INTERNATIONAL MARKET ENTRY MODES & INTERNATIONALISATION PROCESS
INTERNATIONAL MARKET ENTRY MODES
&INTERNATIONALISATIO
N PROCESS
Workshop Agenda INTERNATIONAL MARKET ENTRY
MODES
PROCESS OF INTERNATIONALISATION
THEORETICAL/CONCEPTUAL FRAMEWORKS
BOARD MEETING ACTIVITY
BASIC FOREIGN EXPANSION ENTRY DECISIONS International Market Entry
Which markets to enter
When to enter these markets
What is the scale of entry
WHICH FOREIGN MARKETS Favorable
Politically stable developed and developing nations
Free market systemsNo dramatic upsurge in inflation or private-
sector debt
UnfavorablePolitically unstable developing nations with a
mixed or command economy or where speculative financial bubbles have led to excess borrowing
EARLY MARKET ENTRY Advantages
First-mover advantage.Build sales volume.Move down experience curve and achieve cost
advantage.Create high switching costs.
DisadvantagesFirst mover disadvantage - pioneering costs.Changes in government policy.
MARKET ENTRY SCALE
Large scale entryStrategic Commitments - a decision that has a
long-term impact and is difficult to reverse.May cause rivals to rethink market entry.May lead to indigenous competitive response.
Small scale entryTime to learn about market.Reduces exposure risk.
ENTRY MODES
Exporting Turnkey Projects Licensing Franchising Joint Ventures Wholly Owned Subsidiaries Strategic Alliances
14-8
Exporting Advantages
Avoids cost of establishing manufacturing operations
May help achieve experience curve and location economies
DisadvantagesMay compete with low-cost location
manufacturersPossible high transportation costsTariff barriersPossible lack of control over marketing reps
Piggy backing Distribution of products is through utilising the
international distribution network of other international manufacturers.
AdvantagesEffective entry strategy into developed countriesCost-effectiveEconomies of Scale
DisadvantagesOften poor channels of marketing communicationLocked into non strategic unsatisfactory arrangement.
14-10
Turnkey projects Contractor agrees to handle every detail of project
for foreign client
AdvantagesCan earn a return on knowledge assetLess risky than conventional FDI
DisadvantagesNo long-term interest in the foreign countryMay create a competitorSelling process technology may be selling competitive
advantage as well
14-11
Licensing
Agreement where licensor grants rights to intangible property to another entity for a specified period of time in return for royalties
AdvantagesReduces development costs and risks of establishing
foreign enterprise.Lack capital for venture.Unfamiliar or politically volatile market.Overcomes restrictive investment barriers. Others can develop business applications of intangible property.
14-12
Franchising Franchiser sells intangible property and
insists on rules for operating business.
AdvantagesReduces costs and risk of establishing enterprise
DisadvantagesMay prohibit movement of profits from one
country to support operations in another countryQuality control
Licensing Process know-howManufacturing competence
Raw materialsManagement
FranchisingProduct-market knowledgeMarket access/distribution
Market access / distributionManufacturing competence
Marketing Partnership
Product-market know-howProduct-market knowledge
Range of assets possessed by Partner A in home country
NATURE OF STRATEGIC ALLIANCE
Range of assets possessed by Partner B in international market
Joint ventures
Product process know – how Product-market knowledge
Raw materialsManagement
Market access / distributionManufacturing competence
Raw materialsManagement
(Bradley, 2005:241)
Joint Ventures
A foreign company invites an outside partner to share stock ownership in the new unit. The ownership could vary for companies accepting minority or majority position in the Joint Venture.
(Jeanet & Hennesey, 2004:300)
JOINT VENTURES Advantages Access to new markets and distribution
networks
Benefit from local partner’s knowledge.
Shared costs/risks with partner.
Reduced political risk.
JOINT VENTURESDisadvantages Ambiguous objectives.
Partners have different objectives for the joint venture
Imbalance of Expertise
Poor integration due to different management styles and cultures brought in.
Early stages are difficult.
WHOLLY OWNED SUBSIDIARY Subsidiaries could be Greenfield investments or
acquisitions
AdvantagesNo risk of losing technical competence to a competitorTight control of operations.Realize learning curve and location economies.
DisadvantageBear full cost and risk
STRATEGIC ALLIANCES
Cooperative agreements between potential or actual competitors.
AdvantagesFacilitate entry into marketShare fixed costsBring together skills and assets that neither company
has or can developEstablish industry technology standards
DisadvantagesCompetitors get low cost route to technology and
markets
Why Strategic Alliances
High cost of technology development
Reduction of Psychic Difference
Good way to secure access to foreign markets
Host country may require some local ownership
Global Alliances
Firms join to attain world leadership
Each partner has significant strength to bring to the alliance
A true global vision
Relationship is horizontal not vertical
When competing in markets not part of alliance, they retain their own identity
Partner selection
Get as much information as possible on the potential partner
Collect data from informed third partiesFormer partnersInvestment bankersFormer employees
Get to know the potential partner before committing
Expert Opinion
Characteristics of Strategic Alliances
Independence ofParticipants
SharedBenefits
Ongoing ContributionsMarkets
Cooperation
Benefits Control
Technology Products
(HILL 2005:500)
Managing the alliance
Build trustRelational capital
Learning from partnersDiffusion of knowledge
Stage 1no regular export
activities
Stage 2export by independent
representatives
Stage 3establishment of
foreign sales affiliates
Stage 4installation of foreign production facilities
Amount of Resources Committed - Foreign Market
LEVEL
OF
CONTROL
Approaches to Foreign Market Entry - Uppsala model (Bartlett, Ghoshal & Beamish, 2008:9)
Export
Indirect Export
Licensing
FranchisingJoint Venture
Wholly Owned Subsidiary
Ohmae's (1990) 5-stage globalisation model (evolutionary)
1. Export orientated company (develop strong product base in home market)
2. Establish overseas branches
3. Relocating production base to key markets
4. 'Insiderisation': transferring corporate functions from parent firm HQ to new local environment
5. Complete global company: establishing global branding
(Ohmae, K. 1990, The Borderless World, Harper Business, New York.)
R I S K
CooperationStrategiesJoint ventures
Strategic alliances
Direct ExportingDistributors
AgentsDirect marketing/
E-commerceFranchising
Management contracts
Direct Invest’Own subsidiary
AcquisitionAssembly
Indirect ExportingPiggybacking
Trading companiesExport management companies
Domestic purchasing
C O
N T
R O
L
RISK & CONTROL IN MNE (Doole & Lowe, 2004:220)
PRESSURE OF LOCAL RESPONSIVENESS:
• Difference in Consumer Needs• Difference in Distribution Channels• Availability of Substitutes• Market Structure• Host Government Demands
PRESSURE OF GLOBAL INTEGRATION:
• Importance of Multinational Customers• Presence of Multinational Competitors• Investment Intensity• Technology Intensity• Pressure for Cost Reduction• Universal Needs• Access to Raw Materials & Energy
(Prahalad and Doz see Dicken, 2003:Figure 7.12;220)
Globally Integrated
Product Emphasis
Multifocal Oriented
Area Emphasis
Locally Responsive
Transnational Strategy
References Bradley, F., 2005. International Marketing Strategy. 5th ed.
England: Pearson Education Ltd.
Bartlett, C., Ghoshal, S. & Beamish, P., 2008. Transnatonal Management. 5th ed. New York: McGraw-Hill/Irwin.
Hill, C., 2005. International Business. 5th ed. New York: McGraw-Hill/Irwin.
Dicken, P., 2003. Global Shift. 4th ed. London: SAGE Publications Ltd.
Jeanet, J. P., Hennessey, H. D., 2004. Global Marketing Strategies. 6th ed. USA: Houghton Mifflin Company
Partneringalliances, 2008. Deliver the Value Your Strategic Alliance Partner Needs. Available via: uk.youtube.com Available at <http://uk.youtube.com/watch?v=uk_Th-v7plg> [Accessed : 28 November 2008]
Doole, I., Lowe, R., 2004. International Marketing Strategy. 4th ed. London: Thomson Learning
References (Continued)