The document discusses various factors and strategies for foreign market entry decisions faced by firms. It covers evaluating which markets to enter based on size, growth rates, and product suitability. It also discusses timing of entry, scale of entry, and different modes of entry including exporting, contractual agreements like licensing and franchising, turnkey projects, contract manufacturing, management contracting, strategic alliances, joint ventures, consortia, and wholly owned subsidiaries. The optimal choice depends on a firm's needs around control, investment, risks, and location-specific advantages.
International Marketing Management - IntroductionSOMASUNDARAM T
Definition; scope and challenges; difference between international marketing and domestic marketing; the dynamic environment of international trade; transition from domestic to international markets orientation of management and companies; international marketing environment.
Concept of international business environmentPinki Verma
Presentation on Concept of International Business Environment which includes:
1. Difference between International Business and International Business Environment
2.Difference between Domestic Business and International Business
3.Entry Modes of International Business
4.Nature of International Business
5.Advantages of International Business
6.Classification Of International Business Environment
(a) Micro and Macro Environment
(b) Domestic, Foreign and Global Environment
7.Components Of International Business Environment with examples.
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International Marketing Management - IntroductionSOMASUNDARAM T
Definition; scope and challenges; difference between international marketing and domestic marketing; the dynamic environment of international trade; transition from domestic to international markets orientation of management and companies; international marketing environment.
Concept of international business environmentPinki Verma
Presentation on Concept of International Business Environment which includes:
1. Difference between International Business and International Business Environment
2.Difference between Domestic Business and International Business
3.Entry Modes of International Business
4.Nature of International Business
5.Advantages of International Business
6.Classification Of International Business Environment
(a) Micro and Macro Environment
(b) Domestic, Foreign and Global Environment
7.Components Of International Business Environment with examples.
To watch more ppt follow our channel.
6. International Marketing, Market Selection, Modes of Entry in International...Charu Rastogi
This presentation defines international marketing, international marketing decisions, challenges of international marketing, and driving and restraining forces of international marketing. It goes on to discuss the process of market selection, firm related, market related and other factors effecting market selection. It also reflects on various modes of entry into foreign markets such as exporting (commercial strategy, commercial mode), foreign direct investment (industrial strategy, integrated modes) and associated or contractual modes (contractual strategy, competitive alliances). The presentation closes with a case study on the experience of Proctor and Gamble (P&G) in various international markets like Japan, China and India.
6. International Marketing, Market Selection, Modes of Entry in International...Charu Rastogi
This presentation defines international marketing, international marketing decisions, challenges of international marketing, and driving and restraining forces of international marketing. It goes on to discuss the process of market selection, firm related, market related and other factors effecting market selection. It also reflects on various modes of entry into foreign markets such as exporting (commercial strategy, commercial mode), foreign direct investment (industrial strategy, integrated modes) and associated or contractual modes (contractual strategy, competitive alliances). The presentation closes with a case study on the experience of Proctor and Gamble (P&G) in various international markets like Japan, China and India.
Companies with long term and substantial interest in the foreign market normally establish wholly owned manufacturing facilities there. A number of factors like trade barriers, difference in the production and other costs encourage the establishment of production facilities in the foreign markets.
With export entry modes a firm’s products are manufactured in the domestic market or a third country and then transferred either directly or indirectly to the host market. Export is the most common mode for initial entry into international markets. Sometimes an unsolicited order is received from a buyer in a foreign country, or a domestic customer expands internationally and places an order for its international operations. This prompts the firm to consider international markets and to investigate their growth potential.
Exporting is thus typically used in initial entry and gradually evolves towards foreign-based operations. In some cases where there are substantial scale economies or a limited number of buyers in the market worldwide (e.g. for aerospace), production may be concentrated in a single or a limited number of locations, and the goods then exported to other markets.
Exporting can be organized in a variety of ways, depending on the number and type of intermediaries. As in the case of wholesaling, export and import agents vary considerably in the range of functions performed. Some, such as export management companies, are the equivalent of full-service wholesalers and perform all functions relating to export. Others are highly specialized and handle only freight forwarding, billing or clearing goods through customs.
In establishing export channels a firm has to decide which functions will be the responsibility of external agents and which will be handled by the firm itself.While export channels may take many different forms, for the purposes of simplicity three major types may be identified: indirect, direct and cooperative export marketing groups.
Global Marketing
Svend Hollensen
Fifth Edition
A decision-oriented approach
The market-entry technique that offers the lowest level of risk and the least market control is indirect export, in which products are carried abroad by others. The firm is not engaging in international marketing and no special activity is carried on within the firm; the sale is handled like domestic sales
INTERNATIONAL ENTRY MODES
Criteria for Country selection :
Choosing Product to trade in International markets
Global Product Strategies
Strategy for new product launch
STANDARDIZATION VS ADAPTATION
FOREIGN MARKET ENTRY MODES
The intent of globalization is improving efficiency,optimizing markets and taking advantage of the global environment. If Indian firms have the facility to obtain the latest technology in the world, raise finance from the cheapest source and procure materials from the best source in the world, domestic firms will be on par with foreign firms.
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International Market Entry & Development Advisory Specialist - Liow Ren Jan, ...RJ. Liow
“Mr. RJ. Liow is the Founder and CEO of AYS Sdn Bhd, the manufacturer and marketer of Sri Kulai halal ready to eat meals, which are available in major supermarkets in Malaysia such as Cold Storage and Tesco, as well as in airlines and food service providers. Sri Kulai is also available in his very own chain of Sri Kulai RTE Stations, “A one stop F&B outlet for halal ready to eat meals” under a licensing program.
In the short time since 2008, AYS has won numerous awards, including “Best Halal Product” presented at the World Halal Forum in 2009, and “Product Innovation Gold Award” from Malaysia Institute of Food Technology. Liow himself was awarded “Outstanding Leadership Award in World HRD Congress” this year, and “Asia’s thought leader award in Manufacturing” in 2012.
RJ speaks in international conferences. Some of the local and international conferences/events where RJ spoke to included “World Halal Week Conference 2013”, “Effective Entry to Indonesia by Halal Industry Development Corporation Malaysia”, as well as the following upcoming speaking engagements:
1. Food Ingredients Asia - MEGAtrends 2013 (Bangkok, September 2013)
2. National Quality Summit 2013 (Kuala Lumpur, September 2013)
RJ has recently launched a marketing book called “Marketing Halal: Creating New Economy. New Wealth”. Please check out www.marketinghalal.com.my for more insights to a very different kind of marketing book.”
Besides his halal ready to eat meals business, RJ helps companies and government trade organizations around the world to achieve their international business development goals. We generate leads, develop market entry and development strategies, identify and connect distributors and partners in our specialty markets – ASEAN, Middle East, China, Indian Subcontinent and Africa.
His company also provides consultancy services, training and business matching on the followings:
1. Training and consultancy services for setting up of Halal eco-system.
2. Business matching with companies from our network – ASEAN, Middle East, Indian Subcontinent and Africa.
3. Business advisory services on international market entry and development.
4. Speakers on doing business in our network countries.
Parties who are interested in our above services please write to Mr. RJ. Liow at lrj@ays.com.my.
We are also welcome partners who wish to work with us in the sales and marketing of our various programs and services.
Factors associated with Entry Mode
Timing of an Entry
FIRST MOVER ADVANTAGE
Scale of Entry & Strategic Commitments
ENTRY MODES
Explain exporting, turnkey projects and licensing entry modes with their advantages and disadvantages.
Explain franchising, joint venture and wholly owned subsidiaries with its advantages and disadvantages.
SELECTING ENTRY MODE
PROS & CONS OF ACQUISITION
PROS &CONS OF GREENFIELD VENTURES
What is strategic alliance?
What are the advantage and disadvantages of strategic alliance?
What are the factors contributing to the success of an alliance?
MGT 3446International Business and ManagementSelectingDioneWang844
MGT 3446
International Business and Management
Selecting the Entry Mode
Francesca Grippa
Outline
• Which markets to enter (Where)
• When to enter – Timing (When)
• Which entry mode to use (How)
– exporting
– licensing or franchising
– establishing a joint venture
– establishing a new subsidiary
– acquiring an established enterprise
Where?
Nation Profit Potential (in the long term) = f(….)…
• Economic incentives
• Political stability
• Wealth and market size (Economies of scale)
• Living standards
• Free market approach (government attitude and history)
Timing of Entry
First mover advantages
– Establishing a strong brand name (e.g., VHS)
– Leveraging economies of scale and gain a cost
advantage over latecomers
– Creating switching costs (for customers, distributors
and suppliers)
Timing of Entry
First mover disadvantages
Pioneering costs to learn the new “rules of the game”:
• the costs of business failure if the firm makes
mistakes, due to its ignorance of the foreign
environment
• the costs of promoting and establishing a product
offering
• the cost of educating customers
KFC educated Chinese to fast food and McDonald’s capitalized
on that!
Scale of Entry
Large Scale Investment (e.g. ING in US in 2000):
• signals a strategic commitment to the market, to
competitors, suppliers, government (“we will remain
for the long run”)
• difficult to reverse and less resources to invest in
other countries (opportunity cost)
Small Scale Investment:
• A firm can collect info and learn about the foreign
market (good if there is no pressure from competitors)
• A firm learns through hands-on experience in host
countries, but this might prevent from capturing first
mover advantages
Is there a right or wrong
way to enter foreign markets?
Six Entry Modes (1 of 2)
1. Exporting
2. Turnkey
projects
3. Licensing
The contractor handles all details of the
project for a foreign client, including
training personnel
It is the first entry mode for many
manufacturing firms (later, firms may
switch to another mode)
Granting the rights to intangible
property to a foreign company for a
specified time period, and in return,
receives a royalty fee
Six Entry Modes (2 of 2)
4. Franchising
5. Joint ventures
6. Wholly owned
subsidiary
a specialized form of licensing in which the
franchisor not only sells intangible property to
the franchisee, but also insists that the
franchisee agree to abide by strict rules as to
how it does business (service firms)
a firm that is jointly owned by two or more
otherwise independent firms
most JVs are 50:50 partnerships
a firm owns 100 % of the stock
- set up a new operation
- M&A
How to enter a foreign market? A Decision Model
Source: Adapted from Y. Pan & D.
Tse, 2000, The hierarchical model
of market entry modes (p. 538),
Journal of International Business
Studies, 31, pp.535–554.
Entry
Mode Advantages Disadvantages
Exporting Abilit ...
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2. Basic foreign expansion entry decisions A firm contemplating foreign expansion must make three decisions Which markets to enter?? When to enter these markets?? What is the scale of entry?? Which is the best mode of entry??
3. Basic Market Entry Decision- Which Market?? 200 nation-states Different long-run profit potential for firms Size of market Purchasing power (present wealth) Future wealth Benefits cost & risks trade off– rank markets Future economic growth rates Free market system & country’s capacity for growth Stable and developing markets without upsurge in inflation rates or private-sector debt
4. Basic Market Entry Decision- Which Market?? Value an international business can create in a market Suitability of product for market Nature of indigenous competition Not widely available & satisfies an unmet need Greater value translates into an ability to charge higher prices & build sales volume more rapidly
5. Basic Market Entry Decision- Which Market??Process of country evaluation & selection Scan for alternatives Choose & weight variables Collect & analyze data for variables Use tools to compare variables & narrow alternatives Make final country Selection
6. Basic Market Entry Decision – Timing of Entry?? Early entry - Firm enters foreign market before other foreign firms First mover advantage Ability to preempt rivals & capture demand by establishing strong brand name Build sales volume and ride down the experience curve with a cost advantage Create switching cost that tie customers into products & services
7. Basic Market Entry Decision – Timing of Entry?? First mover disadvantages - Pioneering costs Time & effort in learning the rules of the game Mistakes due to ignorance Liability of being a foreigner Costs of promoting & establishing a product – educating customers (KFC in China -> benefit to McDonald’s)
8. Scale of Entry?? Large scale entry Requires commitment of significant resources & implies rapid entry (Dutch ING spend billions to acquire US operations) Strategic commitment Decision that has long term impact & is difficult to reverse (entering market on large scale) Change the competitive playing field & unleash number of changes – e.g. how competitors might react Can limit strategic flexibility
9. Scale of Entry?? Small Scale Entry: Advantages: Time to learn about the market. Limits company exposure. Disadvantages: May be difficult to build market share. Difficult to capture first-mover
10. Basic market entry decisions Discussion based on developing country considerations Can use MNEs to learn & bench mark against Can focus on niches the MNE ignores or can’t serve Can piggyback with MNEs (eg; Jollibee)
12. EXPORTING The commercial activity of selling and shipping goods to a foreign country The most common overseas entry approach for small firms
13. EXPORTING Exporting can be either direct or indirect In direct exporting the company sells to a customer in another country In contrast, indirect exporting usually means that the company sells to a buyer (importer or distributor) in the home country who in turn exports the product
14. EXPORTING The Internet is becoming increasingly important as a foreign market entry method Initially, Internet marketing focused on domestic sales, however, a surprisingly large number of companies started receiving orders from customers in other countries, resulting in the concept of: international Internet marketing (IIM).
15. Exporting.. Advantages: Easy implementation of strategy Less investment abroad which helps small firms also to enter international business Minimal risks Casual international marketing effort Firm may manufacture in centralized location & export to other national markets to realize scale economies from global sales volume (Sony/TV, Matsushita/VCR, Samsung/Chips)
16. Exporting.. Disadvantages: Susceptibility to trade barriers Logistical difficulties Less suitable for service products Susceptibility to exchange-rate fluctuation Not appropriate if other lower cost manufacturing locations exist High transport costs can make exporting uneconomical especially bulk products
17. CONTRACTUAL AGREEMENTS Contractual agreementsare long-term, non-equity associations between a company and another in a foreign market Approaches: Licensing Franchising Contract manufacturing Management contracting Turnkey projects
18. LICENSING An arrangement whereby a licensor grants the rights to intangible property to another entity for a specified period and in return, the licensor receives a royalty fee from the licensee. Offers know-how, shares technology, and shares brand name with licensee; licensee pays royalties; lower-risk entry mode; permits access to markets
19. Licensing.. Advantages: Helps company to spread out its R&D & investment costs with incremental income Little additional capital or time investment Legitimate means of capitalizing on intellectual property in a foreign market. Receive royalties for granting the rights to intangible property to licensee for specified period (patents, inventions, formulas, processes, designs, copyrights, trademarks)
20. Licensing.. Advantages: Allows firm to participate where there are barriers to investment (Fuji-Xerox) Frequently used when firm possesses intangible property but does not want to develop the business application itself (Coco-Cola/clothing) Primarily used by manufacturing firms
21. Licensing.. Disadvantages: Inconsistent product quality may effect product image negatively The agreement generally prohibits the originating firm from exploiting the assets in particular foreign markets Does not give firm tight control over manufacturing, marketing & strategy to realize experience curve & location economies Firms can lose control over the competitive advantage of their technological know-how. Solution: Cross licensing agreements
22. FRANCHISING Franchising is a specialized form of licensing in which the franchisor not only sells intangible property to the franchisee, but also insists that the franchisee agree to abide by strict rules as to how it does business Longer-term commitments
23. Franchising.. Advantages: Important way of gaining foreign returns on certain kinds of customer-service and trade name assets Limited financial commitment Involves longer term commitment than licensing. Primarily used by service firms (McDonalds)
24. Franchising.. Advantages: Franchiser sells intangible property (trademark) & insists franchisee agrees to abide by strict business rules (location, methods, design, staffing, supply chain) Royalty payments that are some percentage of franchisee’s revenues Firm relieved of many costs & risks of opening new market.
25. Franchising.. Disadvantages: No manufacturing so no location economies & experience curve May inhibit the ability to take profits out of one country to support competitive attacks in another Risk of worldwide reputation if no quality control Firm can set up “master franchise” in each country – subsidiary which is JV (McDonalds & local firm)
26. TURNKEY PROJECTS A product or service which can be implemented or utilized with no additional work required by the buyer (just by 'turning the key')". The contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnel
27. Turnkey project.. Advantages: A way of earning great economic returns from the know-how & exporting process technology This strategy is useful where FDI is limited by host government regulations Less risky than FDI in countries with unstable political and economic environment Means of exporting process technology (chemical, pharmaceutical, petroleum, mining)
28. Turnkey project.. Disadvantages: Firm has no long term interest in the country – can take minority equity interest in company Firm may inadvertently create a competitor (middle east oil refineries) If firm’s process technology is a source of competitive advantage, then selling technology is also selling competitive advantage to potential competitors
29. Contract manufacturing Contract manufacturing is a process that establish a working agreement between two companies. As part of the agreement, one company will custom produce parts or other materials on behalf of their client.
30. Contract manufacturing Advantages: The client does not have to maintain manufacturing facilities, purchase raw materials, or hire labor in order to produce the finished goods so less capital investment is required Helps to achieve benefits of economies of scale Helps to achieve location economies
32. Management contracting A management contract is an arrangement under which operational control of an enterprise is vested by contract in a separate enterprise which performs the necessary managerial functions in return for a fee.
33. Management contracting Management contracts involve not just selling a method of doing things (as with franchising or licensing) but involves actually doing them. A management contract can involve a wide range of functions, such as technical operation of a production facility, management of personnel, accounting, marketing services and training.
34. Management contracting Advantages: Management contracts are often formed where there is a lack of local skills to run a project. It is an alternative to foreign direct investment as it does not involve as high risk and can yield higher returns for the company when foreign government actions restrict other entry methods.
36. STRATEGIC ALLIANCE Cooperative agreements between potential or actual competitors A strategic international alliance (SIA) is a business relationship established by two or more companies to cooperate out of mutual need and to share risk in achieving a common objective SIAs are sought as a way to shore up weaknesses and increase competitive strengths. Licensing, Joint venture, consortia etc
37. Strategic alliances Firms enter SIAs for several reasons: Opportunities for rapid expansion into new markets Access to new technology More efficient production and innovation Reduced marketing costs Strategic competitive moves Access to additional sources of products and capital
38. Strategic alliances- JOINT VENTURES A JV entails establishing a firm that is jointly owned by two or more otherwise independent firms.
39. JOINT VENTURE Four Characteristics define joint ventures: JVs are established, separate, legal entities The acknowledged intent by the partners to share in the management of the JV There are partnerships between legally incorporated entities such as companies, chartered organizations, or governments, and not between individuals Equity positions are held by each of the partners
40. Strategic alliances- Consortia Consortia are similar to joint ventures and could be classified as such except for two unique characteristics: They typically involve a large number of participants They frequently operate in a country or market in which none of the participants is currently active. Consortia are developed to pool financial and managerial resources and to lessen risks.
41. Joint ventures.. Advantages: Smaller investment Local marketing and production/ procurement of expertise from local partner Better understanding of the host country Typically 50/50 with contributed team of managers to share operating control
42. Joint ventures.. Advantages: Firm benefits from local partner’s knowledge of competitive conditions, culture, language, political system & business system Sharing market development costs & risks with local partner In some countries, political considerations make JVs the only feasible entry mode
43. Joint ventures.. Disadvantages: Risk of giving control of technology to the partners Shared ownership arrangement can lead to conflicts and battles of control between the investing firms.
45. WHOLLY OWNED SUBSIDIARY The firm owns 100% of the stock The firm can either set up a Green-field venture or It can acquire an established firm in the host nation
46. Wholly owned subsidiary Advantages: Reduces the risk of loosing control over technological competence Tight control over operations Helps to achieve location economies
47. Wholly owned subsidiary.. Disadvantages: Larger commitment and risk Most costly method Risk of national expropriation
48. Selecting an entry mode Technological Know-How Wholly owned subsidiary, except: 1. Venture is structured to reduce risk of loss of technology. 2. Technology advantage is transitory. Then licensing or joint venture OK Management Know-How Franchising, subsidiaries (wholly owned or joint venture) Pressure for Cost Reduction Combination of exporting and wholly owned subsidiary
Editor's Notes
Turnkey project is exporting the process technology to other country . It is most common in pharmaceutical, petroleum refining and material refining industries.