Lecture 8 - Analyzing International Opportunities and Selecting Entry Modes

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Analyzing International Opportunitiesand Selecting Entry Modes

DY Chhunsong

Lecture 8

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Fundamentals of Global Business Management

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Analyzing International

Opportunities

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Screening Potential Markets and Sites

To search for potential markets and sites, four steps are

recommended: 1) identify basic appeal, 2) access the national

business environment, 3) measure market or site potential, and

4) select the market or site.


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1. Identify Basic Appeal

Determining Basic Demand: The demand of a company’s

products determines whether or not the company should invest.

Determining Availability of Resources: Resources such as raw

materials, labor, and capital markets should be available if a firm

wants to enter a new market.

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2. Access the NationalBusiness Environment

Cultural Forces: Language, attitudes towards business, and

traditions determine whether or not a product can be sold.

Political and Legal Forces: Government regulation, government

bureaucracy, and political stability can affect a firm’s operations.

Economic and Financial Forces: Fiscal and monetary policies are

of importance for a company’s investment.

Other Forces: Cost of raw materials, country image, cost of labor

determine a company’s revenue.


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3. Measure Market or Site Potential

The different levels of economic development require varying

approaches to researching market potential.

Levels of economic development of a nation include

Industrialized Market and Emerging Market.

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3. Measure Market or Site Potential:Industrialized Markets

Some factors to be analyzed in Industrialized Markets:

• Names, production volumes, and market shares of the largest

competitors

• Volume of exports and imports of the product

• Structure of the wholesale and retail distribution networks

• Total expenditure on the product (or similar) in the market


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3. Measure Market or Site Potential:Industrialized Markets (1)

• Background of the market, including population figures,

important social trends, and a description of the kinds of

marketing approaches used.

• Retail sales volume and market prices of the product

• Future outlook for the market and potential opportunities

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3. Measure Market or Site Potential:Emerging Markets

Companies that consider entering emerging markets often face

special problems related to a lack of information.

Some variables can take into account when analyzing market

potential of emerging markets:

• Market Size: It can normally be obtained through total

population or the amount of energy it produces and consumes.

• Market Growth Rate: Market is even more important and can

be learned through GDP and energy consumption.


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3. Measure Market or Site Potential:Emerging Markets (1)

• Market Intensity: Learn about buying power of individuals and

can be learned via GDP per capita.

• Market Consumption Capacity: Learn how many middle

class people who have sufficient buying power.

• Commercial Infrastructure: Access the channels of distribution

and communication (telephones, tv, fax, internet..).

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3. Measure Market or Site Potential:Emerging Markets (2)

• Economic Freedom: Learn about the extend to which free-

market progresses (government policies and interventions seen?).

• Market Receptivity: Learn how the nation opens its door for

international trades.

• Country Risk: Access the political, economic, and financial

risks having on international business in the country.


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4. Select the Market or Site

Managers of the companies may want to clarify about the obtained

information by conducting field trips and competitor analysis.

• Field Trips: Seeing the real pictures, attend meetings, and

negotiate if needed.

• Competitor Analysis: Check about the number of competitors,

market share of each competitor, whether each competitor’s

products has small or mass appeal, whether each competitor

focuses on high or low quality…….

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International Research

Market Research: Collection and analysis of information in order

to assist managers in making informed decisions.

International Market Research is a market research that seeks

information about national business environments which include

cultural practice, politics, regulations, and the economy.


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Difficulties of ConductingInternational Research

Availability of Data: In industrialized countries, information is

abundant; it is less available in emerging and developed nations.

Comparability of Data: Data needs to be defined since definitions

for some key terms as such poverty is defined differently globally.

Cultural Problems: Cultural variables may interrupt the

interpretation of data, especially languages.

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Secondary International Data

Secondary Market Research: Process of obtaining information

that already exists within the company or that can be obtained from

outside sources.

It can be from International Organizations, Government Agencies,

Industry and Trade Associations, Service Organizations, and

Internet and World Wide Web.


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Primary International Research

Primary Market Research: Process of collecting and analyzing

original data and applying the results to current research needs.

It can be done through Trade Shows and Trade Missions,

Interviews and Focus Groups, Surveys, and Environmental

Scanning.

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Selecting Entry Modes


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Entry Mode

Institutional arrangement by which a firm gets its products,

technologies, human skills, or other resources into a market.

It can be done via three modes: 1) Exporting, Importing, and

Countertrade, 2) Contractual Entry, and 3) Investment Entry.

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1. Exporting, Importing, and Countertrade

Companies export because they want to expand sales, gain profits,

and gain experiences.

Companies import because they want to obtain less expensive

goods or those that are simply unavailable in the domestic market.

Countertrade is the practice of selling goods or services that are

paid for, in whole or part, with other goods or services.


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2. Contractual Entry Modes

Licensing: Practice in which one company owning intangible

property (the licensor) grants another firm (the licensee) the right to

use that property for a specified period of time.

Franchising: Practice by which one company (the franchisor)

supplies another (the franchisee) with intangible property and other

assistance over an extended period.

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2. Contractual Entry Modes (1)

Management Contract: Practice in which one company supplies

another with managerial expertise for a specific period of time.

Turnkey (build-operate-transfer) Projects: Practice by which

one company designs, constructs, and tests a production facility for

a client firm. It is large-scale and often involves government

agencies comparing to Management Contract.


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3. Investment Entry Modes

Wholly Owned Subsidiaries: Facility entirely owned and

controlled by a single parent company.

Joint Ventures: Separate company that is created and jointly

owned by two or more independent entities to achieve a common

business objective.

Strategic Alliance: Relationship whereby two or more entities

cooperate (but do not form a separate company) to achieve the

strategic goals of each.

Lecture 8 - Analyzing International Opportunities and Selecting Entry Modes

Education

Transcript of Lecture 8 - Analyzing International Opportunities and Selecting Entry Modes