INTERNATIONAL MARKET ENTRY MODES

&INTERNATIONALISATIO

N PROCESS

Workshop Agenda INTERNATIONAL MARKET ENTRY

MODES

PROCESS OF INTERNATIONALISATION

THEORETICAL/CONCEPTUAL FRAMEWORKS

BOARD MEETING ACTIVITY

BASIC FOREIGN EXPANSION ENTRY DECISIONS International Market Entry

Which markets to enter

When to enter these markets

What is the scale of entry

WHICH FOREIGN MARKETS Favorable

Politically stable developed and developing nations

Free market systemsNo dramatic upsurge in inflation or private-

sector debt

UnfavorablePolitically unstable developing nations with a

mixed or command economy or where speculative financial bubbles have led to excess borrowing

EARLY MARKET ENTRY Advantages

First-mover advantage.Build sales volume.Move down experience curve and achieve cost

advantage.Create high switching costs.

DisadvantagesFirst mover disadvantage - pioneering costs.Changes in government policy.

MARKET ENTRY SCALE

Large scale entryStrategic Commitments - a decision that has a

long-term impact and is difficult to reverse.May cause rivals to rethink market entry.May lead to indigenous competitive response.

Small scale entryTime to learn about market.Reduces exposure risk.

ENTRY MODES

Exporting Turnkey Projects Licensing Franchising Joint Ventures Wholly Owned Subsidiaries Strategic Alliances

14-8

Exporting Advantages

Avoids cost of establishing manufacturing operations

May help achieve experience curve and location economies

DisadvantagesMay compete with low-cost location

manufacturersPossible high transportation costsTariff barriersPossible lack of control over marketing reps

Piggy backing Distribution of products is through utilising the

international distribution network of other international manufacturers.

AdvantagesEffective entry strategy into developed countriesCost-effectiveEconomies of Scale

DisadvantagesOften poor channels of marketing communicationLocked into non strategic unsatisfactory arrangement.

14-10

Turnkey projects Contractor agrees to handle every detail of project

for foreign client

AdvantagesCan earn a return on knowledge assetLess risky than conventional FDI

DisadvantagesNo long-term interest in the foreign countryMay create a competitorSelling process technology may be selling competitive

advantage as well

14-11

Licensing

Agreement where licensor grants rights to intangible property to another entity for a specified period of time in return for royalties

AdvantagesReduces development costs and risks of establishing

foreign enterprise.Lack capital for venture.Unfamiliar or politically volatile market.Overcomes restrictive investment barriers. Others can develop business applications of intangible property.

14-12

Franchising Franchiser sells intangible property and

insists on rules for operating business.

AdvantagesReduces costs and risk of establishing enterprise

DisadvantagesMay prohibit movement of profits from one

country to support operations in another countryQuality control

Licensing Process know-howManufacturing competence

Raw materialsManagement

FranchisingProduct-market knowledgeMarket access/distribution

Market access / distributionManufacturing competence

Marketing Partnership

Product-market know-howProduct-market knowledge

Range of assets possessed by Partner A in home country

NATURE OF STRATEGIC ALLIANCE

Range of assets possessed by Partner B in international market

Joint ventures

Product process know – how Product-market knowledge

Raw materialsManagement

Market access / distributionManufacturing competence

Raw materialsManagement

(Bradley, 2005:241)

Joint Ventures

A foreign company invites an outside partner to share stock ownership in the new unit. The ownership could vary for companies accepting minority or majority position in the Joint Venture.

(Jeanet & Hennesey, 2004:300)

JOINT VENTURES Advantages Access to new markets and distribution

networks

Benefit from local partner’s knowledge.

Shared costs/risks with partner.

Reduced political risk.

JOINT VENTURESDisadvantages Ambiguous objectives.

Partners have different objectives for the joint venture

Imbalance of Expertise

Poor integration due to different management styles and cultures brought in.

Early stages are difficult.

WHOLLY OWNED SUBSIDIARY Subsidiaries could be Greenfield investments or

acquisitions

AdvantagesNo risk of losing technical competence to a competitorTight control of operations.Realize learning curve and location economies.

DisadvantageBear full cost and risk

STRATEGIC ALLIANCES

Cooperative agreements between potential or actual competitors.

AdvantagesFacilitate entry into marketShare fixed costsBring together skills and assets that neither company

has or can developEstablish industry technology standards

DisadvantagesCompetitors get low cost route to technology and

markets

Why Strategic Alliances

High cost of technology development

Reduction of Psychic Difference

Good way to secure access to foreign markets

Host country may require some local ownership

Global Alliances

Firms join to attain world leadership

Each partner has significant strength to bring to the alliance

A true global vision

Relationship is horizontal not vertical

When competing in markets not part of alliance, they retain their own identity

Partner selection

Get as much information as possible on the potential partner

Collect data from informed third partiesFormer partnersInvestment bankersFormer employees

Get to know the potential partner before committing

Expert Opinion

Characteristics of Strategic Alliances

Independence ofParticipants

SharedBenefits

Ongoing ContributionsMarkets

Cooperation

Benefits Control

Technology Products

(HILL 2005:500)

Managing the alliance

Build trustRelational capital

Learning from partnersDiffusion of knowledge

Stage 1no regular export

activities

Stage 2export by independent

representatives

Stage 3establishment of

foreign sales affiliates

Stage 4installation of foreign production facilities

Amount of Resources Committed - Foreign Market

LEVEL

OF

CONTROL

Approaches to Foreign Market Entry - Uppsala model (Bartlett, Ghoshal & Beamish, 2008:9)

Export

Indirect Export

Licensing

FranchisingJoint Venture

Wholly Owned Subsidiary

Ohmae's (1990) 5-stage globalisation model (evolutionary)

1. Export orientated company (develop strong product base in home market)

2. Establish overseas branches

3. Relocating production base to key markets

4. 'Insiderisation': transferring corporate functions from parent firm HQ to new local environment

5. Complete global company: establishing global branding

(Ohmae, K. 1990, The Borderless World, Harper Business, New York.)

R I S K

CooperationStrategiesJoint ventures

Strategic alliances

Direct ExportingDistributors

AgentsDirect marketing/

E-commerceFranchising

Management contracts

Direct Invest’Own subsidiary

AcquisitionAssembly

Indirect ExportingPiggybacking

Trading companiesExport management companies

Domestic purchasing

C O

N T

R O

L

RISK & CONTROL IN MNE (Doole & Lowe, 2004:220)

PRESSURE OF LOCAL RESPONSIVENESS:

• Difference in Consumer Needs• Difference in Distribution Channels• Availability of Substitutes• Market Structure• Host Government Demands

PRESSURE OF GLOBAL INTEGRATION:

• Importance of Multinational Customers• Presence of Multinational Competitors• Investment Intensity• Technology Intensity• Pressure for Cost Reduction• Universal Needs• Access to Raw Materials & Energy

(Prahalad and Doz see Dicken, 2003:Figure 7.12;220)

Globally Integrated

Product Emphasis

Multifocal Oriented

Area Emphasis

Locally Responsive

Transnational Strategy

References Bradley, F., 2005. International Marketing Strategy. 5th ed.

England: Pearson Education Ltd.

Bartlett, C., Ghoshal, S. & Beamish, P., 2008. Transnatonal Management. 5th ed. New York: McGraw-Hill/Irwin.

Hill, C., 2005. International Business. 5th ed. New York: McGraw-Hill/Irwin.

Dicken, P., 2003. Global Shift. 4th ed. London: SAGE Publications Ltd.

Jeanet, J. P., Hennessey, H. D., 2004. Global Marketing Strategies. 6th ed. USA: Houghton Mifflin Company

Partneringalliances, 2008. Deliver the Value Your Strategic Alliance Partner Needs. Available via: uk.youtube.com Available at <http://uk.youtube.com/watch?v=uk_Th-v7plg> [Accessed : 28 November 2008]

Doole, I., Lowe, R., 2004. International Marketing Strategy. 4th ed. London: Thomson Learning

References (Continued)