INTERNATIONAL MARKET

ENTRY
LECTURER: ĐẬU XUÂN TRƯỜNG
International Market Entry
◦ Promoting factors: ◦ To many enterprises, entering international
◦ Local Demand decline market might be unplanned.

◦ Local competitiveness increases ◦ Need to balance the risks and outcomes.

◦ Reduce profit margins ◦ Continuously learn and improve from

experience.
◦ Growth and decline stage of primary
product’s cycle. ◦ Develop through stages.

◦ Directional factors:
◦ Attractiveness of foreign market/ less
competitiveness market
◦ Increase profit margins/ faster growth
◦ Government policies
 Stages of Market Entry
Stages of Market Directional Management activities
Entry
Focus on domestic Focus on Domestic Market
market
Pre-entry stage Research/ Evaluate the possibility of
international business activities
Experimental stage Begins to operate international business
activities (normally exporting)
Active participation Expand the international business,
practicing other market entry strategies
(other than exporting)
Participating Allocating the resources based on
commitment international opportunities
Activities
Limited resources, lack of motivation to enter other
markets, lack of experiences.
External catalysts:
- Received orders from foreign customers.
- Cooperating offers from Foreign distributors.
Internal catalysts:
- Develop business activities and increase
competitiveness.
- Pioneer in international expansion.
Consider the attractiveness of international business
opportunities.
Accumulate experiences.
Spend more resources
Overcome international business barriers.
More activities globally.
CSR for host country
MARKET ENTRY MODES
1. Exporting – Countertrade

2. Turnkey Projects

3. Licensing – Franchising

4. Joint Venture

5. Wholly Owned subsidiaries

EXPORTING
- Begin their global expansion as exporters
 Advantages of Exporting:
o Increase sales, develop market share, create higher profit margins compared to doing business in the domestic market.

o Increase economies of scale, thereby reducing production costs per unit of product.

o Diversify customers, reduce dependence on the domestic market.

o Stabilize sales fluctuations due to economic cycles, and the seasonal nature of demand.

o Minimize risk and maximize flexibility - in relation to other approaches.

o Market entry costs are low because businesses do not need to carry out investment projects or maintain an agent in the target
market. Therefore, businesses can use exporting to test new markets before focusing more resources on that market through FDI.

o Develop the capabilities and skills of foreign distributors as well as of other foreign business partners
Disadvantages of Exporting
Few opportunities to consult customers, learn from competitors, and recognize unique characteristics
of the market.

It is necessary to exploit potential capabilities and prioritize enterprise resources to effectively carry
out export transactions.

The sensitivity of exports to tariffs and other trade barriers, as well as to fluctuations in exchange
rates, is greater.
Exporting processes
 Countertrade
Selling products/technologies
Enterprises
(Western
Receive payments
technological firms) Customers
Receive payments (Developing
countries)
Money Products
Sales products to
Countertrade brokerage
third parties

Finding third-party buyers to

get commission fee.
Types of Countertrade
BARTER: direct exchange of goods and/or services between two parties without cash transaction.

BUYBACKS: Occurs when a firm builds a plant in a country—or supplies technology, equipment,
training, or other services to the country—and agrees to take a certain percentage of the plant’s
output as partial payment for the contract

COUNTER PURCHASE: reciprocal buying agreement. Occurs when a firm agrees to purchase a
certain number of materials back from a country to which a sale is made.
Countertrade risks:
The goods that the buyer sells to the exporter may be of poor quality, making them less salable on the
international market.

It is difficult to determine the market price for the goods provided by buyers because they are mostly
poor-quality products

Countertrade is ineffective when both sides pad the price of their goods

Countertrade is a very complicated, troublesome and time-consuming transaction

Countertrade is often very bureaucratic due to the influence of regulations issued by the government
Market Entry by Contracting
Licensing: A licensing agreement is an arrangement whereby a licensor grants the rights
to intangible property to another entity (the licensee) for a specified period, and in return,
the licensor receives a royalty fee from the licensee

Intangible property includes patents, inventions, formulas, processes, designs,

copyrights, and trademarks

Franchising: similar to licensing, longer-term commitments than licensing. Franchiser not

only sells intangible property (normally a trademark) to the franchisee, but also insists
that the franchisee agree to abide by strict rules as to how it does business.
Licensing
Advantages:
◦ Does not cost much to develop, has little risk.
◦ Suitable for businesses with little capital

Disadvantages:
◦ Lack of tight control over manufacturing processes.
◦ Limit the exploitation of profits in one market, to support competition in other markets.
◦ Loss of control over proprietary technologies.
Franchising
Advantages:
◦ Similar to Licensing.
◦ Quickly increase brand awareness on a global scale

Disadvantages:
◦ Limitations on quality control.
◦ Limitations on leveraging one country's profits to support competition in another.
◦ Not possible to establish an official branch if the company wants to directly enter the
market as it grows stronger.
Foreign Direct Investment
Based on Ownership Based on form of investment

1. Joint Ventures 1. Greenfield Investment

2. Merge

2. Wholly-owned Subsidiaries
3. Acquisition
Foreign Investment Motivation
Seeking new markets & opportunities
Improve effectiveness
Pursue new/key customers
Compete with key competitors in their own markets
Seeking new opportunities
- Access to necessary raw materials
- Increase access to knowledge and other assets
- Access to technological and management know-how
Improve Effectiveness
- Reduce production costs and raw material costs
- Place production close to consumers
- Make the most of government incentives
- Avoid trade barriers
Characteristics of FDI:

1/ Commitment of large resources

2/ Direct presence and operations in the host country

3/ Allows the company to be efficient on a global scale

4/ Great uncertainty and risk

5/ Face more cultural issues

6/ Social responsibility in the host country

 Human Resources
- Costs, abilities, skills,
Market factors: efficiency.
- Market size
- Market Growth
- Labor law, support of
labor departments
Factors to
- Trends/
Consumer consider when
behaviours Infrastructure
- Quality and choosing
Political factors
abilities of local
manufacturers investment
- Political stability
- Corruption
Location
and suppliers.
- Distribution locations
facilities.
- Political economic - Costs
systems

Legal
- Laws of FDI and Economic factors Profitablity
technology transfer. - Cost of real estate - Tariffs and taxes
- Other business laws & facilities. - Tax/profit rates
- Economic
systems
Joint Ventures
Advantages

- Take advantage of local knowledge of partner companies

- Share risks and costs

- For many markets with specific political characteristics, joint ventures are the only possible form

Disadvantages:

- Risk of losing control of technology to partners

- There is no strict control over branches

- Risk of conflict between joint venture parties

Wholly-owned direct investment)
Advantage:

- Reduce the risk of losing control over technology

- Strict control with branches

- Required in some cases where the company is building a global system chain

Disadvantages:

- Costs

- Risks
Selecting an
Entry Mode Exporting

Technological Wholly-Owned
Know-How Subsidiaries

Core
Competency Franchising/
Licensing

Management
Know-how
Joint Ventures
Acquisition
Advantages:
- quick to execute.
- make acquisitions to preempt their competitors.
- managers may believe acquisitions to be less risky than greenfield
ventures.
 Why do acquisition fail ?
Greenfield Investment
Advantages:
- Greater ability to build the kind of subsidiary company that it wants
- Easier to establish a set of operating routines in a new subsidiary than
it is to convert the operating routines of an acquired unit.
Disadvantages:
- slower to establish.
- Riskier
Strategic Alliances
Advantages:
Why do Strategic
- May facilitate entry into a foreign market. Alliances fail?

- Allows firms to share the fixed costs

- Bring together complementary skills and assets that neither company
could easily develop on its own.
- Help the firm establish technological standards for the industry that
will benefit the firm.