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international marketing entry strategies


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international marketing entry strategies - international marketing

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international marketing entry strategies

  1. 1. 4.1 Market entry methods 4.1.1 Indirect strategies 4.1.2 Foreign Direct Investment (FDI) Strategies 4.1.3 Other IM strategies 4.2 Criteria in selecting market entry methods
  2. 2. 4.1.1 Indirect strategy a) Exporting b) Licensing c) Management Contract d) Turnkey Operation
  3. 3. a) Direct and Indirect Exporting  Exporting of goods and services by the producing firm  Sales company option  Business established to market goods and services  Internet has made direct exporting much easier  Cost of trial low
  4. 4.  Exporting of goods and services through various home-based exporters ◦ Manufacturers’ export agents  sell for manufacturer ◦ Export commission agents  buy for overseas customers ◦ Export merchants  purchase and sell for own accounts ◦ International firms  use the goods overseas
  5. 5.  Advantages: ◦ Avoids cost of establishing manufacturing operations ◦ May help achieve experience curve and location economies  Disadvantages ◦ Commission to export agents, export merchants ◦ Foreign business can be lost if exporters decide to change their sources and supply ◦ Firm gains little experience from transactions
  6. 6. b) Licensing  A company in one country (licensor) enters into a contractual agreement with a company or person in another country (licensee) whereby the licensee is given the right to use something owned by the licensor.
  7. 7. Advantages  Reduces development costs and risks of establishing foreign enterprise  Fast market access  Gain local market knowledge Disadvantages  Less control over market and revenues  IP concerns  Potential problems with licensees
  8. 8. d) Management Contract The local investor provides the capital for enterprise, while the international marketer provides the necessary know-how to manage the company.  Ex: Hilton hotel
  9. 9. Advantages:  Reduces costs and risk of establishing enterprise Emphasis on firm’s expertise  Disadvantages:  Limited profits and market access  Potential copyright and IP issues
  10. 10. e) Turnkey operation • Contractor agrees to handle every detail of project for foreign client • Technology • Management expertise • Capital equipment (some cases) • After trial run, facility is turned over to purchaser
  11. 11.  Advantages:  Can earn a return on knowledge asset  Emphasis on firm’s expertise  Less risky than conventional FDI  Disadvantages: No long-term interest in the foreign country May create a competitor Selling process technology may be selling competitive advantage as well
  12. 12. 4.1.2 Foreign Direct Investment (FDI) strategies a) Acquisition vs Greenfield b) Assembly vs Manufacturing c) Sole venture vs Joint venture
  13. 13. a) Acquisition vs Greenfield  Acquisition ◦ a form of investment where an already existing company is taken over by an investing firm ◦ takes over the assets of the existing company ◦ may redesign if necessary “purchase of stock in an already existing company in an amount sufficient to confer control” [Kogut & Singh 1988]
  14. 14.  Greenfield  Greenfield is the process of expanding operations in foreign market from ground zero. It requires purchase of local property and local man power.
  15. 15.  Greenfield  Benefits - can build subsidiary it want - relatively easy to establish operating routine - new jobs are created in local market  Drawbacks - Lengthy process - competition before sets up - research – time consuming - unstable – emerging market - legal issue
  16. 16. b) Assembly vs Manufacturing  Assembly  Manufacturer exports all or most of its products in a “knocked-down” condition. These parts are put together to form the complete product.  These parts are put together to form the complete product in a one location / country for host or other countries  can be a new-build, or the company might acquire a current business that has suitable plant
  17. 17.  Manufacturing ◦ organization invests in plant, machinery and labor in the overseas market ◦ process begins with acquiring raw materials and transform it into finish product ◦ can be a new-build, or the company might acquire a current business that has suitable plant
  18. 18. c) Sole venture vs Joint venture  Sole venture  100% ownership  Ethnocentric consideration  not necessary for international success
  19. 19. Joint Venture Company Inputs MNE Local Firm HOME COUNTRY HOST COUNTRY Inputs Share of Profit Share of Profit
  20. 20.  Joint Venture ◦ collaboration of two or more organization ◦ share assets, risks and profits ◦ equality of partners is not necessary ◦ Foster + Partners and Buro Happold joint venture to design four stations for Saudi Arabia’s new Haramain High-speed Railway Disadvantages  Potential loss of proprietary knowledge  Potential conflicts between partners  Neither partner has full performance incentive  Neither partner has full control
  21. 21.  4.1.3 IM Strategies 1. Strategic Alliances  Strategic alliances are co- operative relationships between two or more independent organizations, designed to achieve mutually beneficial goals for as long as is economically viable.
  22. 22.  Early Alliances: Responding to Japan  IBM’s Initiatives During the 1990s: Rebuilding Competitiveness
  23. 23. 4.1.3 IM Strategies 2. Analysis of Entry Strategies
  24. 24. 3. Free Trade Zones FTZ are geographical areas defined within the national territory, for the development of industrial goods and services or commercial activities under a special tax, customs and foreign trade regime
  25. 25. Joint Venture Company Licensing Acquisition Joint Venturing Local Firm New Subsidiary Company “Green Field” Entry HOME COUNTRY HOST COUNTRY Export MNE
  26. 26.  Decision Criteria for Mode of Entry:  Market Size and Growth  Risk  Government Regulations  Competitive Environment/Cultural Distance  Local Infrastructure (See Exhibits 4-2 and 4-3) 27
  27. 27.  Classification of Markets: i. Platform Countries (Singapore & Hong Kong) ii. Emerging Countries (Vietnam & the Philippines) iii. Growth Countries (China & India) iv. Maturing and established countries (examples: South Korea, Taiwan & Japan) 28
  28. 28.  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) 29
  29. 29. • Criteria for Selecting Appropriate Market Entry Method • The company objectives and expectations relating to the size and value of anticipated business • The size and financial resources of the company • Existing foreign market involvement • The skills, abilities and attitudes of the company management towards international marketing ch8_3
  30. 30.  The nature and power of the competition with the market  The nature of existing and anticipated tariff and non-tariff barriers  The nature of the product itself, particularly any areas of competitive advantage, such as trademark or patent protection  The timing of the move in relation to the market and competitive situation ch8_4
  31. 31. Control Risk Indirect exporting Complementary marketing Trading companies Export management companies Domestic purchasing Co-operation strategies Joint ventures Strategic alliances Direct exporting Distributors Agents Direct marketing Franchising Management contracts Manufacturing Own subsidiary Acquisition Assembly
  32. 32. ch8_2 Wholly-owned subsidiary Company acquisition Assembly operations Joint venture Strategic alliance Licensing Contract manufacture Direct marketing Franchising Distributors and agents Sales force Trading companies Export management companies Piggyback operations Domestic purchasing Levels of involvement