2. Prof.SushilIITDSession-VI 2
The Top Five Strategic Reasons for
Outsourcing
1. Improve Business Focus1. Improve Business Focus
2. Access to World-Class Capabilities2. Access to World-Class Capabilities
3. Accelerated Reengineering Benefits3. Accelerated Reengineering Benefits
4. Shared Risks4. Shared Risks
5. Free Resources for Other Purposes5. Free Resources for Other Purposes
4. 4
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
5. 5
1. Selecting the Target Market
A crucial step in developing a global
expansion strategy is the selection of
potential target markets (see Exhibit 9-1 for
the entry decision process).
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
7. . 7
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
10. 10
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
11. 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)
12. 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
13. 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
14. 14
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
CaveatsCaveats::
– Revenues may not be adequateRevenues may not be adequate
– Availability of a masterAvailability of a master
franchiseefranchisee
– Limited franchisingLimited franchising
opportunities overseasopportunities overseas
– Lack of control over theLack of control over the
franchisees’ operationsfranchisees’ operations
– Problem in performanceProblem in performance
standardsstandards
– Cultural problemsCultural problems
– Physical proximityPhysical proximity
16. 16
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
17. 17
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
18. 18
7. Expanding through 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
19. 19
7. Expanding through 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
20. . 20
7. Expanding through 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
21. 21
8. Entering New Markets through
Wholly Owned Subsidiaries
Acquisitions
Greenfield Operations
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
22. . 22
8. Entering New Markets through
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
23. . 23
8. Entering New Markets through
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.
24. 24
9. Creating Strategic Alliances
Types of Strategic Alliances
Simple licensing agreements between two
partners
Market-based alliances
Operations and logistics alliances
Operations-based alliances
27. 27
9. Creating Strategic Alliances
Cross-Border Alliances that Succeed:
Alliances between strong and weak
partners seldom work.
Autonomy and flexibility
Equal ownership
28. . 28
9. Creating 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, assets sizes and
venturing experience
Tend to start on a narrow basis and broaden
over time
A shared vision on goals and mutual benefits
30. SameSame
ProductProduct
One Product
One Message
One Product
One Message
Product
Adaptation
Product
Adaptation
Message
Adaptation
Message
Adaptation
Product
Invention
Product
Invention
SameSame
MessageMessage
ChangeChange
MessageMessage
ChangeChange
ProductProduct
Product and Promotion Strategies for
Global Marketing
31. Pricing Strategy
Hurts the local businesses
Gray Market or
Parallel Importing –
(individuals)
Dumping – (companies)
32. Pricing Strategy
Countertrade - a form of trade in which
the payment for goods and services is in
the form of other goods and services
Hurts the local governments
33. Protectionism
Protectionism is the practice of shielding
one or more industries within a country’s
economy from foreign competition
through the use of tariffs or quotas.
Protectionism is the practice of shielding
one or more industries within a country’s
economy from foreign competition
through the use of tariffs or quotas.
34. Multidomestic Marketing
Strategy
A multidomestic marketing strategy is
used by multinational firms that have as
many different product variations, brand
names, and advertising programs as
countries in which they do business.
A multidomestic marketing strategy is
used by multinational firms that have as
many different product variations, brand
names, and advertising programs as
countries in which they do business.
35. Global Marketing Strategy
A global marketing strategy is used by
transnational firms that employ the
practice of standardizing marketing
activities when there are cultural
similarities and adapting them when
cultures differ.
A global marketing strategy is used by
transnational firms that employ the
practice of standardizing marketing
activities when there are cultural
similarities and adapting them when
cultures differ.
36. Global Brand
A global brand is a brand marketed under
the same name in multiple countries with
similar and centrally coordinated
marketing programs.
A global brand is a brand marketed under
the same name in multiple countries with
similar and centrally coordinated
marketing programs.
37. A gray market is a situation where
products are sold through unauthorized
channels of distribution. Also called
parallel importing.
A gray market is a situation where
products are sold through unauthorized
channels of distribution. Also called
parallel importing.
Gray Market
38. Dumping is when a firm sells a
product in a foreign country below
its domestic price or below its actual cost.
Dumping is when a firm sells a
product in a foreign country below
its domestic price or below its actual cost.
Dumping
39. The impact of environmental
forces on global marketing.
Economic environment.
Political environment.
Social and cultural environment.
Legal and regulatory environment.
Technological environment.