INTERNATIONAL MARKETS’ ENTRY STRATEGIES

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INTERNATIONAL MARKETSENTRY STRATEGIES

• By
• Elisante Ole Gabriel (Tanzania)
• Chartered Marketer
• egabriel_at_edenconsult.net, www.olegabriel.com
• 255-784-455-499

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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 firms
  other marketing-mix decisions.
• There are two major entry Modes PRODUCTION IN
  HOME COUNTRY PRODUCTION IN FOREIGN COUNTRY.

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Introduction Cont

• International Marketers (you) have to make a
  multitude of decisions regarding the entry mode
  which may include
• the target product/market
• the goals of the target markets
• the mode of entry
• the time of entry
• a marketing-mix plan
• a control system to check the performance in the
  entered markets

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Target Market Selection

• A crucial step in developing a global expansion
  strategy is the selection of potential target
  markets.
• 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 on each indicator
• 4. Compute overall score for each country

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Choosing the Mode of Entry

• Decision Criteria for Mode of Entry
• Market Size and Growth
• Risk
• Government Regulations
• Competitive Environment
• Local Infrastructure
• Company Objectives
• Need for Control
• Internal Resources, Assets and Capabilities
• Flexibility

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Mode of Entry Cont

• 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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Exporting

• Indirect Exporting
• Export management companies
• Cooperative Exporting
• Piggyback Exporting
• Direct Exporting
• Firms set up their own exporting departments

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Licensing

• Licensor and the licensee
• Benefits
• Appealing to small companies that lack resources
• Faster access to the market
• Rapid penetration of the global markets

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Licensing Cont..

• Caveats (Alerts/warning signals)
• 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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Licensing Cont

• How to seek a good licensing agreement
• 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)

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Franchising

• Franchisor and the Franchisee (e.g IIFT IFM)
• Benefits
• Overseas expansion with a minimum investment
• Franchisees profits tied to their efforts
• Availability of local franchisees knowledge

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Franchising Cont

• Caveats (Warnings)
• 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

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Contract Manufacturing (e.g Microsoft)

• Benefits
• Labor cost advantages
• Savings via taxation, lower energy costs, raw
  materials, and overheads
• Lower political and economic risk
• Quicker access to markets

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Contract Manufacturing Cont

• Caveats
• Contract manufacturer may become a future
  competitor
• Lower productivity standards
• Backlash from the companys home-market employees
  regarding HR and labor issues
• Issues of quality and production standards

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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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Joint Ventures Cont

• 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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Joint Ventures Cont

• 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

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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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Wholly Owned Subsidiaries Cont

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

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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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Strategic Alliances Cont

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

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Strategic Alliances Cont

• Cross-Border Alliances that Succeed
• Alliances between strong and weak partners seldom
  work.
• Autonomy and flexibility
• Equal ownership
• However, according to Prof. Michael Porter, 90
  of SA are destined to fail (A case of BP-AMOCO,
  1999)

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Strategic Alliances Cont

• Other success 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
• Similar cultures, assets sizes and venturing
  experience
• A shared vision on goals and mutual benefits

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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
• Mode of entry issues, market knowledge, various
  economic attractiveness variables, etc.

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Exiting a Market

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

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Exit Strategies

• Assess the 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

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STANDARDIZATION Vs. ADAPTATION/DIFENTIATION
Finally

• Standardization means a product is manufactured
  just for the global market with any degree of
  responsiveness. The major objective is to take
  the advantage of economies of scale through cost
  integration.
• On the other hand, adaptation is an approach
  whereby a product gets some modification to suit
  individual domestic markets

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THE END!!!

• Avoid the exit costs by making a strategic
  choice of the entry strategies
• There is always a dilemma whether to standardize
  or adapt. International marketers need to resolve
  this dilemma continuously. Gabriel E., (2005) in
  his article Export Marketing Strategies gave a
  discussion on how to handle the dilemma. AND..
• Think Global act Local GLOCALIZATION