3. 3
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
4. 4
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 data
2. Determine importance of country indicators
3. Rate the countries in the pool on each
indicator
4. Compute overall score for each country
5. Chapter 9 Copyright (c) 2007 John Wiley & Sons, Inc. 5
1. Selecting the Target Market
6. . 6
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
9. 9
2. Choosing the Mode of Entry
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
10. 10
2. Choosing the Mode of Entry
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)
11. 11
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
12. 12
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
13. 13
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
15. 15
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
16. 16
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
17. 17
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
18. 18
7. Expanding through Joint Ventures
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
19. . 19
7. Expanding through Joint Ventures
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
20. 20
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
21. . 21
8. Entering New Markets through Wholly
Owned Subsidiaries
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
22. . 22
8. Entering New Markets through Wholly
Owned Subsidiaries
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.
23. 23
9. Creating Strategic Alliances
Types of Strategic Alliances
– Simple licensing agreements between two
partners
– Market-based alliances
– Operations and logistics alliances
– Operations-based alliances
26. 26
9. Creating Strategic Alliances
Cross-Border Alliances that Succeed:
– Alliances between strong and weak partners
seldom work.
– Autonomy and flexibility
– Equal ownership
27. . 27
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.
30. . 30
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
