INTERNATIONAL MARKET ENTRY STRATEGIES • International market entry concept & modes • Factors affecting the selection of entry mode
INTERNATIONAL MARKET ENTRY STRATEGIES
•International market entry concept & modes•Factors affecting the selection of entry mode
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Concept of international market entry
• mode of entry: an institutional mechanism by which a
firm makes its products or services available
consumers in international markets.
• mode of entry determined by:
- the ability and willingness of the firm to commit
resources
- the firms’ desire to have a level of control over
international operations
- the level of risk the firm is willing to take
international market entry
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Market entry strategies
international market entry
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Market entry strategies Exporting
Direct– Domestic base– Overseas sales branch– Traveling sales representative– Foreign-based distributors/agent
Indirect-occasional, or active exporting– Domestic-based export merchant – Domestic-based export agent– Cooperative organizations– Export-management company
international market entry
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– Franchising: A contractual arrangement where a wholesaler or retailer (the Franchisee) agrees to make some payment and to meet the operating requirements of a manufacturer or other franchiser in exchange for the right to use the firm’s name and to market its goods or services
– Foreign Licensing: an agreement that grants foreign marketers the right to distribute a firm’s merchandise or to use its trademark, patent, or process in a specified geographic area.
– Subcontracting: a contractual agreement where a firm hires a local company to produce goods or services in a specific geographic area.
Market entry strategiesContractual Agreements
international market entry
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Market entry strategies International Direct Investment
An additional strategy for entering global markets Requires direct investment in foreign firms, production, and/or
marketing facilities Advantages
– cheaper labor cost in some countries– government incentives– creates better image– deeper relationships with government, customers, suppliers and
distributors– full control of operations and marketing
Risks involved:– economic difficulties of the host country– political instability and negative perception
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Modes of international market entry
Production in home country
exports: production is carried out in home country and finished goods are shipped to the overseas markets for sale
indirect exports: process of selling products to an export intermediary in the company’s home country who in turn sells the products in the overseas markets
direct exports: process of selling the firm’s products directly to an importer in the overseas market
international market entry
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Modes (contd)
complementary exporting: use of distribution channels
of an overseas firm to make the product available in the
overseas market
provide offshore services: to overseas clients with the
help of information and communication technology
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Production in a foreign country
• contractual entry modes
international licensing: process by which a domestic
company allows a foreign company to use its intellectual
property and specific business skills for a compensation
(royalty)
international franchising: transfer of intellectual
property and other assistance over an extended period of
time with greater control compared to licensing
Modes (contd)
international market entry
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Selecting the International Entry Mode, continued Licensing
Licensor offers know-how, shares technology, and shares brand name with licensee
Licensee pays royalties Lower-risk entry mode; limits exposure to economic,
financial, and political instability Permits the company access to markets that may be closed
or that may have high entry barriers
DOWNSIDE: Can produce competitor in the licensee
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Selecting the International Entry Mode, continued
Franchising Franchisor gives franchisee right to use brand name,
trademarks and business know-how
Less risk, higher level of control
Very rapid market penetration
DOWNSIDE: Can create future competitors who understand
the operations of the franchise
international market entry
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overseas turnkey projects: conceptualize, design, install, construct, and carry out primary testing of manufacturing facilities or engineering structures for an overseas client organisation
types : built and transfer (BT), built, operate, and transfer (BOT), built, operate, own (BOO)
international management contracts: a company provides its technical and managerial expertise for a specific duration to an overseas firm
Modes (contd)
international market entry
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international strategic alliance: the relationship
between two or more firms that cooperate with each
other to achieve common strategic goals but do not
form a separate company
international contract manufacturing: a contractual
arrangement under which a firm’s manufacturing
operations are carried out in a foreign countries
Modes (contd)
international market entry
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International Strategic Alliances
Typically, the term refers to nonequity alliances; for example:
Manufacturing Contract manufacturing, engineering, technological, and
research and development alliances Marketing
One firm handles marketing for another, or some aspect of the marketing process
Distribution One firm handles the distribution for another, or some aspect of
the distribution processinternational market entry
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Investment entry modes
assembly in overseas markets: refers to exporting
various components of the product in completely
knocked down (CKD) condition and assembles them
overseas
international joint ventures: equity participation of
two or more firms resulting into formation of a new
entity
Modes (contd)
international market entry
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Selecting the International Entry Mode, continued Joint Venture
Preferred entry mode of governments of developing countries
- Help develop local expertise- If production is exported, helps with country’s
balance of trade Foreign company and local company establish a jointly-
owned new company Parties share capital, equity, labor 70% of all joint ventures break up within 3.5 years
DOWNSIDE: Joint-venture partners can turn into viable competitors; and 70% of all joint ventures break up within 3.5 years.
international market entry
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Selecting the International Entry Mode, continued Consortia
Involve three or more companies Monopoly effect
Allowed - where expensive R&D is involved- in underserved markets- in markets where the government
and/or the marketplace can control its activity
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Factors for selecting partners for cooperation
• the alliance partner should have some strength which
can be translated into business values for the alliance
• the alliance partners should be committed to
cooperative goals
• it is preferable that the alliance partner should have
multi-cultural business environment
international market entry
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Wholly owned foreign subsidiaries
• to have complete control and ownership of
international operations a firm opts for foreign
direct investment through:
1. acquiring a foreign company and all its resources in
a foreign market (acquistion)
2. the establishment of production and marketing
facilities by a firm on its own from scratch (green field)
Investment mode (contd)
international market entry
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Selecting the InternationalEntry Mode, continued Wholly Owned Subsidiaries
Can be developed by the company – greenfielding – or can be purchased (acquisition or merger)
Involve long-term market commitment High cost High control of operations Greatest level of risk
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Selecting the InternationalEntry Mode, continued Branch Offices
Entities are part of the international company, rather than a new company (as in the case of the subsidiary)
Involves substantial investment
sales office
showroom Engages in a full spectrum of marketing activity High level of control
international market entry
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Comparison of Market Entry Strategies
Form Control Risk Advantage
Export Very limited Low Low cost
Licensing Limited Moderate Low cost
Joint Ventures Shared Moderate Local
expertise
Ownership Total High Control
Internet Total High No physical
presence requiredinternational market
entry
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Factors affecting the selection of entry mode
External factors
• Market size• Market growth• Government regulations• Level of competition• Level of risk
• political• economic• operational
• Production and shipping costs
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Internal factors
• Company objectives
• availability of company resources
• level of commitment
• international experience
• flexibility
Factors affecting the selection of entry mode (contd)
international market entry
Foreign market portfolios: technique and analysis
Company competitiveMarket attractivness
high medium low
high Invest/growdominate
Invest/grow divest Joint venture
medium Invest/grow Selective strategies
low Harvest/divest/License/combine countries
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Thank you