This document discusses international market entry modes and barriers. It begins by outlining the criteria for selecting countries and conducting international market analysis. Several entry modes are then examined, including exporting, licensing, direct investment, and strategic alliances. Barriers to entry such as political risk are also addressed. The document uses the example of McDonald's global expansion to illustrate how companies must adapt to different cultures abroad. It emphasizes the importance of thorough research when evaluating foreign markets.

2. INTERNATIONAL ENTRY MODES & BARRIERSPresented By:SHILPI JAINRoll No. 0511143908MBA IIIrd SemBPIBS

3. THIS PRESENTATION WILL COVER THE FOLLOWING:Criteria for country selectionInternational market analysisCase study on going globalVarious market entry modesComaprison of various entry modesCase Study on DisneyBarriers to entry

4. INTRODUCTIONIn today's globalizing world, firms are increasing, looking towards other regions of the world to trade in. What are the steps taken by the executives of these firms before deciding on which market to enter? How do they make sure they make their journey a successful one?

5. Introduction contd.The decision requires an analysis of the aspects of the foreign market. - Whether to go abroad - Which markets to enter - How to enter those markets - Choice of marketing program -Marketing organization

6. Introduction Contd.Criteria for Country selection :1. Country/market Attractiveness in terms of the following: o Market size o Market growth and need potential in terms of demand2. Company strength in terms of brand and accessibility3. When the risk e.g. political is marginal compared to opportunities4. Customer response5. Competitive situation

7. Introduction contd.A firm becomes proactive i.e. pulled by the potentials and advantages in the foreign market due to the following reasons:1. The firms specific advantages in terms of profit2. The advantage of having a unique brand3. When a firm possesses technological advantages4. The availability of resources in the foreign countries5. Economies of scale6. Economic and political factors

8. Introduction Contd.A firm becomes reactive i.e. pushed by bad domestic markets when the following is evident:1. The pressure of domestic competition2. Poor domestic market due to stagnant or declining sales figures3. Saturated domestic markets4. Overproduction

9. INTERNATIONAL MARKET ANALYSISYour company has to develop a unique design based upon its specific goals and more importantly, its budget and existing capacity.“you cannot do an analysis, if you have nothing to analyze”The bulk of the analysis task is in gathering the information first and then understanding how this information is relevant to your company's specific goals and its circumstances.

10. International Market Analysis Contd.Choosing market to analyze- can consumers and/or end users afford your product or service? or- does the proposed business venture have any real potential for success?

11. International Market Analysis Contd.“foreign vacation syndrome“ – two types :Type# 1 is when an executive goes on vacation and notices that his/her product is not being widely sold in the foreign country.

12. Type# 2 is when an executive falls in love with a particular country while on vacation and then decides to try to make contacts with locals so that he/she can anticipate doing business in this country with an eye for using this as a way to write off trips for business purposes that are really for pleasure.International Market Analysis Contd.Type# 1 assumes that nobody locally is smart enough to recognize a demand for a particular product and be successful at importing and selling it.1) this assumes that you are smarter than the local business people who live there and know the market dynamics and 2) it furthermore assumes that there is in fact a demand for your product or service.

13. International Market Analysis Contd.Type# 2 is bad because it violates simple business principles at best. it could lead to illegal business activities that could have very serious consequences.

14. International Market Analysis Contd."foreign contact syndrome“it assumes that the contact has the capability to perform specific tasks that are essential to any international business transaction.No business card - - >> “no problem”!They fool executives

15. International Market Analysis Contd.Gathering InformationRelevant topics and sources of information:Domestic Government Agencies

16. The largest compiler of data about foreign markets in our country is Ministry of Trade and Commerce and FICCI. International Market Analysis Contd.Private Agencies and Other Private Sourcescollects and disseminates market analysis and other important data about foreign markets

17. groups as industry & trade organizations, local chambers of commerce and other business development groups provide a wealth of information about foreign marketsInternational Market Analysis Contd.Communicating with International Business ProfessionalsFollowing is a brief explanation of some of the specialists that you might encounter in the analysis phase of going global:International trade intermediary: trade intermediaries perform their function as part of a global trading company Export management company - specialized global trading company

18. International Market Analysis Contd.International or foreign freight forwarder: responsible for actually assisting your company to ship its goods from the factory or warehouse to its foreign destination- specialists in trade laws and understand such things as quotas, restrictions, phyto-sanitary regulations, packing requirements and hidden trade barriers

19. International Market Analysis Contd.International freight consolidator: buy large of amounts of cargo space at the premium rate, which is lower than that for small shipments

20. International accounting firms: A stalwart for multinational corporations who face different laws and tax issues in different jurisdictions. E.g. PriceWaterhouseCoopersInternational Market Analysis Contd.International law firms:You should consult an attorney for any global transaction not covered by a letter of credit or documentary draft. - Licensing technology, selling franchises, entering strategic alliances, any foreign real estate transaction or trying to raise capital funds in foreign markets would all be examples of matters best handled by a qualified international law firm.

21. International Market Analysis Contd.International insurance companies:Most import-export transactions require cargo insurance and it is not optional- Many companies typically want some type of credit insurance in order to be able to sell to foreign clients on open account, which is often considered more favorable.

22. International Market Analysis Contd.International banks:primary means by which most import-export transactions are settled, usually by way of letter of credit or documentary draft. - International banks also handle certain types of foreign exchange transactions and help companies to manage their exposure to risk that the value of a transaction will change unexpectedly.

23. International Market Analysis Contd.Assessing Political Riskit may be possible to cover your financial risk in terms of money, political risk has far reaching affects that go beyond any financial consequences.

24. will have a demoralizing effect on the psyche of all employees in a companyInternational Market Analysis Contd.The Process of Analysis- OK. You've spent time, money and resources gathering up every bit of information that you could find about several foreign markets. Essential Factors to Consider:Size of the market

25. Product/service localization issues

26. Business infrastructureInternational Market Analysis Contd.- Local business customs- Political riskBanking and financial institutionsAnalyzing a foreign market is only one aspect of making the final decision about going global. How much weight is given to any one factor is very subjective and will vary from one company to another

27. CASE STUDY : McDONALD’S GOES GLOBALBy the mid 1980’s, McDonald’s found it next to impossible to continue its growth within the U.S. domestic marketBecause :the U.S. market had become saturated with competition

28. the U.S. domestic market was simply too small, in itself, to sustain consistent growth for the burgeoning fast-food industryCase Study (1): McDonald’s Goes Global, Contd.The new McDonald’s strategy included an overseas component which began cautiously, at first, but then accelerated significantlyMcDonald’s found that its operations had to be adjusted to meet the variances of different marketsIn the U.S., employees treat their McDonald’s job as temporary, whereas employees in Russia wish to work for McDonald’s for the rest of their lives

29. Case Study (1) : McDonald’s Goes GlobalPricing is also a problem, as the purchasing price of a ‘Big Mac’ depends on the exchange rate between the local currency and the U.S. dollarThe lesson learned by McDonald’s is that dependence on a single domestic market can be overcome by overseas ventures, but not without a considerable amount of research into the changes that must be made in each culture to make the foreign operation a success.

30. FOREIGN MARKET ENTRY MODESA mode of entry into an international market is the channel which your organization employs to gain entry to a new international market

31. Expansion into foreign markets can be achieved via the following four mechanisms:

32. The Internet - Exporting

33. Licensing - Joint Venture

34. Direct Investment

35. International Agents & International Distributors- Strategic Alliances

36. Foreign Market Entry Modes Contd.The Internet

37. The Internet is a new channel for some organizations and the sole channel for a large number of innovative new organizations

38. The eMarketing space consists of new Internet companies that have emerged as the Internet has developed, as well as those pre-existing companies that now employ eMarketing approaches as part of their overall marketing planForeign Market Entry Modes Contd.New Internet Companies:New online retail brand e.g. Amazon, Lastminute.com

39. Online Auction e.g. eBay

40. New online manufacturer brand e.g. Dell.com Foreign Market Entry Modes Contd.Pre-existing companies that have adopted eMarketingBanking and financial Services e.g. HSBC Bank

41. Agents e.g. Avon Representatives, Oriflame

42. Franchises e.g. KFCForeign Market Entry Modes Contd.Exporting

43. Exporting is the marketing and direct sale of domestically-produced goods in another country

44. There are direct and indirect approaches to exporting to other nations

45. Direct exporting is straightforward. Essentially the organization makes a commitment to market overseas on its own behalfForeign Market Entry Modes Contd.if you were to employ a home country agency (i.e. an exporting company from your country - which handles exporting on your behalf) to get your product into an overseas market then you would be exporting indirectly

46. Examples of indirect exporting include:Piggybacking whereby your new product uses the existing distribution and logistics of another business.Export Management Houses (EMHs) that act as a bolt on export department for your company. They offer a whole range of bespoke or a la carte services to exporting organizations.

47. Foreign Market Entry Modes Contd.Trading companies were started when some nations decided that they wished to have overseas colonies. They date back to an imperialist past that some nations might prefer to forget e.g. the British, French, Spanish and Portuguese colonies. Today they exist as mainstream businesses that use traditional business relationships as part of their competitive advantage.

48. Foreign Market Entry Modes Contd.LicensingLicensing essentially permits a company in the target country to use the property of the licensorSuch property usually is intangibleThe licensee pays a fee in exchange for the rights to use the intangible property and possibly for technical assistance.Because little investment on the part of the licensor is required, licensing has the potential to provide a very large ROI

49. Foreign Market Entry Modes Contd.Licensing includes franchising, Turnkey contracts and contract manufacturingFranchising involves the organization (franchiser) providing branding, concepts, expertise, and infact most facets that are needed to operate in an overseas market, to the franchisee. Management tends to be controlled by the franchiser. Examples include Dominos Pizza, Coffee Republic and McDonald’s.

50. Foreign Market Entry Modes Contd.Turnkey contracts are major strategies to build large plants. They often include the training and development of key employees where skills are sparse - for example, Toyota’s car plant in Adapazari, Turkey.You would not own the plant once it is handed over.

51. Foreign Market Entry Modes Contd.Contract manufacturing firm is that which manufactures components or products for another "hiring" firm. It is a form of outsourcingThe practice of utilizing contract manufacturing relies on the manufacturer's ability to drive down the cost of production through economies of scaleIt also allows the hiring company to obtain the needed components or products without needing to own and operate a factory.

52. Foreign Market Entry Modes Contd.Joint VentureThere are five common objectives in a joint venture: market entry

53. risk/reward sharing

54. technology sharing

55. joint product development

56. conforming to government regulationsForeign Market Entry Modes Contd.Such alliances often are favorable when:The partners' strategic goals converge while their competitive goals diverge;

57. The partners' size, market power, and resources are small compared to the industry leaders; and

58. Partners' are able to learn from one another while limiting access to their own proprietary skills.Foreign Market Entry Modes Contd.Potential problems include:Conflict over asymmetric new investments

59. Mistrust over proprietary knowledge

60. Performance ambiguity - how to split the pie

61. Lack of parent firm support

62. Cultural clashes

63. If, how, and when to terminate the relationshipForeign Market Entry Modes Contd.Foreign Direct Investment/ Overseas Manufacture / International Sales SubsidiaryA business may decide that none of the other options are as viable as actually owning an overseas manufacturing plant i.e. the organization invests in plant, machinery and labor in the overseas market

64. Foreign Market Entry Modes Contd.involves the transfer of resources including capital, technology, and personnelthrough the acquisition of an existing entity or the establishment of a new enterpriseThe key benefit is that your business becomes localized - you manufacture for customers in the market in which you are tradingdownside is that you take on the risk associated with the local domestic market

65. Foreign Market Entry Modes Contd.International Agents and International Distributorsagents are individuals or organizations that are contracted to your business, and market on your behalf in a particular countryThey rarely take ownership of products, and more commonly take a commission on goods sold.Agents usually represent more than one organization

66. Foreign Market Entry Modes Contd.Agents are a low-cost, but low-control optionThey tend to be expensive to recruit, retain and trainDistributors are similar to agents, with the main difference that distributors take ownership of the goods

67. Foreign Market Entry Modes Contd.Strategic AllianceA strategic alliance is a term that describes a whole series of different relationships between companies that market internationallyEssentially, Strategic Alliances are non-equity based agreements i.e. companies remain independent and separate.

68. Foreign Market Entry Modes Contd.There are many examples including:Shared manufacturing e.g. Toyota Ayago is also marketed as a Citroen and a Peugeot

69. Research and Development (R&D) arrangements

70. Distribution alliances e.g. iPhone was initially marketed by O2 in the United Kingdom

71. Marketing agreementsSeveral streams of thought are discernible in the discussion of cooperative or collective strategy

72. Foreign Market Entry Modes Contd.alliance has been considered as a strategy of behavior contrasted with competitive strategy“if you can’t beat ‘em, join ‘em.”alliance has been posited as a systematic response to promote areas of common interest between two firmsalliance has been theorized as a particular value system with emphasis on humanism and fairness.

73. Foreign Market Entry Modes Contd.Examples:SAIL and TATA Steel: SAIL signed an agreement with Tata steel for joint development of coal blocks

74. Xerox and Fuji: These two multinational giants, located in U.S. and Japan, respectively, joined hands to explore new markets in Europe and in Pacific Rim countries.