Global Market Entry Strategies and Internationalization Process

8/17/2019 Global Market Entry Strategies and Internationalization Process

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GLOBAL MARKET ENTRY

STRATEGIES

‘Global Marketing Management’ by

Lee & Carter


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Determining Market Entry

Strategy• The most significant international marketing decision

• Commitment of resources in every aspects over a long period of time

• It signifies the company’s attitude and ambition ininternational markets

• It determines the competitive position of the company

• Degree of control over the entire product/service offer,

distribution, and profitability (repatriation)


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Process of Firm’s

Internationalization• The process that an organization goes through to be an

international (and ultimately a global) companyLee and Carter (2005)

• Tend to begin with experimental or tentative attempts, thengradually increase commitment as experience andknowledge improve

• Not always a ‘smooth, immutable path of development’ –

‘de-internationalization’ can occur at any time


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Process of Firm’s Internationalization:

Main Approaches

The ‘Stage’ Models Approach

Network Approach

Born Global Approach


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Internationalization Approaches:

The ‘Stage’ Models (1)

• Process of internationalization is 'incremental', 'gradual'

and 'sequential'

• Commitment increases as experience and learning build

up

– Stage 1: No regular export activity

– Stage 2: Export via independent representative

– Stage 3: Establish own sales subsidiaries

– Stage 4: Overseas manufacturing


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Internationalisation Approaches:

The Network Perspective(2)

• Articulates how organizations make use of businessnetworks as a 'mechanism' to internationalization

• The networks may comprise customers, customers'customers, competitors, suppliers, suppliers' suppliers,distributors, agents and consultants

• Similar to the 'Stages' models in that commitment is builtup when expertise, knowledge and experience improve

• Offer a clearer explanation of 'how' organizations canmake a 'step change' in the internationalization process


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Internationalization Approaches:

The Born Globals(3)

• The recent increases in the number of 'instant international' or 'bornglobal' companies (Jolly et.al. 1992; Knight and Cavusgil, 1996; McAuley, 1999)

• Patterns of internationalization do not conform to the traditionalapproaches

• Often have 'global outlook' from the beginning; and derive a large proportion of sales from international activities

• Enabling factors for 'born global':

– Changing consumer preferences and shortened PLC – demand forspecialist and/or customized products/services (global niche)

– Advances in affordable production technologies – easier for smallcompanies to customize

– New communication and E-commerce (or e-delivery technologies)


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Factors influencing the choice and importance of

market entry mode


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Market Entry Modes


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Foreign Market Entry Modes

Exporting Foreign Production

Indirect

Direct

Assembly

Full-scale Integrated Production

Distributor Alliance

Marketing

Subsidiary

Ownership Strategies

Contract Manuf.

Licensing/Franch.

Joint Venture

Strategic Alliance

Wholly Owned Sub


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Exporting

• Export selling/export marketing

• Export selling:

– Does not involve tailoring the marketing mix

– May work for some products/services or for unique

products with little international competition

– Companies new to exporting use this

• Export Marketing: – As companies mature in the global market place, they

engage in export marketing


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Two Methods of Exporting

• Direct – Reaching markets either yourself orwith the use of an intermediary located in theforeign market+ More profit, greater control, able to leverage

experience curve effects

- Requires more expertise, management time, andfinancial resources


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Some Examples of Direct

Exporting Activities

• Identifying market opportunity – Product, price, place, promotion

– Ensuring payment

• Distributing the product – Shipping the product

• Insurance, freight forwarding

– Clearing customs

– Getting it into the hands of buyers• Warehousing, transporting to retail, etc.

• Providing after-sales support

Lots to Do!

No wonder many

firms choosean intermediary

to do this for them


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Direct Export Options

• Independent Distributor

– No direct cost to

exporter; takes margin

on selling price of products

• Marketing Subsidiary

– Initial and fixed costs to

establish and maintain

subsidiary• Manager, sales manager,clerical staff, warehousing

operation, etc.

LESS PER-UNIT PROFITUSEFUL IF VOLUME

LOW

MORE PER-UNIT PROFITUSEFUL IF VOLUME

HIGH


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Intermediaries for Indirect Exporting

• Export Management Company (EMC)

– Handles all aspects of export operations

• Marketing research, patent protection, channel

credit, shipping, logistics, and actual marketing of product

– Can act as merchant (taking title of product ) or

as agent (receiving fee or commission on

product sale)


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Intermediaries for Indirect Exporting (cont’d)

• Export Agents

– Individuals or firms that assist manufacturers inexporting goods

– Similar to EMCs; but tend to provide more limitedservices and focus on one country or part of theworld

• Focus more on sale and handling of goods

• Exporting firms may need to utilize several exportagents to gain adequate worldwide market coverage


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Licensing

• …is 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.

• The licensed asset may be a patent, trade secret, orcompany name.

Who can use this and why?A company with advanced technology , know-how, or a strong brand image can

use licensing agreements to supplement its bottom-line profitability with

little initial investment


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Pros and Cons of Licensing

+ Leverage local knowledgeof licensee

+ Commercial and politicalrisks absorbed by licensee

+ Allows resources to beconcentrated in morelucrative markets

+ Adds to firm’smanufacturing capacity

+ Enables firms to enterseveral markets quickly

– Possibility of creating a

competitor

– Dependence on licensee

–

Uncertainty of licensee’smarketing capabilities and

product quality

– Management time and

resources


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Franchising

• …is a contractual agreement between a franchiser

and a franchisee whereby the franchiser grants the

right to sell goods/services to a franchisee.

• The franchisee agrees to operate the businessaccording to a plan defined by the franchiser and

under a trade name owned by the franchiser.

• http://www.franchisedirect.com/top100globalfranchises/

http://www.franchisedirect.com/top100globalfranchises/http://www.franchisedirect.com/top100globalfranchises/http://www.franchisedirect.com/top100globalfranchises/http://www.franchisedirect.com/top100globalfranchises/


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McDonalds:The Big Mac of Franchising

• 30,000+ locations; 119 countries

• 70% franchises

• New franchise $500,000

– At least $100,000 cash• McDonalds gets

– Initial fee

– % sales volume

– McDonalds supplies:• Pre-planning market and location research

• Operations and standards training

• Management training


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Foreign Production

– Contract Manufacturing

Company arranges to have its products manufactured byan independent local company on a contractual basis

– Avoids having to establish a factory in that market; canhelp to overcome import barriers

– Typically chosen for countries with low volume potential smaller Central American, African, and Asian countries

– Appropriate only when production technology know-how

is available in the market


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Foreign Production

Other Options

– Assembly – Company locates a proportion of manufacturing

process — typically last stages — to the foreign country

– Full-Scale Integrated Production – Company locates a fullyintegrated production unit in the foreign country

– Manufacturing and Inter-firm Licensing – If taxes on

royalties are less than taxes on repatriated profits, a firm may

license its trademark or technology to its manufacturing

subsidiary


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Joint Ventures

• More extensive form of participation thanexporting or licensing.

• Companies lacking sufficient capital resources

might seek partner to jointly finance a project.• Advantages:

– Sharing of risk

– Ability to combine different value chain strengthssuch as manufacturing, international marketingcapability, etc.


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Wholly owned & fully controlled

• ….after gaining experience outside home country via

exporting/ licensing/joint ventures

• Invest/acquire plant, equipment, or other assets

outside the home country• Investor has control or significant influence over the

investment

• Requires greatest commitment of capital andmanagerial effort


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The End

Documents

Global Market Entry Strategies and Internationalization Process