international market entry

INTERNATIONAL MARKET ENTRY STRATEGIES

•International market entry concept & modes•Factors affecting the selection of entry mode

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Concept of international market entry

• mode of entry: an institutional mechanism by which a

firm makes its products or services available

consumers in international markets.

• mode of entry determined by:

- the ability and willingness of the firm to commit

resources

- the firms’ desire to have a level of control over

international operations

- the level of risk the firm is willing to take

international market entry

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Market entry strategies


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Market entry strategies Exporting

Direct– Domestic base– Overseas sales branch– Traveling sales representative– Foreign-based distributors/agent

Indirect-occasional, or active exporting– Domestic-based export merchant – Domestic-based export agent– Cooperative organizations– Export-management company


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– Franchising: A contractual arrangement where a wholesaler or retailer (the Franchisee) agrees to make some payment and to meet the operating requirements of a manufacturer or other franchiser in exchange for the right to use the firm’s name and to market its goods or services

– Foreign Licensing: an agreement that grants foreign marketers the right to distribute a firm’s merchandise or to use its trademark, patent, or process in a specified geographic area.

– Subcontracting: a contractual agreement where a firm hires a local company to produce goods or services in a specific geographic area.

Market entry strategiesContractual Agreements


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Market entry strategies International Direct Investment

An additional strategy for entering global markets Requires direct investment in foreign firms, production, and/or

marketing facilities Advantages

– cheaper labor cost in some countries– government incentives– creates better image– deeper relationships with government, customers, suppliers and

distributors– full control of operations and marketing

Risks involved:– economic difficulties of the host country– political instability and negative perception


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Modes of international market entry

Production in home country

exports: production is carried out in home country and finished goods are shipped to the overseas markets for sale

indirect exports: process of selling products to an export intermediary in the company’s home country who in turn sells the products in the overseas markets

direct exports: process of selling the firm’s products directly to an importer in the overseas market


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Modes (contd)

complementary exporting: use of distribution channels

of an overseas firm to make the product available in the

overseas market

provide offshore services: to overseas clients with the

help of information and communication technology


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Production in a foreign country

• contractual entry modes

international licensing: process by which a domestic

company allows a foreign company to use its intellectual

property and specific business skills for a compensation

(royalty)

international franchising: transfer of intellectual

property and other assistance over an extended period of

time with greater control compared to licensing

Modes (contd)


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Selecting the International Entry Mode, continued Licensing

Licensor offers know-how, shares technology, and shares brand name with licensee

Licensee pays royalties Lower-risk entry mode; limits exposure to economic,

financial, and political instability Permits the company access to markets that may be closed

or that may have high entry barriers

DOWNSIDE: Can produce competitor in the licensee


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Selecting the International Entry Mode, continued

Franchising Franchisor gives franchisee right to use brand name,

trademarks and business know-how

Less risk, higher level of control

Very rapid market penetration

DOWNSIDE: Can create future competitors who understand

the operations of the franchise


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overseas turnkey projects: conceptualize, design, install, construct, and carry out primary testing of manufacturing facilities or engineering structures for an overseas client organisation

types : built and transfer (BT), built, operate, and transfer (BOT), built, operate, own (BOO)

international management contracts: a company provides its technical and managerial expertise for a specific duration to an overseas firm

Modes (contd)


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international strategic alliance: the relationship

between two or more firms that cooperate with each

other to achieve common strategic goals but do not

form a separate company

international contract manufacturing: a contractual

arrangement under which a firm’s manufacturing

operations are carried out in a foreign countries

Modes (contd)


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International Strategic Alliances

Typically, the term refers to nonequity alliances; for example:

Manufacturing Contract manufacturing, engineering, technological, and

research and development alliances Marketing

One firm handles marketing for another, or some aspect of the marketing process

Distribution One firm handles the distribution for another, or some aspect of

the distribution processinternational market entry

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Investment entry modes

assembly in overseas markets: refers to exporting

various components of the product in completely

knocked down (CKD) condition and assembles them

overseas

international joint ventures: equity participation of

two or more firms resulting into formation of a new

entity

Modes (contd)


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Selecting the International Entry Mode, continued Joint Venture

Preferred entry mode of governments of developing countries

- Help develop local expertise- If production is exported, helps with country’s

balance of trade Foreign company and local company establish a jointly-

owned new company Parties share capital, equity, labor 70% of all joint ventures break up within 3.5 years

DOWNSIDE: Joint-venture partners can turn into viable competitors; and 70% of all joint ventures break up within 3.5 years.


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Selecting the International Entry Mode, continued Consortia

Involve three or more companies Monopoly effect

Allowed - where expensive R&D is involved- in underserved markets- in markets where the government

and/or the marketplace can control its activity


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Factors for selecting partners for cooperation

• the alliance partner should have some strength which

can be translated into business values for the alliance

• the alliance partners should be committed to

cooperative goals

• it is preferable that the alliance partner should have

multi-cultural business environment


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Wholly owned foreign subsidiaries

• to have complete control and ownership of

international operations a firm opts for foreign

direct investment through:

1. acquiring a foreign company and all its resources in

a foreign market (acquistion)

2. the establishment of production and marketing

facilities by a firm on its own from scratch (green field)

Investment mode (contd)


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Selecting the InternationalEntry Mode, continued Wholly Owned Subsidiaries

Can be developed by the company – greenfielding – or can be purchased (acquisition or merger)

Involve long-term market commitment High cost High control of operations Greatest level of risk


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Selecting the InternationalEntry Mode, continued Branch Offices

Entities are part of the international company, rather than a new company (as in the case of the subsidiary)

Involves substantial investment

sales office

showroom Engages in a full spectrum of marketing activity High level of control


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Comparison of Market Entry Strategies

Form Control Risk Advantage

Export Very limited Low Low cost

Licensing Limited Moderate Low cost

Joint Ventures Shared Moderate Local

expertise

Ownership Total High Control

Internet Total High No physical

presence requiredinternational market

entry

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Factors affecting the selection of entry mode

External factors

• Market size• Market growth• Government regulations• Level of competition• Level of risk

• political• economic• operational

• Production and shipping costs


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Internal factors

• Company objectives

• availability of company resources

• level of commitment

• international experience

• flexibility

Factors affecting the selection of entry mode (contd)


Foreign market portfolios: technique and analysis

Company competitiveMarket attractivness

high medium low

high Invest/growdominate

Invest/grow divest Joint venture

medium Invest/grow Selective strategies

low Harvest/divest/License/combine countries


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Thank you

international market entry

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