Main strategies of entering foreign markets Marketing lecture for undergraduate students (semester 6)

1. Entering foreign markets

2. Basic issues
An organisation wishing to "go international" faces three major issues:
• Marketing - which countries, which segments, how to manage and
implement marketing effort, how to enter - with intermediaries or
directly, with what information?
• Sourcing - whether to obtain products, make or buy?
• Investment and control - joint venture, global partner, acquisition?

3. 5 tips to help prepare your business to enter
the international market:
• 1. Educate yourself on the customs and business etiquette of the
international market.
• 2. Gather historical data on the country’s currency value fluctuation
and import/export timelines.
• 3. Become an expert on the country’s laws governing business.
• 4. Conduct focus groups to test the prospective international market.
• 5. Find out what your competition has done in the same territory.

4. 3 essential steps for entering a foreign market
• Step 1
• Your finances—Does your business have the financial capacity to make a
long-term commitment to your exporting or other foreign expansion
project?
• Your leadership—Are the owners and senior managers all on board? Are
you ready to get the outside expertise you need to support management?
• Your team—Do you have adequate marketing, sales and other human
resources? What additional personnel will you need?
• Your products or services—What will make your offerings stand out
against the competition in a foreign market? Are you ready and able to
adapt them to the needs and desires of customers in your target markets?

5. Step 2 — Find the best markets for your
business
• Investigate the regulatory environment. Look at risks including
intellectual property. Investigate whether there is a clear and
growing demand for the type of products you offer.
• And don’t forget about local culture and customs. This may influence
how you will have to package and market your products.
• Meet with key contacts to learn about the competition, local rules
and distribution channels.
• Attend trade shows and events specific to your industry in the
country can also be helpful.

6. Step 3 — Plan and execute market entry
strategy
• A budget outlining how much money you’ll need to finance your
project.
• The countries (or regions within a country) you are targeting.
• Opportunities and risks you foresee in the market.
• Who your competitors will be.
• How you will market and distribute your products.
• Ways in which you may have to adapt or customize your offering,
including packaging, labelling and promotion, in keeping with
regulatory requirements, consumer tastes and cultural preferences.
• A method for determining pricing, taking into account the costs of
exporting, product adaptation and exchange rate.

7. Direct Export
• Def.: Direct exporting is the most common
strategy. It’s simple – you sell directly to the
market that you’re trying to break into.
• E.g.: The Austrian energy drink Red Bull entered
Australia using direct export as its entry mode. Red
Bull is the leading energy drink brand in the
Australian market, holding a 36% market share.
This case of Red Bull supports that exporting can
be a very successful foreign entry mode strategy.
• US chewing gum company Wrigley successfully
entered the Indian market using cooperative
export as their foreign entry mode

8. Indirect export
• Small and medium-sized companies can use export agents based in
the exporter’s home country, or use export houses to enter
international markets.
• They buy from the supplier and sell to their customers in a different
country.
• If most of the companies or the customers you want to address, say in
Japan, don’t know you, an export house already has good
relationships with customers, it’s very easy for foreign companies to
use them.

9. Turnkey solutions or products
Def.: Is a way for a foreign company to export its process and
technology to other countries by building a plant in that
country. Industrial companies that specialize in complex
technologies normally use turnkey projects as an entry
strategy.
“Turnkey product” is where you build something from the
ground up, and whoever you turn the product over to just
has to “turn the key” before he or she is ready to go.
E.g.: Philips Indonesia, which offers the LED lights to hotels,
and malls in Indonesia.
Most common in large multi-year projects like construction
of infrastructure like airports, oil refineries, power plants,
roads or railways
Toyota’s car plant in Adapazari, Turkey

10. Strategic Alliances (SA)
• Def.: Strategic alliances describes a whole series of different
relationships between companies that market internationally.
Sometimes the relationships are between competitors. Strategic
Alliances are non-equity based agreements i.e. companies remain
independent and separate.
• E.g.: Shared manufacturing e.g. Toyota Ayago is also marketed as
a Citroen and a Peugeot.
• Distribution alliances e.g. iPhone was initially marketed by O2 in
the United Kingdom.
• Research and Development (R&D) arrangements.
• Marketing agreements.

11. Contract manufacturing
• Def.: is outsourcing entire or part of
manufacturing operations.
• E.g.: The iPad and iPhone, which are products
from Apple Inc., are manufactured in China by
Foxconn. Hence, Foxconn is a contract
manufacturer and Apple benefits from a lower
cost of manufacturing devices

12. Piggybacking
• Def.: Whereby your new product uses the
existing distribution and logistics of another
business.
• E.g.: Italian cheese manufacturers of Grana
Padano (cheese) distribute in Europe through
a piggyback agreement with Heinz.

13. Licensing
• Def.: You talk to foreign firms and ask them to
temporarily own the product. You first have to convince
the firm that your product is right for them and it will
sell. Then, you need to deal with governments for the
legal aspects of the “sale” of the license. You don’t lose
control of your product. You’re licensing the rights to
your product to a foreign company for a limited amount
of time.
• E.g.: Microsoft Corp and Walt Disney Co are two
examples of large multinationals that have had success
in foreign markets using licensing as their entry mode
• Eg. Pepsico, Coke

14. Franchising
• Def: Involves the organization (franchiser) providing
branding, concepts, expertise, to the franchisee.
• E.g.: Hilton began franchising its hotels in 1965 and
currently 36% of company revenues are franchise fees.
• The franchisees pay Hilton an initial fee based on the
number of rooms and a continuing fee based on
revenues.
• Hilton is involved in the approval of plans for and the
location of the franchised hotels and also assists in the
design
• Eg. McDonalds, Subway, KFC

15. Mergers and Acquisitions -
M&A
• Def.: M&A are transactions in which the
ownership of companies or their operating
units are transferred or combined.
• E.g. Coca Cola acquired the worlwide beverage
interests of Cudbury Schweppes and all
related brands in about 155 countries

16. Joint venturing
• Def.: A new company is set up with parties owning a
proportion of the new business.
• Companies set up Joint Ventures to assist them to enter a
new international market: access to technology, core
competences or management skills, distribution channels,
manufacturing and R&D.
• E.g.: AutoAlliance International (AAI) is a joint venture
automobile assembly firm co-owned by Ford and Mazda.
AAI produced some of the Mazda 626, Mazda MX-6 and
Ford Probe (all related) sold in America since 1990.
• Sony-Ericsson is a joint venture by the Japanese consumer
electronics company Sony Corporation and the Swedish
telecommunications company Ericsson to make mobile
phones

17. Greenfield Investments
• Def.: It is the establishment of a new wholly owned
subsidiary. It is often complex and potentially costly, but
it is able to provide full control to the firm and has the
most potential to provide above average return.
• E.g.: Chevron through their wholly owned subsidiary PT
Chevron Pacific Indonesia, they become the largest
producer of Indonesia’s crude oil.
• Mercedes Benz began its Indian production in the mid-
1990s from a plant based in the small town of Pimpri. In
2007 it acquired 100 acres for a greenfield plant in
Pune, India. The production capacity could now turn
out almost 5000 vehicles

18. Foreign Direct Investment
(FDI)
• Def.: The objective of a resident entity in one
economy obtaining a lasting interest in an
enterprise resident in another economy. FDI
normally involves some degree of equity
ownership on the part of the foreign investor.
• E.g. Honda began producing the Dream
motorcycle in Vietnam in 1997 in order to
serve the Vietnamese market—a form of
international production

21. The internationalisation strategy of Toyota
• Began by establishing subsidiaries to export cars in key markets in the
1970ʼs
• Faced difficulties in Europe due to import restrictions and could not
establish direct presence due to restrictions of direct investment by
Japanese firms
• Began to manufacture forklifts under licence in 1987 and then established
a joint-venture with its licensee in 1996.
• Localised production in Europe in 1998 by setting up an assembly plant in
Valenciennes (France) taking advantage of high unemployment in the area
and, of tax incentives offered by the French government.
• In 1999, the EU lifted restrictions on Japanese car imports and Toyota
began to export compact cars into Europe.

22. 4 lessons learned from famous market entry
successes
• 1. Starbucks in China
• 2. McDonald’s in France
• 3. IKEA in China
• 4. Red Bull in America
• Original article: http://www.tradeready.ca/2015/trade-takeaways/4-
lessons-learned-famous-market-entry-successes/