Intertnational marketing management foreign market entry stratigies

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International Marketing Management

Foreign Market Entry Strategies

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Overview

1. Target Market Selection2. Choosing the Mode of Entry3. Exporting4. Licensing5. Franchising6. Contract Manufacturing7. Joint Ventures8. Wholly Owned Subsidiaries9. Strategic Alliances10. Timing of Entry11. Exit Strategies

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Introduction

The need for a solid market entry decision is an integral part of a global market entry strategy.

Entry decisions will heavily influence the firm’s other marketing-mix decisions.

Global marketers have to make a multitude of decisions regarding the entry mode which may include: – (1) the target product/market– (2) the goals of the target markets– (3) the mode of entry– (4) The time of entry– (5) A marketing-mix plan– (6) A control system to check the performance in the entered

markets

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1. Selecting the Target Market

A crucial step in developing a global expansion strategy is the selection of potential target markets (see Exhibit 9-1 for the entry decision process).

A four-step procedure for the initial screening process:

1. Select indicators and collect data2. Determine importance of country indicators3. Rate the countries in the pool on each

indicator4. Compute overall score for each country

Chapter 9 Copyright (c) 2007 John Wiley & Sons, Inc. 5

1. Selecting the Target Market

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2. Choosing the Mode of Entry

Decision Criteria for Mode of Entry:– Market Size and Growth– Risk– Government Regulations– Competitive Environment/Cultural Distance– Local Infrastructure

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Classification of Markets:– Platform Countries (Singapore & Hong Kong)– Emerging Countries (Vietnam & the Philippines)– Growth Countries (China & India)– Maturing and established countries (examples:

South Korea, Taiwan & Japan)– Company Objectives– Need for Control– Internal Resources, Assets and Capabilities– Flexibility

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Mode of Entry Choice: A Transaction Cost Explanation– Regarding entry modes, companies normally

face a tradeoff between the benefits of increased control and the costs of resource commitment and risk.

– Transaction Cost Analysis (TCA) perspective– Transaction-Specific Assets (assets valuable for

a very narrow range of applications)

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3. Exporting

Indirect Exporting – Export merchants– Export agents– Export management companies (EMC)

Cooperative Exporting– Piggyback Exporting

Direct Exporting– Firms set up their own exporting departments

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4. Licensing

Licensor and the licensee Benefits:

– Appealing to small companies that lack resources– Faster access to the market– Rapid penetration of the global markets

Caveats:– Other entry mode choices may be affected– Licensee may not be committed– Lack of enthusiasm on the part of a licensee– Biggest danger is the risk of opportunism– Licensee may become a future competitor

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5. Franchising

Franchisor and the franchisee

Master franchising Benefits:

– Overseas expansion with a minimum investment

– Franchisees’ profits tied to their efforts

– Availability of local franchisees’ knowledge

Caveats:– Revenues may not be adequate– Availability of a master

franchisee– Limited franchising

opportunities overseas– Lack of control over the

franchisees’ operations– Problem in performance

standards– Cultural problems– Physical proximity

Chapter 9 Copyright (c) 2007 John Wiley & Sons, Inc. 14

5. Franchising

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6. Contract Manufacturing (Outsourcing) Benefits:

– Labor cost advantages– Savings via taxation, lower energy costs, raw materials,

and overheads– Lower political and economic risk– Quicker access to markets

Caveats:– Contract manufacturer may become a future competitor– Lower productivity standards– Backlash from the company’s home-market employees

regarding HR and labor issues– Issues of quality and production standards

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6. Contract Manufacturing (Outsourcing)

Qualities of an ideal subcontractor:– Flexible/geared toward just-in-time delivery– Able to meet quality standards– Solid financial footings– Able to integrate with company’s business– Must have contingency plans

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7. Expanding through Joint Ventures

Cooperative joint venture Equity joint venture Benefits:

– Higher rate of return and more control over the operations

– Creation of synergy– Sharing of resources– Access to distribution network– Contact with local suppliers and government

officials

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Caveats:– Lack of control– Lack of trust– Conflicts arising over matters such as

strategies, resource allocation, transfer pricing, ownership of critical assets like technologies and brand names

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Drivers Behind Successful International Joint Ventures :– Pick the right partner– Establish clear objectives from the beginning– Bridge cultural gaps– Gain top managerial commitment and respect– Use incremental approach– Create a launch team during the launch phase:– (1) Build and maintain strategic alignment– (2) Create a governance system– (3) Manage the economic interdependencies– (4) Build the organization for the joint venture

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8. Entering New Markets through Wholly Owned Subsidiaries

Acquisitions Greenfield Operations Benefits:

– Greater control and higher profits– Strong commitment to the local market on the

part of companies– Allows the investor to manage and control

marketing, production, and sourcing decisions

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Caveats:– Risks of full ownership– Developing a foreign presence without the

support of a third part– Risk of nationalization– Issues of cultural and economic sovereignty of

the host country

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Acquisitions and Mergers– Quick access to the local market– Good way to get access to the local brands

Greenfield Operations– Offer the company more flexibility than

acquisitions in the areas of human resources, suppliers, logistics, plant layout, and manufacturing technology.

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9. Creating Strategic Alliances

Types of Strategic Alliances – Simple licensing agreements between two

partners– Market-based alliances – Operations and logistics alliances– Operations-based alliances

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The Logic Behind Strategic Alliances – Defend– Catch-Up – Remain– Restructure

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Cross-Border Alliances that Succeed:– Alliances between strong and weak partners

seldom work.– Autonomy and flexibility– Equal ownership

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9. Creating Strategic Alliances– Other factors:

Commitment and support of the top of the partners’ organizations

Strong alliance managers are the key Alliances between partners that are related in

terms of products, technologies, and markets Have similar cultures, assets sizes and

venturing experience Tend to start on a narrow basis and broaden

over time A shared vision on goals and mutual benefits

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10. Timing of Entry

International market entry decisions should also cover the following timing-of-entry issues: – When should the firm enter a foreign market?– Other important factors include: level of

international experience, firm size– Also, the broader the scope of products and

services– Mode of entry issues, market knowledge,

various economic attractiveness variables, etc.

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10. Timing of Entry

Reasons for exit:– Sustained losses– Volatility– Premature entry– Ethical reasons– Intense competition– Resource reallocation

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11. Exit Strategies

Risks of exit:– Fixed costs of exit– Disposition of assets– Signal to other markets– Long-term opportunities

Guidelines:– Contemplate and assess all options to

salvage the foreign business– Incremental exit– Migrate customers