9Global Market Entry Strategies

Learning Objectives

• Differentiate among market entry options—indirect exporting, direct exporting, licensing, franchising, contract manufacturing, assembly, and full-scale integrated manufacturing—and note the conditions under which each is an appropriate strategy.

• Explain the role of export management companies, export agents, and export consortiums.

• Note the ways in which the Internet has impacted international entry strategies employed by firms.

• List the pros and cons of establishing wholly owned subsidiaries and the pros and cons of establishing joint ventures.

• Compare and contrast technology-based, production-based, and distribution-based strategic alliances.

• Explain when entering a market by acquisition is desirable.

• Define entry strategy configuration, bundling, and unbundling, and explain their significance to market entry strategies.

• Explain why market exit—and possibly re-entry—strategies might be necessary.

Chapter Outline

• Exporting as an entry strategy– Indirect exporting, direct exporting

• Foreign production as an entry strategy– Licensing, franchising, local manufacturing

• Ownership strategies– Wholly owned subsidiaries, JVs, alliances

• Entering markets through mergers and acquisitions• Portal or e-business entry strategies• Entry strategy configuration• Exit strategies

Two Methods of Exporting

• Indirect - Reaching markets with the use of an intermediary located in the exporter’s home country+ Leverage intermediary’s expertise

+ Good for firms with little international experience

- Less profit, less control, do not gain experience curve effects

Two Methods of Exporting

• Direct – 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

Cooperating for Export

• Companies competing against each other in their domestic market may unite to address export markets– Governments may encourage and support

cooperation• Brazil’s Ministry of Development, Industry, and

Foreign Trade create export consortiums to share logistical and promotion costs of entering foreign markets

– SMEs may cooperate for export• 83% Danish firms in Jutland cooperate

Foreign Production

• Firms may shift production to foreign markets– Gain market position

• Circumvent import restrictions, communicate commitment to market

– Defend market position• Response to protectionism, currency fluctuations• Follow the customer

– Save costs• Cheaper production factors, decrease transportation costs,

etc.

– Reduces currency risk as costs and revenue are in the same currency

Foreign Production

• Franchising – Special type of licensing where company makes total marketing plan available, including brand name, logo, products, and methods of operation.

Foreign Production

• Contract Manufacturing – Company arranges to have its products manufactured by an independent local company on a contractual basis

Foreign Production (cont.)

Other Options

– Assembly

– Full-Scale Integrated Production

– Manufacturing and Inter-firm Licensing

Ownership Strategies

• Wholly Owned Subsidiaries – Operations fully owned by a foreign parent firm (May involve marketing, assembly, or full-scale integrated production operations)

Ownership Strategies (cont.)

• Joint Ventures (JVs) – Foreign company invites an outside partner to share stock ownership in a new unit.

Going It Alone in Overseas Markets

• Companies increasingly are entering markets with wholly owned subsidiaries and are buying out their foreign affiliates

Strategic Alliances

• Strategic Alliances – an alliance involving two or more global firms in which each partner brings a particular skill or resource to relationship.

Entering Markets via Acquisitions

• Opening of financial markets has made acquisition of publicly traded firms much easier

Portal or E-business Strategies

• Through the use of web pages, email, file transfer, and related communication tools, firms have begun to enter markets without establishing a physical presence in the host country

Exit Strategies

• Circumstances may make companies want to leave a country or market– Market Consolidation – rationalizing

overseas operations, abandoning particular markets

Exit Strategies (cont.)

• Political Considerations – Political events may change the attractiveness and/or viability of the market

Market Re-entry

• Several of the markets left by international firms over the past decades have become attractive again, and some companies have reversed their exit decisions and entered those markets a second time