This document discusses strategies for selecting the proper market entry mode when expanding a business internationally. It outlines four main advantages to exporting goods and services, which are increased profitability, risk spreading through market diversification, economies of scale through lower average costs, and enhanced innovation through exposure to different environments. However, expanding abroad also carries risks such as trade barriers, limited knowledge of foreign markets, and the time and costs required. Selecting the right market entry mode can help balance these risks. The document then examines four main market entry options - non-equity modes like exporting and contractual agreements, and equity modes like joint ventures and wholly owned subsidiaries. It provides a model for market entry mode choice and discusses factors to consider in the selection

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Market-Entry Mode Strategies
How to select proper market-entry mode for your business expansion?
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2. Why doing business abroad?
4 main advantages of exporting goods and services (source: D&B):
1. Increased profitability: Increased opportunities
2. Spreading risks: Market diversification
3. Economies of scale: Lowered average costs as result of expanded operations
4. Enhanced innovation: Exposure to various environments boosts innovation
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3. BUT, Expanding Abroad is Risky
• There are lots of barriers to trade
• SMEs have limited knowledge of foreign market
• SMEs have limited resources
• Going international is time-consuming and costly
Selecting the right market-entry mode helps balance those risks
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4. Development of Market-Entry Strategy
Steps to develop your market-entry strategy
Intended global strategic position
Objectives
Success patterns
Served product
markets
Branding
Positioning in local markets
Segment
attractiveness
Macro-environment
analysis
Internal analysis
Competitor analysis
Market-entry mode selection
Export/import
Contractual
agreements
Strategic alliances and
JV
FDI
Source: Mühlbacher, Leihs & Dahringer, 2006
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5. Positioning in Local Market
Adjustment of value proposition and competences to external
opportunities present on new markets
Determine attractive segments: Align customer segment with value proposition
Focus on key differentiation (internal strengths and competitive advantages)
Distinct value proposition and company’s identity on market of expansion determines
the positioning
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6. What is a Market-Entry Mode?
“An entry mode is an institutional arrangement that a firm
uses to market its product in a foreign market in the first
three to five years, which is generally the length of time it
takes a firm to completely enter a foreign market”
Root, 1994, in Ekeledo & Sivakumar, 2004
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7. Model of Market-Entry Mode Choice (1)
Choice of Entry
Modes
4 main options
•
Non-Equity
Modes
Equity Modes
Export
•
Contractual Agreements
•
Equity Joint Venture
•
Export
Contractual
Agreements
Equity Joint
Venture
Wholly
Owned
Subsidiary
Wholly Owned Subsidiary
Direct export
Licensing
Minority EJV
Greenfield
Indirect
export
Franchising
50% share EJV
Acquisition
Others
Management
contract
Majority EJV
Others
Alliances
Others
Source: Pan & Tse, 2000
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8. Model of Market-Entry Mode Choice (2)
Source: “A model of resource-based view of a firm’s entry strategies”, Ekeledo & Sivakumar, 2004
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9. Selection Process (1)
Criteria of Market-Entry Mode Selection (Long-Version)
Criteria
Issues specific to the
Elements
Objectives
organization
Rules of business behavior
Level of influence needed
Control over value chain
Personal resources
Financial resources
Characteristics of the served
Acceptable risk
Availability of information
product market
Market resistance
Market volume
Product considerations
Product market lifecycle
Level of customer service
Conditions of local business
Product usage
Competition
environment
Macro-environment
Distribution channels
Geographic distance
Stability
Currency risks
Level of technological development
Infrastructure
Political situation
Legal restrictions
Source:
Mühlbacher,
Leihs &
Dahringer, 2006
Trade restrictions
Cultural environment
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10. Selection Process (2)
Criteria of Market-Entry Mode Selection (Short-Version)
1)
“Establish a set of knockout criteria”: Some criteria may be excluded. If I want to keep a
level of control over the brand and sales activities, exporting might not be the adapted option
and “lost of control over activities” is considered as a “knockout” criteria.
2)
“Apply criteria related to organizational identity”: Remaining options are confronted to
criteria regarding the intended branding of the company, the key attribute the company plans
to compete on, the key benefits (value) offered to customers, the plan determined to reach the
global corporate identity and position.
3)
“Apply criteria related to the intended position in the local market”: Remaining entry
options are compared on local positioning criteria (control over activities and resources, brand
building, customer service capacity, etc.). Each criteria is ranked.
4)
“Assessing the implementation potential”: Ranked options are confronted to their
implementation potential based on local market macro-environment realities that may restrain
the development of the most relevant market-entry mode identified. For instance, legal
constraints may be too high for selecting an option, or labor cost may include high social
charges excluding another option.
Source: Mühlbacher, Leihs & Dahringer, 2006
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