Chapter 9

Global Market-Entry Strategies

Chapter 9 1
 Introduction

 The need for a solid market entry decision

is an integral part of a global market entry
strategy.
 Entry decisions will heavily influence the
firm’s other marketing-mix decisions.

Chapter 9 2
 Introduction
 Global marketers have to make a multitude of
decisions regarding the entry mode which may
include:
– the target product/market
– the goals of the target markets
– the mode of entry
– the time of entry
– a marketing-mix plan
– a control system to check the performance in the
entered markets

Chapter 9 3
 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 on each indicator
4. Compute overall score for each country

Chapter 9 4
 Choosing the Mode of Entry

 Decision Criteria for Mode of Entry

– Market Size and Growth
– Risk
– Government Regulations
– Competitive Environment
– Local Infrastructure
– Company Objectives
– Need for Control
– Internal Resources, Assets and Capabilities
– Flexibility

Chapter 9 5
 Choosing the Mode of Entry
Classification of Markets:
 Platform Countries (Singapore & Hong
Kong)
 Emerging Countries (Vietnam & the
Philippines)
 Growth Countries (China & India)
 Maturing and established countries
(examples: South Korea, Taiwan &
Japan)

Chapter 9 6
 Choosing the Mode of Entry
 Mode of Entry Choice: A Transaction Cost
Explanation
– Regarding entry modes, companies normally
face a tradeoff between the benefits of
increased control and the costs of resource
commitment and risk.
– Transaction Cost Analysis (TCA) perspective
– Transaction-Specific Assets (assets valuable for
a very narrow range of applications)

Chapter 9 7
 Carrefour in Japan

Chapter 9 8
 Exporting

 Indirect Exporting
– Export management companies
 Cooperative Exporting
– Piggyback Exporting
 Direct Exporting
– Firms set up their own exporting
departments

Chapter 9 9
 Licensing
 Licensor and the licensee
 Benefits:
– Appealing to small companies that lack
resources
– Faster access to the market
– Rapid penetration of the global markets

Chapter 9 10
 Licensing
 Caveats:
– Other entry mode choices may be affected
– Licensee may not be committed
– Lack of enthusiasm on the part of a licensee
– Biggest danger is the risk of opportunism
– Licensee may become a future competitor

Chapter 9 11
 Licensing

 How to seek a good licensing agreement:

– Seek patent or trademark protection
– Thorough profitability analysis
– Careful selection of prospective licensees
– Contract parameter (technology package,
use conditions, compensation, and
provisions for the settlement of disputes)

Chapter 9 12
 Franchising
 Franchisor and the franchisee
 Master franchising
 Benefits:
– Overseas expansion with a minimum
investment
– Franchisees’ profits tied to their efforts
– Availability of local franchisees’
knowledge
Chapter 9 13
 Franchising
 Caveats:
– Revenues may not be adequate
– Availability of a master franchisee
– Limited franchising opportunities overseas
– Lack of control over the franchisees’ operations
– Problem in performance standards
– Cultural problems
– Physical proximity

Chapter 9 14
 Contract Manufacturing

 Benefits:
– Labor cost advantages
– Savings via taxation, lower energy costs,
raw materials, and overheads
– Lower political and economic risk
– Quicker access to markets

Chapter 9 15
 Contract Manufacturing
 Caveats:
– Contract manufacturer may become a
future competitor
– Lower productivity standards
– Backlash from the company’s home-
market employees regarding HR and
labor issues
– Issues of quality and production
standards
Chapter 9 16
 Contract Manufacturing
Qualities of an ideal subcontractor:
– Flexible/geared toward just-in-time
delivery
– Able to meet quality standards
– Solid financial footings
– Able to integrate with company’s
business
– Must have contingency plans
Chapter 9 17
 Joint Ventures

 Cooperative joint venture

 Equity joint venture
 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
Chapter 9 18
 Joint Ventures

 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

Chapter 9 19
 Joint Ventures
 Drivers Behind Successful International
Joint Ventures :
– Pick the right partner
– Establish clear objectives from the
beginning
– Bridge cultural gaps
– Gain top managerial commitment and
respect
– Use incremental approach
Chapter 9 20
 Wholly Owned Subsidiaries

 Acquisitions
 Greenfield Operations
 Benefits:
– Greater control and higher profits
– Strong commitment to the local market
on the part of companies
– Allows the investor to manage and
control marketing, production, and
sourcing decisions
Chapter 9 21
 Wholly Owned Subsidiaries
 Caveats:
– Risks of full ownership
– Developing a foreign presence without the support of a
third part
– Risk of nationalization
– Issues of cultural and economic sovereignty of the host
country
 Acquisitions and Mergers
– Quick access to the local market
– Good way to get access to the local brands

Chapter 9 22
 Strategic Alliances

 Types of Strategic Alliances

– Simple licensing agreements between two
partners
– Market-based alliances
– Operations and logistics alliances
– Operations-based alliances

Chapter 9 24
 Strategic Alliances

 The Logic Behind Strategic Alliances

– Defend
– Catch-Up
– Remain
– Restructure

Chapter 9 25
 Strategic Alliances

Cross-Border Alliances that Succeed:

– Alliances between strong and weak partners
seldom work.
– Autonomy and flexibility
– Equal ownership

Chapter 9 27
 Strategic Alliances

– Other success factors:

» Commitment and support of the top of the
partners’ organizations
» Strong alliance managers are the key
» Alliances between partners that are related in
terms of products, technologies, and markets
» Similar cultures, assets sizes and venturing
experience
» A shared vision on goals and mutual benefits
Chapter 9 28
 Timing of Entry

 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
– Mode of entry issues, market knowledge,
various economic attractiveness variables, etc.

Chapter 9 29
 Exiting a Market

 Reasons for exit:

– Sustained losses
– Volatility
– Premature entry
– Ethical reasons
– Intense competition
– Resource reallocation

Chapter 9 30
 Exit Strategies
 Risks of exit:
– Fixed costs of exit
– Disposition of assets
– Signal to other markets
– Long-term opportunities
 Guidelines:
– Contemplate and assess all options to salvage
the foreign business
– Incremental exit
– Migrate customers
Chapter 9 31
 Thank You

Chapter 9 32