Foreign market entry: Зравствуйте! Меня зовут Джон Смит Dr Paul Sudnik St Petersburg – 15 th May 2013
Foreign market entry:
Зравствуйте!
Меня зовут Джон Смит
Dr Paul Sudnik
St Petersburg – 15th May 2013
Munich University of Applied Sciences 09 May 2013
Dr Paul Sudnik
BA (Hons.) – Leeds University, UK
Textile Engineering and Management Studies
MBA – Manchester Business School, UK
Finance Specialisation
Dissertation „The Evaluation of Dairy Co-operatives”
Doctorate – Bournemouth Business School, UK
Thesis on Key Account Management in Business to
Business environments
Chartered Director of the Institute of Directors,
London
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Munich University of Applied Sciences 09 May 2013
Dr Paul Sudnik
Levi Strauss & Co.
Marketing Manager – based in Switzerland
Tetra Pak
Managing Director – Poland
Managing Director – Ireland
Vice President – North Mediterranean Region
Amcor PET Packaging
Vice President – Central & Eastern Europe
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Munich University of Applied Sciences 09 May 2013
Dr Paul Sudnik
Professorship at Staffordshire University, UK
Director of International Programmes at MUAS, D
Specific expertise in:
Customer Service, Satisfaction and Loyalty in B2B
Business transformation in B2B
Marketing / sales strategy / Key Account Management.
Continuous professional development
Action Learning.
Current research interest in knowledge transfer in
the South Western Balkans – particularly Serbia
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Munich University of Applied Sciences 09 May 2013
Джон Смит говорит:
Hello there, I am glad to be in St
Petersburg!
Greetings from the United Kingdom!
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Munich University of Applied Sciences 09 May 2013
Джон Смит говорит:
I say, old boy, what’s all this about foreign
markets?
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Munich University of Applied Sciences 09 May 2013
Why Expand into Foreign Markets? Gain access to new customers
Offers potential for increased revenues
Particularly when domestic markets are mature or saturated
Achieve lower costs and enhance firm’s competitiveness Domestic sales volume is not large enough to fully
capture economies of scale
Smaller European countries, eg Ireland growth has come from exports as domestic demand is insufficient to sustain growth
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Munich University of Applied Sciences 09 May 2013
Why Expand into Foreign Markets? (cont.)
Capitalise on core competencies
A firm may be able to leverage its competencies in
foreign countries as well as its domestic market, eg.
Nokia
Spread business risk across a wider market base
Spread business risk by operating in a number of
countries rather than depending on its domestic market
entirely, EG. Downturn in the Japanese economy
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Munich University of Applied Sciences 09 May 2013
Other Reasons for International
DiversificationMarket-based Exploit cultural/
geographic differences
• Globalisation of markets &
competition
• Cash in on differences in culture
• Following customers • Administrative differences
• Specific geographical/
economic differences
Utilise strategic capabilities Economic benefits
• Broaden market size • Economies of scale
• Internationalise value-adding
activities
• Stabilisation of earnings across
markets
• Enhance knowledge
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Munich University of Applied Sciences 09 May 2013
Colgate Goes to China
Using aggressive promotional and educational programs, Colgate has expanded its market share from 7% to 35% in less than a decade.
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Munich University of Applied Sciences 09 May 2013
Джон Смит говорит:
So what should I do now?
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Munich University of Applied Sciences 09 May 2013
Deciding Which Markets to Enter Before going abroad, the company should try to define
its international marketing objectives and policies.
What Volume of Foreign Sales is Desired?
How Many Countries to Market In?
What Types of Countries to Enter?
Choose Possible Countries and Rank Based on
Market Size, Market Growth, Cost of Doing
Business, Competitive Advantage, and Risk Level
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Munich University of Applied Sciences 09 May 2013
Deciding Which Markets to Enter
Assess alternative markets
Evaluate the respective costs, benefits, and
risks of entering each
Select those that hold the most potential for
entry or expansion
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Munich University of Applied Sciences 09 May 2013
Factors in Assessing New Market
Opportunities
Product-market dimensions
Major product-market differences
Structural characteristics of the national product market
Competitor analysis
Potential target markets
Relevant trends
Explanation of change
Success factors
Strategic options
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Munich University of Applied Sciences 09 May 2013
Factors for Market Selection and
Entry
Political environment
Macro-economic conditions
Social structures and cultural norms
Technical Infrastructure
Transport and communication
Availability of local resources
Tariff and non-tariff trade barriers
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Munich University of Applied Sciences 09 May 2013
Factors for Market Selection and
Entry
Environmental issues Legal risks
– Sovereign risk
– Absence of regulation and control• Protection of intellectual property
• Corruption
– International risk
– Security risk
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Munich University of Applied Sciences 09 May 2013
Macro level Research
(general market potential)
General market relating to
product/service
Micro level Research
(specific factors affecting
the product)
Target Markets
R
E
J
E
C
T
E
D
Country Priority Listing
Filter 1
Filter 2
Filter 3
Filter 4
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Munich University of Applied Sciences 09 May 2013
Which markets to choose ?
Most text books advocate a logical and
sequential process for choosing
international markets
Geographical and cultural proximity
In practice a number of approaches can be
used
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Munich University of Applied Sciences 09 May 2013
Choosing a Mode of Entry
Exporting
International
Licensing
International
Franchising
Specialized Modes
Foreign Direct
Investment
Decision Factors:
Ownership advantages
Location advantages
Internalization advantages
Other factors
Need for control
Resource availability
Global strategy
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Munich University of Applied Sciences 09 May 2013
Time
Level
of
Involvement
Risk & Return
Control
Exporting
Licensing &
Franchising
Joint Ventures
& S. A.
Direct
Investment
Entry Modes
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Munich University of Applied Sciences 09 May 2013
Джон Смит говорит:
I think that we will try to export some of our
products – this seems a good first step…
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Munich University of Applied Sciences 09 May 2013
Advantages & Disadvantages of
Exporting
Advantages
Easiest and least costly way
Gain from local knowledge of agent or distributor
Relatively low investment costs
Internet access for small firms
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Munich University of Applied Sciences 09 May 2013
Advantages & Disadvantages of
Exporting
Disadvantages
Lower profit potential
Loss of control over marketing
Lack of feed back from market
Identifying suitable agent/distributor
Agency agreements of agent
Transportation costs
Vulnerability to tariffs
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Munich University of Applied Sciences 09 May 2013
Exporting
Indirect Exporting
Via a domestic client
Piggy backing
Direct Export
Via distributors
Direct selling
Mail order
On-line
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Munich University of Applied Sciences 09 May 2013
Motivations for Exporting
Proactive
motivations: pull a
firm into foreign
markets as a result
of opportunities
available there
Reactive
motivations: push a
firm into foreign
markets because
opportunities are
decreasing in the
domestic market
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Munich University of Applied Sciences 09 May 2013
Джон Смит говорит:
I think that we are strong enough to do
more than just export – we have good
know how that companies want to use
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Munich University of Applied Sciences 09 May 2013
Licensing
An international licensing agreement grants the
rights of a firm in the host country to either
produce or sell a product or both in return for
royalty payments (Deresky, 2000)
Useful when a firm has neither the resources or
capabilities to directly enter foreign markets
Patents
Trademarks
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Munich University of Applied Sciences 09 May 2013
The Licensing Process
LICENSOR
• Leases the right to use
its intellectual property
• Earns new revenues with
relatively low investment
LICENSEE
• Uses the intellectual
property to create
products for local sale
• Pays a royalty back to
the licensor
Basic Issues
1. Set the boundaries of the agreement
2. Establish compensation rates
3. Agree on the rights, privileges, and constraints
4. Specify the duration of the agreement
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Munich University of Applied Sciences 09 May 2013
Advantages & Disadvantages of
Licensing
Advantages
Rapid entry to foreign markets
Does not require large capital investment
Reduces problems
Trade barriers
Foreign ownership issues
Avoids committing resources in unstable,
politically volatile countries
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Munich University of Applied Sciences 09 May 2013
Advantages & Disadvantages
of Licensing
Disadvantages
Creates a competitor
Control over licensee and product quality
Safeguarding IP
If the royalty potential is considerable
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Munich University of Applied Sciences 09 May 2013
Джон Смит говорит:
Jolly good! What Ho!
Is it time for a pint yet?
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Munich University of Applied Sciences 09 May 2013
Franchising
One of the most rapidly growing methods of
foreign market entry
Often better suited to the global expansion
of retail and services enterprises
EG. McDonalds. KFC, Hilton Hotels, Holiday
Inn
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Munich University of Applied Sciences 09 May 2013
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Munich University of Applied Sciences 09 May 2013
KFC entered Japan through a joint ownership venture with Japanese conglomerate Mitsubishi.
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Munich University of Applied Sciences 09 May 2013
Advantages & Disadvantages
of Franchising
Advantages
Rapid entry and market penetration can be
achieved
The franchisee bears most of the costs and
risks of establishing in foreign locations
Franchiser bears costs of training, support and
monitoring
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Munich University of Applied Sciences 09 May 2013
Advantages & Disadvantages
of Franchising
Disadvantages
The big problem the franchiser faces is
maintaining quality control, standards and
consistency
Will the franchisee modify to the franchiser’s
product?
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Munich University of Applied Sciences 09 May 2013
Джон Смит говорит:
I’m getting the feel for this…
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Munich University of Applied Sciences 09 May 2013
Joint Ventures
Seeking a foreign partner with which to
establish a new separate business entity
owned jointly by the 2+ parents.
Undertaking by the entities to achieve
business goals through a collaborative
effort and to share profits and losses by
doing so.
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Munich University of Applied Sciences 09 May 2013
Joint Ventures- Types
Dominant parent
A venture where one of the parents is clearly dominant
in terms of size and market share
Independent child
The joint subsidiary operates at arms length from the
corporate parents
Multi-parent
Where there are several parent companies, eg. Airbus
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Munich University of Applied Sciences 09 May 2013
Reasons for Joint Ventures
To acquire market expertise/knowledge/distribution channels in unfamiliar overseas markets
Expansion with limited outlay of capital.
The risks and costs of international expansion are shared.
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Munich University of Applied Sciences 09 May 2013
Reasons for Joint Ventures
Necessary to gain entry into certain markets, when, for example, government legislation requires local participation, eg. China
To improve sales prospects, particularly in terms of government and public sector contracts
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Munich University of Applied Sciences 09 May 2013
Issues with Joint Ventures
Conflicting objectives of partners e.g. Profit/dividend policy
Sourcing
Production
pricing issues
Trade-off between the drive for control and the quest for additional resources
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Munich University of Applied Sciences 09 May 2013
Issues with Joint Ventures
Lack of synergy
High “divorce” rate 45% judged as successful
60% lasted longer than 4 years
14% lasted more than 10 years
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Munich University of Applied Sciences 09 May 2013
Strategic Alliances
Companies from different parts of the world have formed S.A.s to strengthen their mutual ability to serve whole continents and move toward global market participation
USA and Japanese firms forming S.A.s with European firms to enter the E.U. with an eye to the emerging markets of the new states
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Munich University of Applied Sciences 09 May 2013
Strategic Alliances
S.A.s are increasingly undertaken for strategic reasons to achieve competitive advantage in terms of technology and product development, cost reduction and marketing
Examples: Rover/Honda
Volvo/Renault
Philips/Matsushita
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Munich University of Applied Sciences 09 May 2013
Types of Strategic Alliances
Porter & Fuller (1986) suggest that strategic alliances can occur at any point along the value chain”
Technology development
Operations and logistics
Marketing sales and service
Multiple activity
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Munich University of Applied Sciences 09 May 2013
Types of Strategic Alliances
Type X Divide value chain activities among themselves, e.g.
aircraft industry
Type Y Firms co-operate in the same value chain activities
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Munich University of Applied Sciences 09 May 2013
Motivation for Strategic Alliances
Learning
Organisational
Technology
Geographical
Cost minimisation
Financial/marketing/research/sourcing
Market positioning
Market access
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Munich University of Applied Sciences 09 May 2013
Issues with Strategic Alliances
Managing relationship. e.g. Northwest
Airlines and KLM in Detroit and Amsterdam
Implications of downside risk when the
relationship fails, and how that affects the
company’s value chain. eg. Honda/Rover
Suggests that firms need to have an exit strategy
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Munich University of Applied Sciences 09 May 2013
Issues with Strategic Alliances
Rigidity of decision making: flexibility of response
and policy changes could be more difficult as a
result of international collaboration. e.g. BT and
AT&T 8 months to find a CEO
Hidden Agenda? Is one partner using the coalition
to acquire the partner’s IP and expertise
Dependability. S.A. could prevent one partner from
moving along the experience curve
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Munich University of Applied Sciences 09 May 2013
Guidelines for Successful S.A.s
Complementary
Agreement on objectives
Compatible strategies
Compatible cultures
Comparable rewards
Stakeholder blessing
Thorough and lengthy planning process
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Munich University of Applied Sciences 09 May 2013
Джон Смит говорит:
…But what if I don’t want to share the
profits and am happy to take on all the
risk?
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Munich University of Applied Sciences 09 May 2013
Foreign Direct Investment (FDI)
The control of manufacturing plants or other
productive assets in the foreign market place
through whole or part ownership
Via acquisition & mergers – dominant mode of FDI
Greenfield operation – Ford in Valencia,
Volkswagen/Skoda in Czech Rep
Equity buy-out – Toyota/General Motors
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Munich University of Applied Sciences 09 May 2013
Volkswagon was the first auto manufacturer
to open a plant in Mexico
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Munich University of Applied Sciences 09 May 2013
Greenfield Strategy
Best site
Modern facilities
Economic development incentives
Clean slate
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Munich University of Applied Sciences 09 May 2013
Advantages of FDI
Control of resources/capabilities
Integration/coordination of activities across countries
Acquisitions – rapid entry
Greenfield – state of art and government finance try
Attractiveness of host country
Low wages, lower Corp. tax, government subsidies
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Munich University of Applied Sciences 09 May 2013
Disadvantages of FDI
Substantial investment – financial exposure
Problems of integration/coordination of
acquisitions
Greenfield – time consuming and
unpredictable cost
Political and economic risk exposure
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Munich University of Applied Sciences 09 May 2013
Джон Смит говорит:
I suppose we’ll have to do some of that
marketing stuff, eh?
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Munich University of Applied Sciences 09 May 2013
A Global Marketing Programme
Standardized Marketing Mix:
Selling largely the same products and using the
same marketing approaches worldwide.
Adapted Marketing Mix:
Producer adjusts the marketing mix elements to
each target market, bearing more costs but
hoping for a larger market share and return.
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Munich University of Applied Sciences 09 May 2013
Marketing Mix Adaptation
In India, McDonald’s serves chicken, fish, and vegetable burgers, and the Maharaja Mac—two all-mutton patties, special sauce, lettuce, cheese, pickles,
onions, on a sesame-seed bun.
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Munich University of Applied Sciences 09 May 2013
5 Global Product and Promotion
Strategies
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Munich University of Applied Sciences 09 May 2013
Global Product Strategies
Straight Product Extension:
Marketing a product in a foreign market
without any change.
Product Adaptation:
Adapting a product to meet local conditions or
wants in foreign markets.
Product Invention:
Creating new products or services for foreign
markets.
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Munich University of Applied Sciences 09 May 2013
Global Promotion Strategies
Can use a standardized theme globally, but
may have to make adjustments for
language or cultural differences.
Communication Adaptation:
Fully adapting an advertising message for
local markets.
Changes may have to be made due to
media availability.
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Munich University of Applied Sciences 09 May 2013
Nescafe in USA
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Munich University of Applied Sciences 09 May 2013
Nescafe in Spain
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Munich University of Applied Sciences 09 May 2013
Nescafe in India
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Munich University of Applied Sciences 09 May 2013
Global Pricing Strategies
Companies face many problems in setting their international prices.
Possible approaches include: Charge a uniform price all around the world.
Charge what consumers in each country will pay.
Use a standard markup of costs everywhere.
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Munich University of Applied Sciences 09 May 2013
Global Pricing Strategies
International prices tend to be higher than domestic prices because of price escalation.
Companies may become guilty of dumping –a foreign subsidiary charges less than its costs or less than it charges in its home market.
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Munich University of Applied Sciences 09 May 2013
Whole-Channel Concept for
International Marketing
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Munich University of Applied Sciences 09 May 2013
Cultural Considerations
Material culture
level of economic/technology development
Language
Aesthetics
Education
Religious beliefs
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Munich University of Applied Sciences 09 May 2013
Internationalising Issues
The main issues in internationalisation are:
Cost
Control
Risk
Return
Resource allocation
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Munich University of Applied Sciences 09 May 2013
Джон Смит говорит:
До свидания в настоящее время !!
Спасибо!!
Сейчас я уже эксперта!
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Munich University of Applied Sciences 09 May 2013
Dr Paul Sudnik says:
Good bye, John
Have you still got any questions?
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