Int Bus Chap 7

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BUS 470 INTERNATIONAL BUSINESS

ISG BBA PROGRAM Spring semester

Guillaume Sarrat de Tramezaigues www.gstblog.com

Lecture 6 Chapter7 Marketentry decisions

Tuesday, March 6th 2007


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Market Entry Decisions

Foreign Market Selection

Timing & Order of Entry

Market Expansion Strategies

Mode of Entry Decisions


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Step 1: Preliminary ScreeningofForeignMarkets

Key Question:

Whichforeignmarkets warrantfurther

detailed investigation?

Decision Based On:

Intl. Environmental Variables


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Step 2: Assessmentof Industry MarketPotential

Key Question:

Whatistheaggregate demand ineachof

theselected markets?


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Decision Based On:

Market Access Data

ProductPotential Information

Infrastructural Facilities


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Step 3: Company SalesPotential Analysis

Key Question:

How attractiveisthepotential

demand formyproducts?

Decision Based On:

Sales Volume Forecasts


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Timing & Order of Entry

Decisions Sprinkler Approach

-- Entering Multiple ForeignMarkets Simultaneously

Waterfall Approach

-- Initially Entering OneorMore Lead

Marketsand Timing Subsequent Entry

inaPhased Manner


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Segmentation, Targeting & Product

Positioning

Market SegmentationDividing the market into distinct groups of buyers

with different needs, characteristics and/or

behavior

Market TargetingEvaluating each market segments attractiveness

and selecting one or more market segments to

enter

Product PositioningPlanning for the product to occupy a clear,

distinctive, and desirable place relative to

competing products in the mind of target

customers


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Consumer Market Segmentation Geographic

Different geographical regions, cities, countries

Demographic

Age, sex, income, education, occupation,religion, race, nationality

Psychographic

Social class, lifestyles, personalities

Behavioral

Purchase occasion, benefits sought, user

status, usage rate, loyalty


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International Market

Segmentation Approaches Develop Cut-OffCriteria

Shortlist based on Preliminary Screening

Microsegmentation

Individual Country based Cross-border segments


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Requirements for Effective

Segmentation

Measurable

Sizable Accessible

Actionable


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Target Marketing

Evaluating Market Segments

segments size and growth

segment structural attractiveness

(Competitive Intensity)

company objectives and resources

Selecting Market Segments


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Global Target Market

Strategies

Universal Segments

Global Teen Segment

Standardized Approach

Differentiated Strategies

Diverse Segments

Same product, different target segments

Canon AE-1 Camera

Mixed Strategy


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Concentration vs Diversification

Countries vs Segments

Conc Div

Conc 1 2

Div 3 4


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Strategy 1:

Whenproductappealstoa definitegroup

ofcustomersacrossmarketsand costof

penetrationisveryhigh (HDTV)

Strategy 2:

Whenproductlineappealsto differentsegments & costofpenetrationis

relativelyhigh (consumerelectronic

goods)


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Strategy 3:

Defined homogenous

segmentsacrossmarkets (Benz, Jaguar,

etc.)

Strategy 4:

Products withmassappeal with relativelylow costof penetration (most

consumernon-durablegoods)


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Choice of Entry Modes

Exporting Direct vs Indirect

Contractual Agreements Licensing, Franchising, etc.

Equity Based

Joint Ventures WOS

Strategic Alliance


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Choosing the Mode of Entry

Decision Criteria for Mode of Entry

Market Size and Growth

R

isk Government Regulations

Competitive Environment

Local Infrastructure


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Choosing the Mode of Entry (cont)

Company Objectives

Need forControl

Internal Resources, Assets, andCapabilities

Flexibility

Mode of Entry Choice : A Transaction CostExplanation


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Exporting

Indirect Exporting

Cooperative Exporting

Direct Exporting


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Stages in the Export Process

Uninterested

Partially Interested

Exploring

Experimental

Experienced


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Indirect Channels of Exports

Merchants vs Agents

Trading company

General Trading Companies

Sogo Shosha (C. Itoh; Mitsui, Mitsubishi, etc.)

Export Trading Companies

Daewoo, Sears World Trade

Export/Import Broker

Export Management Company

international sales specialists who function

as the export dept. of mfrs.


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Cooperative Arrangements

Piggyback Marketing

GE; Borg-Warner, etc.

Marketing Cooperative Associations Export Cartels

OPEC

DeBeersC

entral Selling Orgn. Webb-Pomerene Associations


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Direct Channels of Exports

Export departments

Export Sales Subsidiary

Foreign Sales Branch/Subsidiary Storage or Warehousing facilities

Travelling Salesperson


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Advantagesand Disadvantagesof

Entry Modes


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Advantagesand Disadvantagesof

Entry Modes

Entry Mode Advantage Disadvantage

Franchising Low development costs and

risks

Lack of control over quality

Inability to engage in global strategic

coordination

Joint

ventures

Access to local partners

knowledge

Sharing development costs and

risks

Politically acceptable

Lack of control over technology

Inability to engage in global strategic

coordination

Inability to realize location and

experience economies

Whollyowned

subsidiaries

Protection of technologyAbility to engage in global

strategic coordination

Ability to realize location and

experience economies

High costs and risks


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InternationalStrategic Alliances

Strategic Alliance

refers to any type of cooperative

agreements between two or more firmswho are potential or actual competitors.

Can take multiple forms including: JVs,

R&D collaborations, piggy backing,sourcing relationships, etc.


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InternationalStrategic Alliances

In general, any relationship that involves

mutual dependence and shared

decision making between two or more

firms can be characterized as astrategic alliance.

It differs from traditional JVs in that:

strategic alliances are increasinglybetween firms in the industrialized nations

the focus is on creation of new products

and technologies rather than the

distribution of existin ones


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WhyStrategic Alliances?

Rising R&D Costs

Shortening Product Life Cycles

Growing Barriers to Market Entry

Increasing Need for Global ScaleEconomies

Expanding Importance of Global

Standards Forms the basis of Building and

Sustaining Competitive Advantage in

Industries undergoing major Transitions


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ManagingInternationalAlliances

The Logic ofCollaboration Identifying when, where, and why to

collaborate

An alliance is usually one of several

options for pursuing a strategic goal; it isnever an end in itself

Strategic Goals: Product Exchange;

Corporate Learning & Market Positioning

Cost-Benefit Tradeoffs

Alternatives to Collaboration: Self-

Sufficiency; Buying the Inputs or Skills; Full

Acquisition.


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KeyIssues inManagingInternational

Alliances

Selecting Partners

Knowing how to maximize benefits and

minimize risks of partnerships

Complementary needs and assets

Structuring Alliances

Choosing organizational forms that provide

incentives for success

Contracts vs. Equity Relationships


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KeyIssues inManaging

InternationalAlliances

Building Alliance Networks

Creating a system of reinforcing alliances,

and avoiding chaos

Network Design: Is the whole greater thanthe sum of the parts?

Who controls the network? & Where is

competitive advantage created?

Alliance Dynamics

Managing with an eye to the forces for

change in a relationship


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KeyIssues inManaging

InternationalAlliances

Limits to Alliances

Recognizing the constraints on collaborative

strategies

Organizational Constraints; Strategic

Gridlock; Dependence

The Role of Governments Antitrust laws

Host government intervention


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INCOTERMS

Ex-works (EXW)

Free Carrier (FCA)

inland vs destination point Free Alongside Ship (FAS)

seller responsible for inland transportation.

unloading and wharfage

Loading, ocean transportation and insurance

are buyers responsibilities


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INCOTERMS

Free on Board (FOB)

Cost & Freight (CFR)

Cost, Insurance & Freight (CIF) port charges

documentation charges

other charges

Delivery Duty Paid (DDP)


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Terms of Payment

Consignment

Open Account

Documents against Acceptance (TimeDraft)

Documents against Payment (Sight

Draft)

Letter ofCredit

Confirmed LC

C

ash in Advance


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Letter ofCredit

A Letter ofCredit is an instrument issued by

a bank, at the request of a buyer.

The bank promises to pay a specified

amount of money on presentation of

documents stipulated in the L.C.


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Letter ofCredit

Irrevocable vs Revocable LC An irrevocable L.C. cannot be modified or

cancelled without the consent of the

exporter

Confirmed vs Unconfirmed

A confirmed L.C. is one where a domestic

bank certifies the credibility of the issuingbank

Revolving vs Non-revolving


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Billof Lading

The bill of lading is a document used in

ocean transportation that serves 3 distinct

functions:

it is the contract of carriage between the

shipper and the transportation company

it is a receipt of goods

it is evidence of title to the merchandise


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Export Pricing Strategies

Standard Worldwide Pricing

Rigid Cost-Plus Pricing

Marginal Cost-Plus Pricing

Market-Differentiated Pricing


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Price Escalation

Export Related Costs Cost of adapting products to foreign

markets

Operational costs

personnel

market research

shipping & insurance

communication costs Tariffs & Taxes

Costs associated with hedging,

factoring/forfaiting


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StrategicOptions to Dealwith Price

Escalation

Reorganizing/shortening the distribution

channel

Product modification (backwardinnovation)

Shipping & Assembling components in

Free Trade Zones

Overseas Production or sourcing (duty

drawbacks)


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Marginalvs RigidCost-Plus Pricing

Firm-specific Factors

Extend of product differentiation

Corporate stance toward exporting

Financial resources to sustain initial losses

Domestic Gross Margins

Need for long term capacity utilization

Economies of scale benefits


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Marginalvs RigidCost-Plus Pricing

Export Market Specific Factors

Growth Potential

End-User Price Sensitivity

Competitive Intensity

Terms of Sale & Financing

Exchange rate risk


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Export Strategies When Domestic

Currencyis Weak

Stress Price Benefits

Expand Product line and add more costly

features conduct conventional cash-for-goods sale

use rigid cost-plus pricing wherever

possible

Bill foreign customers in domestic

currency


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International TransferPricing

Transfer pricing is the pricing of sales

within members of a corporate family

HQ to Subsidiaries

Subsidiaries to HQ

Subsidiary to Subsidiary


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Why Use TransferPricing?

Reduction of Taxes

Reduction of Tariffs

Increase Competitiveness of certainforeign markets

Minimization of foreign exchange risks

Minimization of political risks Management of cash flows


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Types ofInternational Transfer Pricing

Cost-based

most effective strategy but open to tough laws

market based (dealer price)

arms-length transaction


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WhyUse Countertrade?

Lack of money

Lack of value of money

Nonconvertibility of currency Offset financial risk


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Other factors that make it more efficient to

exchange goods directly than to use

money as an intermediary

As a competitive strategy

Excellent mechanism to get a foothold into

foreign markets


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Major Drawbacks

Instead of there being a double coincidence of

wants, there is likely to be a want of coincidence;

so that, unless a hungry tailor happens to find anundraped farmer, who has both food and a desire

for a pair of pants, neither can make a trade.

Paul Samuelson


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Transactions purely bilateral in nature and

thus are not competitive

Trade is formulated on the basis of thewillingness to countertrade and not on

economic considerations

Creates economic inefficiencies

I f ti R i t f I tl


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Information Requirements forIntl.

Marketing

Strategic Decisions

Foreign market selection Mode of entry decision

Product/Market portfolio strategies

Market expansion strategies

Tactical Decisions

Marketing mix strategies for individual country

markets

Depends on the type of decision


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Measurement

THE INTERNATIONAL MARKETING RESEARCH PROCESS

FIRM OBJECTIVE

INFORMATION REQUIREMENT

PROBLEM DEFINITION

CHOOSE UNIT OF ANALYSIS

EXAMINE DATA AVAILABILTY

Can Secondary Data be Used?

ASSESS VALUE OF RESEARCH

RESEARCH DESIGN

DATA ANALYSIS

INTERPRETATION/ PRESENTATION

Firms Needs

Market Orientation

Strategic Orientation

Problem Orientation

Self Reference Criterion

Country

Region

Global

Subgroup/Segments

Within Countries

Cost/ Benefit Analysis

Causal

Descriptive

Exploratory

Data Preparation

Data Manipulation

T-tests & Cross TAbs

Experimental Design & ANOVA

Multivariate Techniques

Advantages / Disadavantages

of Secondary Research

Sources of Secondary Data

Types of Problems That CAn be

Solved Using Secondary Data

Frequency & Ease of Use

Issues in

Primary Data Collection

Qualitative Methodsi

Surveys

Instrument Design

Scale Development

Sampling

Types

Sources of Bias

Country/ Regional

Specific Bias

Equivalence

Coding

Wording

Format

Construct

Sampling

Analysis

Yes

No


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Problem Identification and Definition

Problem may not always be couched in

the same terms in different countries or

cultural contexts

Beware of self-reference criterion

Eg: Why doesntpowderdetergentsellin Africa?

I i M lti C t D t


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Issuesin Multi-Country Data

Collection

Availability

Accuracy

Comparability (the issue of equivalence)

Cost