Week 6_3XPP

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MKTG7506: International MarketingManagement

12 April 20

Week 6: International Market Entry

International Market Entry

Read: C & G Chapter 11Buckley and Casson (1998)Taylor et al. (2000)Erramilli and Rao (1993)

Dr Ravi Pappu

Office: Room 416 Colin Clark Building

Phone: 3346 8089

Email: [email protected]

Consultation: Monday 3-4 PM; Room 416 Colin Clark

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Learning Objectives

Discuss various types of international market entry.

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Market Entry Considerations

Market entry strategy decision should reflect

(a) an analysis of market characteristics

(b) Company capabilities

Resource constraints need to develop a priority

system

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No single ideal criterion initial screening mayconsider the following :

External crit eria:

(a) market size and growth

(b) economic growth

(c) political risk

(d) government regulations

(e) competitive environment

(f) local infrastructure

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Internal criteria:

(a) Company objectives

(b) Need for control

(c) Internal resources, assets and capabilities

(d) flexibility

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Modes of Market Entry

Export-based entry

Manufacturing-based entry

Relationship-based entry

These strategies do not operate in sequence any one can be appropriate at any time

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Export-Based Entry

Sell either product/service or technology with theminimum commitment of resources

No marketing or production organization overseas

Exported product may be fundamentally same increased use of Internet

Advantages :

(a) Minimal risk excess production exported

(b) international marketing effort will be less

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Export-Based Entry - Problems

Early motives - may be skim the marketor absorboverheads - Also common to mature economies

Disadvantages Not always optimal strategy - desire tokeep international activity simple (a) lack of productmodification =inflexible strategy (b) lack of control

Implications of local currency strength on exporting

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Export-Based Entry Strategies

Indirect exporting

Direct exporting including the Internet

Establishing a sales office in the overseas market

Licensing

Franchising

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Indirect Exporting

Use of agencies in the home country to getproducts into foreign markets export agentsand export merchants

Very little risk and no major resourcecommitments

Piggy backingand Cooperative exporting

Little or no control over international operations ill fated marketing mix decisions

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Cooperative Exporting: Examples

Piggy Backing: Examples

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Direct Exporting

Sell direct to end users or sell agents in the targetmarket through the firms own sales (domestic)organisation

Direct marketing through Internet Using electronicmeans, primarily web pages, email, file transfer andrelated communication tools e.g. Amazon and AOL

Far more control and higher resource commitmentson marketing mix tasks

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Direct Exporting: Example

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AustraliancompanyBarbeques Galore

operates its ownsales office in LosAngeles, USA more control ondistribution andpromotion

Direct Exporting: Example

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Licensing

Permitting a manufacturer in a foreign country formanufacture and sale of your products - Involves anupfrontpayment and royalties.

For both tangible products and intangible services or IPprotected products and services.

Advantages: (a) minimal commitment resources & lesserrisk (b) Permit to spread out its R& D expenditure (c)allows licensor to navigate import barriers.

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Licensing: Example

Italy: Aprilia: 50cc scooters

USA: Marine outboard motors

Orbital Engine

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Licensing: Example-Done Art, Sydney

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Tokyo Disneyland a classic case oflicensing

Owned and operatedby Orient landCompany underlicence Disneyreceives royalties anda commissionmerchandise sold

Licensing: Example

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Licensing (Continued)

Disadvantages: (a) loss of potential return fixedterm - licensor is not permitted to enter the marketduring that period (b) variation in the royaltystream (c) Loss of control - product qualityconcerns contract enforcement (d) licensee maynot be fully committed

Cloning a competitor Precautions: carefulselection and profitability analysis

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Franchising

Common in service industries - cousin of licensing-Master franchising

Franchiser provides training +operational manuals +management support

Capitalising on a winning business formula

Payments take the form of fee or percentage of sales lesser income potential

Lack of control over franchisees performance Blockbuster video in Brazil

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Franchising: Examples

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TheBody Shop International Plc is a retail franchise

with an established network of franchisees that own andoperate approximately 70% of The Body Shop storesworldwide.

Franchising: Example

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Manufacturing-Based Entry

Using manufacturing process to enter a market - oftenreferred to as foreign direct investment (FDI)

Basically this strategy involves setting up a productionbase inside the target market country as a means ofinvading it

As a means of accessing resources such as capital,technology, management expertise

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To gain access to raw materials or other resources cutting down freight/transportation - backwardintegration

will make products more competitive as thecompany can minimize tax barriers in host country

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Forms may vary from limited equity involvement tototal ownership of the overseas operation

J oint venture

Consortia

Acquisition

Greenfield operation

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Joint Venture

Commonest form pursued by Australian firms cooperative and equityJ Vs

Agree to share equity and other resources local partnerproviding access to distribution networks and familiarity tolocal mark environment

Advantages:

Lesser capital needed

higher return potential

Spread of risk

Access to contacts and expertise to penetrate the localmarket - SYNERGY

Disadvantages: Australian firm has only partial control

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Coca-cola company and Nestle formed a worldwidejoint venture on tea based beverages.

Enviga, the green tea-based functional drink recentlylaunched in the U.S. is marketed through this jointventure.

Source: The Food Institute, 2006

Joint Venture: Example

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Kirby Refrigeration Ltd: NSW, Australia

Kulthorn International Ltd: Thailand

Kulthorn Ki rby Public Co Ltd in Thailand


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Signet Engineering Pty Ltd: WA, Australia

Gold processing firm: Chile


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In Singapore and Hong Kong, car buyershave to pay taxes and charges as twiceas the price of a BMW. In Indonesia,Thailand, and Philippines, the domestic

car industry is highly protected fromcompetition (import bans, local contentregulations) . To overcome thesebarriers BMW using a joint venture witha local partner to assemble its carsIndonesia

Tariff Barriers and Market Entry

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Consortia

Differ from joint ventures

(a) Typically involve a large number of participants

(b) They frequently operate in a country or market inwhich none of the participants is currently active

Developed to pool financial and managerialresources and lessen risk

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Air bus Industr ie

is a consortium offour companies French, German,Spanish andBritish. Developed550 seat A380 the worlds biggestpassenger jetwhich will cost $12billion US$

Ai rbus Consort ium

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Acquisit ion

Involves entering an overseas market by acquiring anexisting company

Advantages:(a) enables rapid entry

(b) desirable in case where the industry is highlycompetitive and where there substantial entry barriers

Many large Australian firms have adopted this strategy

Disadvantages: Beyond the reach of SMEs

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Heineken is a global leader in beer. Since choosy

European beer drinkers are loyal to their localbrands, Heineken has bought stakes incompanies in Hungary, Poland and Switzerland toenter the European market.

Heinekens Global

Market Entry Strategies

In Asia Heinekens strategy is joint-ventures

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Greenfield operation

Firm decides to build its own plant in the overseascountry using own funds

May be the only option in the absence of firmssuitable to acquire

Advantages: Full control relative setting up timemay be less - enabling to use latest technology andselecting most attractive location

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Direct Foreign Investment Timing Of Entry

Subsidiary survival

Subsidiary size

Technology

Distribution

Advertising

Parent firms advantages

Timing

Automobile andconsumer electronics

Early larger size,but shorter survival

time6955 foreign entries

of 703 J apanese firmsin 2003

Brand equity

Retail,FMCG

Delios & Makino (2004)

Technology

Adver tis ing

Distribution

Subsidiary survival

Subsidiary size

Timing

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Relationship-Based Entry

More reliant on the creation of relationships

A considerable degree of cooperation is necessary toachieve success

Contract manufacturing

Strategic Alliances

Countertrade

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Contract Manufacturing

The firm contracts production to a localmanufacturer but retains control over the product

The firm must ensure proper quality controlprocedures

Cost savings labor and other lesser flexibility inresponding to market preference changes - risk ofnurturing a future competitor

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Chryslerwhich left the European market in1970s, returned in 1988 on an export basis. ItsJ eep Cherokee is now manufactured by Daimler-Puch, a German company under a contractmanufacturing agreement.

Highlight

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Highlight - Pitfalls

Schwinn, the US based bicycle manufacturer used tooutsource 80% of its bikes from the Taiwanese companyGiant manufacturing. When Schwinn decided to go for anew supplier, Giant started making and exporting bikesfor the high end market. Today Giant is the secondbiggest bikes manufacturer in the world.

In the meantime Schwinn filed for bankruptcy.

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Relationship-Based Entry

Strategic Alliances

A collaboration between countries to share orexchange value-creating activities (joint R& D, sharedmanufacturing, use of common distribution channels)

e.g. Star Alliance

Counter trade

A mutual exchange relationship between buyers andsellers

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One World

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Star Al liance

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Strategic Alliances: Examples

U.S. Agency for International Development (USAID), thegovernment of Panama and the National GeographicSociety formed strategic alliance to promote Panama astourist destination

Source: Presswire 2007

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Model of Cultural Diff erences and International

Al liance Perfo rmance

Differences in partners

national cultures

Differences in partnersorganizational cultures

Differences in partnersprofessional cultures

Related complementaryresources

Effectiveness of alliancesvalue-creating activities

Performance ofThe International

alliance

Sirmon & Lane (2004)

Related complementaryresources

Effectiveness of alliancesvalue-creating activities

Performance ofThe International

alliance

Differences in partners

national cultures

Differences in partnersorganizational cultures

Differences in partnersprofessional cultures

M time vs. P time culturesobjectives and aspiration

Use Hofstedes four dimensionsKnow-how and collectivism culture

Decision making processAffiliation and social

acceptance

+

+

__

__

__

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A Model of Headquarters-Subsid iary Relationships

Dependence

Trust

Acquiescence

Marketing programstandardization

Cooperation

Subsidiary productperformance

Individualism/collectivism

Is the extent to which oneparty accepts anothers

specific request

Hewett & Bearden (2001)

Antecedent

Factors

RelationshipBehaviours

Dependence Acquiescence

Trust Cooperation

Acquiescence

Individualism/collectivism

Marketing programstandardization

Subsidiary productperformance

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Evaluation of Entry Modes

Involve a trade-off between DEGREE OF CONTROL onthe one hand and COMMITMENT OF RESOURCES onthe other make-or-buy decision

This trade-off exists between forms of Exporting,Contractual forms and Wholly owned subsidiaries interms of RISK, RETURN and CONTROL

Depends on conditions in the host country

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References

Sirmon, D. G. and Lane, P. J . (2004) A model of CulturalDifferences and International Alliance PerformanceJ ournal of International Business Studies, 35 (4) 306 -319.

Hewett, K & Bearden, W.O. (2001), Dependence, trust,and relational behavior on the part of foreign subsidiary

marketing operations: Implications for managing globalmarketing operations, 65 (October) 51-66.

Delios, A. Makino, S. (2003) Timing of Entry and theForeign Subsidiary Performance of J apanese FirmsJ ournal of International Marketing, 11, (3) 83-105.

Week 6_3XPP

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