GILDER FRANZ INGA CALCINA

CESAR ALEJANDRO MORENO ALVAREZ

HOW ENTER TO THE

INTERNATIONAL MARKET?

HOW ENTER TO THE INTERNATIONAL MARKET?

Before embarking on new territory its important to

understand the specific countrys culture, customs, needs,
and unspoken rules that will ultimately help you better
tailor your concept for that market.
It is essential, before entering a foreign market to clearly
identify the motivations behind your decision to explore
entering the international marketplace. Examine what your
domestic marketing strategy has been and how the
domestic plan employed by your company on a local level
needs to be tailored to be positively received in the
proposed international territory.
Here are five tips to help prepare your business to enter the
international market:

FIVE TIPS TO HELP PREPARE YOUR

BUSINESS
TO
ENTER
THE
INTERNATIONAL MARKET:

Educate yourself on the customs and

business etiquette of the international
market.
Gather historical data on the countrys
currency
value
fluctuation
and
import/export timelines.
Become an expert on the countrys laws
governing business.
Conduct focus groups to test the waters in
the prospective international market.
Find out what your competition has done in
the same territory.

BASIC FOREIGN EXPANSION ENTRY DECISIONS

A firm contemplating foreign expansion

must make four questions.
Which markets to enter?
When to enter these markets?
What is the scale of entry?
Which is the best mode of entry?

BASIC MARKET ENTRY DECISION- WHICH

MARKET?
200 nation-states
Different long-run profit potential for firms.

Size of market
Purchasing power (present wealth).
Future wealth

Benefits cost & risks trade off rank markets

Future economic growth rates.
Free market system & countrys capacity for growth.
Stable and developing
markets without upsurge in inflation
rates or private-sector debt

BASIC MARKET ENTRY DECISION- WHICH

MARKET?

Value an international business

can create in a market.
Suitability of product for market.
Nature of indigenous competition.
Not widely available & satisfies an unmet
need.
Greater value translates into an ability to
charge higher prices & build sales volume
more rapidly.

BASIC MARKET ENTRY DECISION- WHICH

MARKET?
PROCESS OF COUNTRY EVALUATION & SELECTION

BASIC MARKET ENTRY DECISION TIMING OF

ENTRY?

Early entry

Firm enters foreign market before other foreign

firms

First mover advantage

Ability to preempt rivals & capture demand by
establishing strong brand name.
Build sales volume and ride down the experience
curve with a cost advantage.
Create switching cost that tie customers into
products & services

BASIC MARKET ENTRY DECISION TIMING OF

ENTRY?

First mover disadvantages.

Pioneering costs.
Time & effort in learning the rules of the
game.
Mistakes due to ignorance.
Liability of being a foreigner.
Costs of promoting & establishing a
product educating customers (KFC in
China -> benefit to McDonalds)

SCALE OF ENTRY?

Large scale entry

Requires commitment of significant resources & implies

rapid entry (Dutch ING spend billions to acquire US
operations)

Strategic commitment.
Decision that has long term impact & is difficult to
reverse (entering market on large scale).
Change the competitive playing field & unleash number
of changes e.g. how competitors might react.
Can limit strategic flexibility

SCALE OF ENTRY?
Small Scale Entry:

Advantages:
Time to learn about the market.
Limits company exposure.

Disadvantages:
May be difficult to build market share.
Difficult to capture first-mover

BASIC MARKET ENTRY

DECISIONS

Discussion based on developing

country considerations.
Can use MNEs to learn & bench mark
against.
Can focus on niches the MNE ignores or
cant serve.
Can piggyback with MNEs (eg; Jollibee)

WHICH FOREIGN MARKET ENTRY MODE?

EXPORTING

The commercial activity of selling and

shipping goods to a foreign country.

The most common overseas

approach for small firms.

entry

EXPORTING

Exporting can be either.

direct or indirect.
In direct exporting the company sells to a
customer in another country.
In contrast, indirect exporting usually
means that the company sells to a buyer
(importer or distributor) in the home
country who in turn exports the product

EXPORTING
The Internet is becoming increasingly
important as a foreign market entry method.
Initially, Internet marketing
focused on domestic sales,
however, a surprisingly large number of
companies started receiving orders from
customers in other countries, resulting in
the concept of:

international Internet marketing (IIM).

EXPORTING

Advantages:
Easy implementation of strategy.
Less investment abroad which helps small
firms also to enter international business.
Minimal risks.
Casual international marketing effort.
Firm may manufacture in centralized location
& export to other national markets to realize
scale economies from global sales volume
(Sony/TV, Matsushita/VCR, Samsung/Chips)

EXPORTING

Disadvantages:
Susceptibility to trade barriers.
Logistical difficulties.
Less suitable for service products.
Susceptibility to exchange-rate fluctuation.
Not appropriate if other lower cost
manufacturing locations exist.
High transport costs can make exporting
uneconomical especially bulk products

CONTRACTUAL AGREEMENTS
Contractual agreements are long-term, nonequity associations between a company and
another in a foreign market

Approaches:
Licensing.
Franchising.
Contract manufacturing.
Management contracting.
Turnkey projects

LICENSING
An arrangement whereby a
licensor grants the rights to
intangible property to another
entity for a specified period
and in return, the licensor
receives a royalty fee from the
licensee.
Offers
know-how,
shares
technology, and shares brand
name with licensee; licensee
pays royalties; lower-risk entry
mode; permits access to
markets

LICENSING..

Advantages:
Helps company to spread out its R&D &
investment costs with incremental
income.
Little additional capital or time
investment.
Legitimate means of capitalizing on
intellectual property in a foreign market.
Receive royalties for granting the rights
to intangible property to licensee for
specified period (patents, inventions,
formulas, processes, designs,
copyrights, trademarks)

LICENSING.

Disadvantages:
Inconsistent product quality may effect product image
negatively.
The agreement generally prohibits the originating firm
from exploiting the assets in particular foreign
markets.
Does not give firm tight control over manufacturing,
marketing & strategy to realize experience curve &
location economies.
Firms can lose control over the competitive advantage
of their technological know-how.

Solution: Cross licensing agreements

FRANCHISING
Franchising is a specialized form of
licensing in which the franchisor not
only sells intangible property to the
franchisee, but also insists that the
franchisee agree to abide by strict
rules as to how it does business
Longer-term commitments

FRANCHISING

Advantages:
Important way of gaining foreign returns on certain
kinds of customer-service and trade name assets.
Limited financial commitment.
Involves longer term commitment than licensing.
Primarily used by service firms (McDonalds)

FRANCHISING

Advantages:
Franchiser sells intangible property
(trademark) & insists franchisee agrees to
abide by strict business rules (location,
methods, design, staffing, supply chain).
Royalty payments that are some
percentage of franchisees revenues.
Firm relieved of many costs & risks of
opening new market.

FRANCHISING..

Disadvantages:
No manufacturing so no location economies &
experience curve.
May inhibit the ability to take profits out of
one country to support competitive attacks in
another.
Risk of worldwide reputation if no quality
control.

Firm can set up master franchise in each country

subsidiary which is JV (McDonalds & local firm)

TURNKEY PROJECTS
A product or service which can be
implemented or utilized with no
additional work required by the buyer
(just by 'turning the key')".
The contractor agrees to handle every
detail of the project for a foreign client,
including the training of operating
personnel

TURNKEY PROJECT

Advantages:
A way of earning great economic returns from
the know-how & exporting process technology.
This strategy is useful where FDI is limited by
host government regulations.
Less risky than FDI in countries with unstable
political and economic environment.
Means of exporting process technology
(chemical, pharmaceutical, petroleum, mining)

TURNKEY PROJECT

Disadvantages:
Firm has no long term interest in the country
can take minority equity interest in
company.
Firm may inadvertently create a competitor
(middle east oil refineries).
If firms process technology is a source of
competitive
advantage,
then
selling
technology is also selling competitive
advantage to potential competitors

CONTRACT MANUFACTURING
Contract manufacturing is a process
that establish a working agreement
between two companies.
As part of the agreement, one company
will custom produce parts or other
materials on behalf of their client.

CONTRACT MANUFACTURING

Advantages:
The client does not have to maintain
manufacturing facilities, purchase raw
materials, or hire labor in order to produce
the finished goods so less capital
investment is required.
Helps to achieve benefits of economies of
scale.
Helps to achieve location economies

CONTRACT MANUFACTURING

Disadvantages:
Less management control.
Potential security or confidentiality issues.
Complexity.
Potential quality issues

MANAGEMENT CONTRACTING

A management contract is an
arrangement
under
which
operational
control
of
an
enterprise is vested by contract
in a separate enterprise which
performs
the
necessary
managerial functions in return
for a fee.

MANAGEMENT CONTRACTING
Management contracts involve not just
selling a method of doing things (as
with franchising or licensing) but
involves actually doing them.
A management contract can involve a
wide range of functions, such as
technical operation of a production
facility, management of personnel,
accounting, marketing services and
training.

MANAGEMENT CONTRACTING

Advantages:
Management contracts are often formed
where there is a lack of local skills to run
a project.
It is an alternative to foreign direct
investment as it does not involve as
high risk and can yield higher returns for
the company when foreign government
actions restrict other entry methods.

MANAGEMENT CONTRACTING

Disadvantages:
Loss of control.
Time delays.
Loss of flexibility.
Loss of quality.
Compliance

STRATEGIC ALLIANCE
Cooperative agreements between potential or
actual competitors.
A strategic international alliance (SIA) is a
business relationship established by two or
more companies to cooperate out of mutual
need and to share risk in achieving a common
objective.
SIAs
are sought as a way to shore up
weaknesses and increase competitive strengths.
Licensing, Joint venture, consortia, etc.

STRATEGIC ALLIANCES

Firms enter SIAs for several reasons:

Opportunities for rapid expansion into new

markets.
Access to new technology.
More efficient production and innovation.
Reduced marketing costs.
Strategic competitive moves.
Access to additional sources of products and
capital

STRATEGIC ALLIANCES- JOINT VENTURES

A JV entails establishing a firm that is

jointly owned by two or more otherwise
independent firms.

JOINT VENTURE

Four Characteristics define joint

ventures:

JVs are established, separate, legal entities.

The acknowledged intent by the partners to
share in the management of the JV.
There
are
partnerships
between
legally
incorporated entities such as companies,
chartered organizations, or governments, and not
between individuals.
Equity positions are held by each of the partners.

STRATEGIC ALLIANCES- CONSORTIA

Consortia are similar to joint ventures and

could be classified as such except for two
unique characteristics:

They typically involve a large number of

participants
They frequently operate in a country or market in
which none of the participants is currently active.

Consortia are developed to pool financial

andmanagerial resources and to lessen
risks.

JOINT VENTURES

Advantages:
Smaller investment.
Local
marketing
and
production/
procurement of expertise from local
partner.
Better understanding of the host country.
Typically 50/50 with contributed team of
managers to share operating control

JOINT VENTURES

Advantages:
Firm
benefits
from
local
partners
knowledge of competitive conditions,
culture, language, political system &
business system
Sharing market development costs & risks
with local partner
In some countries, political considerations
make JVs the only feasible entry mode

JOINT VENTURES

Disadvantages:
Risk of giving control of technology to the
partners.
Shared ownership arrangement can lead to
conflicts and battles of control between the
investing firms.

STRUCTURING THE ALLIANCE

TO REDUCE OPPORTUNISM

WHOLLY OWNED SUBSIDIARY

The firm owns 100% of the stock
The firm can either set up a

Green-field venture or
It can acquire an established firm in the
host nation

WHOLLY OWNED SUBSIDIARY

Advantages:
Reduces the risk of loosing control over
technological competence.
Tight control over operations.
Helps to achieve location economies.

WHOLLY OWNED SUBSIDIARY

Disadvantages:
Larger commitment and risk.
Most costly method.
Risk of national expropriation.

THANKS