International Marketing

Management

Foreign Market Entry Strategies

Overview
1. Target Market Selection
2. Choosing the Mode of Entry
3. Exporting
4. Licensing
5. Franchising
6. Contract Manufacturing
7. Joint Ventures
8. Wholly Owned Subsidiaries
9. Strategic Alliances
10. Timing of Entry
11. Exit Strategies
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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 firms 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
markets

in the entered

1. Selecting the Target Market

A crucial step in developing a global expansion
strategy is the selection of potential target markets
(see Exhibit 9-1 for the entry decision process).
A four-step procedure for the initial screening
process:
1. Select indicators and collect data
2. Determine importance of country indicators
3. Rate the countries in the pool on each
indicator
4. Compute overall score for each country
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1. Selecting the Target Market

Chapter 9

Copyright (c) 2007 John Wiley & Sons, Inc.

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
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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)
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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
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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
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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

Caveats:
Revenues may not be adequate
Availability of a master
franchisee
Limited franchising
opportunities overseas
Lack of control over the
franchisees operations
Problem in performance
standards
Cultural problems
Physical proximity
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5. Franchising

Chapter 9

Copyright (c) 2007 John Wiley & Sons, Inc.

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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 companys home-market employees
regarding HR and labor issues
Issues of quality and production standards
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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 companys business
Must have contingency plans

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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
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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

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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
.

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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

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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

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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.
.

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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

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9. Creating Strategic Alliances

The Logic Behind Strategic Alliances
Defend
Catch-Up
Remain
Restructure

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9. Creating Strategic Alliances

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9. Creating Strategic Alliances

Cross-Border Alliances that Succeed:
Alliances between strong and weak partners
seldom work.
Autonomy and flexibility
Equal ownership

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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
.

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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.
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10. Timing of Entry

Reasons for exit:
Sustained losses
Volatility
Premature entry
Ethical reasons
Intense competition
Resource reallocation

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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
.

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