This document discusses international market selection and entry strategies for companies. It outlines four main strategies for competing globally: international, multinational, global, and transnational. It also discusses factors that influence market selection like pressures for cost reduction and local responsiveness. The key entry decisions are which foreign markets to enter, timing of entry, and scale of entry. Common entry modes include exporting, licensing, franchising, joint ventures, and wholly owned subsidiaries, each with advantages and disadvantages. Strategic competitiveness outcomes depend on effective implementation and management of international operations.

1. INTERNATIONAL
MARKET SELECTION
AND ENTRY
by

2. Pressures for Cost Reduction and Local
Responsiveness
• Pressures for cost reductions
– Global competitors seek to minimize unit costs through
location economies .
– In commodity-type product industries, intense price
competition.
• Pressures for local responsiveness arise from:
–
–
–
–
Differences in local consumer tastes and preferences.
Differences in infrastructure and traditional practices.
Differences in distribution channels among countries.
Host government economic and political demands.

3. Four Basic Strategies

4. Strategic Choice
• International strategy
– Create value by transferring skills and products abroad.
• Multidomestic strategy
– Maximize local responsiveness (taste& preference)by
customizing products and marketing strategy for local
markets.
• Global strategy
– Pursue low-cost status, offer standardized global
products.
• Transnational strategy
– Use global learning to achieve low-cost
status, differentiation, and local responsiveness
simultaneously.

5. The Advantages and Disadvantages of Different
Strategies for Competing Globally
Strategy
Advantages
International
• Transfer of distinctive • Lack of local
competencies
to responsiveness
• Inability to realize location
foreign markets
Multidomestic
Disadvantages
economies
• Failure to exploit
experience-curve effects
• Ability
to
customize • Inability to realize location
product offerings and economies
marketing in accordance • Failure to exploit
with local responsiveness
experience-curve effects
• Failure to transfer
distinctive competencies
to foreign markets

6. The Advantages and Disadvantages of Different
Strategies for Competing Globally
Strategy
Advantages
Disadvantages
Global
• Ability to exploit
experience-curve effects
• Ability to exploit location
economies
• Lack of local
responsiveness
Transnational
• Ability to exploit experiencecurve effects
• Ability to exploit location
economies
• Ability to customize product
offerings and marketing in
accordance with local
responsiveness
• Reaping benefits of global
learning
• Difficulties in
implementation because of
organizational problems

7. Entry Strategies

8. Where are we in the strategy?
Uncontrollable
Culture
Political &
Legal
Environment
Marketing
Research
Economic
Controllable
Segmentation
and positioning
Planning
Competitive Analysis
We are here!
Organising/
Restructuring
Promotion
s
Market Entry
Strategy
Logistics and
Distribution
Products &
Services
Pricing

9. Basic Entry Decisions
• Which foreign markets?
– Politically and financially stable
– Developed and developing nations
– Free market systems
• Timing of entry
– Pioneering costs versus
first-mover advantages.
• Scale of entry and strategic commitments
– Scale of entry affects the nature of competition in the
national market. Implications of risks and benefits must
be weighed carefully.

10. Selecting Market Entry
• Overview
–
–
–
–
–
–
–
–
Must decide what country to enter
Must allocate the right resources
Decide what to sell
Decide where to sell
Select the criteria for decision making
Seek an acceptable equity share
Acquire the right fit
Design an exit strategy

11. Determinants of Entry Strategy
• Degree of contact with foreign market
desired
– no contact - export intermediary
– some contact - foreign import intermediary
– high contact - subsidiary, FDI, etc.
• Determined by:
– market potential
– firm’s capabilities and experience
– managerial commitment to export, market and
risk tolerance

12. Basic Entry Decisions
• Which foreign markets?
– Politically and financially stable
– Developed and developing nations
– Free market systems
• Timing of entry
– Pioneering costs versus
first-mover advantages.
• Scale of entry and strategic commitments
– Scale of entry affects the nature of competition in the
national market. Implications of risks and benefits must be
weighed carefully.

13. The Choice of Entry Mode
• Exporting
• Licensing
• Franchising
• Joint Ventures
• Wholly Owned Subsidiaries

14. Choice of International Entry Mode
Exporting
Common way to enter new international markets.
No need to establish operations in other nations.
Establish distribution channels through contractual
relationships.
May have high transportation costs.
May encounter high import tariffs.
May have less control on marketing and distribution.
Difficult to customize product.

15. Foreign production
• Licensing
– no physical asset exposure
• though IP risk remains
License
Licensor
Licensee
(domestic manufacturer)
(O/S Manufacturer)
Owns IP
Qualcomm
Manufacture & sell
Royalties & fees
1 to 15%
Ericsson
uses CDMA
technology
in
headphones

16. Choice of International Entry Mode
Licensing
Firm authorizes another firm to
manufacture & sell its products Licensing firm is paid a royalty on each unit produced
and sold.
Licensee takes risks in manufacturing investments.
Least risky way to enter a foreign market.
Licensing firm loses control over product quality &
distribution.
Relatively low profit potential.
9-16
© 2006 by Nelson, a division of Thomson
Canada Limited.

17. Franchising
Franchisee
Franchisor
(Country B)
(Country A)
Owns IP
Royalties & fees
Master Franchisor
Local entrepreneurs
Examples
Trade name
Trade mark
Business Models (marketing
plan)
Operating manuals
Standards
Training
Quality monitoring
•Subway
•World Gym Fitness
Limited time
•Mailboxes etc.
Limited territory

18. • Franchising
– A specialized form of licensing where the
franchiser sells intangible property (usually a
brand or trademark).
– The franchisee agrees to follow the strict rules and
business plans of the company

19. Joint Ventures
Firm C
Firm A
Home country
50% 50%
New entity
in host country - both
have equity
Firm B
Host
country
Contribution
Contribution
•Technology
•Manufacturing expertise
•Distribution network
•Labour
•Finance
•Local market knowledge
•E.g. McDonald’s

20. • Joint Venture
– Separate corporations come together to form a
new corporate entity
– Two or more companies have an ownership
stake, but combine resources for mutual benefit
– Sharing knowledge can be dangerous for the
companies involved

21. Problems with joint ventures
• lack of legal structure
– e.g. PRC, no accounting standards
– poor proprietary rights
• lack of trust
– mutual conflicts
– resource allocation
• access to technology
• profit sharing problems

22. Choice of International Entry Mode
Acquisitions
Enable firms to make most rapid international
expansion.
Can be very costly.
Legal and regulatory requirements may present
barriers to foreign ownership.
Usually require complex and costly negotiations.
Potentially disparate corporate culture.
9-22
© 2006 by Nelson, a division of Thomson
Canada Limited.

23. Choice of International Entry Mode
New Wholly-Owned Subsidiary –
Greenfield Venture
Most costly & complex of entry alternatives.
Achieves greatest degree of control.
Potentially most profitable, if successful.
Maintain control over technology, marketing and
distribution.
May need to acquire expertise & knowledge that
is relevant to host country.
Could require hiring host country nationals or
consultants at high cost.

24. Strategic Competitiveness Outcomes
International diversification facilitates
innovation in the firm.
Provides larger market to gain more and faster
returns form investments in innovation.
May generate resources necessary to sustain a
large-scale R&D program.
Generally related to above-average returns, assuming
effective implementation and management of
international operations.
International diversification provides greater
economies of scope and learning.

25. Exit and Re-entry Strategies
• Consolidate operations
– reduce plant, close operations
– consolidate operations
• Ford: Closing plant in UK
• GM: closed plant in UK
• Sterile : closed plant in tuticorin
• Re-entry
– acquisition:
• e.g., Coke acquired Parle (repurchased of Indian
bottler/distributor)