GLOBALENTRY STRATEGY

Prepared forDr. Syed Ferhat AnwarCourse InstructorInternational Business Environment (L301)

Prepared byGroup 11Fariha Islam RH-1Moumita Shabur RH-17Fableeha Bushra Choudhury RH-19Sayeda Shifat Nazmee RH-63

GLOBAL ENTRY STRATEGY (GES)

DEFINED

FACTORS AFFECTING THE GES

Company size and resources

Experience in using market entry modes (MEMs)

Management risk attitudes

Profit targets

Industry feasibility and viability of MEMs

Market growth rate

RELEVANCE OF MARKET ENTRY BARRIERS IN GES

‘Low entry and exit barriers reduce the risk in entering a new market, and may make the

opportunity more attractive financially.’

SOURCES OF MARKET ENTRY BARRIERS

ECONOMIES OF SCALE

PRODUCT DIFFERENTIATION

CAPITAL REQUIREMENTS

SWITCHING COSTS

ACCESS TO DISTRIBUTION CHANNELS

GOVERNMENT POLICY

PIONEER VS. LATE ARRIVALS

BENEFITS TO PIONEER: Brand Image

Customer Loyalty Technological Barriers

LIMITATIONS TO PIONEER:

Advantage limited in case of high tech

productsExample: Pictured phones in late 1970’s

ADVANTAGE OF LATE ENTRANTS Lower cost of production than

cost of innovation Minimal cost of product usage

and awareness Defined market

Example: China, Hong Kong, TaiwanBangladesh Telecom Industry: Citycell vs. Grameen

Phone

RELEVANCE OF EXIT BARRIERS

Moves to Germany in 1998 American approach failed in German lands Wal-Mart's American managers pressured German

executives to enforce American-style management practices in the workplace.

German court rules against Wal-Mart High labor cost Clashes with labor unions Labor resisting management's demands In 2006 sales of stores to metro retail chain Cost of retreat: $1 billion

MODES OF ENTRY

EXPORTING

Exporting can be defined as the marketing of goods produced in one country into another

Traditional form of entry

Common approach for mature international companies with strong marketing and relational capabilities

EXPORTING

Direct Exporting:

The organization may use an agent, distributor, or overseas subsidiary, or act via a Government agency

Indirect Exporting:The company sells to a buyer (importer or distributor) in the home country, which in turn exports the product. Example: Walmart and Sears

ADVANTAGES OF EXPORTING

Less risky Low investment required relative to other modes of

entry The cost of establishing the manufacturing facilities

overseas is minimized Learning opportunity Reduces the potential risks of operating overseas Assists in diversification

DISADVANTAGES OF EXPORTING

Lack of control and contact High transport costs Presence of tariff and other barriers Very limited learning to the firms about the

characteristics of the imported nation Susceptible to exchange rate fluctuations

EXPORTINGBANGLADESH’S SUCCESS: 2nd Largest Producer in

GarmentsExport(USmillio

n $)Growth (%)

EU countries 14745.39 17.35

USA 5141.38 2.90

Non-traditional markets

3603.15 21.15

Total 24491.88 13.83

EXPORTING

SUCCESS FACTORS: Cheap labor Government support Back to back letter credit Compliance to international rules of trading

EXPORTING

FAILURE STORYBan on Shrimp Exports by EU and Japan

Reason: Contamination in shrimps

GREENFIELD INVESTMENTS

Setting up operations in foreign locations

Also known as wholly owned subsidiaries

ADVANTAGES OF GREENFIELD INVESTMENTS

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 Assists in learning about the country’s market

ADVANTAGES OF GREENFIELD INVESTMENTS

No risk of cultural conflicts Cost of financing the import barriers reduced Greater knowledge of local market allows the

firm to strategize appropriately to gain more sales

DISADVANTAGES OF GREENFIELD INVESTMENTS

Most expensive method of entry Risks associated with learning to do business

in a new culture High political  risks of being nationalized Continuous investments required for a long

time until returns can be yield Risk of management of the local resources Political and environmental factors, example

Fujifilm in US

GREENFIELD INVESTMENTS

Example

Mercedes production in Pune , India Started production in mid 1990s from Pimpri In 2007 it acquired 100acres of land in

Maharashtra In 2009 production started in Pune Rs.250 crores of investment Dealership in 31 cities of India

GREENFIELD INVESTMENTS

Example

Carrefour S.A.: French multinational retailer Fourth largest retail group Failed operations in South Korea Failed to understand Korean

customers Shut down in April 2006 Sales of stores worth $1.3 billion

LICENSING A licensed asset may be:

A brand name A company name Patent Trade secret Product formulation

LICENSING

Top Licensed Brands

ADVANTAGES OF LICENSING

Enables companies to evade tariffs, quotas or similar export barriers

Licensees are granted considerable autonomy Licensor retains ownership of intellectual

property Costs are usually low, no capital or investment

needed

DISADVANTAGES OF LICENSING

Less profitable than other entry modes Quality control issues might arrive Risk of licensees turning into strong

competitors, even market leaders

LICENSING Examples of Success

Calvin Klein

Disney

LICENSING Examples of Success

“Happy Birthday to you”

Country example: China

LICENSING

Examples of Distress

Apple vs. Microsoft

Metallica vs. Napster

Vs.

FRANCHISING

When is a Business “Franchisable”? It needs to be credible It needs to be unique It needs to be teachable It needs to provide an adequate

return

FRANCHISING

Top Franchises in the World

ADVANTAGES OF FRANCHISING

Established brand and customer base

Business support, training and assistance from franchiser

Reduced risk

DISADVANTAGES OF FRANCHISING

Large initial cost Royalty payments Limited flexibility and scope of

creativity

FRANCHISING Examples of Success

McDonald’s

FRANCHISING Examples of Success

7-Eleven The Body Shop Country

Example: USA

FRANCHISING Examples of Distress

Quiznos Golf

FRANCHISING

Other Types of Franchises

Social Franchises

Event Franchises

Third Party Logistics

LICENSING VS. FRANCHISING

COMPARISON CHART

Franchising Licensing

Governed by Securities law Contract law

Registration Required Not required

Territorial Rights Offered to franchisee Not offered; licensee can sell similar licenses and products in same area

Support & Training Provided by franchiser Not provided

Royalty Payments Yes Yes

Use of Trademark/Logo

Logo and trademark retained by franchiser and used by franchisee

Can be licensed

Control Franchiser exercises control over franchisee

Licensor does not have control over licensee

JOINT VENTURE

An enterprise in which two or more investors share ownership and control over property rights and operation

A cooperative joint venture is an agreement for the partners to collaborate but does not involve any equity investments. Example: Cisco

ADVANTAGES OF JOINT VENTURE

Allows for sharing of risk (both financial and political)

Sharing of resources Provides opportunity to learn new environment Provides opportunity to achieve synergy by

combining strengths of partners May be the only way to enter market given barriers

to entry Access to distribution network Contact with local suppliers and government

officials

DISADVANTAGES OF JOINT VENTURE

Lack of control Requires strong coordination Partner may become a competitor Collision of cultures Conflicts arising over matters such as

strategies, resource allocation, transfer pricing, ownership of critical assets like technologies and brand names

JOINT VENTURE

Case of Sony Ericsson

Example

JOINT VENTURE

Factors that led to Failure:1. Lack in communication and coordination2. Lack in dominant control of one party over the other 3. Sony needed to achieve what Apple had4. The consumer-focused cellphone business ran

contrary to Ericsson's engineering-heavy, business-to-business focus

STRATEGIC ALLIANCES Coalition of two or more organizations to achieve

strategically significant goals that are mutually beneficial Examples include • Shared manufacturing• Research and Development (R&D) arrangements• Distribution alliances• Marketing agreements

Strategic Alliances are non-equity based agreements i.e. companies remain independent and separate

ADVANTAGES OF STRATEGIC ALLIANCE

Shared risk Shared knowledge Opportunities for growth Speed to market Complexity Costs Access to resources Access to target markets Economies of scale

DISADVANTAGES OF STRATEGIC ALLIANCE

Creating a competitor Uneven alliances with minority share Foreign confiscation Risk of losing control over proprietary

information Coordination difficulties

STRATEGIC ALLIANCES

Hewlett Packard & Walt Disney

Example

STRATEGIC ALLIANCESReasons for Success:1. Alliance was well negotiated and structured2. Solid planning and manageable expectations

regarding implementation3. Coordinating brand exposure, joint marketing

and customer experience

ACQUISITIONS

A corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm

ACQUISITIONS

A corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm

ADVANTAGES OF ACQUISITIONS

Can quickly position a firm in a new business Less time to establish presence Takes a potential competitor out of the

market Lower risk than Greenfield Investments

DISADVANTAGES OF ACQUISITIONS

Expensive way to enter a market Likelihood of overbidding Not all bundles of assets and capabilities are of

interest to the acquirer Costly Integrating an acquired company into a

corporation is challenging

ACQUISITIONS

Example

Daimler-Benz AG and Chrysler

ACQUISITIONS

Reasons behind Failure: Cultural clash Attitude to hierarchy was different Coordination problems Heavy competition from non-US brands in

the US auto market Issue of trust

FOREIGN DIRECT INVESTMENT (FDI) AND

GES

FDI & GESFDI figures reflect investment flows out of the home country as

companies invest in or acquire plants, equipment, or other assets

Foreign investments may take the form of minority or majority shares in joint ventures, minority or majority equity stakes in another company or outright acquisition

A company may choose to use a combination of these entry strategies by acquiring one company, buying an equity stake in another, and operating a joint venture with a third

FDI FLOW IN BANGLADESH

INVESTMENT REGISTRATION STATISTICS IN BANGLADESH

TURNKEY A type of project that is constructed so that it could be

sold to any buyer as a completed product

Contractor agrees to deliver every detail of the project to a foreign client, including the training of operating personnel

Upon completion of the contract, the foreign client receives the "key" to a plant ready for its overall performance

ADVANTAGES OF TURNKEY

Allows for a means of exporting process technology

Less risky than conventional strategies Economic benefit Applicable for technology based firms

DISADVANTAGES OF TURNKEY

The firm has no long term interest in the country

Firm can take minority equity interest in company

Inadvertently creates competition

TURNKEY

Example

PACIFIC RESOURCES INTERNATIONAL

PIGGYBACKING

Involves taking advantage of a channel to an international market rather than selecting the country-market in a more conventional manner

The most common form of piggybacking is to internationalize by serving a customer who is more international than the vendor firm

ADVANTAGES OF PIGGYBACKING

Low risk method of beginning export operations for the rider

Focused selling to the appropriate market segments

Advantage for the rider is that he has the chance to gain market knowledge and expertise through the carrier

DISADVANTAGES OF PIGGYBACKING

Company leaves control of products to intermediary

Loss of control of product in the long run Competitive advantage left open for the carrier

to examine Finding a suitable partner is difficult

PIGGYBACKING

Example

F&P GRUPPO

RISK CONTINUUM

UNCONVENTIONAL ENTRY STRATEGIES

Bangladesh’s Military Activities Overseas

MILITARY COOPERATION

1991 - Operation Desert Storm; and the world's largest contributor (10,736) to UN peacekeeping forces

2007 - Major deployments in Democratic Republic of Congo, Liberia, Sudan, Timor-Leste and Côte d'Ivoire

2013 - second highest number of total personnel to United Nations Peacekeeping Operations; with (1,830 police, 73 UNMEM and 6,605 troops) attached to various UN peacekeeping forces worldwide

India-Bangladesh

India and Bangladesh have signed a Cultural Exchange Program (CEP) for the years 2010-2012

Both sides are to exchange the visits of scholars/academicians in the field of art, culture and literature and also dance, music, theatre, Jatra groups, art exhibitions, mime shows, performing art groups, exhibitions and other cultural events to meet the local demands for exposure to each other’s rich cultural tradition

CULTURAL EXCHANGE

BRAC

Works for economic development, education, public health, social development and disaster relief

Apart from Bangladesh, BRAC is present Afghanistan, Pakistan, Sri Lanka, Uganda, Tanzania, South Sudan, Sierra Leone, Liberia, Haiti and The Philippines

It has successfully crossed national boundaries with its unconventionally beneficial development works

EXPANSION OF THE DEVELOPMENT SECTOR

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