Prepared by Kiefer Lee

Global Marketing
Management
Second Edition

Market Entry
Chapter Seven
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Learning Objectives
 Consider the different
theories of
internationalization and their
effect on market entry
strategies
 Examine the factors to be
considered in the choice of
market entry strategies
 Describe and discuss the
different types of market
entry modes
 Examine some of the critical
strategic considerations in
market entry
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Determining Market Entry Strategy

 The most significant international marketing
decision
 Commitment of resources in every aspects
over a long period of time
 It signifies the company’s attitude and
ambition in international markets
 It determines the competitive position of the
company
 Degree of control over the entire
product/service offer, distribution, and
profitability (repatriation)
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Fig 7.1 The Effects of International market

environment on market entry decision

Socio-Economic Technological Legal

Decision on Entry Mode

entry strategy
and control
Control

Political Ethical
Competitive
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Fig. 7.2 Market Entry Strategy

Process of Internationalisation
Theoretical
Approach Stages Bargaining Born
Networks
Models Power Global

International Business Model

Corporate Subscription
Multi-Level
Network Effect
Marketing
Level Razor and Blade Monopoly Auction

Disintermediation Clicks and Mortar Loyalty Business

Country or Market Entry Modes

Market Direct or Indirect
Joint Venture Franchise
Exporting
Level Acquisition or
Strategic Alliance FDI
Merger
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Process of Firm’s Internationalisation

 The process that an organisation goes through to be
an international (and ultimately a global) company
Lee and Carter (2005)
 Tend to begin with experimental or tentative
attempts, then gradually increase commitment as
experience and knowledge improve
 Not always a ‘smooth, immutable path of
development’ – ‘de-internationalisation’ can occur at
any time
 Main Approaches:
 The ‘Stage’ Models
 Network
 Born Global
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Process of Firm’s Internationalisation

The ‘Stage’ Models
 Process of internationalisation is
'incremental', 'gradual' and 'sequential'
 Commitment increases as experience and
learning build up
 Stage 1: No regular export activity
 Stage 2: Export via independent representative
 Stage 3: Establish own sales subsidiaries
 Stage 4: Overseas manufacturing
 Concept of 'psychic distance'
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Fig 7.3 Internationalization Process
of Organizations

Market Commitment
Knowledge Decisions
State Change
Aspects Aspects
Market Current
Commitment Activities

Source: Based on Johansson and Vahlne (1990:12)

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Process of Firm’s Internationalisation

The Network Perspective
 Articulates how organisations make use of
business networks as a 'mechanism' to
internationalisation
 The networks may comprise customers,
customers' customers, competitors, suppliers,
suppliers' suppliers, distributors, agents and
consultants
 Similar to the 'Stages' models in that
commitment is built up when expertise,
knowledge and experience improve
 Offer a clearer explanation of 'how'
organisations can make a 'step change' in the
internationalisation process
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Fig 7.4 The Network Effect International

Networks

Domestic
SSCAC SSCA CCD CCDCC Networks

SSC CC DDCA

The
SSCD SC S1 D DC
FIRM

DCA
SSCDCC SCC DC

SCCC DCACC
SSCCDS DSAS DCA
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Process of Firm’s Internationalisation

The Born Global’s
 The recent increases in the number of 'instant
international' or 'born global' companies (Jolly et.al.
1992; Knight and cavusgil, 1996; McAuley, 1999)
 Patterns of internationalisation do not conform to the
traditional approaches
 Often have 'global outlook' from the beginning; and
derive a large proportion of sales from international
activities
 Enabling factors for 'born global':
 Changing consumer preferences and shortened PLC –
demand for specialist and/or customised products/services
(global niche)
 Advances in affordable production technologies – easier for
small companies to customise
 New communication and E-commerce (or e-delivery
technologies)
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Other Theories of Internationalization

 Transactional Cost Analysis Theory (TCA)
 Based on the premise that firms will
internationalize if they can perform a lower
transaction cost than if it exported or entered into
a local partnership
 Assumes markets are competitive, with low control
entry methods
 Assumes that cost is the ONLY driver of firm’s
behaviour – neglects relationships, loyalty and
reciprocal obligation to local partners.
 Eclectic Theory or Contingency Theory
 Built upon the assumption that ownership specific
factors and location specific costs have strong
impact on firm’s internationalization
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Other Theories of Internationalization

 The Agency Approach
 Based on the principle of a contract where one
party delegates to another
 E.g. franchising, licensing, joint ventures and
strategic alliances
 Decisions focus on (a) which mode to target
specific market and (b) how to evaluate
performance of the agent
 The Business Strategy Approach
 Based on the organisation making a number
of trade-offs between the number of variables
in its internationalization and the methods it
adopts to do so
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Other Theories of Internationalization

 The Bargaining Power (BP) Approach
 Sees the choice of entry mode as the outcome
of negotiations between the firm and the host
country’s government
 It explains the Japanese and other East Asian
perspective on international expansion –
which often isn’t transaction cost based
 Eight important factors:
• Stake of the firm; stake of host country; need for
local contribution to the venture; riskiness of
investment; intensity of competition for investment;
level of resource commitment; host government
restrictions; and size of the firm.
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Fig 7.5 Factors influencing the choice and importance of
market entry mode
Previous
Financial,
Corporate Experience
Physical Workforce
and Market and
and human attitude
Objectives Existing
resources
Expertise

Timing –
Nature of Unique Competitiv International
Market Skills e advantage Life Cycle

Level of Investment Administrative Entry Mode

Involvement and Market Requirements Flexibility
Costs

Time Levels of
Terms of
Horizon of Risk and Ease of Exit
Entry
Payback Control
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Principal Market Entry Modes

Involvement, Risk and Control
Wholly Owned
Marketing Shared Owned
Contractual and Fully
Oriented and Controlled
Controlled
Direct Exporting •Licensing •Joint ventures •Subsidiaries
•Agents •Franchising •Partial mergers and •Representatives
•Distributors •Contract Manufacture acquisitions Assembly
•E-Commerce •Alliances
•E-Business •Management service
•Interactive TV contract
Indirect Exporting
•Via domestic
organisations
•Trading companies
•Export houses
•Piggy backing
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Market Entry Modes

Criteria for Selection
 The company objectives and expectations
relating to the size and value of anticipated
business
 The size and financial resources of the
company
 Existing foreign market involvement
 The skills, abilities and attitudes of the
company management towards international
marketing
 The nature and power of the competition
within the market
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Collaborative ventures

Platforms (FIAT 500 & new FORD Ka) – economies of scope;

FIAT & FORD: shared production facilities (Poland)
Engine development (PSA and BMW)
Escalating R & D costs will stimulate further collaborative
activity in the automobile sector