Chapter 9

Market Entry and Servicing

Strategies
John S. Hill

Chapter Outline

Introduction: Exporting Strategies

Contractual Forms of Market Entry
Investment Options for Servicing
Foreign Markets
Matching Market Servicing Strategies
to Environmental and Corporate
Needs

Chapter Outline: Market Entry and Servicing Strategies

Market Entry and
Servicing Strategy

Exporting
Strategies
Indirect
Exporting
Direct exporting

Contractual Methods of
Market Entry &
Servicing
Licensing
Franchising
Contract manufacturing
Co-production

Matching Market Entry and

Servicing Strategies to
Environmental & Corporate
Needs

Investment Options
International JointVentures
Mergers &
Acquisitions
Greenfield Operations

Exporting Strategies

Indirect Exporting
and Use of
Trading
Companies

Direct Exporting

Export Strategies

Indirect Exporting and Use of Trading Companies

Indirect exporting uses third party intermediaries

US Trading Companies and Associations: ETC (Export
Trading Companies) & WPA (Webb-Pomerene
Associations )
Taiwanese Trading Companies: independent producers
and suppliers
Mainland China Trading Companies: industry-centered
Japanese Trading Companies, big nine sogo shosha,
over 1000 overseas offices, annual turnover tops $350
billion

Export Strategies

Direct Exporting

For small and medium sized firms, cheap and

flexible
For large international firms, exporting/importing
are vital parts of international operations
Key elements in global company supply chains
for material supplies and distribution of final
products
International firms account for 2/3 world trade

Contractual Forms of Market Entry

Three Major Types of

Agreements

Management Contracts

Contract
Manufacturing

Co-production
Agreements

Contractual Forms of Market Entry

Three Types of Most Popular Agreements

Licensing

Allowing foreign-based firm use of production

processes, marketing logos, trademarks or brand
names for a defined time period in specific market
and for a pre-specified royalty fee
Danisco Cultor in Asia: low cost manufacturing after
patent expiry
Ferrari Motor Sports: publicize brand through clothing
Umbro: low cost way tt compete with Adidas and Nike

Contractual Forms of Market Entry

Three

Major Types of Agreements

Franchising

Franchisees given rights for production or

marketing of the product; considerable control
exerted over both the production processes and
marketing strategy
McDonalds, KFC and Pizza Hut
Hyatt and Holiday Inn, require up to $100 million
in real estate and capital expenditures per hotel

Contractual Forms of Market Entry

Three

Major Types of
Agreements

Franchising

Controlling Foreign Franchisees

Concentrating ownership via trusted master

franchisers
Diluting ownership: many independent operators

Contractual Forms of Market Entry

Three

Types of Most Popular

Agreements

Master Franchising

Individuals supervise and develop a number

of franchises within a country or region
HFC, a leading franchiser of brand name
hotels (e.g., Howard Johnson, Days Inn,
Ramada), residential real estate (Century 21,
Caldwell Banker, ERA) and rental cars (Avis)

Contractual Forms of Market Entry

Dealing

with Local Market Environments

Archaic legal frameworks and bureaucracies

Political Unrest: dependencies on local
businesspeople and buoyant local economies
Cultural obstacles: culturally
sensitive foods industries where
menus are adapted

Contractual Forms of Market Entry

Other Contracts and Agreements

Management Contracts, international companies, for

a fee, train local employees and manage foreignbased facilities for a prescribed time period (hotels)
Contract Manufacturing, foreign firms using specific
materials and/or processes to manufacture products
or provide services for third party companies. May be
home-market or foreign manufacture; flexibility
advantages but control disadvantages
Co-Production Agreements, manufacturing joint
ventures, with partners retaining their independent
marketing and distribution rights

Investment Options for Servicing

Foreign Markets

International Joint
Ventures (IJVs)

Mergers and
Acquisitions (M&A)

Greenfield
Operations

Investment Options for Servicing

Foreign Markets

International Joint Ventures (IJVs): Definition

& Key Decision Areas

International corporations and local firms join

forces to share ownership and management
responsibilities in specially created enterprises
Equity Structure, control over IJV operations
Technology Transfer Arrangements, the best
technologies v.s. those matching market needs
Asset Valuation problems, value land, buildings,
equipment and intangible assets (good will, brand
names, etc.)

Investment Options for Servicing

Foreign Markets

International Joint Ventures (IJVs)

Divisions of management responsibility, who is

really in control?
Financial Policy and Strategic Objectives, dividend
and profit reinvestment/repatriation policies
Blending of global corporate objectives with local
goals, manufacturing for other subsidiaries,
allocating export rights, and pricing issues
Cultural problems and changing relationships

Investment Options for Servicing

Foreign Markets

Mergers and Acquisitions (M&A)

Over 75 percent (or over $866 billion) were M&A in

the $1.2 trillion equipment and management assets
over 1999-2000; gives quick access and impact in
highly competitive markets
Seven types of companies in M&A

Carnivores: M & A an everyday function. Nestle, Unilever,

Electrolux and GE
Dairy Farmers: buy and sell businesses to increase
shareholder value. Hanson
Vegetarian: infrequent opportunistic acquirers. Sonys
and Matsushitas purchase of Hollywood

Investment Options for Servicing

Foreign Markets

Mergers and Acquisitions (M&A)

Seven types of companies in M&A

White Hunters: frequently go for firms that are bigger than

they are. UK supermarket trolley maker WPPs takeover of US
advertising agency giant J. Walter Thompson
Gentleman Shooters: large takeovers after exhaustive
research. BMWs takeover of British auto firm Rover
Cross-Breeders, leading national companies to form regional
(or global) powerhouses. Swedens ASEA and Brown-Boveri
of Switzerland in heavy electrical equipment
Global mega-mergers, to build critical mass and presences in
the international markets. Renaults $5.4 billion investment
in Japans number 2 car maker, Nissan.

Investment Options for Servicing

Foreign Markets

Implementing M & A Strategies

Evaluation of Prospects

Financial analysis
Strengths-weaknesses-opportunities-threats
(SWOT)
Cost and value chain analysis
Competitive analysis

Investment Options for Servicing

Foreign Markets
Implementing

M & A Strategies

Post Acquisition Strategies

Stand-alone policies: leave the acquired

company as it is; little interference
Integration strategies: into parent company
operations to reap financial, manufacturing,
marketing synergies
M&A Assessment: was it worth
it and did we execute it well?

Investment Options for Servicing

Foreign Markets

Greenfield Operations

Build foreign subsidiaries to suit their needs

Advantages

Need not deal with existing managements and

facilities
Start fresh with the firms own technologies,
management styles and corporate cultures
Complete control of subsidiary development
and market strategies

Investment Options for Servicing

Foreign Markets
Greenfield

Operations

Disadvantages

Must build in-market relationships with

suppliers, distributors from scratch
Competitors have time to adjust their
strategies and prepare for a new rival
The risks of making major resource
commitments and of financing losses until
facilities reach their full market potential

Investment Options for Servicing

Foreign Markets

Greenfield Operations

Conditions favoring:

Financing needs are low

Markets are developing slowly and industry
competition levels are low
Leading edge products and process technologies;
can guard against intellectual property theft
Global brands and reputations are advantages
Strong corporate cultures are keys to corporate
success

Investment Options for Servicing

Foreign Markets

Greenfield Operations

Country Selection Criteria

Proven manufacturing capabilities in the
global context
Market potential
Competitor presences (they are there,
why arent we?)
Favorable environment: no major
operating problems

Investment Options for Servicing

Foreign Markets

Greenfield Operations

Site Location Within the Country determined

by:
Government location incentives
(undeveloped regions)
Economically significant centers (customers)
Availability of qualified personnel
Essential resources are available
Transportation and infrastructures must be
adequate

Investment Options for Servicing

Foreign Markets

Greenfield Operations

Siting Research and Development Capabilities

Historical patterns: home market-based
Current R&D strategies

Research labs in traditional fields: located in major

markets or competence regions (e.g. silicon valley)
Development labs: product adaptations to local needs
Facilities in new emerging areas: Latin America, Asia
Managing the R&D Site: size is important; and
leadership (reputation, connections)

Matching Market Servicing Strategy to

Environmental and Corporate Needs

External Factors
Internal Factors

Matching Market Servicing Strategy to

Environmental and Corporate Needs

External Factors

Global industry analyses: Countries with

significant market sizes and high market growth
Market environment analyses: less problematic
for experienced firms; essential for newcomers
Competitive Factors: alert firms to competitor
presences and what facilities rivals have in
particular markets; competitive advantages can
accrue (e.g. producing and customizing inmarket to counter import competition)

Matching Market Servicing Strategy to

Environmental and Corporate Needs

Internal Factors

Corporate Objectives

Learning and market feedback: build up global

expertise
Flexibility: the ability to switch resources quickly
in response to corporate and marketplace needs
(exporting)
Control over products and
manufacturing processes

Matching Market Servicing Strategy to

Environmental and Corporate Needs

Internal Factors

Corporate Resources

Managerial resource scarcity may be countered by use of

third party expertise
International management expertise: necessary for direct
exporting; less so for contractual modes of market entry
(licensing, franchising, turnkey operations, etc); essential for
investments
Marketing and operating costs: cheaper for indirect
exporters, necessary for all entry strategies
Competitive advantage: firms seek to leverage home market
advantages into foreign country environments;
brand/corporate reputation, service, customization

Key Points

Many types of entry strategies

Exporting (direct/indirect)
Contractual Methods
Investment Options
Site Selection
R&D Facilities
Strategies to match
companys external and
internal needs