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Global Marketing

Topic: Modes of entry in overseas markets


Lecturer: Mr

MODES OF ENTRY INTO ITERNATIONAL MARKETS


1) 2) 3) 4) 5) 6)

Three categories of entry Three criteria for selecting a mode of entry Examination of export entry mode Distinguish between direct exports and indirect exports Examine the rationale for overseas production Methods of overseas production

THREE MODES OF ENTRY


Broadly speaking three modes of entry are identified INDIRECT EXPORT DIRECT EXPORT OVERSEAS MANUFACTURING
.

INDIRECT EXPORT

where there is resale of the product to customer overseas DRAGON STOUT: sells to wholesalers in Jamaica who in turn ship goods to Toronto

DIRECT EXPORTS These are sales to customers overseas. These customers may be intermediary organizations. based abroad or end-users
.

OVERSEAS MANUFACTURER A firm may set up its own production operation aboard or enter into joint venture with enterprises in overseas market.
.

CRITERIA FOR SELECTING A MODE OF ENTRY


To choose a mode of entry to a particular market, the following should be considered: 1) THE FIRM'S MARKETING OBJECTIVES In relation to volume, timescale and coverage of the market 2) FIRM'S SIZE A small firm will be less likely to set up overseas production MODE AVAILABLITY A firm might have to use different modes of entry to enter different markets

3)

4) MODE QUALITY 5) HUMAN RESOURCES REQUIREMENTS 6) MARKET INFORMATION FEEDBACK


7) 8) 9)

LEARNING REQUIREMENTS RISK- POLITICAL Expropriation of overseas assets- discouraging CONTROL NEEDS The more involved the greater the degree of control over the marketing mix variable

RATIONALE FOR OVERSEAS PRODUTION

Location aboard can offer eventually a better understanding of the problems and needs of customers. Some markets are so large that economies of scale can be gained by overseas production. Production cost are lower in some countries overseas than at home

For firms producing bulky products, overseas production can reduce storage and transportation cost Overseas production can overcome the effect of tariff and non-tariff barrier to imports. [Japan- car manufacturer. When overseas government is a customer- winning combination

METHODS OF OVERSEAS PRODUCTION


A firm strategic choice of overseas production method depends on its objective resources and levels of commitment to International Marketing. LICENSING Licensing agreement is a commercial contract whereby the licenser gives something of value to a licensee in exchange for certain performances and payments. The licenser provides any of the following: - Manufacturer know- how Marketing advise and assistance to the right use of trademark, brand, technical advise and assistance

including supply of essential materials. Right to produce patented product Eg. HEINEKEN BEER IN JAMAICA

ADVANTAGES OF LICENSING
It require no investment-only cost of monitoring 2) It enables entry into new markets that would otherwise be closed due to tariffs, government attitudes and policies. 3) As a mode of entry it is simple and quick 4) The licenser gains access to knowledge and local production processes.
1) 5) 6)

New products can be introduced to many countries quickly because of low investment requirements. It provides all the usual benefits of overseas production

SOME DRAWBACKS TO LICENSING


Revenues from licenses are very low less than 10% of turnover A licensee may eventually become the licenser's competitor- know-how- power Product quality can deteriorate if licensee has a more lax attitude Although contract may specify minimum sales volume there is some danger that the licensee will not fully exploit the market. ie. HEINKEN/ RED STRIPE 3:1 ratio.

FRANCHISING
This is a type of licensing. The franchise agreement specifies in more detail than a licensee agreement, exactly what is expected of the franchisee In this agreement the franchiser supplies ingredients, standard package of goods components, management and marketing.

The franchiser provides capital, personal involvement, local market knowledge.etc. Examples are as follows: KFC

HOLIDAY INN

BURGER KING

HILTON HOTEL

TACO BELL

ADVANTAGES / DISADVANTAGES OF FRANCHISING


Same as licensing Extra benefit- provide some leverage of controlling the franchisee activities

CONTRACT MANUFACTURER
Contractor makes contract with firm aboard whereby the contractee manufactures or assembles a product on behalf of the contractor. Contractor maintains full control over marketing and distribution. Examples of firms that use this method are: PROCTER & GAMBLE COLGATE DEL MONTE

ADVANTAGES There is no need to invest in plant abroad - The risk of asset expropriation is minimized - Control of marketing is retained by contractor - Risk associated with currency fluctuation
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Discuss the disadvantages of this kind of arrangement.

JOINT VENTURES
A joint venture is an arrangement where two firms or more join forces for manufacturing, financial and marketing purposes and each has a share in both the equity and the management of business of joint venture. Joint ventures are bound by much stronger formal ties.

Some countries encourage joint ventures Eg. RUSSIA, INDIA, NIGERIA, CUBA and KENYA. Joint ventures can reduce the risk of government intervention Joint ventures can provide close control of marketing etc.

MAJOR DISADVANTAGESOF JOINT VENTURES


Disagreements over: - Profit shares - Amount invested - The management of the joint venture - The marketing strategy should minimize by: - Careful selection of partners - Formulation of jointly beneficial Contracts -Pre-arranging for arbitration to resolve any clashes that occur etc

WHOLLY OWNED OVERSEAS PRODUCTION


Example: PEPSI JAMAICA LTD COKE NESTLES ADVANTAGES The firm does not have to share profits - The firm does not have to share or delegate decision
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The firm is able to operate a completely integrated and synergistic into firm - There is no communication problem
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MAJOR DISADVANTAGES
Substantial investment required - Suitable managers with required skills - difficulty in locating - Some overseas governments discourage and sometimes prohibits 100% ownership of an enterprise by a foreign firm
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partner's market knowledge, distribution system and other local expertise required.

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