Foreign market entry - kafedrapik.ru · Foreign market entry: ... Colgate Goes to China ... Factors...

Foreign market entry:

Зравствуйте!

Меня зовут Джон Смит

Dr Paul Sudnik

St Petersburg – 15th May 2013

Munich University of Applied Sciences 09 May 2013

Dr Paul Sudnik

BA (Hons.) – Leeds University, UK

Textile Engineering and Management Studies

MBA – Manchester Business School, UK

Finance Specialisation

Dissertation „The Evaluation of Dairy Co-operatives”

Doctorate – Bournemouth Business School, UK

Thesis on Key Account Management in Business to

Business environments

Chartered Director of the Institute of Directors,

London

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Dr Paul Sudnik

Levi Strauss & Co.

Marketing Manager – based in Switzerland

Tetra Pak

Managing Director – Poland

Managing Director – Ireland

Vice President – North Mediterranean Region

Amcor PET Packaging

Vice President – Central & Eastern Europe

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Dr Paul Sudnik

Professorship at Staffordshire University, UK

Director of International Programmes at MUAS, D

Specific expertise in:

Customer Service, Satisfaction and Loyalty in B2B

Business transformation in B2B

Marketing / sales strategy / Key Account Management.

Continuous professional development

Action Learning.

Current research interest in knowledge transfer in

the South Western Balkans – particularly Serbia

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Джон Смит говорит:

Hello there, I am glad to be in St

Petersburg!

Greetings from the United Kingdom!

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I say, old boy, what’s all this about foreign

markets?

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Why Expand into Foreign Markets? Gain access to new customers

Offers potential for increased revenues

Particularly when domestic markets are mature or saturated

Achieve lower costs and enhance firm’s competitiveness Domestic sales volume is not large enough to fully

capture economies of scale

Smaller European countries, eg Ireland growth has come from exports as domestic demand is insufficient to sustain growth

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Why Expand into Foreign Markets? (cont.)

Capitalise on core competencies

A firm may be able to leverage its competencies in

foreign countries as well as its domestic market, eg.

Nokia

Spread business risk across a wider market base

Spread business risk by operating in a number of

countries rather than depending on its domestic market

entirely, EG. Downturn in the Japanese economy

8


Other Reasons for International

DiversificationMarket-based Exploit cultural/

geographic differences

• Globalisation of markets &

competition

• Cash in on differences in culture

• Following customers • Administrative differences

• Specific geographical/

economic differences

Utilise strategic capabilities Economic benefits

• Broaden market size • Economies of scale

• Internationalise value-adding

activities

• Stabilisation of earnings across

markets

• Enhance knowledge

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Colgate Goes to China

Using aggressive promotional and educational programs, Colgate has expanded its market share from 7% to 35% in less than a decade.

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So what should I do now?

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Deciding Which Markets to Enter Before going abroad, the company should try to define

its international marketing objectives and policies.

What Volume of Foreign Sales is Desired?

How Many Countries to Market In?

What Types of Countries to Enter?

Choose Possible Countries and Rank Based on

Market Size, Market Growth, Cost of Doing

Business, Competitive Advantage, and Risk Level

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Deciding Which Markets to Enter

Assess alternative markets

Evaluate the respective costs, benefits, and

risks of entering each

Select those that hold the most potential for

entry or expansion

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Factors in Assessing New Market

Opportunities

Product-market dimensions

Major product-market differences

Structural characteristics of the national product market

Competitor analysis

Potential target markets

Relevant trends

Explanation of change

Success factors

Strategic options

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Factors for Market Selection and

Entry

Political environment

Macro-economic conditions

Social structures and cultural norms

Technical Infrastructure

Transport and communication

Availability of local resources

Tariff and non-tariff trade barriers

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Factors for Market Selection and

Entry

Environmental issues Legal risks

– Sovereign risk

– Absence of regulation and control• Protection of intellectual property

• Corruption

– International risk

– Security risk

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Macro level Research

(general market potential)

General market relating to

product/service

Micro level Research

(specific factors affecting

the product)

Target Markets

R

E

J

E

C

T

E

D

Country Priority Listing

Filter 1

Filter 2

Filter 3

Filter 4

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Which markets to choose ?

Most text books advocate a logical and

sequential process for choosing

international markets

Geographical and cultural proximity

In practice a number of approaches can be

used

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Choosing a Mode of Entry

Exporting

International

Licensing

International

Franchising

Specialized Modes

Foreign Direct

Investment

Decision Factors:

Ownership advantages

Location advantages

Internalization advantages

Other factors

Need for control

Resource availability

Global strategy

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Time

Level

of

Involvement

Risk & Return

Control

Exporting

Licensing &

Franchising

Joint Ventures

& S. A.

Direct

Investment

Entry Modes

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I think that we will try to export some of our

products – this seems a good first step…

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Advantages & Disadvantages of

Exporting

Advantages

Easiest and least costly way

Gain from local knowledge of agent or distributor

Relatively low investment costs

Internet access for small firms

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Exporting

Disadvantages

Lower profit potential

Loss of control over marketing

Lack of feed back from market

Identifying suitable agent/distributor

Agency agreements of agent

Transportation costs

Vulnerability to tariffs

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Exporting

Indirect Exporting

Via a domestic client

Piggy backing

Direct Export

Via distributors

Direct selling

Mail order

On-line

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Motivations for Exporting

Proactive

motivations: pull a

firm into foreign

markets as a result

of opportunities

available there

Reactive

motivations: push a

firm into foreign

markets because

opportunities are

decreasing in the

domestic market

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I think that we are strong enough to do

more than just export – we have good

know how that companies want to use

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Licensing

An international licensing agreement grants the

rights of a firm in the host country to either

produce or sell a product or both in return for

royalty payments (Deresky, 2000)

Useful when a firm has neither the resources or

capabilities to directly enter foreign markets

Patents

Trademarks

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The Licensing Process

LICENSOR

• Leases the right to use

its intellectual property

• Earns new revenues with

relatively low investment

LICENSEE

• Uses the intellectual

property to create

products for local sale

• Pays a royalty back to

the licensor

Basic Issues

1. Set the boundaries of the agreement

2. Establish compensation rates

3. Agree on the rights, privileges, and constraints

4. Specify the duration of the agreement

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Licensing

Advantages

Rapid entry to foreign markets

Does not require large capital investment

Reduces problems

Trade barriers

Foreign ownership issues

Avoids committing resources in unstable,

politically volatile countries

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Advantages & Disadvantages

of Licensing

Disadvantages

Creates a competitor

Control over licensee and product quality

Safeguarding IP

If the royalty potential is considerable

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Jolly good! What Ho!

Is it time for a pint yet?

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Franchising

One of the most rapidly growing methods of

foreign market entry

Often better suited to the global expansion

of retail and services enterprises

EG. McDonalds. KFC, Hilton Hotels, Holiday

Inn

32


33


KFC entered Japan through a joint ownership venture with Japanese conglomerate Mitsubishi.

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of Franchising

Advantages

Rapid entry and market penetration can be

achieved

The franchisee bears most of the costs and

risks of establishing in foreign locations

Franchiser bears costs of training, support and

monitoring

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of Franchising

Disadvantages

The big problem the franchiser faces is

maintaining quality control, standards and

consistency

Will the franchisee modify to the franchiser’s

product?

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I’m getting the feel for this…

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Joint Ventures

Seeking a foreign partner with which to

establish a new separate business entity

owned jointly by the 2+ parents.

Undertaking by the entities to achieve

business goals through a collaborative

effort and to share profits and losses by

doing so.

38


Joint Ventures- Types

Dominant parent

A venture where one of the parents is clearly dominant

in terms of size and market share

Independent child

The joint subsidiary operates at arms length from the

corporate parents

Multi-parent

Where there are several parent companies, eg. Airbus

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Reasons for Joint Ventures

To acquire market expertise/knowledge/distribution channels in unfamiliar overseas markets

Expansion with limited outlay of capital.

The risks and costs of international expansion are shared.

40


Reasons for Joint Ventures

Necessary to gain entry into certain markets, when, for example, government legislation requires local participation, eg. China

To improve sales prospects, particularly in terms of government and public sector contracts

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Issues with Joint Ventures

Conflicting objectives of partners e.g. Profit/dividend policy

Sourcing

Production

pricing issues

Trade-off between the drive for control and the quest for additional resources

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Issues with Joint Ventures

Lack of synergy

High “divorce” rate 45% judged as successful

60% lasted longer than 4 years

14% lasted more than 10 years

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Strategic Alliances

Companies from different parts of the world have formed S.A.s to strengthen their mutual ability to serve whole continents and move toward global market participation

USA and Japanese firms forming S.A.s with European firms to enter the E.U. with an eye to the emerging markets of the new states

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Strategic Alliances

S.A.s are increasingly undertaken for strategic reasons to achieve competitive advantage in terms of technology and product development, cost reduction and marketing

Examples: Rover/Honda

Volvo/Renault

Philips/Matsushita

45


Types of Strategic Alliances

Porter & Fuller (1986) suggest that strategic alliances can occur at any point along the value chain”

Technology development

Operations and logistics

Marketing sales and service

Multiple activity

46


Types of Strategic Alliances

Type X Divide value chain activities among themselves, e.g.

aircraft industry

Type Y Firms co-operate in the same value chain activities

47


Motivation for Strategic Alliances

Learning

Organisational

Technology

Geographical

Cost minimisation

Financial/marketing/research/sourcing

Market positioning

Market access

48


Issues with Strategic Alliances

Managing relationship. e.g. Northwest

Airlines and KLM in Detroit and Amsterdam

Implications of downside risk when the

relationship fails, and how that affects the

company’s value chain. eg. Honda/Rover

Suggests that firms need to have an exit strategy

49


Issues with Strategic Alliances

Rigidity of decision making: flexibility of response

and policy changes could be more difficult as a

result of international collaboration. e.g. BT and

AT&T 8 months to find a CEO

Hidden Agenda? Is one partner using the coalition

to acquire the partner’s IP and expertise

Dependability. S.A. could prevent one partner from

moving along the experience curve

50


Guidelines for Successful S.A.s

Complementary

Agreement on objectives

Compatible strategies

Compatible cultures

Comparable rewards

Stakeholder blessing

Thorough and lengthy planning process

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…But what if I don’t want to share the

profits and am happy to take on all the

risk?

52


Foreign Direct Investment (FDI)

The control of manufacturing plants or other

productive assets in the foreign market place

through whole or part ownership

Via acquisition & mergers – dominant mode of FDI

Greenfield operation – Ford in Valencia,

Volkswagen/Skoda in Czech Rep

Equity buy-out – Toyota/General Motors

53


Volkswagon was the first auto manufacturer

to open a plant in Mexico

54


Greenfield Strategy

Best site

Modern facilities

Economic development incentives

Clean slate

55


Advantages of FDI

Control of resources/capabilities

Integration/coordination of activities across countries

Acquisitions – rapid entry

Greenfield – state of art and government finance try

Attractiveness of host country

Low wages, lower Corp. tax, government subsidies

56


Disadvantages of FDI

Substantial investment – financial exposure

Problems of integration/coordination of

acquisitions

Greenfield – time consuming and

unpredictable cost

Political and economic risk exposure

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I suppose we’ll have to do some of that

marketing stuff, eh?

58


A Global Marketing Programme

Standardized Marketing Mix:

Selling largely the same products and using the

same marketing approaches worldwide.

Adapted Marketing Mix:

Producer adjusts the marketing mix elements to

each target market, bearing more costs but

hoping for a larger market share and return.

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Marketing Mix Adaptation

In India, McDonald’s serves chicken, fish, and vegetable burgers, and the Maharaja Mac—two all-mutton patties, special sauce, lettuce, cheese, pickles,

onions, on a sesame-seed bun.

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5 Global Product and Promotion

Strategies

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Global Product Strategies

Straight Product Extension:

Marketing a product in a foreign market

without any change.

Product Adaptation:

Adapting a product to meet local conditions or

wants in foreign markets.

Product Invention:

Creating new products or services for foreign

markets.

62


Global Promotion Strategies

Can use a standardized theme globally, but

may have to make adjustments for

language or cultural differences.

Communication Adaptation:

Fully adapting an advertising message for

local markets.

Changes may have to be made due to

media availability.

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Nescafe in USA

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Nescafe in Spain

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Nescafe in India

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Global Pricing Strategies

Companies face many problems in setting their international prices.

Possible approaches include: Charge a uniform price all around the world.

Charge what consumers in each country will pay.

Use a standard markup of costs everywhere.

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Global Pricing Strategies

International prices tend to be higher than domestic prices because of price escalation.

Companies may become guilty of dumping –a foreign subsidiary charges less than its costs or less than it charges in its home market.

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Whole-Channel Concept for

International Marketing

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Cultural Considerations

Material culture

level of economic/technology development

Language

Aesthetics

Education

Religious beliefs

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Internationalising Issues

The main issues in internationalisation are:

Cost

Control

Risk

Return

Resource allocation

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До свидания в настоящее время !!

Спасибо!!

Сейчас я уже эксперта!

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Dr Paul Sudnik says:

Good bye, John

Have you still got any questions?

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Foreign market entry - kafedrapik.ru · Foreign market entry: ... Colgate Goes to China ... Factors...

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