“When a company makes the commitment to go international, it must choose an entry

strategy.”• Exporting (most common, least risky)

– Direct to customer (agent, retailer) in another country

– Indirect to buyer (WalMart, Sears)in home country who exports product

– Internet (EBay)

Alternative Market Entry Strategies

• Contractual Agreements (Long Term, usually involving transfer of knowledge, trademarks, human skills)– Licensing (Least profitable, less risky) production processes, use of

trade name) originally Yoplait’s entry in U.S.

• refers to a contractual agreement where the international marketer, the licensor, permits another company to use intellectual property such as patents, trademarks, copyrights, technology, technical know-how, and specific marketing skills in exchange for a compensation designated as a royalty from the recipient company, the licensee.

Growth of Licensing

1. It is an effective response to protectionism by country governments.

2. Small high-technology firms can go international easily using this route.

3. Rising R&D costs make cross-licensing an economically attractive option.

4. Shorter product life cycles demand quicker responses, thereby reducing incentives for long-term research and development.

5. Emergent industries like semiconductors and biotechnology are increasingly dependent on licensing.

– Franchising whereby franchisor provides standard package of products, systems and management services and franchisee provides capital, market knowledge, personal involvement (e.g. KFC, Burger King); fastest growing strategy, suitable for emerging economies

– Joint Venture Partnership of two or more companies that have joined forces to set up separate legal entity (lessen political and economic risk)

– Consortia Partnership among large number of participants often in country or market where none is currently active (e.g. rebuild Iraq)

Advantages of Joint Venture

• Companies can share the risk of the venture.• JV partner might have a dominant skill to perform the

desired service. • JV partner has a distribution network to deliver the

product or service to the end customer. • JV partner has excellent contact to the local government.• Due to local content laws, the JV might be the only

option permitted by the local government to perform business in the target country.

Disadvantages of Joint Venture

• JV partner may be unable or unwilling to share control.

• JV partner cannot agree on a fair way to split up the project in case of failure.

• Business culture or structure of the other company may be totally different.

When to avoid Joint Venture

• Costs and resources required for the venture could cripple the domestic operations.

• Joint venture is not efficient in its processes or the machinery is obsolete.

Alternative Market Entry Strategies

• Direct Foreign Investment

U.S. Manufacturing in Europe 1991-1995

Acquisition 969 56%

Joint Venture

298 17%

Expansion 250 14%

Greenfield 218 13%

Alternative Market Entry Strategies

• Strategic International Alliance Business relationship out of mutual need to share risk

General Mills International Strategy$11.5 billion in net sales; markets trusted consumer brands across a wide range of food categories

General Mills International Strategy

• Cereal Partners Worldwide Established in the early 1990s, Cereal Partners Worldwide (CPW), our joint venture with Nestle, markets cereals in more than 130 countries. CPW is a leading worldwide producer of breakfast cereal with brands such as Zucosos, Chocapic, Nesquik and Shreddies.

• Snack Ventures Europe Established in the early 1990s, Snack Ventures Europe (SVE) is our joint venture with PepsiCo. The venture combined PepsiCo’s and General Mills’ European snack operations and created the Continent’s largest snack company. Brands include Smiths, Lays, Fritos, Doritos and Bugles.

Nestle NesQuik featuring Quicki, the Nestle Quik Rabbit was introduced in Spain in 1998 and became available in the USA in 1999. It's a chocolatey rice and corn puff cereal that turns your milk Nesquik Chocolatey.

As part of the international marketing plan, you should be able to identify the brand’s market entry strategy.

How Do You decide which Country(s) to Enter?

• With the addition of East Timor in May of 2002, there are 193 sovereign nations in the world, 61 dependent areas, and six disputed territories.

• Companies Use Different Selection Criteria

Selection CriteriaFactors • Proximity to/Strength of Target Market (e.g. size of population, purchasing

power)• Labor (e.g. Cost, Wages, Productivity Levels, Availability, Union Rules,

Technical Expertise, Skill Level)• Financial Considerations (e.g. Corporate Taxes, Incentives, Transfer of

Earnings, Foreign Exchange Rates)• Transportation/Logistics (e.g. Costs, Infrastructure)• Location of Suppliers (e.g. Proximity to, Availability)• Location of Competitors• Economy (e.g. Inflation, GDP, Growth Rate)• Culture & Language (e.g. Attitude towards foreigners, Attitudes toward work,

Knowledge of English)• Quality of Life (e.g. Cost of living, Availability of housing, Access to

international schools, Safety, Quality of food, wine, recreation areas)• Government Regulations

7

The International Marketing Task

Political/legalforces

Economicforces

1

2

Environmentaluncontrollablescountry market A

Environmentaluncontrollablescountrymarket B

Environmentaluncontrollablescountrymarket C

Competitivestructure Competitive

Forces

Level of Technology

Price Product

Promotion Channels of distribution

Geography and

Infrastructure

Foreign environment(uncontrollable)

Structure ofdistribution

Economic climate

Cultural forces

3

45

6

7Political/

legalforces

Domestic environment(uncontrollable)

(controllable)

Irwin/McGraw-Hill Copyright©2002 by The McGraw-Hill Companies, Inc. All rights reserved.

1-5

• Countries vary on these factors.

• Factors in country keep changing.

The overall attractiveness of a country as a market and/or investment site depends on balancing the long-term benefits of doing business in that country against the likely costs and risks.

Benefits of Doing Business in…

• Size of the market is large

• Wealth and/or purchasing power is high

• Future growth prospects are positive

Costs/Risks of Doing Business In…

• Political payoffs required

• Infrastructure is inadequate

• Local laws and regulations are costly

• Government is politically unstable

• Economy is mismanaged

• Laws are weak (e.g. copyright, bribery, etc.)

Market Size

• When examining market size, look at the overall population. Then, estimate the percent of potential buyers within that population.

• Entering smaller markets where few competitors have set up shop may give you the opportunity to start at the "ground" floor and grow with the market. However, if you enter smaller markets beware of the barriers you may encounter as a result (e.g., transportation and political infrastructure problems).

• In researching demographics, look at the unemployment trends and educational levels of consumers in the target market. The more sophisticated the target market, the more difficult it may be to compete. Also identify the language and dialects spoken within a particular

Economic Stability

• Many factors affect economic stability of a marketplace (and country). Determine if the economic climate is thriving or diving? Recessing or growing? If possible, identify the GNP growth rate and per capita income. Also, ascertain the unemployment rate of the country. This will affect how much of the market can actually spend money to buy your product. Markets that are stable and growing are obviously more attractive to conduct business with.

Political Climate

• Many questions must be asked regarding the political climate of a potential market. Such questions include:

• On what type of political system is the country and market based? Is the system stable?

• Will the governmental system affect your customer's ability to import? • Will the political system affect tariff rates and licensing requirements? • Is the legal system supportive of international trade? • Are there legal tariff and non-tariff barriers? And are there incentives of

which you should be aware? • If the market is politically unstable, how might that affect economic stability? • What is the overriding attitude for doing business with companies in the

United States? • Has the market or country adopted the International Standards

Organization's ISO 9000 proces

Cultural Climate

• Customs and culture also affect consumption of goods. Factors like colors, numbers, and communication fit this category. For example, when considering product or promotional gift colors, keep in mind that white is the color of death in China and Korea, whereas purple is seen in the same light in Spain. In the U.S. yellow implies cowardice, whereas it takes on religious and mystical undertones in India. Study the cultural differences of the target markets and of your own. You may be surprised how a product that is fully accepted by a U.S. market is negatively rejected by its foreign counterparts.

Environmental Factors

• Environmental factors such as climate can influence modifications you must make to your product in order to sell it in a given market. Determine if humidity or other climate issues will affect the product performance or appearance as it is in transit or as it is used or consumed.

Geographic Factors

• Geographic factors can also affect your success in a given foreign market. Such factors include, transportation to the country or market and legal restrictions on travel. To enter a foreign market, a transportation system must be in place (i.e., there must be a way for you to get to your foreign customers). Keep in mind the longer and more remote the distance is to the market, the more the transportation and travel costs will be.