Market Entry Strategies

Direct Export
company sells directly to customer in another country
indirect export
company sells to buyer in home country; buyer exports product
contractual agreement
long-term, non equity association between one company & another company in foreign market
Licensing-
contracting means by which company grants rights to use its patents, trademarks and/or technology to another company, usually in foreign market
franchising
form of licensing where company provides standard package of products, systems & management services to franchisee, who would have local knowledge of foreign markets
Joint Venture
partnership where participating companies join to create a separate legal entity
Strategic International Alliance
synergistic international business relationship established by 2 or more companies to achieve common goal with mutual benefit
4 ways to enter foreign markets
1. export
2. contractual agreements
3. strategic alliances
4. foreign direct investment

-most often begun with export
-the different modes can be further classified on the basis of equity or non-equity requirements
-the amount of equity required affects the risk,return, and control that it will have in each mode.

Market entry considerations
market characteristics
company capabilities and characteristics
market characteristics
-potential sales
-competition
-strategic importance
-strengths of local resources
-cultural differences
-country restrictions & regulations
company capabilities and characteristics
-near market knowledge
-marketing involvement
– management commitment
Exporting
accounts for greater than 10% of global economic activity
-direct exporting
-indirect exporting
-internet marketing
-direct sales
Direct exporting
-the company sells to a customer in another country
-most common approach employed by companies in their first international step because financial loss can be minimized
indirect exporting
-usually means that the company sells to a buyer in the home country who in turn exports the product.
-customers include large retailers, wholesale supply houses, trading companies, and others that buy in order to supply customers abroad
internet marketing
-initially focused on domestic sales.
-developed from companies receiving orders from customers overseas
direct sales
especially for high tech big ticket products, usually B2B
Contractual Agreement
-serves as a means of transfer of knowledge rather than equity
-longterm, non-equity association between one company and another company in a foreign market
-usually involves transfer of knowledge/processes/trademarks/skills rather than equity
-take a form of Licensing or Franchising
Licensing
=means of establishing a foothold in foreign markets without large capital outlays
-common strategy for small and midsized companies
– good way to capitalize on intellectual property in foreign market
– usually supplement exporting or manufacturing
– licenses for: production processes, use of trade name, distribution of imported products
Advantages of licensing
-when capital is scarce
-import restrictions
-sensitivity to foreign ownership
-patents/trademarks protection
-least risk
Disadvantages
-quality and production problems
-payment problems
-contract enforcement (jurisdiction)
-loss of marketing control
-least profitable way to enter market
Franchiser
-provides standard package of products, systems, and management services
-skill centralization(knowledge of franchiser)
-degree of control
Franchisee
-provides market knowledge, capital, and personal involvement in management
-operational decentralization (local knowledge and entrepreneurial spirit of franchisee)
-flexibility dealing with local market conditions
Franchising
-foreign regulators welcome franchising because it foster local ownership, operations and employment
-companies can expand quickly with low capital investment
-fastest-growing foreign market-entry strategy
-greater than 30,000 franchises of US firms in overseas countries
2 types of franchise agreements
Master franchise
Straight Licensing

Both can have a country government as one partner

Master Franchise Holder
gives the franchisee the rights to a specific area with the authority to sell or establish sub franchises.

Is the most inclusive agreement, and most often used in international franchises

Straight licensing
give local franchisee the right to use a product, good, service, trademark, patent, or other asset for a fee
Franchising vs Licensing
Franchising
-greater control
-primary use in service sector
-ongoing assistance required from franchiser

company supplies another company with intangible property over an extended period

Franchisees must often follow strict rules about product quality, day-to-day management functions, marketing promotions

Franchisers often provide capital, usually management training, location advice, advertising assistance

Hotel Franchises have problems in Eastern Europe

Franchising vs Licensing
Licensing
-less control
-primary use in manufacturing
-involves one-time transfer of property
Strategic International Alliance
synergistic business relationship established by more than two companies to achieve common goal with mutual benefit
Why seek strategic international alliance
-strengthen weaknesses and increase competitive advantages
-opportunities for rapid expansion into new markets
-access to new technology
-more efficient production and innovation
-reduced marketing costs
-strategic competitive moves
-access to additional sources of products and capital
-attractive profits
Advantages of Strategic Alliance
-reduce risk by sharing investment
-penetrate markets usually reserved for locals
-access to local partners distribution channels
Disadvantages of Strategic Alliance
-partner conflict if objectives change, cooperation and trust fade
-control may be unpredictable if local government involved in Joint Venture
Contributions of JV partners
-managerial talent
-marketing expertise
-production technology
-financial resources
-Research and Development
-local customers
Joint Ventures
can be privately owned companies, government agencies, government-owned companies
Types of strategic alliances
Internation Joint Venture
Consortia
International Joint Venture
=partnership of at least 2 companies that have joined forces internationally to create a separate legal entity

more than 50,000 JVs have been established in China in the last 30 years

Consortia
typically involve numerous participants and often operate in countries where none of participants is currently active

developed to pool financial and managerial resources and to lessen risks

4 characteristics of joint ventures
1. JVs are established, separate, legal entities
2. acknowledged intent by partners to share in management of JV
3. partnerships between legally incorporated entities not between individuals
4. equity positions held by all partners
Challenges of International JVs
-selection of partners and maintenance of relationships
-sharing of control
-relations with parents
-legal environments
– extent of knowledge-sharing
Airbus Industrie
-4 major European aerospace companies agreed to work together
-build commercial airlines
-compete with Boeing
-2000 consortium transformed into global company to compete better
Challenges of Consortia
-coordination
-ability to be team player
Why Invest Directly
-take advantage of low cost labor
-avoid high import taxes
-reduce high transportation costs
-access raw materials or technology
Factors that influence structure and performance of direct investments
1. timing- 1st movers have advantage but are more risky
2. growing complexity & contingencies of contracts
3. transaction cost structures
4. technology transfer
5. degree of product differentiation
6. previous experiences and cultural diversity of acquired firms
7. advertising and reputation barriers
Foreign Direct Investment
purchase of physical assets or significant ownership share of company overseas, in order to control management

-usually involves management participation, joint venture, transfer of technology or expertise, or any combination

-focuses on productive assets: factories, land, organizations

-can be made by individuals, private or public companies, governments, or any combination

US commerce department stipulates that stock ownership of at least 10% constitutes FDI

-Most governments set the FDI threshold at 10-15 % of stock ownership in a company overseas

FDI Inflow
when investments made in home county by overseas investors
FDI Outflows
when home country investors make investments overseas
Selecting a Partner
1. commitment
2. trustworthiness
3. cultural openness
4. evaluation criteria
Commitment
each partner must be committed to the stated goals of the cooperative arrangement. Early negotiations are critical in detailing duties and contributions of each party to help ensure continues cooperation
Trustworthiness
the importance of locating a trustworthy partner may seem obvious, but cooperation should nevertheless be approached with caution
Cultural Openness
each party should be at ease working with people of other cultures, and be comfortable traveling to, and perhaps living in. other cultures
evaluation criteria
management should apply the same stringent criteria to a potential international cooperative arrangement as they would to any other investment opportunity
Franchises in the Global Marketplace
Yamaha Music School (Japan)
Benetton (Italy)
Europcar (France)
Bang & Olufsen (UK)
Swatch (Switzerland)
IKEA (Sweden)
Spar (Netherlands)
Lacoste (France)
Ben & Jerry’s (Netherlands & UK)
Swarovski (Austria)
Cars in India
Maruti Suzuki -wholly owned subsidiary
GM- joint venture
BMW-exports
Tata Motors-strategic alliance, Joint Venture
Unilever
-mission is to add VITALITY to life: Meet everyday needs for nutrition, hygiene & personal care with brands that help people look good, feel good, get more out of life.
-“world’s greatest consumer goods company”
-marketing driven
-strength to anticipate consumer needs & demands, then cater to these
-€ 48.44 billion (almost $50 billion) annual sales in 2014
-270 manufacturing sites
-100 countries
-168,000 employees
-DECENTRALIZATION policy -> subsidies flexible -> higher profits & higher production.
UNILEVER’S PRIMARY MARKET ENTRY MODE IS FDI
-Decentralization did not accommodate global changes – Unilever failed to close or merge production facilities when there was duplication or competitive products.
Every day customers around the world choose to feed or clean themselves with Unilever products 160 million times a day.
-HQ in London, UK & Rotterdam, Netherlands
Nestle
-Believes it is the world’s leading nutrition, health and wellness company, based on sound human values and principles

-“Nestlé is….the world’s leading nutrition, health and wellness company. Our mission of “Good Food, Good Life” is to provide consumers with the best tasting, most nutritious choices in a wide range of food and beverage categories and eating occasions, from morning to night.”
-“Good food. Good life.”
-long term view
-largest food & beverage company in the world
-70% sales from Europe
-CHF 88.8 billion (>$90 billion) annual sales in 2015
-436 factories in 85 countries
-Sell products in 196 countries
-333,000 employees

NESTLÉ’S PRIMARY MARKET ENTRY MODE IS FDI
STRATEGIC INTERNATIONAL ALLIANCES: key is customization. 1st mover advantages:
1.in previously closed markets
2.enter emerging markets early to establish network first (before Unilever & other competitors)
3.purchase local brand name (acquisition) then expand into niches – 2/3 growth by acquisition
Brands
Nestlé has 8,500 brands. Only 750 of those brands are registered in more than 1 country. Only 80 brands are registered in >10 countries.
Every day > billion Nestlé products sold
-HQ in Vevey, Switzerland

Keys to Success
Global perspective – keep abreast of competition & maintain viable position for increasingly competitive markets

Collaborative relationships, strategic international alliances, strategic planning & market-entry strategies are critical elements in global marketing management.