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BU 612 Market and Mode of Entry (Week 5)

Legal/Regulatory Influences (contd)

Foreign Market Selection Mode of Entry an overview

Readings?

Ch 7 and 8; Czinkota et al. 2009

Next class?

Ch 9; Calantone and Zhou 2001

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Main Legal Systems Common Law

UK, Canada, the USA, many of the former colonies of the UK

Code Law (aka civil law)

Found where common law is not used

Based on an all-inclusive system of written rules of law (civil, commercial and

criminal)

Islamic Law

Encompasses religious duties and obligations and the secular aspect of the law

regarding human rights

Often applied with code or common law

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Islamic law Koran is the basis for Shariah (Islamic law)

It encompasses:

religious duties and obligations

patterns of social and economic behavior for all individuals

property rights, economic decision making and types of economic freedom

The overriding objective of the Islamic system is social justice

Advocates risk sharing

Prohibits the payment of interest Prohibits investment in activities that violate the Shariah, e.g., the

business of alcohol, gambling, casinos

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Also Marxist-Socialist Tenets Govern Eastern European countries commercial legal system

Czech and Poland revised and re-instituted preWorld War II commercial legalcodes

USSR and China need an entire commercial legal system with respect toprivate ownership, contracts, due process, and other legal mechanisms

Russia is moving toward a democratic system

China is attempting to activate a private sector within a multi-componenteconomy, but their legal systems are still nascent

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Please read the pdf file labeled Tourism Australia on D2L.

Also, check out this link:

http://www.youtube.com/watch?v=rn0lwGk4u9o

Tourism Australia

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How does the law impact marketing? Product

Physical and chemical aspects

Safety standards

Price

Government price controls

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Sales, Service and Distribution Shipping and rights of carriage

Communications

Deceptive, misleading or fraudulent practices

Propriety and taste

Promoting certain products to certain markets

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IP, Counterfeiting and Piracy Millions of dollars to establish brand names, designs, trademarks etc.

Inadequate protection from products being counterfeited or pirated as

many countries do not recognize trademarks and patents registered inother countries.

McDonald had to buy its trademark back in Japan

In a common-law country, ownership of intellectual property rights isestablished by prior use.

In many code-law countries, ownership is established by registration.

A trademark in Jordan belongs to whoever registers it first in Jordan so thereare McDonalds restaurants, Microsoftsoftware, and Safeway groceriesall legally belonging to a Jordanian

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Country differences (e.g.) USA

Operates under the first to

invent rule

Protects individual inventors

Patents

Applications secret

Granted in up to 24 mos.

Valid for 17 years afterapproval

Japan

Operates under the first to

register policy

Promotes technology sharing

Patents

Applications public

Granted in 4-6 years

Valid for 20 years from timeof application

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Cyber-law Existing internet law does not completely cover the protection of domain

names, taxes, jurisdiction in cross-border transactions and contractualissues

Countries are drafting legislation to address the myriad legal questions notclearly addressed by current law

Examples of unresolved issues

Cyber squatters register descriptive nouns, geographic names, ethnic groups,

pharmaceutical substances and other similar descriptors and hold them until they aresold at an inflated price

The collection of taxes on sale of products, i.e., when taxes should be collected, wherethey should be collected, and by whom

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Foreign

marketselection:potential

determinants

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Viewing market

selection as a process

of segmentation

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Entering foreign markets

Understand what markets are appropriate

Understand whether you want to:

Enter

Take a

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Country clustering (see Cavusgil et al. 2004 in Industrial MarketingManagementfor more details)

Countries are clustered by market size, growth, intensity, infrastructure,

receptivity, free market structure, risk from the perspective of the US

Cluster 1: Mozambique, Senegal, Bangladesh, Yemen, Nepal, Kenya

Cluster 2:

South Africa, Egypt, Honduras, Morocco, Ghana, Indonesia, Algeria, Nigeria,

Pakistan

Cluster 3:

Malaysia, Slovak Republic, Dominican Republic, Tunisia, Vietnam, Syria

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More..Cluster 4:

Mexico, Thailand, Georgia, Turkey, Philippines, Peru, Jordan, Albania, Armenia,

Ukraine, Azerbaijan, Sri Lanka, Moldova, Belarus, Mongolia

Cluster 5:

Russia, Brazil, Argentina, Uruguay, Kuwait, Croatia, Bolivia, Saudi Arabia, El

Salvador, Venezuela, Colombia, Bulgaria, Guatemala, Paraguay, Ecuador,

Romania

Cluster 6:

Singapore, Ireland, S Korea, Spain, Chile, Portugal, Estonia, Slovenia, UAE,

Greece, Czech Republic, Hungary, Poland, Costa Rica, Latvia, Lithuania, Panama

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MoreCluster 7:

Japan, Germany, UK, Belgium, Netherlands, Hong Kong, France, Denmark,

Switzerland, Austria, Italy, Israel

Cluster 8:

Canada, Australia, Finland, Sweden, Norway, New Zealand

Cluster 9:

China, India

All from the perspective of:

USA

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Market screening one example

The Business Environment Risk Index (BERI)

Focus? Political risk

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Screening a 2nd example Identify socioeconomic andpolitical indicators you (the

management team) consider critical

These usually reflect wider strategic objectives

Determine the importance of the indicators to your firm

Rate the countries in your consideration pool on each

indicator

Calculate overall score for each country

Prioritize

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E.g.

Country Per capita

Income

Population Competition Political Risk Score

Country A 50 25 30 40 3400

Country B 20 50 40 10 3600

Country C 60 30 10 70 3650

Country D 20 20 70 80 3850

Weight 25 40 25 10

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Screening a 3rd example Collect historical data on your current export market(s)

Use the indicators you plan to use for the new market(s)

Xic (score of country c on indicator i)

Evaluate your post-entry performance in each of those markets E.g. success score on a 1-10 scale (Sc is success of country c)

Derive weights for each of the country indicators

Use regression with past data (or Delphi approach)

Rate the new/potential countries on each indicator

Predict performance in prospective markets

Plug into earlier regression

Prioritize

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Screening a 4th

example

1

Domestic (home) regulations? What do they suggest?

Management preferences?

2

Economic, political and legal risk?

Market culture, nature and potential size?

3

Competitive barriers?

Entrenched competition?

4

Market fit?

Market responsiveness?

5

Resourcing requirements?

Meet strategic objectives and support competitive advantage?

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Screening a 5th

example

Building a Market Attractiveness/Competitive Strength

Matrix

Involves a combination of:

the management teams experience-based opinions

research

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The market

attractiveness/

competitive

strength matrix

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E.g. of underlying

questionnaire for

placing countries on

a market

attractiveness/competitive strength

matrix

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Discussion Question Read the Tata Nano case on pp 198-99 of your text.

Ignore the questions on p. 199 but answer this

Using any two examples of the market screening

approaches in these notes (as well as your text), identify

logical countries for Tata Nano to enter.

Note you will need to identify a potentially relevant pool ofcountries to consider, justify your screening criteria and work

through the two market screening approaches.

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The international market

segmentation/screening

process: an example of

the proactive and

systematic approach

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Timing of entry Tricky area

Easy to get burned

Very idiosyncratic

Applies to both initial market entry as well as product launches

E.g. early into China?

If you have lots of international experience, are big, have a broad scope

of products, competitors are already there, willing to use non-equity

modes (Gaba et al. 2002)

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Gross

nationalproduct

percapita

High

LowTime

The waterfall approach to market entry

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Advanced

countries

Developing

countries

Less developed

countries

The shower approach to market selection

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A guerilla approach:

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Appropriate

global marketing

strategies for

SMEs (according

to the text)

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Factors influencing the decision to concentrate

vs. diversify across countries

E.g. growth through market development vs. penetration

E.g. accepting of risk vs. risk averseCompany Factors

E.g. low volume vs. high volume business

E.g. standardized vs. customized offerProduct Factors

E.g. small niche vs. large markets

E.g. low vs. high loyaltyMarket Factors

E.g. low vs. high costs to target/support markets

E.g. standardized vs. customized communications

MarketingFactors

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Examples of entry mode options?

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Examples of different B2C entry modes

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Insights from Czinkota et al. (2009)

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Underlying everything? Cooperative relationships

aka strategic alliances

a coalition of 2 or more organizations to achieve strategically significant

goals that are mutually beneficial

Key characteristics

Each party has something the other values

The partnership is autonomous and is flexible

Have commitment and support of top management

Parties are complementary and not too different

Start narrow grow over time

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Rules for choosing mode of entry (Root 1994)

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Factors affecting the foreign market entry mode decision

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Important Note:

Why would you exit (de-internationalize)?

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Exit considerationsBarriers to exit? Guidelines

Fixed costs of exit

Getting rid of assets

Signals to your other markets

Long-term opportunities

Salvage what you can, if you

can

But be aware of escalation bias

Make an incremental exit

Migrate customers