Global Market-Entry Strategies

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Submitted By:Binny Grover(15)Ritika Choudhury(39)Sachin Kumar(41)Varun Kaw(56)Vivek Kumar(58)

1. Target Market Selection2. Choosing the Mode of Entry3. Exporting4. Licensing5. Franchising6. Contract Manufacturing7. Joint Ventures8. Wholly Owned Subsidiaries9.

Strategic Alliances10. Timing of Entry11. Exit Strategies

The need for a solid market entry decision is an integral part of a global market entry strategy.

Entry decisions will heavily influence the firm’s other marketing-mix decisions.

Global marketers have to make a multitude of decisions regarding the entry mode which may include: (1) the target product/market (2) the goals of the target markets (3) the mode of entry (4) The time of entry (5) A marketing-mix plan (6) A control system to check the

performance in the entered markets

• A crucial step in developing a global expansion strategy is the selection of potential target markets

• A four-step procedure for the initial screening process:

1. Select indicators and collect data2. Determine importance of country indicators3. Rate the countries in the pool on each

indicator4. Compute overall score for each country

Decision Criteria for Mode of Entry: Market Size and Growth Risk Government Regulations Competitive Environment Local Infrastructure▪ Classification of Markets:▪Platform Countries (Singapore & Hong Kong)

▪Emerging Countries (Vietnam & the Philippines)▪Growth Countries (China & India)▪Maturing and established countries (examples: South Korea, Taiwan & Japan)

Company Objectives Need for Control Internal Resources, Assets and

Capabilities Flexibility

Mode of Entry Choice: A Transaction Cost Explanation Regarding entry modes, companies

normally face a tradeoff between the benefits of increased control and the costs of resource commitment and risk.

Transaction Cost Analysis (TCA) perspective Transaction-Specific Assets (assets valuable

for a very narrow range of applications)

Indirect Exporting Export management

companies Cooperative Exporting

Piggyback Exporting Direct Exporting

Firms set up their own exporting departments

Licensor and the licensee Benefits:

Appealing to small companies that lack resources

Faster access to the market Rapid penetration of the global markets

Caveats: Other entry mode choices may be affected Licensee may not be committed Lack of enthusiasm on the part of a

licensee

Biggest danger is the risk of opportunism Licensee may become a future competitor

How to seek a good licensing agreement: Seek patent or trademark protection Thorough profitability analysis Careful selection of prospective licensees Contract parameter (technology package,

use conditions, compensation, and provisions for the settlement of disputes)

Franchisor and the franchisee Master franchising Benefits:

Overseas expansion with a minimum investment

Franchisees’ profits tied to their efforts Availability of local franchisees’

knowledge Caveats:

Revenues may not be adequate Availability of a master franchisee

Limited franchising opportunities overseas

Lack of control over the franchisees’ operations

Problem in performance standards Cultural problems Physical proximity

• Benefits:– Labor cost advantages– Savings via taxation, lower energy costs,

raw materials, and overheads– Lower political and economic risk– Quicker access to markets

• Caveats:– Contract manufacturer may become a

future competitor– Lower productivity standards

Backlash from the company’s home-market employees regarding HR and labor issues

Issues of quality and production standardsQualities of an ideal subcontractor: Flexible/geared toward just-in-time delivery Able to meet quality standards Solid financial footings Able to integrate with company’s business Must have contingency plans

• Cooperative joint venture• Equity joint venture• Benefits:– Higher rate of return and more control

over the operations– Creation of synergy– Sharing of resources– Access to distribution network– Contact with local suppliers and

government officials

Caveats: Lack of control Lack of trust Conflicts arising over matters such as

strategies, resource allocation, transfer pricing, ownership of critical assets like technologies and brand names

Drivers Behind Successful International Joint Ventures : Pick the right partner

Establish clear objectives from the beginning

Bridge cultural gaps Gain top managerial commitment and

respect Use incremental approach

• Acquisitions• Greenfield Operations• Benefits:– Greater control and higher profits– Strong commitment to the local market

on the part of companies– Allows the investor to manage and

control marketing, production, and sourcing decisions

• Caveats:– Risks of full ownership

Developing a foreign presence without the support of a third part

Risk of nationalization Issues of cultural and economic

sovereignty of the host country Acquisitions and Mergers

Quick access to the local market Good way to get access to the local

brands

Greenfield Operations Offer the company more flexibility than

acquisitions in the areas of human resources, suppliers, logistics, plant layout, and manufacturing technology.

Types of Strategic Alliances Simple licensing agreements between

two partners Market-based alliances

Operations and logistics alliances Operations-based alliances

The Logic Behind Strategic Alliances Defend Catch-Up Remain Restructure

Cross-Border Alliances that Succeed: Alliances between strong and weak

partners

seldom work. Autonomy and flexibility Equal ownership Other factors: ▪ Commitment and support of the top of

the partners’ organizations▪ Strong alliance managers are the key

▪ Alliances between partners that are related in terms of products, technologies, and markets▪ Similar cultures, assets sizes and

venturing experience▪ A shared vision on goals and mutual

benefits

– When should the firm enter a foreign market?

– Other important factors include: level of international experience, firm size

– Mode of entry issues, market knowledge, various economic attractiveness variables, etc.

Reasons for exit: Sustained losses Volatility Premature entry Ethical reasons Intense competition Resource reallocation

Risks of exit: Fixed costs of exit Disposition of assets Signal to other markets Long-term opportunities

Guidelines: Contemplate and assess all options to

salvage the foreign business Incremental exit Migrate customers

Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 27

Chotukool consumes half the power consumed by regular refrigerators and uses high-end insulation to stay cool for hours without power

It keeps food stuffs 20 degree Celsius below ambient temperature

It is an engineering excellence – only 20 parts, as opposed to more than 200 parts in a normal refrigerator and hence less maintenance

It works on inverter or battery

The unit is highly portable, with 43 liters of volume inside a fully plastic body weighing less than 10 pounds.

SpecificationInternal capacity:43 litresWeight:8.9 kgsDimension:59.8 cm x 41.8 cm x 55.9 cmPower source:230V 50 Hz AC Current:0.3 amperesWattage:62 WPrice - Rs 3,250/

People needed an affordable way to keep milk, vegetables and leftovers cool for a day or two—both at home or away.

This job is urgent in a country where a third of all food is lost to spoilage, according to the United Nations Commission on Sustainable Development.

Cooling solution for Mass market and Retailers in Rural Areas.

Areas which have shortage of electricity

Fiscal Year 2010-11: Rs. 58 billion (US$ 1.2 billion) Combined Sales of the Company and its major subsidiaries and affiliates, for FY 2010-11: Rs.

150 billion (US$ 3 billion) The Company has a network of Company-operated GODREJ INTERIO Retail Stores, more than

2,200 Wholesale Dealers, and more than 18,000 Retail Outlets. The Company has Representative Offices in Colombo (Sri Lanka), The Netherlands, Sharjah

(UAE), Riyadh (Saudi Arabia) and Guangzhou (China-PRC).50 billion (US$ 3 billion) EMPLOYEES - 11,000 (including 2,000 in Sales and Service)

Parameters Verdict

Financial strength High

Risk taking ability High

Market knowledge High

Commitment High

The markets considered were the emerging markets in Latin America, Africa and Asia

Some very broad market characteristics favoring selection were: High percentage of rural population, large number of small/medium retail stores, inherent desire for cost efficient refrigeration, power shortage issues

The strategy for expansion: Proactive formal process, following and expansive strategy (expanding to similar markets first)

Parameter Brazil Argentina Nigeria Egypt Bangladesh

Geography Favorable

Political and legal environment

Favorable Favorable

Economy Favorable Favorable Favorable Favorable

Demography Favorable Favorable Favorable Favorable

Infrastructure Neutral Neutral Neutral Neutral Neutral

Social and cultural factors

Favorable

Competition Favorable Favorable Favorable Favorable Favorable

Demand Favorable Favorable Favorable Favorable Favorable

Population: 158,570,535 (9th)

Population density: 964.42/sq km (9th )

GDP per capita: $1,572

Government: Parliamentary democracy

Official language: Bengali

Rural population: approx 70%

Listed among “next 11 economies” basedon macroeconomic stability, political maturity,openness of trade and investment opportunityand quality of education

Parameter Status Verdict

Geography Close proximity to home market, low export costs

Favorable

Political and legal environment

Parliamentary democracy, robust legal framework

Favorable

Economy Rapidly developing market based economy

Favorable

Demography 55% working age population

Favorable

Infrastructure Transport facilities poor, shortage of power (LT 60%)

Neutral

Social and cultural factors

Very similar to home market

Favorable

Competition Innovative ,“one of a kind” product, with low or no competition

Favorable

Demand Can be expected to be very high

Favorable

Parameters Value/Remarks

No of Rural households 1.95 Cr

Average refrigerator penetration

2%

Potential sales 7% of 1.95 Cr = 13.6lakhs

No of FMCG retailers 5.7 lakhs (5.1 per 1000 people)

Country Restrictions Good bilateral relations

Import duties 22%

Export market identified : Bangladesh

More control over the channel vs. Exports

Requirement of last mile deep penetration

Large future potential of the market

Low technology product

Non conflicting/Complementary licensee available

Problems Future competition Conflicts over margins with the Licensee Retail Price control

Two-pronged strategy to reach different customer segments

Channel Description

Rural Retailers Large beverage company like Coca cola, Pepsi

And /OrBangladesh Dairy Cooperativewhich are our customers

Tie up with beverage company so that chotukool complements their product.

Cobranded product

Rural Households W and W grains (Cargill) Cargill warehouse which stocks the product -> supplies to the distributors ->

Agricultural RetailersSHGs

Price out of factory= 3250*0.9*0.95 = INR 2705

Logistics Cost = INR 100 (From Pune to Cargill warehouse in Bangladesh ) 100 units in 1 ton truck Distance 2300Km (Pune to Dhaka ) INR 5 per km INR 10,000 per trip for 100 units = INR 100 (Max.)

Customs -22%

Price to Cargill – INR 3420

Price to Coke/ BDC – INR 2740 ( 20% discount)

The media classes chosen will have the objective of attaining maximum reach and also act as frequency builders

The company will have a substantial role to play in the media planning and will have to make an initial investment into promotional activities

The advertisements will be aired on local radio channels and print ads will be published in regional language newspapers

Promotion will be done in the form of wall paintings, mobile vans, demo stalls at melas and “haats”, large hoardings and hoardings on busses and trucks

Co branding is to be done with Coca cola/ Pepsi/ BDC in FMCG retail outlets

Below the line promotion will be taken up by Cargill

Thank You!