Intl MKT Entry

You might also like

Download as pptx, pdf, or txt
Download as pptx, pdf, or txt
You are on page 1of 26

INTERNATIONAL MARKET

ENTRY STRATEGIES

•Internationalmarket entry
concept & modes
•Factors affecting the selection
of entry mode
Concept of international market
entry
• mode of entry: an institutional mechanism by which a
firm makes its products or services available
consumers in international markets.
• mode of entry determined by:
- the ability and willingness of the firm to commit
resources
- the firms’ desire to have a level of control over
international operations
- the level of risk the firm is willing to take
international market Rajesh Narang 2
entry
Market entry strategies

international market Rajesh Narang 3


entry
Market entry strategies
Exporting
 Direct
– Domestic base
– Overseas sales branch
– Traveling sales representative
– Foreign-based distributors/agent

 Indirect-occasional, or active exporting


– Domestic-based export merchant
– Domestic-based export agent
– Cooperative organizations
– Export-management company
international market Rajesh Narang 4
entry
Market entry strategies
Contractual Agreements
– Franchising: A contractual arrangement where a wholesaler or
retailer (the Franchisee) agrees to make some payment and to
meet the operating requirements of a manufacturer or other
franchiser in exchange for the right to use the firm’s name and to
market its goods or services

– Foreign Licensing: an agreement that grants foreign marketers


the right to distribute a firm’s merchandise or to use its
trademark, patent, or process in a specified geographic area.

– Subcontracting: a contractual agreement where a firm hires a


local company to produce goods or services in a specific
geographic
international marketarea. Rajesh Narang 5
entry
Market entry strategies
International Direct Investment
 An additional strategy for entering global markets
 Requires direct investment in foreign firms, production, and/or
marketing facilities
 Advantages
– cheaper labor cost in some countries
– government incentives
– creates better image
– deeper relationships with government, customers, suppliers and
distributors
– full control of operations and marketing
 Risks involved:
– economic difficulties of the host country
– political instability and negative perception

international market Rajesh Narang 6


entry
Modes of international market entry

Production in home country

exports: production is carried out in home country


and finished goods are shipped to the overseas
markets for sale
indirect exports: process of selling products to an
export intermediary in the company’s home country
who in turn sells the products in the overseas
markets
direct exports: process of selling the firm’s
products directly to an importer in the overseas
market
international market Rajesh Narang 7
entry
Modes (contd)

complementary exporting: use of distribution channels


of an overseas firm to make the product available in the
overseas market

provide offshore services: to overseas clients with the


help of information and communication technology

international market Rajesh Narang 8


entry
Modes (contd)
Production in a foreign country

• contractual entry modes

international licensing: process by which a domestic


company allows a foreign company to use its intellectual
property and specific business skills for a compensation
(royalty)

international franchising: transfer of intellectual


property and other assistance over an extended period of
time with greater control compared to licensing

international market Rajesh Narang 9


entry
Selecting the International
Entry Mode, continued
 Licensing
 Licensor offers know-how, shares technology, and shares
brand name with licensee
 Licensee pays royalties
 Lower-risk entry mode; limits exposure to economic,
financial, and political instability
 Permits the company access to markets that may be closed
or that may have high entry barriers

DOWNSIDE: Can produce competitor in the licensee

international market Rajesh Narang 10


entry
Selecting the International
Entry Mode, continued
 Franchising
 Franchisor gives franchisee right to use brand name,
trademarks and business know-how
Less risk, higher level of control
Very rapid market penetration

DOWNSIDE: Can create future competitors who understand


the operations of the franchise

international market Rajesh Narang 11


entry
Modes (contd)

overseas turnkey projects: conceptualize, design,


install, construct, and carry out primary testing of
manufacturing facilities or engineering structures for an
overseas client organisation
types : built and transfer (BT), built, operate, and
transfer (BOT), built, operate, own (BOO)
international management contracts: a company
provides its technical and managerial expertise for a
specific duration to an overseas firm

international market Rajesh Narang 12


entry
Modes (contd)

international strategic alliance: the relationship


between two or more firms that cooperate with each
other to achieve common strategic goals but do not
form a separate company

international contract manufacturing: a contractual


arrangement under which a firm’s manufacturing
operations are carried out in a foreign countries

international market Rajesh Narang 13


entry
International Strategic Alliances
 Typically, the term refers to nonequity
alliances; for example:
 Manufacturing
 Contract manufacturing, engineering, technological, and
research and development alliances
 Marketing
 One firm handles marketing for another, or some aspect of the
marketing process
 Distribution
 One firm handles the distribution for another, or some aspect of
the market
international distribution processRajesh Narang 14
entry
Modes (contd)

Investment entry modes

assembly in overseas markets: refers to exporting


various components of the product in completely
knocked down (CKD) condition and assembles them
overseas

international joint ventures: equity participation of


two or more firms resulting into formation of a new
entity
international market Rajesh Narang 15
entry
Selecting the International
Entry Mode, continued
 Joint Venture
 Preferred entry mode of governments of developing countries
- Help develop local expertise
- If production is exported, helps with country’s
balance of trade
 Foreign company and local company establish a jointly-
owned new company
 Parties share capital, equity, labor
 70% of all joint ventures break up within 3.5 years

DOWNSIDE: Joint-venture partners can turn into viable


competitors; and 70% of all joint ventures break up
within 3.5 years.
international market Rajesh Narang 16
entry
Selecting the International
Entry Mode, continued
 Consortia
 Involve three or more companies
 Monopoly effect
 Allowed
- where expensive R&D is involved
- in underserved markets
- in markets where the government
and/or the marketplace can control
its activity

international market Rajesh Narang 17


entry
Factors for selecting partners for
cooperation

• the alliance partner should have some strength which

can be translated into business values for the alliance

• the alliance partners should be committed to

cooperative goals

• it is preferable that the alliance partner should have

multi-cultural business environment

international market Rajesh Narang 18


entry
Investment mode (contd)

Wholly owned foreign subsidiaries


• to have complete control and ownership of
international operations a firm opts for foreign
direct investment through:
1. acquiring a foreign company and all its resources in
a foreign market (acquistion)
2. the establishment of production and marketing
facilities by a firm on its own from scratch (green field)

international market Rajesh Narang 19


entry
Selecting the International
Entry Mode, continued
 Wholly Owned Subsidiaries
 Can be developed by the company –
greenfielding – or can be purchased (acquisition
or merger)
 Involve long-term market commitment
 High cost
 High control of operations
 Greatest level of risk

international market Rajesh Narang 20


entry
Selecting the International
Entry Mode, continued
 Branch Offices
 Entities are part of the international company, rather
than a new company (as in the case of the subsidiary)
 Involves substantial investment
sales office
showroom
 Engages in a full spectrum of marketing activity
 High level of control

international market Rajesh Narang 21


entry
Comparison of Market Entry Strategies

Form Control Risk Advantage

Export Very limited Low Low cost

Licensing Limited Moderate Low cost

Joint Ventures Shared Moderate Local


expertise

Ownership Total High Control

Internet Total High No physical


presence required

international market Rajesh Narang 22


entry
Factors affecting the selection of
entry mode
External factors
• Market size
• Market growth
• Government regulations
• Level of competition
• Level of risk
• political
• economic
• operational
• Production and shipping costs

international market Rajesh Narang 23


entry
Factors affecting the selection of
entry mode (contd)

Internal factors

• Company objectives

• availability of company resources

• level of commitment

• international experience

• flexibility

international market Rajesh Narang 24


entry
Foreign market portfolios: technique and
analysis
Company high medium low
competitive
Market
attractivness

high Invest/grow Invest/grow divest


dominate Joint venture

medium Invest/grow Selective


strategies

low Harvest/divest/
License/combine
countries

international market Rajesh Narang 25


entry
Thank you

You might also like