MKTG7506: International Marketing Management

12 April 2010

International Market Entry

Read: C & G Chapter 11 Buckley and Casson (1998) Taylor et al. (2000) Erramilli and Rao (1993)
Dr Ravi Pappu Office: Room 416 Colin Clark Building Phone: 3346 8089 Email: r.pappu@business.uq.edu.au Consultation: Monday 3-4 PM; Room 416 Colin Clark

Learning Objectives
Discuss various types of international market entry.

Market Entry Considerations

Market entry strategy decision should reflect (a) an analysis of market characteristics (b) Company capabilities Resource constraints need to develop a priority system

Week 6: International Market Entry

MKTG7506: International Marketing Management

12 April 2010

Market Entry Considerations

No single ideal criterion initial screening may consider the following : External criteria: (a) market size and growth (b) economic growth (c) political risk (d) government regulations (e) competitive environment (f) local infrastructure

Market Entry Considerations

Internal criteria: (a) Company objectives (b) Need for control (c) Internal resources, assets and capabilities (d) flexibility

Modes of Market Entry

Export-based entry Manufacturing-based entry Relationship-based entry These strategies do not operate in sequence any one can be appropriate at any time

Week 6: International Market Entry

MKTG7506: International Marketing Management

12 April 2010

Export-Based Entry
Sell either product/service or technology with the minimum commitment of resources No marketing or production organization overseas Exported product may be fundamentally same increased use of Internet Advantages : (a) Minimal risk excess production exported (b) international marketing effort will be less

Export-Based Entry - Problems

Early motives - may be skim the market or absorb overheads - Also common to mature economies Disadvantages Not always optimal strategy - desire to keep international activity simple (a) lack of product modification = inflexible strategy (b) lack of control Implications of local currency strength on exporting

Export-Based Entry Strategies

Indirect exporting Direct exporting including the Internet Establishing a sales office in the overseas market Licensing Franchising

Week 6: International Market Entry

MKTG7506: International Marketing Management

12 April 2010

Indirect Exporting
Use of agencies in the home country to get products into foreign markets export agents and export merchants Very little risk and no major resource commitments Piggy backing and Cooperative exporting Little or no control over international operations ill fated marketing mix decisions

10

Cooperative Exporting: Examples

Piggy Backing: Examples

11

Direct Exporting
Sell direct to end users or sell agents in the target market through the firms own sales (domestic) organisation Direct marketing through Internet Using electronic means, primarily web pages, email, file transfer and related communication tools e.g. Amazon and AOL Far more control and higher resource commitments on marketing mix tasks

12

Week 6: International Market Entry

MKTG7506: International Marketing Management

12 April 2010

Direct Exporting: Example

13

Direct Exporting: Example

Australian company Barbeques Galore operates its own sales office in Los Angeles, USA more control on distribution and promotion

14

Export-Based Entry Strategies

Licensing Permitting a manufacturer in a foreign country for manufacture and sale of your products - Involves an upfront payment and royalties. For both tangible products and intangible services or IP protected products and services. Advantages: (a) minimal commitment resources & lesser risk (b) Permit to spread out its R& D expenditure (c) allows licensor to navigate import barriers.

15

Week 6: International Market Entry

MKTG7506: International Marketing Management

12 April 2010

Licensing: Example

USA: Marine outboard motors Orbital Engine Italy: Aprilia: 50cc scooters

16

Licensing: Example-Done Art, Sydney

17

Licensing: Example
Tokyo Disneyland a classic case of licensing Owned and operated by Orient land Company under licence Disney receives royalties and a commission merchandise sold

18

Week 6: International Market Entry

MKTG7506: International Marketing Management

12 April 2010

Export-Based Entry Strategies

Licensing (Continued) Disadvantages: (a) loss of potential return fixed term - licensor is not permitted to enter the market during that period (b) variation in the royalty stream (c) Loss of control - product quality concerns contract enforcement (d) licensee may not be fully committed Cloning a competitor Precautions: careful selection and profitability analysis

19

Export-Based Entry Strategies

Franchising Common in service industries - cousin of licensingMaster franchising Franchiser provides training + operational manuals + management support Capitalising on a winning business formula Payments take the form of fee or percentage of sales lesser income potential Lack of control over franchisees performance Blockbuster video in Brazil
20

Franchising: Examples

21

Week 6: International Market Entry

MKTG7506: International Marketing Management

12 April 2010

Franchising: Example
The Body Shop International Plc is a retail franchise with an established network of franchisees that own and operate approximately 70% of The Body Shop stores worldwide.

22

Manufacturing-Based Entry
Using manufacturing process to enter a market - often referred to as foreign direct investment (FDI) Basically this strategy involves setting up a production base inside the target market country as a means of invading it As a means of accessing resources such as capital, technology, management expertise

23

Manufacturing-Based Entry
To gain access to raw materials or other resources cutting down freight/transportation - backward integration will make products more competitive as the company can minimize tax barriers in host country

24

Week 6: International Market Entry

MKTG7506: International Marketing Management

12 April 2010

Manufacturing-Based Entry
Forms may vary from limited equity involvement to total ownership of the overseas operation Joint venture Consortia Acquisition Greenfield operation

25

Joint Venture
Commonest form pursued by Australian firms cooperative and equity JVs Agree to share equity and other resources local partner providing access to distribution networks and familiarity to local mark environment Advantages: Lesser capital needed higher return potential Spread of risk Access to contacts and expertise to penetrate the local market - SYNERGY Disadvantages: Australian firm has only partial control
26

Joint Venture: Example

Coca-cola company and Nestle formed a worldwide joint venture on tea based beverages.

Enviga, the green tea-based functional drink recently launched in the U.S. is marketed through this joint venture.

Source: The Food Institute, 2006

27

Week 6: International Market Entry

MKTG7506: International Marketing Management

12 April 2010

Joint Venture: Example

Kirby Refrigeration Ltd: NSW, Australia Kulthorn International Ltd: Thailand Kulthorn Kirby Public Co Ltd in Thailand
28

Joint Venture: Example

Signet Engineering Pty Ltd: WA, Australia

Gold processing firm: Chile

29

Tariff Barriers and Market Entry

In Singapore and Hong Kong, car buyers have to pay taxes and charges as twice as the price of a BMW. In Indonesia, Thailand, and Philippines, the domestic car industry is highly protected from competition (import bans, local content regulations) . To overcome these barriers BMW using a joint venture with a local partner to assemble its cars Indonesia

30

Week 6: International Market Entry

10

MKTG7506: International Marketing Management

12 April 2010

Consortia
Differ from joint ventures (a) Typically involve a large number of participants (b) They frequently operate in a country or market in which none of the participants is currently active Developed to pool financial and managerial resources and lessen risk

31

Airbus Consortium
Airbus Industrie is a consortium of four companies French, German, Spanish and British. Developed 550 seat A380 the worlds biggest passenger jet which will cost $12 billion US$

32

Manufacturing-Based Entry
Acquisition Involves entering an overseas market by acquiring an existing company Advantages: (a) enables rapid entry (b) desirable in case where the industry is highly competitive and where there substantial entry barriers Many large Australian firms have adopted this strategy Disadvantages: Beyond the reach of SMEs
33

Week 6: International Market Entry

11

MKTG7506: International Marketing Management

12 April 2010

Heinekens Global Market Entry Strategies

Heineken is a global leader in beer. Since choosy European beer drinkers are loyal to their local brands, Heineken has bought stakes in companies in Hungary, Poland and Switzerland to enter the European market.

In Asia Heinekens strategy is joint-ventures

34

Manufacturing-Based Entry
Greenfield operation Firm decides to build its own plant in the overseas country using own funds May be the only option in the absence of firms suitable to acquire Advantages: Full control relative setting up time may be less - enabling to use latest technology and selecting most attractive location

35

Direct Foreign Investment Timing Of Entry

Parent firms advantages
Automobile and consumer electronics

Technology Technology
Brand equity

Subsidiary survival

Advertising Advertising Subsidiary size Distribution

Retail, FMCG 6955 foreign entries of 703 Japanese firms in 2003

Timing

Early larger size, but shorter survival time

Delios & Makino (2004)

36

Week 6: International Market Entry

12

MKTG7506: International Marketing Management

12 April 2010

Relationship-Based Entry
More reliant on the creation of relationships A considerable degree of cooperation is necessary to achieve success Contract manufacturing Strategic Alliances Countertrade

37

Contract Manufacturing
The firm contracts production to a local manufacturer but retains control over the product The firm must ensure proper quality control procedures Cost savings labor and other lesser flexibility in responding to market preference changes - risk of nurturing a future competitor

38

Highlight
Chrysler which left the European market in 1970s, returned in 1988 on an export basis. Its Jeep Cherokee is now manufactured by DaimlerPuch, a German company under a contract manufacturing agreement.

39

Week 6: International Market Entry

13

MKTG7506: International Marketing Management

12 April 2010

Highlight - Pitfalls
Schwinn, the US based bicycle manufacturer used to outsource 80% of its bikes from the Taiwanese company Giant manufacturing. When Schwinn decided to go for a new supplier, Giant started making and exporting bikes for the high end market. Today Giant is the second biggest bikes manufacturer in the world. In the meantime Schwinn filed for bankruptcy.

40

Relationship-Based Entry
Strategic Alliances A collaboration between countries to share or exchange value-creating activities (joint R& D, shared manufacturing, use of common distribution channels) e.g. Star Alliance Counter trade A mutual exchange relationship between buyers and sellers

41

One World

42

Week 6: International Market Entry

14

MKTG7506: International Marketing Management

12 April 2010

Star Alliance

43

Strategic Alliances: Examples

U.S. Agency for International Development (USAID), the government of Panama and the National Geographic Society formed strategic alliance to promote Panama as tourist destination

Source: Presswire 2007

44

Model of Cultural Differences and International Alliance Performance

Use Hofstedes four dimensions Know-how and collectivism culture

Differences in partners national cultures __

__
M time vs. P time cultures objectives and aspiration

Differences in partners organizational cultures + __

Decision making process Affiliation and social acceptance

Differences in partners professional cultures

Related complementary resources

Effectiveness of alliances value-creating activities

Performance of The International alliance 45

Sirmon & Lane (2004)

Week 6: International Market Entry

15

MKTG7506: International Marketing Management

12 April 2010

A Model of Headquarters-Subsidiary Relationships

Antecedent Factors Dependence Relationship Behaviours Marketing program standardization

Acquiescence

Subsidiary product performance

Trust

Cooperation

Is the extent to which one party accepts anothers specific request

Individualism /collectivism

Hewett & Bearden (2001)

46

Evaluation of Entry Modes

Involve a trade-off between DEGREE OF CONTROL on the one hand and COMMITMENT OF RESOURCES on the other make-or-buy decision This trade-off exists between forms of Exporting, Contractual forms and Wholly owned subsidiaries in terms of RISK, RETURN and CONTROL Depends on conditions in the host country

47

References
Sirmon, D. G. and Lane, P. J. (2004) A model of Cultural Differences and International Alliance Performance Journal of International Business Studies, 35 (4) 306 -319. Hewett, K & Bearden, W.O. (2001), Dependence, trust, and relational behavior on the part of foreign subsidiary marketing operations: Implications for managing global marketing operations, 65 (October) 51-66. Delios, A. Makino, S. (2003) Timing of Entry and the Foreign Subsidiary Performance of Japanese Firms Journal of International Marketing, 11, (3) 83-105.

48

Week 6: International Market Entry

16