Imm unit-04 (global market entry & export marketing)

07/06/10 1
By :
Prof. Amit Kumar

07/06/10 2
International marketing has become a major concern
for business schools to develop global strategies
to lead and sustain in the much expanded and
competitive arena. Liberalization thus catalyzing
market competition, poses challenge for the
managers in handling the rigors of expanding
global marketplace.
Syllabus aims at providing contemporary
knowledge & skills on issues of global
marketing management.
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Importance of this course
Global Marketing Management

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Course: Global Marketing Management
1. Framework of Global Marketing Management
2. Global Marketing Research
3. Decision Making in International Marketing
4. Foreign Market Entry & Export Marketing
5. Product Planning & Development
6. Global Pricing Strategies
7. Global Distribution System
8. Promoting Product Internationally
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Global Marketing Management

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IILM-GSM
Global Marketing Management Global Market Entry & Export Marketing

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Contents
• Concept of International Market Entry
• Factors Affecting the Selection of Entry Mode
• Entry Modes for ICICI Bank & Dr Reddy’s Laboratory
• Modes of International Market Entry
 On the Basis of Production in Home Country
 On the Basis of Production in Foreign Country
• Advantages & Disadvantages of Each Mode of Entry
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Concept of International Market Entry
In order to succeed in international markets, the
decision to select an appropriate entry mode is a
crucial and integral part of a firm’s international
marketing strategy.
The mode of entry into international markets varies from
low-commitment indirect exports to high-commitment
direct investment (wholly owned subsidiaries) in
foreign markets.
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7
Factors Affecting the Selection
Of Entry Mode
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External Factor Internal Factor

8
Of Entry Mode
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Market Growth
Market Size
Govt. Regulation
Level of Competition
Level of Risk
Production & Shipping Costs
Physical Infrastructure

9
Of Entry Mode
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Availability of Company Resource
Company Objectives
Level of Commitment
International Experience
Flexibility

10
Of Entry Mode
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Market Growth
Market Size
Govt. Regulation
Level of Risk
Availability of Company Resource
Company Objectives
Level of Commitment
Flexibility

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Of Entry Mode
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External Factor
Market Size
• One of the key factor, has to
keep in mind while selecting an
entry mode
• Countries with large market size
justify the modes of entry with
long-commitment requiring higher
level of investment, such as
WOS.
To take the advantage of market size, Indian company
Ranbaxy entered in Chinese market in 1990,
entered into a JV in 1994 and emerged as a market
leader with brand Cifran.

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Of Entry Mode
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External Factor
Market Growth
• Most of the large, established
markets have reached to a point
of saturation for consumer goods.
• The overall growth in most of the
US and EU markets is about 7%,
while in emerging markets it is
over 30%.
Therefore, from the perspective of long-term growth,
firms invest more resources in markets with high
growth potential such as China, India, Thailand,
Indonesia, Malaysia, Philippines etc.
http://www.imf.org/external/pubs/ft/weo/2009/update/01/
http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG

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Of Entry Mode
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External Factor
Govt. Regulation
• UAE is a lucrative market for Indian
firms but most firms operate there
with a local partner.
• Trade barriers such as ecological
regulations and local content
requirements also affect the mode of
entry. It has been a major reason for
increased foreign investment in
Mexico, which is a part of NAFTA, in
order to cater to the US market.
It is due to high import tariff on automobiles that
foreign firms were forced to set up plants in
China.

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Of Entry Mode
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External Factor
• This is one of the major
reasons behind auto
companies setting up their
operations in India and other
emerging markets so as to
effectively respond to the
global competition.

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Of Entry Mode
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External Factor
• Such as roads, railways,
telecommunications, financial
institutions and marketing
channels are the pre-condition
for a company to commit more
resources to an overseas
market.
• The level of infrastructure
development has been
responsible for major
investments in Singapore,
Dubai and Hong Kong.

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Of Entry Mode
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External Factor
Level of Risk
• Firms have greater inclination to
invest resources in countries with
stable governments & transparent
legal systems.
• Economic risk may arise due to
volatility of exchange rate,
upheavals in BOP that may affect
the cost of other inputs for
production, and high inflation rate
• If the marketing system in foreign
country is similar to that of firm’s
home country, the firm has better
understanding of operational
problems.
Political Risk
Operational Risk
Economic Risk
http://www.rbi.org.in/scripts/sdds_viewdetails.aspx?id=5

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Of Entry Mode
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External Factor
• Markets with substantial cost of
shipping as in the case of low-value
high-volume goods may increase the
logistics cost.
• The increased shipping cost may not
only be due to the longer distance
but also because of the lack of
availability of competitive shipping
lines as in case of shipping goods
from India to most of the African and
Latin American countries.
• Many firms establish their
manufacturing bases in developing
countries, in order to take the
advantage of lower production costs.

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Of Entry Mode
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Internal Factor
Company Objectives
• Companies operating in domestic
markets with limited aspirations
generally enter foreign markets as a
result of a reactive approach. In
such cases, companies receive
orders from acquaintances, firms
and relatives based abroad, and
they attempt to fulfill these export
orders.
• However, the strategic objectives of
proactive companies make them
enter into international markets
through investment modes of entry.
Reactive Proactive

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Of Entry Mode
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Internal Factor
Availability of
Company Resource
• Choices of an entry mode
depends upon the financial
strength of the firm.
• It may be observed that Indian
firms with good financial
strength have entered
international markets by way
of wholly owned subsidiaries
or equity participation.

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Of Entry Mode
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Internal Factor
Level of Commitment
• In view of the market potential,
the willingness of the company
to commit resources in a
particular market also
determines the entry mode
choice.

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Of Entry Mode
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Internal Factor
• Well exposed to the dynamics of
the international marketing
environment.
• It may be observed that only
those Indian companies, such
as Ranbaxy, Tata Tea, Asian
paints etc. which have
substantial experience in
foreign markets have opted for
equity participation or wholly
owned subsidiaries in
international markets.

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Of Entry Mode
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Internal Factor
Flexibility
• Companies should also keep in
mind exit barriers when entering
international markets.
• The markets which are difficult to
forecast may necessitate an exit
strategy over a period of time and
therefore may need to be
approached by the way such as
licensing and franchising, where
the companies’ stake are low and
the exit is easy.

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Choosing the Right International
Market Entry Mode
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Entry Mode Pros Cons
Export
- Indirect
- Direct
Piggybacking Exporting
Providing Offshore Services
International Franchising
International Licensing
Strategic Alliances
Contract Manufacturing
Wholly Owned Subsidiaries

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International Market Entry Mix
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Country
Market
WOS JV Franchising Licensing Exporting
Country-1
Country-2
Country-3
Country-4
Country-5
Country-6

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Entry Modes: Case of ICICI Bank
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In order to reach out to Indians living abroad, ICICI Bank
entered the international market in 2003 using a mix
of entry modes.
It has established subsidiaries in London and Toronto
with an investment of US$ 50 million and US$ 20
million respectively. It opened offshore branches
in Singapore and Bahrain. Representative offices
in Dubai, Shanghai and Hong Kong.

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Entry Modes: Case of ICICI Bank
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These different modes of entry have been adopted by
ICICI Bank because of differing governmental
regulations, as a number of countries require
banks to first run either representative offices or
offshore branches for a few years before a
subsidiary is allowed.

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Entry Modes: Case of Dr Reddy Lab
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Dr Reddy’s Laboratory has gone for wholly owned
subsidiaries in the US, France, Singapore and the
Netherlands, Hong Kong because of the large
market size, potential for growth and lower risk
factors.
China offer huge market potential, but because of the
level of difficulty involved in responding to local
environment conditions and risks, the company has
entered into JV with local partners.
Market with relatively low potential such as Ukraine,
Romania, Vietnam and Sri Lanka are being served
by resident offices.

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Routes of Globalization
The usual routes of globalizations are exports and imports,
use of assets, performance of services……..
Presence in Foreign Markets
Foreign
Investment
High
High
Low
Low
Exports &
Imports
Tourism &
Transportation
Use of
Assets
Performance
of
Services
Direct
Investment
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International Market Entry Modes
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Production in
Home Country
Production in
Foreign Country
Export Offshore Services
Indirect
Direct
Piggybacking
Export
Contractual
Mode
Investment
Mode
Overseas Assembly
Or Mixing
JV WOS
L F Turnkey
Projects
Mgt.
Contracts
GSA Contract
Manufacturing

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Production in Home Country
Export: Indirect
IILM-GSM
When a firm does not have much exposure to foreign
markets, and has limited resources to invest in
export development, indirect exporting is a
recommended strategy for entering.
Indirect export can be defined as the process of selling
products to an export intermediary in the
company’s home market who would in turn sell
the products in overseas markets.
Indirect exports may occur by the way of:
1. Selling to foreign firm or buying agent in India
2. Exporting through a merchant intermediary

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Export: Indirect
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Some of the functions carried out by trading houses are:
1. Market selection and market research
2. Customer identification and evaluation
3. Commercial and technical negotiations
4. Vendor development
5. Import items required by export production
6. Counter trading
7. Ensure timely payments
8. Export documentation and shipping
9. Manages crisis and disasters
10. Create distribution networks abroad
11. Foster special relationship with the government

Export: Indirect
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Classification of various trading houses under EXIM policy,
Category
Avg. FOB
value of export
made during
preceding
3 years
FOB value of
export made
during
preceding
licensing
years
Avg. net forex
value of export
made during
preceding
3 years
Net forex value
of export made
during
preceding
licensing years
Export House 15 22 12 18
Trading House 75 112 62 90
Star Trading
House
375 560 312 450
Super Star
Trading House
1125 1680 937 1350

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Export: Indirect
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Major trading houses in India include:
1. Tata International
2. Adani Exports
3. Reliance India Ltd.
4. Metals & Minerals Trading Corporation (MMTC)
5. State Trading Corporation (STC)
6. Ruchi International
7. Surya Global

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Export: Direct
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In direct exports a firm’s products are sold directly to
importers in overseas markets.
Direct export does not mean selling products directly to
end-users. Direct exports are accomplished through
foreign-based independent market intermediaries
such as agents and distributors.
Direct exporting is far more complex than indirect
exporting.

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Export: Direct
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Agents represents the exporting company in a given
market and finds wholesaler and retailers for its
products. Agents may be exclusive, semi-exclusive
and non-exclusive.
Overseas distributors is a foreign-based merchant who
buys the products on his own account and resells
them to wholesalers and retailers to make profit.
Distributors are generally sole importers of the firm’s
product in the market.

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Export: Direct
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The disadvantages of direct exporting include higher
commitment of resources as considerable
investment is needed for marketing, logistics and
administrative cost and higher risk exposure.
A transition from indirect to direct exporting has
to be well planned and gradual.

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Export: Piggybacking or Complementary Export
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In piggybacking exports, overseas distribution channels
of another firm are used by the company to make its
product available in the overseas market.
Exporting company know as ‘Rider’, uses a foreign
company which has an established distribution
network in foreign market, known as ‘Carrier’.
Normally, the piggybacking arrangement is made for
products from unrelated companies that are
complementary (allied) but non-competitive.

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Export: Piggybacking or Complementary Export
IILM-GSM
An Indian confectionery firm Parry’s distribution network
was used in a piggybacking arrangement by
Wrigley’s a US based chewing-gum company- to
enter the Indian market. It provides immediate
access to over 250,000 retail outlets.
Tanishq sells its jewellery in India exclusively
through company-controlled retail outlets
whereas it has tied up with Highglow, a
jewellery retail chain in the US, to utilize the
latter’s distribution channels.

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Export-Import Trade Statistics
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A company based in India can provide offshore services
to overseas clients with the help of information and
telecommunication technology. India enjoys a
distinct cost advantage in this regard.
The cost benefit of shifting a routine work from US to
India may result in saving of up to 30-40%, as a
skilled worker in India earns around US$ 6-8 an
hour as opposed to US$ 12 in the US.

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IILM-GSM
Business sectors which provide opportunities for
offshore services include:
1. Insurance: Claim processing, call centers
2. Banking & Finance: Loan processing, call centers
3. Airlines: Revenue accounting, call centers
4. Telecom: Billing, Customer relations, call centers
5. Automotive: Engineering & design, accounts
6. Other sectors: Transportation, etc

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International Global Sourcing Powers
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Leader
Up &
Comers
Challengers Beginners
Belarus
Brazil
Caribbean
Egypt
Estonia
Ukraine
Venezuela
Singapore
New Zealand
Lithuania
Ghana
Cuba
Korea
Malaysia
Mauritius
Sri Lanka
Vietnam
Thailand
Nepal
Taiwan
Canada
China
Hungary
Mexico
Philippines
Poland
Russia
South Africa
INDIA

07/05/10 43
IILM-GSM
As per Nasscom- Mckinsey estimates, out of the
estimated global BPO of US$ 250 billion by 2006,
India has the potential to provide offshore services
of about US$ 21-24 billion by 2008 with employment
potential of about 11 lakh persons.
Gartner places India as the leading global
sourcing power.

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Production in Foreign Country
Contractual Mode: Licensing
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• Under a License Agreement, one firm permits
another to use its intellectual property for
compensation called royalty, as it happened
between Arrow Company and Arvind Clothing Ltd.
• The firm that makes the offer is the licensor and the
recipient firm is act as the licensee.
• The property licensed generally includes such
assets as patent, trademarks, copyrights, trade-
secrets, technical know-how, business skills.

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IILM-GSM
Life Cycle of Benefits of Licensing

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IILM-GSM
Few disadvantages of licensing are:
• Possible loss of quality control
• Risk of technology being stolen
• Licensing fees are likely to be lower than FDI
profits.
• Possible loss of opportunity to enter the
licensee’s market with FDI later.

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Contractual Mode: Franchising
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• Franchising which involves the granting of right by a
parent company (franchiser) to another (franchisee)
to do business in a prescribed manner.
• This right can take the form of selling the franchiser’s
products, using its name, production and marketing
techniques or using its general business approach.
• Franchising is adaptable to the international arena, it
can result in a highly profitable business. In fast
foods- McDonald’s, In Hotel business-Le Meridian,
and others like Midas, GE and Coca-Cola.

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Contractual Mode: Franchising
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• Franchising agreement typically involves the
payment of a fee upfront and then a percentage
on sales. In return, the franchiser provides
assistance, and in some instances, may require
the purchase of goods or supplies to ensure the
same quality of goods and services worldwide.

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Contractual Mode: Turnkey Projects
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• International businesses earn money in the form
of fees for service rendered. This is true in
banking, insurance, rentals, engineering,
management services.
• Turnkey Operations are typical modes for
earning such fees. Here, the company contracts
with a foreign entity to design and build an entire
operations. On completion, the operation is
handed over to the owner who can use the
facilities straightway.

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Contractual Mode: Turnkey Projects
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• The Italian company, Fiat, for example
constructed a complete automobile plant in
the Russia under this type of agreement.
• Tata Consulting engineers, India, are
specialists in executing turnkey projects. like,
3*60 MW hydro-electric project in Iran,180
room hotel project in Yemen etc.

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Contractual Mode: Management Contracts
IILM-GSM
• Companies also earn fees through management
contracts - arrangements in which one firm
contracts with a foreign corporation or
government to manage an entire project or
undertaking for a specific period.
• Most management contracts provide for training
of local personnel who will eventually take over
the management responsibilities.

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Contractual Mode: Management Contracts
IILM-GSM
• An example, Disney receives management fees
from managing theme parks in France & Japan.
• For a ten-year period(1969-79), Citibank had lent
its managerial expertise to Grindlays Bank.

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Contractual Mode: Global Strategic Alliance
IILM-GSM
GSA refers to the relationship between two or more
firms that cooperate with each other to achieve
common strategic goals but not form
a separate company.
Parent
Company X
Parent
Company Y
Company Z
(Joint Venture)
Company X Company Y
Contractual
Agreement

07/05/10 54
Contractual Mode: Global Strategic Alliance
IILM-GSM
Tata Motors has launched its range of Indica cars in the
UK under the brand name City Rover using the
marketing channels of the MG Rover Group. The
company has also forged a strategic alliance with
Honda Motor Co. Ltd, Japan, to manufacture its
‘Accord’ model of car in India.
In order to develop the medicine market in Poland,
Ranbaxy has forged SA for marketing its
products with Glaxo SmithKline.
Nestle has SA with Coca-Cola to market its ready to
drink coffee and tea under the brand name
Nescafe and Nestea.

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Contractual Mode: Contract Manufacturing
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Under CM, the manufacturing operations of an
international firm are carried out at offshore
locations on a contractual basis.
The international firm takes care of marketing in international
markets whereas the contracted manufacturer limits
itself to production activities.
A number of global companies outsource
their manufacturing activities to
low-cost locations.

07/05/10 56
IILM-GSM
CM has also been used as a strategic tool for economic
development in a number of countries such as
Korea, Mexico, Thailand, China etc.
• Taiwan is a world leader in semi-conductor
manufacturing.
• China produces 30% of air conditioners, 24% of
washing machines and 16% of refrigerators sold in
the US.
• Nike, the leading international shoe brand gets its
manufacturing done through CM throughout the
world.

07/05/10 57
IILM-GSM
Indian pharmaceutical companies find CM a significant
means of maintaining a high-growth rate in view of
limited resources for R&D.
• Ranbaxy and Lupin Laboratories were among the
first Indian companies to get manufacturing
contracts from MNCs like, Eli Lilly and Cynamid.
• Subsequently, Wockhardt India, Cadila Health Care,
Sun Pharma and Dr Reddy’s Lab Ltd have also
entered into contract manufacturing with several
overseas firms.

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Investment Mode: Overseas Assembly or Mixing
IILM-GSM
In order to avoid the high cost of shipping and high
import tariffs, counter non-tariff barriers for
import, and to take advantage of cheap labor in
overseas markets, a company exports various
components of the product in completely
knocked down (CKD) condition and assembles
them overseas.
In case of machines and food products, the equivalent
of assembling is mixing the ingredients while
importing from the home country.

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Investment Mode: Overseas Assembly or Mixing
IILM-GSM
Most of the Japanese automobile companies entered
the European market by establishing their
assembling operations in Europe to overcome
import barriers.
Tata Motors has forged a strategic alliance with Nita
Company Ltd, Bangladesh, for assembly and
sale of its commercial vehicles in Bangladesh.

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Investment Mode: Joint Venture
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• A direct investment is one that allows the investor a
controlling interest in a foreign company. FDI is
another name for direct investment. FDI may take the
form of a joint venture or a wholly owned subsidiary.
• Joint Venture is a shared ownership in a foreign
business. Generally, the venture is 50-50 ownership
in which there are two parties, each of which holds a
50 % ownership stake and contributes a team of
managers to share operating control.

07/05/10 61
IILM-GSM
• Fuji-Xerox is one of the most enduring and
successful joint ventures between two
companies of different countries.
• There are 868 Indian joint ventures abroad,
out of which 286 are in operations. Joint
venture works well if an international
business finds a right local partner.

07/05/10 62
IILM-GSM
• A local partner can provide competent
management to the venture.
• If the host country requires local participation in
the equity, wholly owned subsidiary will not help.
• The local partner understand the culture of the
local market. An international business takes
years to acquire such knowledge if it enters a
foreign market through wholly owned subsidiary.
• Sometimes, another name for joint venture is
being used as strategic alliances.
Advantages:

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IILM-GSM
Disadvantages:
• A foreign firm’s apprehension about a local
partner’s interference in managerial decisions
and actions.
• Likely increase in political risk, if a wrong partner
is selected.
• Transfer pricing on products or components
bought from or sold to related companies triggers
conflict.

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Investment Mode: Wholly Owned Subsidiaries
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• A wholly owned subsidiary can be set up in a foreign
market in either of two ways: the company can set up
a totally new operation or can acquire an established
firm and use the firm to promote its product.
• The subsidiary that is established starting from the
ground up is called Greenfield investment.
• Compared to Greenfield investment, a cross-border
Acquisition has a number of benefits. First,
acquisition is quicker than establishing a firm.
Second, it takes less time to gain a presence.
• In a wholly owned subsidiary, the company owns
100 % of the equity.

Imm unit-04 (global market entry & export marketing)

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