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International Market Entry Strategies

Batch 24 Nilesh Dhumal-KHR2011SMBA24P002 Ramesh Gaonkar-KHR2011SMBA24P006

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Index
1. 2. 3. 4. 5. 6. 7. 8.

Target Market Selection Choosing the Mode of Entry Exporting Foreign Production Owner Ship Strategies Entry Analysis Exit Strategies Conclusion

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1-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 in the pool on each indicator 4. Compute overall score for each country

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2-Choosing the Mode of Entry

Decision Criteria for Mode of Entry:
Market Size and Growth Risk Government Regulations

Competitive Environment/Cultural Distance

Local Infrastructure

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2-Choosing the Mode of Entry

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Entry Strategy Alternatives

Exporting Indirect Exporting Direct Exporting(Company owned Subsidiary) Entry Strategy Ownership Strategies Alliances Joint Ventures

Foreign Production Licensing Franchising Contract Manufacturing Assembly Local Production

Entry Analysis Profitability Assets Costs Sales Risk Factors Exist Strategy

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2-Choosing the Mode of Entry

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3-Exporting
1. Indirect Exporting Export merchants Export agents Export management companies (EMC) 2. Cooperative Exporting Piggyback Exporting 3. Direct Exporting Firms set up their own exporting departments ( Company own Subsidiary)
E.g. International Representative, Local Agents, Foreign Distributers and Commercial Subsidiary

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4-Foreign Production
4.1 Licensing A contractual agreement whereby one company (the licensor) makes an asset available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation
-Patent -Trade secret -Brand name -Product formulations

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4-Foreign Production
4.1 Licensing Benefit to Licensing
-Provides additional profitability with little initial investment -Provides method of circumventing tariffs, quotas, and other export barriers

-Attractive ROI
-Low costs to implement

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4-Foreign Production
4.1 Licensing Caveats to Licensing
-Limited participation

-Returns may be lost

-Lack of control

-Licensee may become competitor

-Licensee may exploit company resources

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4-Foreign Production
4.2 Franchising
Contract between a parent company-franchisor and a franchisee that allows the franchisee to operate a business developed by the franchisor in return for a fee and adherence to franchise-wide policies
Caveats: Benefits: Revenues may not be adequate Overseas expansion with a minimum Availability of a master franchisee investment Limited franchising opportunities overseas Franchisees profits tied Lack of control over the franchisees to their efforts operations Availability of local Problem in performance standards franchisees knowledge Cultural problems Physical proximity

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4-Foreign Production
4.3 Contract manufacturing
Company provides technical specifications to a subcontractor or local manufacturer
Allows company to specialize in product design while contractors accept responsibility for manufacturing facilities Looking at this emerging trend, some smart Indian hardware product companies like D-Link, TVS Electronics and WeP Peripherals have started offering CM services. TVS Electronics, which recently launched Indias first indigenously developed printer for the retail market. Another successful company is D-Link, one of the very few hardware companies in India that does local manufacturing.

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4.3 Contract manufacturing-Cont

Benefits: Labor cost advantages Savings via taxation, lower energy costs, raw materials, and overheads Lower political and economic risk Quicker access to markets Caveats: Contract manufacturer may become a future competitor

Lower productivity standards

Backlash from the companys homemarket employees regarding HR and labor issues Issues of quality and production standards

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4-Foreign Production
4.4 Assembly
It is a strategy in which an international firm locates a portion of manufacturing process in the foreign country .
Typically consist of only last stages of manufacturing Depends on ready supply of components or manufactured parts to be shipped in from another country. Motor vehicle manufacturers majorly uses this strategy e.g. G.M, Toyota, Ford,

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4-Foreign Production
4.5 Local Production.
To take advantage of lower cost in a country ,international companies may establish factories in those country to gain new business and providing a better basis for competing the local firms. Important in industrial market where service and reliability of supply are main factors demining product of supplier choice.
Moving with established customers Shifting production abroad to save cost like Compaq computers shifted factory from USA to European market in 1985 and double the size of factory with in two years due to high sales in Europe.

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Entry Strategy Alternatives

Exporting Indirect Exporting Direct Exporting(Company owned Subsidiary) Entry Strategy Ownership Strategies Alliances Joint Ventures

Foreign Production Licensing Franchising Contract Manufacturing Assembly Local Production

Entry Analysis Profitability Assets Costs Sales Risk Factors Exist Strategy

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5-Ownership Strategies
5.1 Strategic Alliance.
A Strategic Alliance is a relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. This form of cooperation lies between M&A and organic growth.
Type of Strategic alliancesTechnology Based, Production Based, Distribution Based. For Example, Rival private airlines Jet Airways and Kingfisher Airlines, announced a strategic alliance to help them reduce cost and enhance efficiency. The alliance will involve code-sharing on domestic and international flights, an interline agreement, joint fuel management, common ground-handling services and cross-selling flights through the global ticketing system.

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5-Ownership Strategies
5.2 Joint Ventures
A joint venture (JV) is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets 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

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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6-Strategy Entry Analysis

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 Also, the broader the scope of products and services Mode of entry issues, market knowledge, various economic attractiveness variables, etc.

Analyst must go through following factors for strategic Entry:

Sales Costs Assets Profitability International Risk factors Maintaining flexibility

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6-Strategy Entry Analysis

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7- Exit Strategies
Reasons for exit:
Sustained losses Volatility Premature entry Ethical reasons Intense competition Resource reallocation

Risks of exit:

Fixed costs of exit Disposition of assets Signal to other markets Long-term opportunities Contemplate and assess all options to salvage the foreign business Incremental exit Migrate customers

Guidelines:

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8-Conclusion
The World is comprised of total 242 countries or markets as on Today. So entry decisions for International companies make most frequently Type of Entry Strategy is related to Market Success and therefore need to be based on Careful Analysis Also to Survive in Global battle, companies must become bolder and more creative in their Entry Strategy Choices. We expect other types of entry strategies in future that will change international markets like Super Alliance, Virtual Cooperation etc.

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Thank You