2.1. Selection of International Markets Class 2..
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2.1. Selection of International Markets
Class 2.
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Evaluation of International Markets: Evaluation of International Markets: Two Main ApproachesTwo Main Approaches
22
Considering international market as country or group of countries
Considering international market as groups of consumers (from
different countries) with similar behavior
«+» Secondary information is often enough
«+» A lot of information on the country
«+» Sales and marketing often organized divided by countries
«-» From the marketing point of view it is crucial to work similarly with similar customers, and vice versa
«+» More adequate information
«+» More possibilities to adapt products to the needs of foreign consumers
«-» Firm needs to conduct primary research «-» Problems in finding reliable cross-national statistics
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Three Qualifying CriteriaCriteria
Accessibility
Profitability
Market size
To determine accessibilityCan we serve the market effectively and efficiently?What may prevent us from doing so?
To determine profitabilityCan the market afford us? Can we get adequate profits? What is the likely return on investment and timescale of payback?
To determine market sizeWhat is the existing market size? Is there a latent market? What is the potential for emerging demand?
Purpose
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““Fine” Market Screening ProcessFine” Market Screening Process
44
• Size / amount of resources• Type and nature of industry
• Internationalization objectives •Degree of international knowledge
Internal Environment
Specific country within the chosen continent
Target segments of customers
• Political, economic, legal, socio-cultural, technological factors
• International industry structure• Competitive environment•Market size, potential
External Environment
Potential Markets (by continent)
Specific segment within the chosen country
Pri
mar
y D
ata
Sec
ond
ary
Dat
a
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Globalizing processes as a system of interconnectedelements
THE GLOBAL ECONOMY
Transnational corporations
Nation-states
Technology&Global Shifts
THE REGIONAL ECONOMY
THE NATIONAL ECONOMY
THE LOCAL ECONOMY
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Environmental Analysis
66
• International laws & wars • Economic situation
• Socio-cultural factors• Technological development
• Ecological factors
Macro Environment
Micro Environment
• Market Opportunity Analysis
• Competitive Environment
• Consumer Behavior
• Political• Economic • Socio-cultural• Technological
• Legal• Public policy, risk and regulation
Regional Environment
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Market Opportunity AnalysisMarket Opportunity Analysis (MOA) enables the firm to identify opportunities within new markets and thoroughly understand the market structure, competitive landscape, customer needs and competing technologies
The analysis of the findings provides the firm with: an expert assessment of whether the market is attractive / penetrable; a market entrance strategy; the optimal approach to gain market share; more profitable links in the value chain; potential partner organizations and acquisition targets and a depth understanding of how to maximize chances of success.
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Competitive EnvironmentThe competitive landscape
Which companies are active within the market? Which companies are the major players ?Who are the specialists that focus on the business ?Which companies are important but minor players in the business ?Recent entrants to the market ?
Segments of the market serviced by each competitor Product and service profiles of suppliers Claimed product or service advantages Distribution channels used Partners Key information on each competitor (geographical coverage, locations of head offices, production plants and sales offices, staff numbers) Growth history within the business Financial performance of suppliers Nature of the competitive environment (stable, change or rapid change) Pricing
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Consumer BehaviorThe key components of Consumer Analysis are:
Analysis of buying processes and decision making Analysis of customer expectationsCustomer satisfaction research Measurement of customer loyalty Pricing research
The key components of B2B Customer Analysis are:Composition and structure of decision making unit Analysis of buying processes and decision making Analysis of suppliers within target markets Methods of identifying and evaluating suppliers Analysis of customer expectations from suppliers Customer satisfaction research Measurement of customer loyalty Pricing research Analysis of reasons for lost business
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Expanded Marketing Process Model
Understand the marketplace
and customer needs and
wants
Design a customer-driven
marketing strategy
Construct a marketing
program that delivers
superior value
Build profitable relationships and create customer
satisfaction
Capture value from
customers to create profits and customer
quality
Create value for customers and build customer relationshipsCapture value
from customers
Research consumers and
market
Manage marketing
information and customer data
Select customers to serve:
segmentation and targeting
Decide on a value proposition:
differentiation and positioning
Product and service design:
build strong brands
Pricing: create real value
Distribution: manage
demand and supply chains
Promotion: communicate VP
CRM and CEM: build strong
relationships with chosen
customers
Partner relationship
management: build strong
relationships with marketing partners
Create satisfied loyal
customers
Capture customer
lifetime value
Increase share of market and
share of customer
Marketing technology Global markets Ethical and social responsibility
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Marketing Information System
Information Processing
General data bank
Analytical data bank
Statistical data bank
Organization Decision-makers
Strategic decisions
Managerial decisions
Operational decisions
Decisions
Strategy
Market
How to compete
Marketing Mix
Resources
Control
Info
rmat
ion
Dis
sem
inat
ion
P
roce
sses
/ M
ech
anis
ms
Inte
rnal
an
d E
nvi
ron
men
tal
Dat
a / I
nfo
rmat
ion
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Decision to Enter International MarketDecision to Enter International Market
AlternativesAlternatives Main factorsMain factors QuestionsQuestionsTo enter international market immediately
Firm’s resources
Motivations of managers / owners
Experience of top managers in international activity
Ability to export competitive goods / services
International market opportunities
Are our goods / services able to meet export demand? On what information the answer is based?What changes are needed in the marketing mix to meet the international demand?If our good / services are suitable for foreign markets why didn’t we act internationally before? What do we know about governmental support of export or entry of foreign markets?
To postpone international market entry
No intention to enter international market
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Process of International Markets Selection
1313
1. Segmentation criteria
4. Market Attractiveness (BCG Matrix, McKinsey Matrix)
3. Scanning (BERI, other indexes)
2. Segment profiles
5. Target markets within target countries
Global market segmentation
Target countries selection
Microsegmentation
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CAGE ModelCAGE Model
Cultural distance
Administrative distance
Geographical distance
Economic distance
Source of distance
Linguistic differences
Different ethnic groups
Under-developed ethnic and social networks
Religious differences
Different social norms
Weak institutions
No common monetary or political organizations
Political hostility
State policy No colonial
interconnections
Physical distance
No common boundaries
No access to seas and rivers
Small size of the country
Underdeveloped transport and communications infrastructure
Different climate
Income differences
Differences in the value and quality of:- natural resources - financial resources- human resources- infrastructure- information and knowledge- intermediary services
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BERI Index – Business Environment Risk Information Index
CriteriaCriteria WeightWeight ValueValue1)1) Total valueTotal value2)2)
Political stability 3
Economic growth 2,5
Currencies convertibility 2,5
Manpower costs/productivity of labour 2
Short-time credits 2
Long-time credits/venture capital 2
Attitude to foreign investors and profits 1,5
Nationalization 1,5
Inflation 1,5
Balance of payments 1,5
Execution of contracts 1,5
Bureaucracy 1
Communications 1
Local management and partners 1
Professional services and contractors 0,5
Sum 25 х4 (max) =100(max)
1) Scale «0» to «4»: 0 – unacceptable terms; 1 – bad terms; 2 – middle terms; 3 – good terms ; 4 – ideal terms
2) BERI ≥ 80 – favorable investment environment, developed economy; 70 ≤ BERI ≤ 79 – not so favorable and developed; 55 ≤ BERI ≤ 69 – developing economy having investment potential; 40 ≤ BERI ≤ 54 – high level of risk, underdeveloped economy; BERI < 40 – a very high level of risk, investing is possible only exceptionally
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GE /McKinsey Matrix
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GE /McKinsey Matrix
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2.2. International Market Entry Modes
Class 2.
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Entry Mode Choice
Considered by many as the most important aspect of a firm’s internationalization strategy
Entry mode will determine long-term success or withdrawal from foreign markets
Poor decisions can be very costly for the firm
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Factors in the Entry Mode Decision
Entry mode
decision
Target country market factors
Target country environmental
factors
Target country production
factors
Home country factors
Company product factors
Company resource and commitment
factors
External factors
Internal factors
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Strategies of Foreign Market EntryStrategies of Foreign Market Entry
Время
Developed countries
Developing countries
Under-developed countries
Step by step (Waterfall model) Simultaneously (Watering can model)
Developed countries
Developing countries
Under-developed countries
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Foreign Market Entry ModesForeign Market Entry Modes
2222
Entry ModesEntry Modes
InvestmentAssociatedExport
DirectDirect
IndirectIndirect
LicensingLicensing
FranchisingFranchising
Management contracts
Management contracts
Joint ventures Joint ventures
Strategic alliances
Strategic alliances
Fully owned companies
Fully owned companies
Acquisitions Acquisitions ProductionProduction
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Types of Exporting
Indirect exportingDistributorExport agentEMC
Direct exportingExport departmentExport sales representativesE-business
Cooperative exportingExport groupsPiggyback exporting
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Foreign Direct Investment (FDI)
The ultimate form of foreign involvement
Direct ownership of foreign-based assembly, manufacturing or sales facilities
The company can buy part or full interest in a local company (M&A) or build its own facilities (GFI, ex nihilo)
Considered the “preferred” mode of entry
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Advantages and Disadvantages of FDIAdvantages- Cost economies (labor, raw materials, incentives, freight savings,
etc…)- Better image in host country- Deeper relationship with government, customers, local suppliers,
distributors- Better adaptation- Full control of investments- Long term objectives
Disadvantages- High initial and operating costs- High level of risk
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FDI OptionsMake-or-buy decision
Greenfield investment / Ex nihiloMergers and acquisition
Branch or subsidiary?StructureLegal status
Analyzing FDI projectAssessing profitabilityDiscounted cash flow analysis
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FDI nowadays
Developing economies absorbed close to half ofglobal FDI inflows
Development of South-South cooperation15% below pre-crisis level
FDI to developed countries continued to declinePoorest regions continued to see declines in FDIFDI to service industries fell: business services,
finance, transport and communications, utilities50% of global FDI – TNC’s market-seeking projects
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Associated Entry Modes
Newest, most recent forms of international business
Transfer of technology or know-how between two firms
Shared risks
Only option in countries where the government requires foreign firms to use local capital
Better access to local market knowledge
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Types of Associated Entry ModesJoint venture: foreign and local investors share ownership and control of local operationsLicensing: licensor licenses a foreign company to use a manufacturing process, trademark, patent, trade secret or other item of value for a feeManagement contracts: firm exports management services instead of a product, separation between ownership and managementInternational Franchising: contractual association between a franchisor (manufacturer, wholesaler or service organization) and franchisees (independent business people who buy the right to own and operate units in the franchise system). Franchising is based on some unique product, service or method of doing business.
Industrial franchisingDistribution franchisingService franchising
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NEM cooperation$2 trillion in sales 2010NEMs include contract manufacturing, services, outsourcing, contract farming, franchising, licensing, management contracts$1.2 trillion – outsourcing, $340 – franchising, $340 -
licensing, $100 – management contractsTNCs make choice between FDI and NEM based on its
strategy, the relative costs and benefits, the associated risks, feasibility of available options
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Example of International Franchising Entry ModesDirect modes
Direct franchising (16%)Subsidiary (19%)Area development agreements (14%)
Indirect modesJoint venture (16%)Master franchising (34%)
In the Direct system the franchisor is controlling and coordinating the activities of the franchisees directly. In the indirect system a master franchisee (subfranchisor) is appointer to establish and service its own Subsystem of franchisees within its territory
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International franchising comparative matrix
Distance /
Adaptation
Commitment /
Control
Strong
Weak
Weak Strong
Area development agreement
Direct franchising
FDI
Master franchising
Joint venture
Direct franchising
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Foreign Market Entry ModesForeign Market Entry Modes
VC - Variable (direct) costsFC – Fixed (overhead) costs
Entry mode Control Assets share
VC FC Market share
Risk
Indirect export
Direct export
Licensing
Production by contract
Local production
MIN
MIN MIN MIN MINMIN
MAX MAX MAX
MAX
MAXMAX
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Entry Mode Choice SummaryEntry modes vary in terms of resource or equity commitment to foreign marketsLow-commitment modes can allow firm to reduce risk in high-risk countries, culturally diverse countries or limited potential marketsDesired degree of control over international operations influences choice of entry modeLoss of control yields limited returnsNo market entry strategy is appropriate in all circumstancesMost firms will have a vast portfolio of entry modes, depending on each specific market situation
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Comparing Different Entry Mode Options
Foreign buying department
ITC / distributor
Piggy back
EMCAgent
Branch office
Wholly owned subsidiary (M&A)
FDIFranchising
Licensing
Management contract
AD / Concessionaire
Minority shareholding through partial acquisition
Majority JV investment (local partner know-how)
Level of ownership
Contribution of know-how
High
Low
Low High
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Choosing the Right Entry ModeAll entry modes
All feasible entry modes
Internal factors
External factors
Rejected entry modes
Comparative profit contribution analysis
Comparative risk analysis
Comparative analysis for nonprofit objectives
Ranking by overall comparative assessment
The right entry modeTarget market
Marketing channels within markets
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Class 2.Practical work
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Task 2. Choosing proper country to enter
Compare BRICS countries, create the chart and find the closest country to Russia
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Global shift
Transformation of world economy to geo-economyGlobalization: geographically and organizational tendenciesTNCs play significant role Interactions between state and TNCSurge economy: the only thing is certain - changes
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New tendenciesInternet commerce
High competition
Networking
Innovations
Intangible assets
Information, knowledge driven economy Growing power of developing and BRICS countries
No geographical barriers