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

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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

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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

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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

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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

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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