Session
Global Market Entry Strategies
Session Outline
Modes of Entry Strategic Alliances Joint Ventures Exporting Licensing Franchising
This Session Weekly Activity: Self-study Quizz Task: Undertake Chapter Self-study Quizz: Griffin & Pustay –
International Business Ch. 18. http://wps.prenhall.com/bp_griffin_ib_4/19/4943/1265599.cw/ind
ex.html How did you score?
Topic Example Video
The following video discusses the market entry continuim.
Take note of the key points http://www.youtube.com/watch?v=iDNpNP4IU
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Overview
1. Target Market Selection2. Choosing the Mode of Entry3. Exporting4. Licensing5. Franchising6. Contract Manufacturing7. Joint Ventures8. Wholly Owned Subsidiaries9. Strategic Alliances10. Timing of Entry11. Exit Strategies
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. Global marketers have to make a multitude of
decisions regarding the entry mode which may include: (1) the target product/market (2) the goals of the target markets (3) the mode of entry (4) The time of entry (5) A marketing-mix plan (6) A control system to check the performance in the
entered markets
1. Selecting the Target Market
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 data2. Determine importance of country indicators3. Rate the countries in the pool on each
indicator4. Compute overall score for each country
.
2. Choosing the Mode of Entry
Decision Criteria for Mode of Entry: Market Size and Growth Risk Government Regulations Competitive Environment/Cultural
Distance Local Infrastructure
2. Choosing the Mode of Entry
2. Choosing the Mode of Entry
2. 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) Company Objectives Need for Control Internal Resources, Assets and Capabilities Flexibility
2. 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)
Topic Example Video
The following video explains exporting and the desire to move offshore for market growth.
Take note of the key points http://www.youtube.com/watch?v=15wDF_W0
HtE
3. Exporting
Indirect Exporting Export merchants Export agents Export management companies (EMC)
Cooperative Exporting Piggyback Exporting
Direct Exporting Firms set up their own exporting
departments
Topic Example Video
The following video outlines the licensing revenue model.
Take note of the key points http://www.youtube.com/watch?v=15wDF_W0
HtE
4. Licensing Licensor and the licensee Benefits:
Appealing to small companies that lack resources
Faster access to the market Rapid penetration of the global markets
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
5. 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
CaveatsCaveats::– Revenues may not be adequateRevenues may not be adequate– Availability of a master Availability of a master
franchiseefranchisee– Limited franchising Limited franchising
opportunities overseasopportunities overseas– Lack of control over the Lack of control over the
franchisees’ operationsfranchisees’ operations– Problem in performance Problem in performance
standardsstandards– Cultural problemsCultural problems– Physical proximityPhysical proximity
Topic Example Video
The following video discusses how outsourcing can be bad for business.
Take note of the key points http://www.youtube.com/watch?v=V7fsEIp2r_8
6. Contract Manufacturing (Outsourcing)
Benefits: Labor cost advantages Savings via taxation, lower energy costs, raw materials,
and overheads Lower political and economic risk Quicker access to markets
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
6. Contract Manufacturing (Outsourcing)
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
Topic Example Video
The following video discusses the concept of joint ventures.
Take note of the key points http://www.youtube.com/watch?v=eyelBPBBl7
o
7. Expanding through 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
7. Expanding through 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
7. Expanding through 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 Create a launch team during the launch phase: (1) Build and maintain strategic alignment (2) Create a governance system (3) Manage the economic interdependencies (4) Build the organization for the joint venture
8. Entering New Markets through 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
8. Entering New Markets through 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
8. Entering New Markets through Wholly Owned Subsidiaries
Acquisitions and Mergers Quick access to the local market Good way to get access to the local brands
Greenfield Operations Offer the company more flexibility than
acquisitions in the areas of human resources, suppliers, logistics, plant layout, and manufacturing technology.
Topic Example Video
The following video explains the concept of strategic alliances.
Take note of the key points http://www.youtube.com/watch?v=e9dPzyE3jJ
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9. Creating Strategic Alliances
Types of Strategic Alliances Simple licensing agreements between
two partners Market-based alliances Operations and logistics alliances Operations-based alliances
9. Creating Strategic Alliances
The Logic Behind Strategic Alliances Defend Catch-Up Remain Restructure
9. Creating Strategic Alliances
9. Creating Strategic Alliances
Cross-Border Alliances that Succeed: Alliances between strong and weak
partners seldom work. Autonomy and flexibility Equal ownership
9. Creating Strategic Alliances
Other 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 Have similar cultures, assets sizes and
venturing experience Tend to start on a narrow basis and broaden
over time A shared vision on goals and mutual benefits
10. 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 Also, the broader the scope of products and
services Mode of entry issues, market knowledge,
various economic attractiveness variables, etc.
10. Timing of Entry Reasons for exit:
Sustained losses Volatility Premature entry Ethical reasons Intense competition Resource reallocation
11. 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
How New is New? Six categories of new products based
on their degree of newness: New-to-the-world products New product lines Additions to existing product lines Improvements in or revisions of existing
products Repositionings Cost reductions
Categories of New Products Defined According to Their Degree of Newness to the Company and Customersin the Target Market
How New is New?
Introducing a product that is new to both the firm and target customers requires the greatest expenditure of effort and resources.
It also involves the greatest amount of uncertainty and risk of failure.
Products new to target customers but not new to the firm are often not very innovative in design or operations, but they may present a great deal of marketing uncertainty.
How New is New?
The marketing challenge is to build primary demand, making target customers aware of the product and convincing them to adopt it.
Products new to the company but not to the market often present fewer challenges for R&D and product engineering.
Market Entry Strategies: Is it Better to Be a Pioneer or a Follower?
Pioneer strategy Potential sources of competitive
advantage available to pioneers are: First choice of market segments and
positions. The pioneer defines the rules of the
game. Distribution advantages. Economies of scale and experience.
Market Entry Strategies: Is it Better to Be a Pioneer or a Follower?
Not all pioneers capitalize on their potential advantages Some pioneers fail. Some pioneers abandon the product
category, go out of business, or get acquired before their industry matures.
Market Entry Strategies: Is it Better to Be a Pioneer or a Follower?
Follower strategy The ability to take advantage of
the: Pioneer’s positioning mistakes. Pioneer’s product mistakes. Pioneer’s marketing mistakes. Latest technology. Pioneer’s limited resources
Market Entry Strategies: Is it Better to Be a Pioneer or a Follower?
A pioneering firm stands the best chance for long-term success in market-share leadership and profitability when: The new product-market is insulated from
the entry of competitors; or The firm has sufficient size, resources, and
competencies to take full advantage of its pioneering position and preserve it in the face of later competitive entries.
Market Entry Strategies: Is it Better to Be a Pioneer or a Follower?
A follower will most likely succeed when: There are few legal, technological, or
financial barriers to inhibit entry and When it has sufficient resources or
competencies to overwhelm the pioneer’s early advantage.
A study found that the most successful fast followers had the resources to enter the new market on a larger scale than the pioneer.
Strategic Marketing Programs for Pioneers
A pioneer might choose from one of three different types of marketing strategies: Mass-market penetration Niche penetration Skimming and early withdrawal
Strategic Marketing Programs for Pioneers
Mass-market penetration The objective is to capture and
maintain a commanding share of the total market for the new product.
Tends to be most successful when entry barriers inhibit or delay the appearance of competitors, or when the pioneer has unique competencies or resources.
Strategic Marketing Programs for Pioneers
Niche penetration Can help the smaller pioneer gain the
biggest bang for its limited bucks and avoid direct confrontations with bigger competitors.
Instead of pursuing the objective of capturing and sustaining a leading share of the entire market, it may make more sense for such firms to focus their efforts on a single market segment.
Strategic Marketing Programs for Pioneers
Skimming and early withdrawal Involves setting a high price and
engaging in only limited advertising and promotion to maximize per-unit profits and recover the product’s development costs quickly.
The firm may also work to develop new applications for its technology or the next generation of more advanced technology.
Strategic Marketing Programs for Pioneers
Marketing program components for a mass-market penetration strategy
Maximizing the number of customers adopting the firm’s new product as quickly as possible with a marketing program focused on:
Aggressively building product awareness and motivation to buy among a broad cross-section of potential customers and
Making it easy for those customers to try the new product, on the assumption that they will try it, like it, develop loyalty, and make repeat purchases.
Strategic Marketing Programs for Pioneers
Marketing program components for a mass-market penetration strategy (cont.) Increasing customers’ awareness and
willingness to buy Increasing customers’ ability to buy Additional considerations when
pioneering global markets
Strategic Marketing Programs for Pioneers
Marketing program components for a niche penetration strategy The marketing program elements are
likely to be similar to that of mass-market strategies.
The niche penetrator should keep its marketing efforts clearly focused on the target segment to gain as much impact as possible from its limited resources.
Strategic Marketing Programs for Pioneers
Marketing program components for a skimming strategy A relatively high price is appropriate for a
skimming strategy to increase margins and revenues.
Introductory promotional programs might best focus on customer groups who are least sensitive to price and most likely to be early adopters of the new product.
Growth-Market Strategies for Market Leaders
Two important facts must be kept in mind. The dynamics of a growth market make
maintaining an early lead in relative market share very difficult.
A firm can maintain its current share position in a growth market only if its sales volume continues to grow at a rate equal to that of the overall market, enabling the firm to stay even in absolute market share.
Growth-Market Strategies for Market Leaders
Marketing objectives for share leaders Retaining current customers. Stimulating selective demand among later
adopters to ensure that it captures a large share of the continuing growth in industry sales.
Stimulating primary demand to help speed up overall market growth.
Expanding total demand is often more critical near the end of the growth stage and early in the maturity stage of a product’s life cycle.
Strategic Choices for Share Leaders in Growth Markets
Growth-Market Strategies for Market Leaders
Fortress, or position defense, strategy The most basic defensive strategy is to
continually strengthen a strongly held current position.
Actions to improve customer satisfaction and loyalty.
Actions to encourage and simplify repeat purchasing.
Growth-Market Strategies for Market Leaders
Flanker Strategy One shortcoming is that a challenger might
simply choose to bypass the leader’s fortress and try to capture territory where the leader has not yet established a strong presence.
To defend against an attack directed at a weakness in its current offering, a leader might develop a second brand to compete directly against the challenger’s offering.
Growth-Market Strategies for Market Leaders
Confrontation Strategy If the leader’s competitive intelligence is
good, it may decide to move proactively and change its marketing program before a suspected competitive challenge occurs.
A confrontational strategy is more commonly reactive.
Growth-Market Strategies for Market Leaders
Market Expansion A more aggressive and proactive version of
the flanker strategy. The most obvious way a leader can
implement a market expansion strategy is to develop line extensions, new brands, or even alternative product forms utilizing similar technologies to appeal to multiple market segments.
Growth-Market Strategies for Market Leaders
Contraction or strategic withdrawal In some highly fragmented markets, a
leader may be unable to defend itself adequately in all segments.
The firm may then have to reduce or abandon its efforts in some segments to focus on areas where it enjoys the greatest relative advantages or that have the greatest potential for future growth.
Share-Growth Strategies for Followers
Marketing objectives for followers Some competitors may seek to build a small
but profitable business within a specialized segment of the larger market that earlier entrants have overlooked.
Many followers often seek to displace the leader or at least to become a powerful competitor within the total market.
Strategic Choices for Challengers in Growth Markets
Share-Growth Strategies for Followers
Frontal attack strategy A follower wanting to capture an
increased market share may use this strategy:
Where the market for a product category is relatively homogeneous,
Has few untapped segments, and At least one well-established competitor.
Share-Growth Strategies for Followers
Frontal attack strategy is most likely to succeed when: Most existing customers do not have strong
brand preferences or loyalties, The target competitor’s product does not
benefit from positive network effects, and When the challenger’s resources and
competencies—particularly in marketing—are greater than the target competitor’s.
Share-Growth Strategies for Followers
Leapfrog strategy Attracting repeat or replacement purchases
from a competitor’s current customers by offering a product that is attractively differentiated from the competitor’s offerings.
The odds of success might be even greater if the challenger can offer a far superior product based on advanced technology or a more sophisticated design.
Share-Growth Strategies for Followers
Flanking and encirclement strategies A flank attack is appropriate:
When the market can be broken into two or more large segments
When the leader and/or other major competitors hold a strong position in the primary segment, and
When no existing brand fully satisfies the needs of customers in at least one other segment.
In some cases, a successful flank attack need not involve unique product features.
Share-Growth Strategies for Followers
Flanking and encirclement strategies Encirclement
Involves targeting several smaller untapped or underdeveloped segments in the market simultaneously.
It usually involves developing a varied line of products with features tailored to the needs of different segments
Share-Growth Strategies for Followers
Supporting evidence Businesses that increased the quality of
their products relative to those of competitors achieved greater share increases than businesses whose product quality remained constant or declined.
Share-gaining businesses typically developed and added more new products, line extensions, or product modifications to their line than share-losing businesses.
Share-Growth Strategies for Followers
Supporting evidence Share-gaining businesses tended to
increase their marketing expenditures faster than the rate of market growth.
Surprisingly, there was little difference in the relative prices charged between firms that gained and those that lost market share.
Recap Video
The following video recaps on what are international marketing strategies.
Take note of the key points http://www.youtube.com/watch?v=zDQ_tI_TZr
A
Next Session Weekly Activity: Export Assistance Go to: www.efic.gov.au Select one of the case studies listed on the website Explain how EFIC supported your selected Australian
business. Investigate and compare how this Australian business is
currently doing overseas. Was it a successful move for this business? Comment on
your research. Word Count: 200 – 300