international marketing entry strategies - international marketing

2. 4.1 Market entry methods
4.1.1 Indirect strategies
4.1.2 Foreign Direct
Investment (FDI) Strategies
4.1.3 Other IM strategies
4.2 Criteria in selecting market
entry methods

3. 4.1.1 Indirect strategy
a) Exporting
b) Licensing
c) Management Contract
d) Turnkey Operation

4. a) Direct and Indirect Exporting
 Exporting of goods and services by the
producing firm
 Sales company option
 Business established to market goods and
services
 Internet has made direct exporting much easier
 Cost of trial low

5.  Exporting of goods and services through various
home-based exporters
◦ Manufacturers’ export agents
 sell for manufacturer
◦ Export commission agents
 buy for overseas customers
◦ Export merchants
 purchase and sell for own accounts
◦ International firms
 use the goods overseas

6.  Advantages:
◦ Avoids cost of establishing manufacturing
operations
◦ May help achieve experience curve
and location economies
 Disadvantages
◦ Commission to export agents, export
merchants
◦ Foreign business can be lost if exporters
decide to change their sources and supply
◦ Firm gains little experience from transactions

7. b) Licensing
 A company in one country (licensor) enters
into a contractual agreement with a company
or person in another country (licensee)
whereby the licensee is given the right to use
something owned by the licensor.

8. Advantages
 Reduces development costs and risks of
establishing foreign enterprise
 Fast market access
 Gain local market knowledge
Disadvantages
 Less control over market and revenues
 IP concerns
 Potential problems with licensees

9. d) Management Contract
The local investor provides the capital for
enterprise, while the international marketer
provides the necessary know-how to manage the
company.
 Ex: Hilton hotel

10. Advantages:
 Reduces costs and risk of establishing
enterprise
Emphasis on firm’s expertise
 Disadvantages:
 Limited profits and market access
 Potential copyright and IP issues

11. e) Turnkey operation
• Contractor agrees to handle
every detail of project for
foreign client
• Technology
• Management expertise
• Capital equipment (some
cases)
• After trial run, facility is
turned over to purchaser

12.  Advantages:
 Can earn a return on knowledge asset
 Emphasis on firm’s expertise
 Less risky than conventional FDI
 Disadvantages:
No long-term interest in the foreign country
May create a competitor
Selling process technology may be selling
competitive advantage as well

13. 4.1.2 Foreign Direct Investment (FDI) strategies
a) Acquisition vs Greenfield
b) Assembly vs Manufacturing
c) Sole venture vs Joint venture

14. a) Acquisition vs Greenfield
 Acquisition
◦ a form of investment where an already existing
company is taken over by an investing firm
◦ takes over the assets of the existing company
◦ may redesign if necessary
“purchase of stock in an already existing company in
an amount sufficient to confer control”
[Kogut & Singh 1988]

15.  Greenfield
 Greenfield is the process
of expanding operations in
foreign market from
ground zero. It requires
purchase of local property
and local man power.

16.  Greenfield
 Benefits
- can build subsidiary
it
want
- relatively easy to
establish operating
routine
- new jobs are
created
in local market
 Drawbacks
- Lengthy process
- competition before
sets up
- research – time
consuming
- unstable – emerging
market
- legal issue

17. b) Assembly vs Manufacturing
 Assembly
 Manufacturer exports all or most of its products in a
“knocked-down” condition. These parts are put
together to form the complete product.
 These parts are put together to form the complete
product in a one location / country for host or other
countries
 can be a new-build, or the company might acquire a
current business that has suitable plant

18.  Manufacturing
◦ organization invests in plant, machinery
and labor in the overseas market
◦ process begins with acquiring raw
materials and transform it into finish
product
◦ can be a new-build, or the company might
acquire a current business that has
suitable plant

19. c) Sole venture vs Joint venture
 Sole venture
 100% ownership
 Ethnocentric consideration
 not necessary for international success

20. Joint Venture
Company
Inputs
MNE Local Firm
HOME COUNTRY HOST COUNTRY
Inputs
Share of Profit
Share of
Profit

21.  Joint Venture
◦ collaboration of two or more organization
◦ share assets, risks and profits
◦ equality of partners is not necessary
◦ Foster + Partners and Buro Happold joint
venture to design four stations for Saudi
Arabia’s new Haramain High-speed Railway
Disadvantages
 Potential loss of proprietary knowledge
 Potential conflicts between partners
 Neither partner has full performance incentive
 Neither partner has full control

22.  4.1.3 IM Strategies
1. Strategic Alliances
 Strategic alliances are co-
operative relationships
between two or more
independent organizations,
designed to achieve
mutually beneficial goals for
as long as is economically
viable.

23.  Early Alliances: Responding to Japan
 IBM’s Initiatives During the 1990s: Rebuilding
Competitiveness

24. 4.1.3 IM Strategies
2. Analysis of Entry Strategies

25. 3. Free Trade Zones
FTZ are geographical areas defined within the
national territory, for the development of industrial
goods and services or commercial activities under a
special tax, customs and foreign trade regime

26. Joint Venture
Company
Licensing
Acquisition
Joint Venturing
Local Firm
New Subsidiary
Company
“Green Field” Entry
HOME COUNTRY HOST COUNTRY
Export
MNE

27.  Decision Criteria for Mode of Entry:
 Market Size and Growth
 Risk
 Government Regulations
 Competitive Environment/Cultural
Distance
 Local Infrastructure
(See Exhibits 4-2 and 4-3)
27

28.  Classification of Markets:
i. Platform Countries (Singapore & Hong Kong)
ii. Emerging Countries (Vietnam & the
Philippines)
iii. Growth Countries (China & India)
iv. Maturing and established countries
(examples: South Korea, Taiwan & Japan)
28

29.  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)
29

30. • Criteria for Selecting Appropriate Market
Entry Method
• The company objectives and expectations
relating to the size and value of anticipated
business
• The size and financial resources of the
company
• Existing foreign market involvement
• The skills, abilities and attitudes of the
company management towards
international marketing
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31.  The nature and power of the competition with
the market
 The nature of existing and anticipated tariff and
non-tariff barriers
 The nature of the product itself, particularly any
areas of competitive advantage, such as
trademark or patent protection
 The timing of the move in relation to the market
and competitive situation
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32. Control
Risk
Indirect exporting
Complementary marketing
Trading companies
Export management companies
Domestic purchasing
Co-operation strategies
Joint ventures
Strategic alliances
Direct exporting
Distributors
Agents
Direct marketing
Franchising
Management contracts
Manufacturing
Own subsidiary
Acquisition
Assembly

33. ch8_2
Wholly-owned subsidiary
Company acquisition
Assembly operations
Joint venture
Strategic alliance
Licensing
Contract manufacture
Direct marketing
Franchising
Distributors and agents
Sales force
Trading companies
Export management companies
Piggyback operations
Domestic purchasing
Levels
of
involvement