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Entry Modes

The document discusses various global market entry strategies including exporting, licensing, franchising, contract manufacturing, joint ventures, and wholly owned subsidiaries. It covers the benefits and challenges of each strategy and factors to consider when selecting an entry strategy such as market size, risk, regulations and resources. Screening countries and choosing an entry mode requires evaluating these considerations.

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0% found this document useful (0 votes)
44 views31 pages

Entry Modes

The document discusses various global market entry strategies including exporting, licensing, franchising, contract manufacturing, joint ventures, and wholly owned subsidiaries. It covers the benefits and challenges of each strategy and factors to consider when selecting an entry strategy such as market size, risk, regulations and resources. Screening countries and choosing an entry mode requires evaluating these considerations.

Uploaded by

Saviour
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 31

Chapter 9

Global Market
Entry Strategies

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 1
Inc.
Chapter Overview
1. Target Market Selection
2. Choosing the Mode of Entry
3. Exporting
4. Licensing
5. Franchising
6. Contract Manufacturing
7. Joint Ventures
8. Wholly Owned Subsidiaries
9. Strategic Alliances
10. Timing of Entry
11. Exit Strategies
Copyright (c) 2007 John Wiley & Sons,
Chapter 9 2
Inc.
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

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 3
Inc.
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

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 4
Inc.
1. Selecting the Target Market

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 5
Inc.
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

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 6
Inc.
2. Choosing the Mode of Entry

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 7
Inc.
2. Choosing the Mode of Entry

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 8
Inc.
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

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 9
Inc.
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)

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 10
Inc.
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

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 11
Inc.
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

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 12
Inc.
4. Licensing

• How to seek a good licensing agreement (see Global


Perspective 9-1):
• Seek patent or trademark protection
• Thorough profitability analysis
• Careful selection of prospective licensees
• Contract parameter (technology package, use conditions,
compensation, and provisions for the settlement of disputes)

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 13
Inc.
5. Franchising
• Franchisor and the franchisee
• Master franchising Caveats:
• Benefits: – Revenues may not be adequate
• Overseas expansion with a – Availability of a master
minimum investment franchisee
• Franchisees’ profits tied to – Limited franchising
their efforts opportunities overseas
• Availability of local – Lack of control over the
franchisees’ knowledge franchisees’ operations
– Problem in performance
standards
– Cultural problems
– Physical proximity
Copyright (c) 2007 John Wiley & Sons,
Chapter 9 14
Inc.
5. Franchising

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 15
Inc.
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

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 16
Inc.
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

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 17
Inc.
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

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 18
Inc.
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

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 19
Inc.
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

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 20
Inc.
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

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 21
Inc.
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

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 22
Inc.
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.

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 23
Inc.
9. Creating Strategic Alliances

• Types of Strategic Alliances


• Simple licensing agreements between two partners
• Market-based alliances
• Operations and logistics alliances
• Operations-based alliances

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 24
Inc.
9. Creating Strategic Alliances

• The Logic Behind Strategic Alliances


• Defend
• Catch-Up
• Remain
• Restructure

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 25
Inc.
9. Creating Strategic Alliances

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 26
Inc.
9. Creating Strategic Alliances

• Cross-Border Alliances that Succeed:


• Alliances between strong and weak partners seldom
work.
• Autonomy and flexibility
• Equal ownership

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 27
Inc.
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

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 28
Inc.
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.

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 29
Inc.
10. Timing of Entry

• Reasons for exit:


• Sustained losses
• Volatility
• Premature entry
• Ethical reasons
• Intense competition
• Resource reallocation

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 30
Inc.
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

Copyright (c) 2007 John Wiley & Sons,


Chapter 9 31
Inc.

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