Chapter 9: Global Market Entry Strategies

Global Market Entry Strategies
Exporting
Foreign Production
Ownership Strategies
Entry Analysis
Exporting
allows a company to manufacture its products for several markets centrally and thus achieve economies of scale. Many companies use exporting to grow their business while limiting risk and avoiding large investments
Indirect exporting
exporting through an intermediary located in the exporters home country.
+leverage intermediary’s expertise
+good for firms with little international experience
– less profit, less control, do not gain experience curve
Export Management Company (EMC)
firm that handles all aspects of export operations under a contractual agreement.
+ little or no investment required, no in-house personnel, and EMC offers an established network of sales office as well as international marketing knowledge.
– manufacturer gives up control of the international sales and marketing effort.
Export Agents
individuals or firms that assist manufacturers in exporting goods. Offer more limited services and focus on one country or part of the world.
– limited market coverage and export agent.
+ manufacturer does not need to have an export manager to handle documentation and shipping tasks.
Direct Exporting
Reaching markets either yourself or with the use of an intermediary located in the foreign market.
+more profit, greater control, able to leverage experience curve effects.
-requires more expertise, management time and financial resources.
Direct Export Options
Independent distributor
marketing subsidiary
Independent distributor
no direct cost to exporter; takes margin on selling price of products. Less per-unit profit. Useful if volume low.
Marketing Subsidiary
initial and fixed costs to establish and maintain subsidiary. more per-unit profit. useful if volume is high.
export consortium or co-op
a group of companies that agree to share the logistical and promotional cots of exporting to foreign markets.
Exporting and the Internet
internet has greatly increased the ability of firms to export directly, especially beneficial for SMEs.
Understand the Market Entry Process
Understand customer need, market size, capitalization, market structure.
Evaluate and select entry option.
Search for partner, distributor, agent
Managing the partner, distributor, agent
Foreign Production
Firms may shift production to foreign markets to gain market position, defend market position, save on export costs and reduce currency risk as costs and revenues are in the same currency.
Licensing
Company assigns the right to a copyright or patent and/or trademark to another company for a fee or royalty.
Advantages of Licensing
leverage local knowledge of licensee.
commercial and political risks absorbed by licensee.
allows resources to be concentrated in more lucrative marktets.
adds to firms manufacturing capacity.
enables firms to enter several markets quickly.
Disadvantages of Licensing
Possibility of creating a competitor
Dependence on licensee.
Uncertainty of licensee’s marketing capabilities and product quality.
Management time and resources.
Franchising
Special type of licensing where company makes total marketing plan available, including brand name, logo, products, and methods of operation. More comprehensive than licensing.
Master franchises
franchises that include exclusive rights to markets within a whole city or country.
Local Manufacturing
widely used, represents a greater commitment to a market, local costs, market size, tariffs, labor laws, and political considerations affect choice to manufacture locally.
Contract Manufacturing
company arranges to have its products manufactured by an independent local company on a contractual basis. Responsibility is restricted to production, sometimes chose for countries with a low-volume market potential combined with high tariff protection.
Assembly
company locates a proportion of the manufacturing process – typically the last stages – to the foreign country.
Full-scale integrated production
Greatest commitment. Company locates a fully integrated production unit in the foreign country.
Reasons to do full-scale integrated production.
Establishing local operations to gain new business.
establishing foreign production to defend existing business
moving with an established customer.
Low costs, other foreign companies presence, high tariffs and transport costs.
Wholly Owned Subsidiaries
operations fully owned by a foreign parent firm ( may involve marketing, assembly, or full-scale integrated production operations)
+ free hand to establish the strategy for the subsidiary, keep all profits, easily integrated into a global market.
– local management at these subsidiaries often become involved in activities such as stealing cash, equip, inventory…
Joint Ventures
foreign company invites an outside partner to share stock ownership in a new unit.
Strategic Allicances
an alliance involving two or more global firms in which each partner brings a particular skill or resource to the relationship.
Technology – based alliances
sharing of R&D expertise and findings most common reason is acces to market, exploitation of technology and need to reduce the time it takes to innovate in a new market.
Production based allicane
for car industry, firms seek increased efficiency through component linkages.
distribution based alliances
increasingly common, general mills entered global alliance with nestle after having no effective position out of the us
Mergers and Acquisitions
need to enter markets quickly has made acquisition extremely attractive
Pros of Acquisitions
eliminates need to build manufactuing/ distribution capabilities from scratch.
established brands provide immediate market share.
attractive strategy when market dominated by established brands and saturated with competitors
government might allow entry only via acquisitions to protect depressed industry from entrants
cons of acquisition
attractive firms may not be available for purchase.
attractive firms may only be available at inflated prices.
Bundling
a firm combines all its operations in a certain country or region into a single legal unit, uses one company as legal umbrella for all entry activities.
unbundling
company divides its operations in a country into different companies.
Exit Strategies
Market consolidation
political consideration
reentry options
Market consolidation
rationalizing overseas operations, abandoning particular markets
Political consideration
political events may change the attractiveness and/or viability of the market (changing gov regulations, political risk, negative reactions to firm’s home market)
Market Re-entry
entering a market a second time. can occur when political environment improves or market conditions change.