Market entry strategy

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Module 1Module 1

Internation Market-Entry Internation Market-Entry StrategiesStrategies

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IntroductionIntroduction

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

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

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IntroductionIntroduction

Global marketers have to make a multitude of Global marketers have to make a multitude of decisions regarding the entry mode which may decisions regarding the entry mode which may include: include: – the target product/marketthe target product/market

– the goals of the target marketsthe goals of the target markets

– the mode of entrythe mode of entry

– the time of entrythe time of entry

– a marketing-mix plana marketing-mix plan

– a control system to check the performance in the a control system to check the performance in the entered marketsentered markets

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Target Market SelectionTarget Market Selection

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

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

1. Select indicators and collect data1. Select indicators and collect data

2. Determine importance of country indicators2. Determine importance of country indicators

3. Rate the countries on each indicator3. Rate the countries on each indicator

4. Compute overall score for each country4. Compute overall score for each country

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Choosing the Mode of EntryChoosing the Mode of Entry

Decision Criteria for Mode of EntryDecision Criteria for Mode of Entry– Market Size and GrowthMarket Size and Growth– RiskRisk– Government RegulationsGovernment Regulations– Competitive EnvironmentCompetitive Environment– Local InfrastructureLocal Infrastructure– Company ObjectivesCompany Objectives– Need for ControlNeed for Control– Internal Resources, Assets and CapabilitiesInternal Resources, Assets and Capabilities– FlexibilityFlexibility

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Choosing the Mode of EntryChoosing the Mode of EntryClassification of MarketsClassification of Markets::

Platform Countries (Singapore & Hong Platform Countries (Singapore & Hong Kong)Kong)

Emerging Countries (Vietnam & the Emerging Countries (Vietnam & the Philippines)Philippines)

Growth Countries (China & India)Growth Countries (China & India)Maturing and established countries Maturing and established countries

(examples: South Korea, Taiwan & (examples: South Korea, Taiwan & Japan)Japan)

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Choosing the Mode of EntryChoosing the Mode of Entry

Mode of Entry Choice: A Transaction Cost Mode of Entry Choice: A Transaction Cost ExplanationExplanation– Regarding entry modes, companies normally Regarding entry modes, companies normally

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

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

a very narrow range of applications)a very narrow range of applications)

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Carrefour in JapanCarrefour in Japan

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ExportingExporting

Indirect ExportingIndirect Exporting

– Export management companiesExport management companies Cooperative ExportingCooperative Exporting

– Piggyback ExportingPiggyback Exporting Direct ExportingDirect Exporting

– Firms set up their own exporting Firms set up their own exporting departmentsdepartments

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LicensingLicensing

Licensor and the licenseeLicensor and the licensee BenefitsBenefits::

– Appealing to small companies that lack Appealing to small companies that lack resourcesresources

– Faster access to the marketFaster access to the market

– Rapid penetration of the global marketsRapid penetration of the global markets

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LicensingLicensing CaveatsCaveats::

– Other entry mode choices may be affectedOther entry mode choices may be affected

– Licensee may not be committedLicensee may not be committed

– Lack of enthusiasm on the part of a licenseeLack of enthusiasm on the part of a licensee

– Biggest danger is the risk of opportunismBiggest danger is the risk of opportunism

– Licensee may become a future competitorLicensee may become a future competitor

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LicensingLicensing

How to seek a good licensing agreementHow to seek a good licensing agreement::

– Seek patent or trademark protectionSeek patent or trademark protection

– Thorough profitability analysisThorough profitability analysis

– Careful selection of prospective licenseesCareful selection of prospective licensees

– Contract parameter (technology package, Contract parameter (technology package, use conditions, compensation, and use conditions, compensation, and provisions for the settlement of disputes)provisions for the settlement of disputes)

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FranchisingFranchising Franchisor and the franchiseeFranchisor and the franchisee Master franchisingMaster franchising BenefitsBenefits::

– Overseas expansion with a minimum Overseas expansion with a minimum investmentinvestment

– Franchisees’ profits tied to their effortsFranchisees’ profits tied to their efforts

– Availability of local franchisees’ Availability of local franchisees’ knowledgeknowledge

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FranchisingFranchising

CaveatsCaveats::– Revenues may not be adequateRevenues may not be adequate– Availability of a master franchiseeAvailability of a master franchisee– Limited franchising opportunities overseasLimited franchising opportunities overseas– Lack of control over the franchisees’ operationsLack of control over the franchisees’ operations– Problem in performance standardsProblem in performance standards– Cultural problemsCultural problems– Physical proximityPhysical proximity

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Contract ManufacturingContract Manufacturing

BenefitsBenefits::– Labor cost advantagesLabor cost advantages– Savings via taxation, lower energy costs, Savings via taxation, lower energy costs,

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

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Contract ManufacturingContract Manufacturing CaveatsCaveats::

– Contract manufacturer may become a future Contract manufacturer may become a future competitorcompetitor

– Lower productivity standardsLower productivity standards

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

– Issues of quality and production standardsIssues of quality and production standards

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Contract ManufacturingContract Manufacturing

Qualities of an ideal subcontractor:Qualities of an ideal subcontractor:

– Flexible/geared toward just-in-time Flexible/geared toward just-in-time deliverydelivery

– Able to meet quality standardsAble to meet quality standards

– Solid financial footingsSolid financial footings

– Able to integrate with company’s Able to integrate with company’s businessbusiness

– Must have contingency plans Must have contingency plans

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Joint VenturesJoint Ventures

Cooperative joint ventureCooperative joint venture Equity joint ventureEquity joint venture BenefitsBenefits::

– Higher rate of return and more control over the Higher rate of return and more control over the operationsoperations

– Creation of synergyCreation of synergy– Sharing of resourcesSharing of resources– Access to distribution networkAccess to distribution network– Contact with local suppliers and government Contact with local suppliers and government

officialsofficials

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CaveatsCaveats::

– Lack of controlLack of control

– Lack of trustLack of trust

– Conflicts arising over matters such as Conflicts arising over matters such as strategies, resource allocation, transfer strategies, resource allocation, transfer pricing, ownership of critical assets like pricing, ownership of critical assets like technologies and brand namestechnologies and brand names

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Drivers Behind Successful International Joint Drivers Behind Successful International Joint VenturesVentures : :

– Pick the right partnerPick the right partner

– Establish clear objectives from the beginningEstablish clear objectives from the beginning

– Bridge cultural gapsBridge cultural gaps

– Gain top managerial commitment and respectGain top managerial commitment and respect

– Use incremental approachUse incremental approach

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Wholly Owned SubsidiariesWholly Owned Subsidiaries

AcquisitionsAcquisitions Greenfield OperationsGreenfield Operations BenefitsBenefits::

– Greater control and higher profitsGreater control and higher profits– Strong commitment to the local market Strong commitment to the local market

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

control marketing, production, and control marketing, production, and sourcing decisionssourcing decisions

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Wholly Owned SubsidiariesWholly Owned Subsidiaries CaveatsCaveats::

– Risks of full ownershipRisks of full ownership

– Developing a foreign presence without the support of a Developing a foreign presence without the support of a third partthird part

– Risk of nationalizationRisk of nationalization

– Issues of cultural and economic sovereignty of the host Issues of cultural and economic sovereignty of the host countrycountry

Acquisitions and MergersAcquisitions and Mergers

– Quick access to the local marketQuick access to the local market

– Good way to get access to the local brandsGood way to get access to the local brands

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Strategic Alliances Strategic Alliances

Types of Strategic Alliances Types of Strategic Alliances – Simple licensing agreements between two Simple licensing agreements between two

partnerspartners– Market-based alliancesMarket-based alliances– Operations and logistics alliancesOperations and logistics alliances– Operations-based alliances Operations-based alliances

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Strategic AlliancesStrategic Alliances

The Logic Behind Strategic Alliances The Logic Behind Strategic Alliances – DefendDefend– Catch-Up Catch-Up – RemainRemain– RestructureRestructure

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

seldom work.seldom work.– Autonomy and flexibilityAutonomy and flexibility– Equal ownershipEqual ownership

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– Other success factors: Other success factors: » Commitment and support of the top of the Commitment and support of the top of the

partners’ organizationspartners’ organizations» Strong alliance managers are the keyStrong alliance managers are the key» Alliances between partners that are related in Alliances between partners that are related in

terms of products, technologies, and marketsterms of products, technologies, and markets» Similar cultures, assets sizes and venturing Similar cultures, assets sizes and venturing

experienceexperience» A shared vision on goals and mutual benefitsA shared vision on goals and mutual benefits

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Timing of EntryTiming of Entry

International market entry decisions should also International market entry decisions should also cover the following timing-of-entry issues: cover the following timing-of-entry issues: – When should the firm enter a foreign market?When should the firm enter a foreign market?– Other important factors include: level of Other important factors include: level of

international experience, firm sizeinternational experience, firm size– Mode of entry issues, market knowledge, Mode of entry issues, market knowledge,

various economic attractiveness variables, etc.various economic attractiveness variables, etc.

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Exiting a MarketExiting a Market

Reasons for exitReasons for exit::– Sustained lossesSustained losses– VolatilityVolatility– Premature entryPremature entry– Ethical reasonsEthical reasons– Intense competitionIntense competition– Resource reallocationResource reallocation

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Exit StrategiesExit Strategies Risks of exitRisks of exit::

– Fixed costs of exitFixed costs of exit– Disposition of assetsDisposition of assets– Signal to other marketsSignal to other markets– Long-term opportunitiesLong-term opportunities

Guidelines:Guidelines:– Contemplate and assess all options to salvage Contemplate and assess all options to salvage

the foreign businessthe foreign business– Incremental exitIncremental exit– Migrate customersMigrate customers

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Thank YouThank You

Market entry strategy

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