OVERSEAS MARKET ENTRY ACTIONS:

1. INTRODUCTION

According to Bender and Fish (2000) the world is in an era of globalization, and companies
are continuously affected by competition around the globe. An International Expansion
process is necessary because, from a national view, economic separation from the world
market has become impossible. Failure to participate in the international market assures
declining economic activity of a nation (Czinkota & Ronkainen 2004).

Small and medium enterprises are a major source of economic growth and job creation in
developing as well as in developed countries (OECD 2006 & APEC 2006). More small and
medium enterprises are taking part in internationalization after getting domestic market
experience and sound financial resources. A research study shows that world trade has been
risen from year 2000 to 2005, $ 6.2 to $9 trillion (Cinzkota & Ronkainen 2004). This article
will analyse the overseas market entry actions.

2. INTERNATIONAL MARKET ENTRY THEORY

The literature on the international market has been criticized as being an expressive and
missing empirical research (Paliwoda 1999); the selection of international market entry mode
in the literature is considered a major issue in the literature (Anderson, 1998, Bradley 2006)
and researched extensively.

Generally, the literature of on the international expansion process of international market

entry can be divided into two schools of thought, the stages theory and the contingency
theory (Nair 1997 & Melin 1992). The stages theory views the international expansion of

firms as a set process of chronological progress through stages of resource commitment

(Anderson 1998). On the other hand, the contingency theory focuses on strategies or choices
for the various international market entry modes (Kwon & Konopa 1992).

This study looks into different options and ways to international expansion process.

3. THE INTERNATIONAL MARKET ENTRY PROCESS

According to Perner (2014) There are different ways to enter in international marketing entry,
and its purpose is to gauge which international market or markets offer the best opportunities
for our products or services to succeed.
Country Identification
At first there has to be a good analysis of which country to choose. So to conduct country
identification - which means that to undertake a general overview of potential new markets.
There might be a simple match - for example two countries might share a similar heritage e.g.
the United Kingdom and Australia, a similar language e.g. the United States and Australia, or
even a similar culture, political ideology or religion e.g. China and Cuba. Often selection at
this stage is more straightforward. For example a country is nearby e.g. Canada and the
United States. Alternatively export market is in the same trading zone e.g. the European
Union. Again at this point it is very early days and potential export markets could be included
or discarded for any number of reasons.
Preliminary Screening
At this second stage one takes a more serious look at those countries remaining after
undergoing preliminary screening. Now it needs to begin to score, weight and rank nations
based upon macro-economic factors such as currency stability, exchange rates, level of
domestic consumption and so on. Now on that basis one can start calculating the nature of

market entry costs. Some countries such as China require that some fraction of the company
entering the market is owned domestically - this would need to be taken into account. There
are some nations that are experiencing political instability and any company entering such a
market would need to be rewarded for the risk that they would take. At this point the
marketing manager could decide upon a shorter list of countries that he or she would wish to
enter. Now in-depth screening can begin.

In-Depth Screening
The countries that make it to stage three would all be considered feasible for market entry. So
it is vital that detailed information on the target market is obtained so that marketing
decision-making can be accurate. Now one can deal with not only micro-economic factors
but also local conditions such as marketing research in relation to the marketing mix i.e. what
prices can be charged in the nation? - How does one distribute a product or service such as
ours in the nation? How should we communicate with are target segments in the nation? How
does our product or service need to be adapted for the nation? All of this will information will
for the basis of segmentation, targeting and positioning. One could also take into account the
value of the nation's market, any tariffs or quotas in operation, and similar opportunities or
threats to new entrants.
Final Selection
Now a final shortlist of potential nations is decided upon. Managers would reflect upon
strategic goals and look for a match in the nations at hand. The company could look at close
competitors or similar domestic companies that have already entered the market to get firmer
costs in relation to market entry. Managers could also look at other nations that it has entered
to see if there are any similarities, or learning that can be used to assist with decision-making
in this instance. A final scoring, ranking and weighting can be undertaken based upon more

focused criteria. After this exercise the marketing manager should probably try to visit the
final handful of nations remaining on the short, shortlist.

MODES OF ENTRY INTO FOREIGN MARKETS (FOREIGN MARKET ENTRY

STRATEGIES)
Selecting the mode of entry into a foreign market is a task of critical importance. It has major
implications concerning the firms entire marketing mix and the firms own control over it. In
broad terms, a company has three types of entry possibilities.

1.

Indirect export sales to domestic intermediaries who resell the product to customers
overseas.

2.

Direct export sales to a customer overseas who may be a reseller or an end-user.

3.

Overseas Manufacturer either independently or in some form of joint venture.

CRITERIA FOR SELECTING MODE OF ENTRY

The appropriateness of particular modes of entry varies both among firms and for any
individual firm across markets and time. In choosing an entry method for a particular market
a firm should evaluate the following criteria.

1.

COMPANY OBJECTIVES in relation to volume timescale and segmental coverage.

Thus, for small or short-term volumes overseas production is probably inappropriate.

COMPANY SIZE.

Small firms are unlikely to possess sufficient resources to

facilitate production abroad.

3.

MODE AVAILABLILITY. Different markets require different modes. India, for

example is generally hostile toward foreign producers wishing to locate there.

MODE QUALITY. It may be that all modes are possible for a particular market but
some are of questionable quality.

Thus an absence of suitably qualified

intermediaries would preclude indirect or direct exporting of say, high technology

goods.

5.

INVESTMENT REQUIREMENTS. These will be highest for overseas production

which may thus be precluded. Even so, investment may be required to finance say
overseas intermediaries stocks.

6.

OPERATING COSTS. The recurring costs of entry must be evaluated. Notably, the
manufacturers incremental marketing costs rise in the sequence running from
indirect, through direct exporting to overseas production.

7.

ADMINISTRATIVE DUTIES. These are costly and inconvenient and they vary
across entry modes. Thus, administrative tasks are far fewer for indirect exporters
than for direct exporters.

8.

PERSONNEL REQUIREMNTS. These vary across entry modes. Thus when IM

staff are in short supply it may be better to opt for indirect exporting.

10.

EXPERIENCE REQUIREMENTS. Firms become better at IM the more experienced

they are at it. This argues against the mode of indirect exporting.

11.

RISKS.

Some risks favour indirect exporting (for example) political risks of

expropriations.

Other risks favour direct exporting or foreign production (for

example) risk of losing touch with customers.

12.

CONTROL. Control over the distribution channel varies enormously by mode

of entry. For example, overseas production by a wholly owned subsidiary provides
absolute control while indirect exporting gives little or no control.

13.

Firms IM orientation whether domestic market extension orientation, multidomestic

orientation or global orientation.

EXPORTING

Exporting is the easiest and most common means for entering a new foreign market and it is a
low risk strategy. Many firms drift into unplanned exporting by accepting chance orders.
However, systematically planned exporting to selected target markets is also common and it
gives rise to several advantages.

1.

It enables firms to develop and test their marketing plans and strategies before risking
substantial investments in overseas plant.

2.

It facilitates small-scale IM

3.

It allows firms to engage in IM despite them lacking the know-how and experience to
go it alone.

4.

It avoids many types of risk and allows firms to limit operating costs, administrative
duties and personnel needs.

5.

Perhaps the principal benefit, however, is that exporters are able to concentrate
production in a single location and this facilitates important economies of scale, other
cost savings and product quality advantages.

A common but fallacious view is that exporting is a low-investment option. It does not, of
course, require investment in foreign production. However, effective exporting does require
significant investment in marketing resource, in strategy formulation and implementing the
marketing mix. For example, the initial success of the Japanese entry into the USA and other
countries car markets was based on very extensive and expensive research and planning.

INDIRECT EXPORT
With indirect export the firms goods are sold abroad without the firm conducting any
particular actions for the purpose thereof.

The firms outputs are exported by other

organizations. Although it is exporting, the company does not behave like a true international
marketing firm. Indirect export is made possible in four man ways: through export houses;
via a specialist export manager; through UK buying offices of foreign stores; and through
complementary exporting.

EXPORT HOUSES

These are firms which facilitate exporting on behalf of the producer. They fall into three
main groups:

(a)

Exporting Merchants these act as export principals, buying and selling the goods
they export.

(b)

Confirming Houses also act as principals and their main functions to provide credit
for foreign customers when the producer is unwilling to do so.

(c)

Export Agents sell abroad for the producer in his own name or the producers.
Usually cover a particular group of related products (for example) tableware.
Remuneration by commission.

Advantages of trading via these three are similar to each other

1.

The producer gains the benefit of the merchants market knowledge and contracts.

2.

He is relieved of the need to finance the export transaction and of the credit risk,
export documentation, shipping and insurance. Etc. This does not apply though when
an export agent is used.

3.

The manufacturer does not bear the overhead costs of export marketing. Hence, he
does not need to lay out investment funds.

4.

Many merchants and agents have specialist skills required for counter trade, switch
trading and so on.

5.

In some cases merchants receive preferential treatment from institutional and

organizational customers.

6.

In the case of export agents, the manufacturer retains much control over the market
when the sale is made in his own name.

Disadvantages of exporting via export houses:

1.

Generally and critically, the producer has little or no control over his market (except
regarding export agents) and his product may be dropped whenever the merchant
decides.

2.

Any goodwill created in the market is usually the merchants and not the
manufacturers.

3.

There are problems in securing the merchants effort and loyalty vis--vis other items
in his product line.

4.

Merchants and agents are best suited to short-term arrangements they tend not to be
motivated toward long-term relationships.

SEPCIALIST EXPORT MANAGERS

These firms, known as Combination Export Managers, in the USA, offer a full export
management service. In essence, they become the producers export department, acting in his
name and using his letterhead. His remuneration is normally by way of commission on sales.

Advantages of using a specialist export manager are the same as for export merchants
plus:

1.

The producer immediately gains his own export department without incurring the
overheads.

2.

The producer retains full market control.

3.

He can expect a continuing long-term relationship.

Disadvantages:

1.

Being independent, the specialist export manager can drop the producer at will.

2.

The producer does not build his own export experience and this affects his future
strategy choices.

3.

The specialist export manager may not have sufficient knowledge of all the
producers target markets.

BUYING OFFICES OF FOREIGN STORES

Many of the leading departmental stores in the advanced nations maintain buying offices in
London. For example, the top ten Japanese department stores are so represented in London
as are two of the top four German ones.

In addition, buyers from similar stores around the world regularly visit Britain to buy.

COMPLEMENTARY EXPORTING

Often called piggy-back exporting, this occurs when one producer (the carrier) uses his own
established IM channels to market the outputs of another producer (the rider) alongside his
own. The carrier may:

(a)

Merely transport the riders goods using his own spare capacity.

(b)

Sell the carriers goods for a commission.

(c)

Buy and sell the riders goods.

The carriers advantages are:

Increased profits from further spreading overheads.

2.

A more attractive product range.

The riders advantage is that he obtains simple, established, low-cost and low-risk market
entry.

DIRECT EXPORT
In direct exporting, the producer himself performs the export task rather than delegating it to
others. The manufacturer sells directly to customers overseas who may be final users or
resellers.

Direct exporting is facilitated by selling; directly to the final user; through

agencies; to distributors and stockists; through branch offices.

SALES TO FINAL USER
Here, the manufacturer cuts out any kind of intermediary and goes direct to customers. These
might be: industrial users; government or reached by mail order, consumers. In these cases

marketing is much the same as in the home market, although there are of course the added
difficulties ensuing from foreignness, distance, time, etc.

AGENCIES
An overseas export agent is a person or firm hired to facilitate as sales contact between his
principal and a customer.

Formally, agents do not take title and their remuneration is

normally a commission on sales. Sometimes in practice, however, the term agent is used
loosely and then it includes distributors. Some agents do more than merely arrange sales.
Some, for example, hold stocks for the principal or carry out servicing on his behalf.
Advantages of overseas agents include the following:
1.

They provide extensive knowledge and experience of local needs, customers and
environment.

2.

Their existing product lines are usually complementary to the principals goods and
this helps with market penetration.

3.

The exporter is involved in little or no investment outlay.

4.

Agents can be a highly effective means of market penetration.

5.

There is little or no political risk.

There are some disadvantages of hiring agents:

1.

There are problems in obtaining the agents full commitment since he carriers other
products too.

2.

Agents often want immediate results and will not actively promote slow-selling goods
even if they do not drop them.

3.

Many agents are too small to fully exploit a major market many serve only limited
geographical segments.

4.

If the market grows to a large size it is more economic to use a branch office of a
subsidiary due to the scale economies associated with these.

DISTRIBUTORS AND STOCKISTS

DISTRIBUTORS are customers with preferential rights to buy and resell a range of a firms
goods in a specific geographical area. Distributors then, earn profits, they are not paid
commission. They perform the usual distribution functions and they differ from ordinary
wholesalers only in the matter of their geographical exclusivity.
STOCKISTS are simply distributors that receive more favourable financial rewards for
carrying a certain minimum level of stock level of stock.
Despite the differences in terms of the methods of their remuneration the advantages and
disadvantages of distributors are very like those associated with overseas agents.

COMPANY BRANCH OFFICE

This is merely and extension of the firm into the foreign market for the purpose of conducting
marketing and distribution.

Advantages are:

1.

When volume has reached an efficient level they are less costly than using a local
intermediary. This is why, and often it is when, many branch offices are opened.

2.

Sales performance should increase since marketing effort will be focused exclusively
on the firms own products.

3.

The firm retains absolute marketing control

4.

The firm should acquire more and better market information.

5.

Customer Service should improve since intermediaries are notoriously bad at this.

Disadvantages of a branch office are:

1.

Investment requirements and on-going overheads.

2.

Risk of (modest) losses due to expropriation.

3.

Often there are legal requirements concerning the minimum number of local staff that
must be employed, how these can be dismissed, trade union membership etc.

CONCLUSION:
There are other ways to enter into the foreign market like for example any country can start
production. There are many ways to do that. Location abroad allows firms to better
understand customer needs. Some markets, particularly regional markets such as North
America, are large enough to support manufacture a minimum efficient scale.

Production

costs are lower in some foreign countries. Licensing agreement is a commercial contract
whereby the licensor (the international marketer) gives something of value to the licensee
(the national target market firm.) in exchange for certain performances and payments.
Franchising is a type of licensing although franchising does more formally specify what is
expected of the franchisee (the national target market firm.). In a franchise arrangement the
franchiser supplies a standard package of goods, components or ingredients along with
management and marketing services or advice. Contract manufacturing involves a long-term
contract whereby a firm in a foreign country undertakes to manufacture or assemble a product
on behalf of another firm located outside the country. A JV is an arrangement whereby two
firms in different countries join forces for manufacturing financial and marketing purposes
and where each has a share in the equity and in the management of business. JVs are very

common and fast becoming more so. Firms involved include Xerox, Massey Ferguson, ICI
and Philips.

Refereence:
Anderson, V. Graham, S. & Lawrence P., (1998) Learning to Internationalize. Journal of
Management Development, 17(7), p 492-502.

Bradley, F, Meyer, R & Gao Y.(2006) Use of supplier customer relationships by SMEs to
enter foreign markets. Industrial Marketing Management, No. 35 PP652- 665

Bradley, F. (2005) International Marketing Strategy 5th Ed. : Prentice Hall.

Kwon, Yung-Chul and Konopa, Leonard J. (1992) Impact of host country market
characteristics on the choice of foreign market entry mode. International Marketing Review,
Vol. 10, Issue 2, pp.60-76.

Silke Bender, Alan Fish, (2000) "The transfer of knowledge and the retention of expertise:
the continuing need for global assignments", Journal of Knowledge Management, Vol. 4 Iss:
2, pp.125 - 137

http://www.consumerpsychologist.com/international_marketing.html accessed on May 13,

2014