38467014 marketing-ppt

INTERNATIONAL MARKET SELECTION

AND ENTRY

by

Pressures for Cost Reduction and Local Responsiveness

• Pressures for cost reductions– Global competitors seek to minimize unit costs through

location economies .– In commodity-type product industries, intense price

competition.

• Pressures for local responsiveness arise from:– Differences in local consumer tastes and preferences.– Differences in infrastructure and traditional practices.– Differences in distribution channels among countries.– Host government economic and political demands.

Four Basic Strategies

Strategic Choice• International strategy– Create value by transferring skills and products abroad.

• Multidomestic strategy– Maximize local responsiveness (taste& preference)by

customizing products and marketing strategy for local markets.

• Global strategy– Pursue low-cost status, offer standardized global

products.• Transnational strategy– Use global learning to achieve low-cost status,

differentiation, and local responsiveness simultaneously.

The Advantages and Disadvantages of Different Strategies for Competing Globally

Strategy Advantages Disadvantages

International •Transfer of distinctive competencies to foreign markets

•Lack of local responsiveness

• Inability to realize location economies

•Failure to exploit experience-curve effects

Multidomestic •Ability to customize product offerings and marketing in accordance with local responsiveness

• Inability to realize location economies

•Failure to exploit experience-curve effects

•Failure to transfer distinctive competencies to foreign markets

The Advantages and Disadvantages of Different Strategies for Competing Globally

Strategy Advantages Disadvantages

Global •Ability to exploit experience-curve effects

•Ability to exploit location economies

•Lack of local responsiveness

Transnational • Ability to exploit experience-curve effects

• Ability to exploit location economies

• Ability to customize product offerings and marketing in accordance with local responsiveness

• Reaping benefits of global learning

•Difficulties in implementation because of organizational problems

Entry Strategies

Where are we in the strategy?

Political &Legal EconomicMarketing

Research

Competitive Analysis

Promotions

Logistics and Distribution

Products & Services

Pricing

CultureUncontrollable

ControllableSegmentationand positioning

Market Entry Strategy

Planning

Organising/Restructuring

Environment

We are here!

Basic Entry Decisions

• Which foreign markets?– Politically and financially stable– Developed and developing nations– Free market systems

• Timing of entry– Pioneering costs versus

first-mover advantages.• Scale of entry and strategic commitments– Scale of entry affects the nature of competition in the

national market. Implications of risks and benefits must be weighed carefully.

Selecting Market Entry

• Overview– Must decide what country to enter– Must allocate the right resources– Decide what to sell– Decide where to sell– Select the criteria for decision making– Seek an acceptable equity share– Acquire the right fit– Design an exit strategy

Determinants of Entry Strategy

• Degree of contact with foreign market desired– no contact - export intermediary– some contact - foreign import intermediary– high contact - subsidiary, FDI, etc.

• Determined by:– market potential– firm’s capabilities and experience– managerial commitment to export, market and

risk tolerance

Basic Entry Decisions

• Which foreign markets?– Politically and financially stable– Developed and developing nations– Free market systems

• Timing of entry– Pioneering costs versus

first-mover advantages.• Scale of entry and strategic commitments– Scale of entry affects the nature of competition in the

national market. Implications of risks and benefits must be weighed carefully.

The Choice of Entry Mode

• Exporting• Licensing

• Franchising• Joint Ventures

• Wholly Owned Subsidiaries

ExportingExporting

Choice of International Entry Mode

No need to establish operations in other nations.Establish distribution channels through contractual

relationships.May have high transportation costs.May encounter high import tariffs.May have less control on marketing and distribution.Difficult to customize product.

Common way to enter new international markets.

Foreign production

• Licensing– no physical asset exposure

• though IP risk remains

Licensor(domestic manufacturer)

Licensee(O/S Manufacturer)

Manufacture & sell

License

Royalties & fees

Owns IP

Qualcomm Ericsson uses CDMA technology in headphones

1 to 15%

© 2006 by Nelson, a division of Thomson Canada Limited.

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Licensing

Choice of International Entry Mode

Licensing firm is paid a royalty on each unit produced and sold.

Licensee takes risks in manufacturing investments. Least risky way to enter a foreign market. Licensing firm loses control over product quality &

distribution. Relatively low profit potential.

Firm authorizes another firm to manufacture & sell its products -

Franchising

Franchisor(Country A)

Franchisee(Country B)

Trade nameTrade markBusiness Models (marketing plan)Operating manualsStandardsTrainingQuality monitoring

Royalties & fees

Owns IP

Limited time

Limited territory

Limited time

Limited territory

Master Franchisor

Local entrepreneurs

Examples

•Subway

•World Gym Fitness

•Mailboxes etc.

• Franchising– A specialized form of licensing where the

franchiser sells intangible property (usually a brand or trademark).

– The franchisee agrees to follow the strict rules and business plans of the company

Joint Ventures

Firm C

Home country Host country

New entityin host country - bothhave equity

50% 50%

Contribution•Technology•Manufacturing expertise

Firm A Firm B

Contribution•Distribution network•Labour •Finance•Local market knowledge•E.g. McDonald’s

• Joint Venture– Separate corporations come together to form a

new corporate entity– Two or more companies have an ownership stake,

but combine resources for mutual benefit– Sharing knowledge can be dangerous for the

companies involved

Problems with joint ventures

• lack of legal structure– e.g. PRC, no accounting standards– poor proprietary rights

• lack of trust– mutual conflicts– resource allocation

• access to technology• profit sharing problems

© 2006 by Nelson, a division of Thomson Canada Limited.

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Choice of International Entry Mode

Can be very costly.Legal and regulatory requirements may present

barriers to foreign ownership.Usually require complex and costly negotiations.Potentially disparate corporate culture.

Enable firms to make most rapid international expansion.

Acquisitions

Greenfield VentureGreenfield Venture

Choice of International Entry ModeNew Wholly-Owned Subsidiary –

Most costly & complex of entry alternatives. Achieves greatest degree of control. Potentially most profitable, if successful. Maintain control over technology, marketing and

distribution.May need to acquire expertise & knowledge that is relevant to host country.

Could require hiring host country nationals or consultants at high cost.

International diversification facilitates innovation in the firm.

May generate resources necessary to sustain a large-scale R&D program.

Generally related to above-average returns, assuming effective implementation and management of international operations.

Provides larger market to gain more and faster returns form investments in innovation.

International diversification provides greater economies of scope and learning.

Strategic Competitiveness Outcomes

Exit and Re-entry Strategies

• Consolidate operations– reduce plant, close operations– consolidate operations

• Ford: Closing plant in UK• GM: closed plant in UK• Sterile : closed plant in tuticorin

• Re-entry– acquisition:

• e.g., Coke acquired Parle (repurchased of Indian bottler/distributor)

By

Su.Arumug

ham