11

Chapter 7

Entry and CompetingIn Foreign Markets

2

The foreign markets entry decision-making

4

3

5

1

2

COUNTRY OPPORTUNITIES

COUNTRY RISK ANALYSIS

COMPETITIVE ANALYSIS

ENTRY MODE

DEVELOPMENT PATHS

ORGANISATION:CONTROL6

Analysis(Assessing CountryAttractiveness)

Implementation

• External• Internal

3

Entry and Development

44

Market Driven Resources Driven

Capture growth opportunitiesof the region to expand

global sales

Capture resources (natural, human, knowledge) for global

competitiveness

Local Production

Local marketing

Regional Productionand Innovation

Export

Export Processing Factories

Sourcing base

Global Production and back offices

Global Innovation

Objectives

5

First movers advantages

Followers advantage

Acquirers advantages

• Pre-empt key resources• Establish standards• Blocks brands and distribution• Learn

• Benefit from mistakes of first movers• Capitalize on blind spots• Ride on efforts of first movers

Window of Opportunity

First Mover Advantages

6

Group Start Carmakers in China M/S in 2001 Pioneers (mid-1980s)

1985 1985

1987-98

Beijing Jeep Shanghai VW Guangzhou Peugeot

0.7% 31.9%

– 1st follower gen. (late 1980s/early 1990s)

1988 1990 1991 1991 1992 1992

Tianjin Daihatsu (TLA in 1986) FAW Group (TLA in 1988) Changan Suzuki (TLA in 1988) Guizhou Subaru (TLA in 1989) Dongfeng Citroen FAW-VW

8.7% 3.0% 7.2% 0.2% 7.4%

17.3% 2nd follower gen. (late 1990s)

1999 1999

Shanghai GM Guangzhou Honda

8.1% 7.1%

Chinese entry in the car industry

7

Three Dimensions Of Global Competitive Positioning

Global Standardisation

Local Adaptation

Competeon Costs/priceAdvantages

Competeon Differentiated/valueAdvantages

Multiple Segments

Single Segment

88

Customers Requirements and Competitive Contexts

Little Difference across the World (Global Segments)

Countries specific (Local Segments)

Minimun Size of

Production

High (Global Scale)

Low (Local Scale)

GLOBALSTANDARDISATION

AircraftMicroprocessors BasicChemicalsPulp and paper

Electronic Componernts

MODULARSTANDARDISATIONAnd MULTIBRANDS

ElevatorsIT ServicesHandphones

LOCALADAPTATION

Consulting ServicesMobile telephony Services

PROCESSSTANDARDISATION

Cement

E.g. : Intel, DellE.g. : Otis, Nokia

Example: Cemex Example: HSBC

Standardised or Localized ?

Consumer Banking

9 9

Positioning: Value Proposition

Product

Message

Customer Group

Usage

Distribution

Brand

AdaptiveUsage

Pure Global

Fully Adaptive

AdaptiveProduct

Same

Same

Same

Same

Same

Same

Same

Same

Same

Same

Same Same

Different

Different

Different

Different

Different

Different

Different

Different

Different

Different

Different

Different

Price Same Different DifferentDifferent

1010

Positioning: Segmentation

Middle Class

Bottom of the Pyramid

Rich Luxurious and top-of-the-line products and services. Global brands are well entrenched

Mainly increasing urban markets.Mix of global focus and local brands and products and services

Still important in term of numbers. Product and services adaptation and simplification are needed

11 11

Price

Costs

IndustryAverageProfit

Differentiation ?

CostLeadership ?

Competing

• Technological Performances• Superior Quality• Superior Service• Image• Customization• Timeliness and Responsiveness• Relationships • Risk Reduction

• Economies of Scale due to size• Economie of Scope due to shared costs• Low cost of factors ( labor, materials..)• Installed base• Superior productivity in processes

Internal Costs

Supplies

Customer Value

12 12

R & D Procurement ManufacturingMarketingSales andDistribution

Sources of Competitive Advantages

Resources based

Asset based

Competenciesbased

• Proprietary scientific/

technological know-how• Superior and faster

product development

• Superior research techniques

• Superior existing products line

• Patents• More efficient

CAD

• Higher quality scientists and technologists

• Better data base

• Higher amount of funding for R&D

• More creative designers

• Better suppliers

• Larger suppliers’ base

• Cheaper sources of supplies

• Higher quality supplies

• More effective supply chain mgt (JIT)

• More effective supplier relationships management

• More effective warehousing

and inventories management• Electronic data

purchasing • Economies of

scale due to high volume of purchase

• Better locationand infrastructure

• Higher qualification of work force

• Lower labor costs?

• Economies of scale due to volume

• Better quality/costprocesses

• More advanced CAM

• Proprietary equipment• Better

management of : plant quality processes and time

GeneralManagement

• Well established brand/reputation

• Density and scope

of distribution

• Good qualitychannel partners

• Superior strategicand marketing intelligence

• Higher quality marketing and sales personnel

• Superior product andbrand management

• Superior customer relationship management

• Higher quality managerial personnel

• Cheaper cost of capital

• Strong “sponsors”• Privileged access to

licenses from authorities • Better electronic data mgt and transmissionnetwork

• Better financial mgt

• Better HR mgt• Superiority in

strategizing• More effective, timely, responsiveorganisational mechanisms• “Better” corporate

culture

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Resources

Assets

Competencies

ProductService DesignInnovation

Production MarketingSourcingGeneralManagement

Building a Business System in a Foreign Environment

• Availability of scientists

• Availability of suppliers

• Skill base of the workforce

• Production managers

• Infrastructure: Transport, telecom

• Transfer of production technology

• Quality management

• Process control

• Distribution network

• Branding – global/local

• Sales force• Information

• Local Financing• Local Skills

• Relationship management

• Working capital management

• Partnership management

• Ability to adapt • Appropriate

Technology

• Logistics

• IT infrastructure• Support & maintenance of equipment

• Negotiation skills• Quality management

Wha

t is

requ

ired

?

▪ What do we transfer without adaptation? ▪ What do we need to adapt or create? ▪ How?

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R & D Procurement Manufacturing Marketing GeneralManagement

What capabilitiesare needed to compete?

What capabilitiesdo we bring and can

transfer?

What capabilities do we bring but need

to adapt?

What capabilities do we not bring and need

to create?

How do firms’ capabilities fit to regional/local markets?The Transfer, Adapt, Create model

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What is the value of our existing advantages on local markets? To what extent do we need to adapt our products and

management approaches? What new capabilities need to be acquired and how?

CompetitiveAdvantages

Technological

Social

Consumer Behavior

Global(Same across

the world)

Local

Transfer Adapt

Adaptationthrough learningReplicate

Transferability of Competitive Advantages

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Wholly-OwnedSubsidiary

Acquisition OfficeLicenseFranchiseJoint-Venture

AgentDistributor

Entry Modes

Benefits? Costs?Feasibility? Risks?

17

Wholly-ownedsubsidiary

Acquisition Joint Venture License

MarketAttractiveness

Costs

TimeHorizon

Risks

InternalRequirements

CompetitiveAdvantages

Relevant for attractive marketsRelevant for both attractive markets

and less attractive markets

High investments High Medium Low

Long pay-offMedium-term

if properlymanaged

Medium-term Short-term

High exposure High Shared risks butrisks of conflicts

Low risks

Local know-how Acquisition skillsLocal insights

Partnershipmanagement

Technologytransfer

Can be high forearly entrants

Can be high ifproperly managed

Leveraged withpartner

Limited buttesting base

Entry Modes

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OPPORTUNITIES

RISKS

PRESSURE FOR LOCALISATION

HIGHHIGH

HIGH

LOW

LOW

MARKETINGSUBSIDIARY

MARKETING SUBSWHOLLY OWNEDACQUISITION

LICENSE

JOINT VENTUREDISTRIBUTOR

REP OFFICEDISTRIBUTORAGENT

JOINT VENTURE

JOINT VENTUREACQUISITIONWHOLLY OWNED

JOINT VENTURE

LOW

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Create a small teamwith mandate to gather information, establish contacts, initiate first move

IndividualSkills

- Cultural- Relational

- Invest- Create JV- Logistical base

- Educationalleadership

- Political- Relational- Technical

- Develop people- Expand networks- Broaden scope

- Leadership- Technical- Relational

- Internal networking- Interdependencies

- Leadership- Technical- Relational

COUPLINGDEVELOPINGESTABLISHINGPIONEERING

Business development and managerial skills

CriticalTask

20

Organizational Capabilities

LOCAL HUMAN RESOURCES MANAGEMENT

- Recruitment- Socialisation- Career- Training- Managing expatriates

LEARNING - Business practices- Business and social cultures- Local sources of innovation

INNOVATING

- Transferring technology- Adapting “best practices”- Creating global base out of local resources

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Linkages

LOCAL LINKAGES

- Citizenship- Public relations- Suppliers/distributors/retailers- Local communities- Local education institutions- Partners- Business associations

CORPORATE LINKAGES - Role in corporate portfolio- Reporting- Integration in global value chain