1 International Marketing Management Foreign Market Entry Strategies.

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International Marketing International Marketing ManagementManagement

Foreign Market Entry Strategies

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OverviewOverview

1. Target Market Selection1. Target Market Selection2. Choosing the Mode of Entry2. Choosing the Mode of Entry3. Exporting3. Exporting4. Licensing4. Licensing5. Franchising5. Franchising6. Contract Manufacturing6. Contract Manufacturing7. Joint Ventures7. Joint Ventures8. Wholly Owned Subsidiaries8. Wholly Owned Subsidiaries9. Strategic Alliances9. Strategic Alliances10. Timing of Entry10. Timing of Entry11. Exit Strategies11. Exit Strategies

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IntroductionIntroduction

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

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

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

marketsmarkets

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1. Selecting the Target Market1. Selecting the Target Market

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 (see Exhibit 9-1 for the entry decision process).(see Exhibit 9-1 for the entry decision process).

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 data2. Determine importance of country indicators2. Determine importance of country indicators3. Rate the countries in the pool on each3. Rate the countries in the pool on each

indicatorindicator4. Compute overall score for each country4. Compute overall score for each country

Chapter 9Chapter 9 Copyright (c) 2007 John Wiley & Sons, Inc.Copyright (c) 2007 John Wiley & Sons, Inc. 55

1. Selecting the Target Market1. Selecting the Target Market

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2. Choosing the Mode of Entry2. Choosing the Mode of Entry

Decision Criteria for Mode of Entry:Decision Criteria for Mode of Entry:– Market Size and GrowthMarket Size and Growth– RiskRisk– Government RegulationsGovernment Regulations– Competitive Environment/Cultural DistanceCompetitive Environment/Cultural Distance– Local InfrastructureLocal Infrastructure

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2. Choosing the Mode of Entry2. Choosing the Mode of Entry

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2. Choosing the Mode of Entry2. Choosing the Mode of Entry

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2. Choosing the Mode of Entry2. Choosing the Mode of Entry

Classification of MarketsClassification of Markets::– Platform Countries (Singapore & Hong Kong)Platform Countries (Singapore & Hong Kong)– Emerging Countries (Vietnam & the Philippines)Emerging Countries (Vietnam & the Philippines)– Growth Countries (China & India)Growth Countries (China & India)– Maturing and established countries (examples: Maturing and established countries (examples:

South Korea, Taiwan & Japan)South Korea, Taiwan & Japan)– Company ObjectivesCompany Objectives– Need for ControlNeed for Control– Internal Resources, Assets and CapabilitiesInternal Resources, Assets and Capabilities– FlexibilityFlexibility

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2. Choosing the Mode of Entry2. Choosing 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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3. Exporting3. Exporting

Indirect Exporting Indirect Exporting – Export merchantsExport merchants– Export agentsExport agents– Export management companies (EMC)Export management companies (EMC)

Cooperative ExportingCooperative Exporting– Piggyback ExportingPiggyback Exporting

Direct ExportingDirect Exporting– Firms set up their own exporting departmentsFirms set up their own exporting departments

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4. Licensing4. Licensing

Licensor and the licenseeLicensor and the licensee BenefitsBenefits::

– Appealing to small companies that lack resourcesAppealing to small companies that lack resources– Faster access to the marketFaster access to the market– Rapid penetration of the global marketsRapid penetration of the global markets

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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5. Franchising5. Franchising

Franchisor and the Franchisor and the franchiseefranchisee

Master franchisingMaster franchising BenefitsBenefits::

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

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

– Availability of local Availability of local franchisees’ knowledgefranchisees’ knowledge

CaveatsCaveats::– Revenues may not be adequateRevenues may not be adequate– Availability of a master Availability of a master

franchiseefranchisee– Limited franchising Limited franchising

opportunities overseasopportunities overseas– Lack of control over the Lack of control over the

franchisees’ operationsfranchisees’ operations– Problem in performance Problem in performance

standardsstandards– Cultural problemsCultural problems– Physical proximityPhysical proximity

Chapter 9Chapter 9 Copyright (c) 2007 John Wiley & Sons, Inc.Copyright (c) 2007 John Wiley & Sons, Inc. 1414

5. Franchising5. Franchising

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6. Contract Manufacturing (Outsourcing)6. Contract Manufacturing (Outsourcing) BenefitsBenefits::

– Labor cost advantagesLabor cost advantages– Savings via taxation, lower energy costs, raw materials, Savings via taxation, lower energy costs, raw materials,

and overheadsand overheads– Lower political and economic riskLower political and economic risk– Quicker access to marketsQuicker access to markets

CaveatsCaveats::– Contract manufacturer may become a future competitorContract manufacturer may become a future competitor– Lower productivity standardsLower productivity standards– Backlash from the company’s home-market employees Backlash from the company’s home-market employees

regarding HR and labor issuesregarding HR and labor issues– Issues of quality and production standardsIssues of quality and production standards

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6. Contract Manufacturing (Outsourcing)6. Contract Manufacturing (Outsourcing)

Qualities of an ideal subcontractor:Qualities of an ideal subcontractor:– Flexible/geared toward just-in-time deliveryFlexible/geared toward just-in-time delivery– Able to meet quality standardsAble to meet quality standards– Solid financial footingsSolid financial footings– Able to integrate with company’s businessAble to integrate with company’s business– Must have contingency plans Must have contingency plans

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7. Expanding through Joint Ventures7. Expanding through Joint 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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7. Expanding through Joint Ventures7. Expanding through Joint Ventures

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

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7. Expanding through Joint Ventures7. Expanding through Joint Ventures

Drivers Behind Successful International Joint VenturesDrivers Behind Successful International Joint Ventures : :– 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– Create a launch team during the launch phase:Create a launch team during the launch phase:– (1) Build and maintain strategic alignment(1) Build and maintain strategic alignment– (2) Create a governance system(2) Create a governance system– (3) Manage the economic interdependencies(3) Manage the economic interdependencies– (4) Build the organization for the joint venture(4) Build the organization for the joint venture

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8. Entering New Markets through Wholly 8. Entering New Markets through Wholly Owned SubsidiariesOwned Subsidiaries

AcquisitionsAcquisitions Greenfield OperationsGreenfield Operations BenefitsBenefits::

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

part of companiespart of companies– Allows the investor to manage and control Allows the investor to manage and control

marketing, production, and sourcing decisionsmarketing, production, and sourcing decisions

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8. Entering New Markets through Wholly 8. Entering New Markets through Wholly Owned SubsidiariesOwned Subsidiaries

CaveatsCaveats::– Risks of full ownershipRisks of full ownership– Developing a foreign presence without the Developing a foreign presence without the

support of a third partsupport of a third part– Risk of nationalizationRisk of nationalization– Issues of cultural and economic sovereignty of Issues of cultural and economic sovereignty of

the host countrythe host country

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8. Entering New Markets through Wholly 8. Entering New Markets through Wholly Owned SubsidiariesOwned Subsidiaries

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

Greenfield OperationsGreenfield Operations– Offer the company more flexibility than Offer the company more flexibility than

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

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9. Creating Strategic Alliances 9. Creating Strategic Alliances

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

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

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9. Creating Strategic Alliances 9. Creating Strategic Alliances

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

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9. Creating Strategic Alliances9. Creating Strategic Alliances

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9. Creating Strategic Alliances9. Creating Strategic Alliances

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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9. Creating Strategic Alliances9. Creating Strategic Alliances– Other factors: Other 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 Have similar cultures, assets sizes and Have similar cultures, assets sizes and

venturing experienceventuring experience Tend to start on a narrow basis and broaden Tend to start on a narrow basis and broaden

over timeover time A shared vision on goals and mutual benefitsA shared vision on goals and mutual benefits

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10. Timing of Entry10. Timing 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– Also, the broader the scope of products and Also, the broader the scope of products and

servicesservices– 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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10. Timing of Entry10. Timing of Entry

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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11. Exit Strategies11. Exit 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 Contemplate and assess all options to

salvage the foreign businesssalvage the foreign business– Incremental exitIncremental exit– Migrate customersMigrate customers