as the client is
normally a government and often the project is being financed by an international financial
agency such as the World Bank so the risk of not being paid is eliminated.
Turnkey contracts apply to a form of international operation, often involving large-scale
complex projects, which may provide opportunities for smaller firms of the host country
to serve as subcontractors and suppliers.
In a turnkey contract, one client company contracts another company to build and
deliver a ready-to-operate industrial plant or infrastructure facility, such as a power
plant, a highway or a port, where the client can be a government agency. There are various
reasons why turnkey contracts represent the preferred option for the client, as compared to
other project implementation modalities, for example the client itself taking responsibility
for the coordination and management of the project activities. Industrial or infrastructure
projects are complex undertakings, the implementation of which involves the mobilization
and articulation of many different disciplines and a variety of suppliers. These may include
various engineering branches (mechanical, electrical, civil), the manufacturing and supply of
equipment, management of the project implementation activities and commissioning and
start-up operations. With a turnkey contract, the risks associated to possible delays,
defective deliveries from different suppliers, cost overruns and performance failures are
born by the turnkey contractor. The usual turnkey contractors are construction companies,
industrial-equipment manufacturers and engineering and consulting firms who assemble
and coordinate the other players and take responsibility for the overall project. The turnkey
operations conducted in developing countries provide an opportunity for local firms to act
as subcontractors in areas where local competencies may be available, for example selected
engineering tasks, the manufacturing of non-proprietary
Reasons for turnkey contracts
• The client lacks project management capabilities to implement complex projects.
• The contractor takes responsibility for the coordination of the overall project.
• The client avoids the risk of delays, cost overruns and performance failures.
equipments and metal structures, civil works, etc. Furthermore, the linkage of local
firms with international turnkey contractors will contribute to leveraging their capabilities
and pave the way for their own internationalization. Some turnkey operations are also
associated with or lead to management contracts. This could be the case when the client
has the plant or the infrastructure facility built and commissioned under a turnkey contract
but then needs to enter a management contract to acquire the skills for the operation and
maintenance, at least until local capabilities can be built up and made available.
Turnkey project service has below advantages:
Easily handing of all your purchased products
Quick delivery of all your goods together, including mould, machine and other product
Clear responsibility of whole project and avoid the argue and disputes from different
Fast reply and response of your doubt of whole project
Easy QC control and product inspection
Less cost for paying service and prompt after-sale service
Greenfield investments require the greatest involvement in international business. A
greenfield investment is where you buy the land, build the facility and operate the business
on an ongoing basis in a foreign market. It is certainly the most costly and holds the highest
risk but some markets may require you to undertake the cost and risk due to government
regulations, transportation costs, and the ability to access technology or skilled labour.