Transcript International Entry Strategies

International Entry Strategies
Mikkeli 2005
Compiled by Rulzion Rattray
Market Share Drives Profitability.
Profit Impact of Market Strategy (PIMS) Associates
40
35
ROI
%
30
25
20
15
10
5
0
8
8
15
24
38
Market Share Percentage
Adapted from Gale, B.T., (1987), “The PIMS Principles”, Free Press. pp 97
• Increasing global levels of FDI.
• Increasingly competitive world markets
Strategic Factors
• Critical markets Prahalad,
& Doz, (1986).
– Markets that are profit
sanctuaries for
competitors
– Markets with volume &
state of the art
customers
– Markets with good
margins
• National Competitive
Adv. Porter, M.E., (1990).
Globalisation Strategy
G. Yip Total Global Strategy 1995
Global Market
Share
Global
market
participation
Global
balance
01/10/97
Globally
strategic markets
Rulzion Rattray UAD
7
Additional Location Determinants:
• Infrastructure
– Transportation, Communications, Electricity, Wage rate, Cost of
land, Construction cost, cost of raw material.
• Regulatory/Economic
– Cost of bureaucracy
– Economic Stability
• Tax rate:
– statutory rate general tax burden
– effective rate; rate adjusted for all other factors including
subsidies and investment incentives.
– Profit repatriation
• Social & Political:
– Political stability, culture & language barriers, government
efficiency, corruption, crime levels, cost of pollution control.
– Characteristics of local labour; Education, availability, work ethic.
Timing of Market Entry
Economic Effects of Being an Early Mover
High Possible Returns
(Advantage)
Market Power:
• Barriers to followers
• Technical leadership
• Product positioning
Pre-emptive opportunities:
• Marketing
• Early access to resources
• Brand Recognition
Strategic Opportunities:
• Location selection
• Low competition
High Uncertainty/Cost
(Disadvantage)
Uncertainty:
• Undeveloped regulations
• Low government experience
• New industry
Operational Risks:
• Lack of supply inputs
• Lack of support infrastructure
• Unstable market structure
Extra Cost:
• Learning Curve
• Training cost
• Anti-immitation costs
Adapted from Shenkar, O. and Luo, Y.(2004), “International Business”, John Wiley
and Sons, Inc. pp 273.
Trade related Entry:
• Exporting directly or using intermediaries
– Terms of payment: FOB, (Free on Board), FOR (Free
on rail), FAS (Free along side), CIF (Cost, Insurance
& Freight).
– Key documentation: L/C (Letter of Credit) an
irrevocable L/C usually required. See Shenkar, O. and Luo,
Y.(2004), Chap 14 for detailed explanation.
• Subcontracting;
– e.g. Nike in China
• Countertrade
– a form of barter e.g. McDonalds paid for some
franchises in Vodka.
Transfer Related Entry
• Here there is some transfer of ownership
involved, user buys some rights in product.
– Widely used in products with high level of
intellectual property rights.
• International Leasing, e.g. capital intensive
products, earth moving/ mining equipment.
• International Licensing; licence in return for
royalty
• International Franchising; eg. McDonalds
• Build Operate Transfer: typically large capital
and technology based projects, e.g power
station
FDI Entry
• Foreign Direct Entry involves greater
levels of commitment and risk.
– Branch Office; exists as an extension of the
parent and has legal liability. Firms often limit
liability by use of offshore subsidiaries.
– Joint Ventures; cooperative with specified
contract. Equity based joint ventures.
– Wholly Owned Subsidiary; either by acquiring
a fimr or starting a firm from scratch.
Continuum of Entry Modes
Risk &
Return
FDI Related
•Joint Ventures, Subsidiaries
Transfer Related
•Leasing, Licensing, Franchising, BOT
Trade Related
•Export, Subcontracting, counter trade
Adapted from Shenkar,
O. and Luo, Y.(2004),
“International Business”,
John Wiley
and Sons, Inc. pp 284.
Organisational control and resource commitment
Continuum of Cooperation
Technical
Training
Patent
Licensing
Franchising
Non-equity
co-operative
agreements
Equity Joint
Venture
Extent of Interorganisational Dependence
Negligible
Moderate
High
Collaborate with your competitors -and
win Garry Hamel, Yves Doz & CK Prahalad
• Horizontal co-operation a window on each others
capabilities:
– Opportunity to acquire other’s skills and technologies
• Strategic Alliances:
– Competition in another form
– Limited life span
– Learning from partners of paramount importance
• Mutual Gain is Possible
– Where strategic goals converge but competitive goals diverge
– Size & market power of both is modest compared with industry
leaders
– each partner believes it can learn from the others whilst
protecting its own skills
• Only enter partnership if you can learn!
References
• Contractor F. & Lorange P. , 1988, “Cooperative Strategies In International
Business”, Lexington Books. Cited in de Wit, B & Meyer, R, Eds. (1994),
“Strategy Process, Content & Context, an International Perspective” Pp PP321331.
• de Wit, B & Meyer, R, (1998), “Strategy Process, Content & Context, an
International Perspective” 2nd Ed.
• Gale, B.T., (1987), “The PIMS Principles”, Free Press.
• Hamel, G. Prahalad, C.K., (1993), Strategy as Stretch & Leverage, Harvard
Business Review, vol. 71 no. 2.
• Hamel G., Doz Y. & Prahalad C .K. , 1989, “Collaborate With Your Competitors
and Win”, Harvard Business Review Jan Feb. 1989. See De Wit & Meyer
PP336-343.
• Özsomer, A., & . Cavusgil, T.S., (1999),“A dynamic analysis of market entry
rates in a global industry: a community ecology perspective ”, European Journal
of Marketing, Vol 33 No 11 pp 1038 – 1063.
• Porter, M.E., (1990), “The Competitive Advantage of Nations”, Free Press, See
de Wit, B & Meyer, R, (1998), Pp 773-785.
• Prahalad, C.K., & Doz, Y., (1986), “The dynamics of Global Competition”, Free
Press. See de Wit, B & Meyer, R, Eds. (1998), pp 753-772.
• Shenkar, O. and Luo, Y.(2004), “International Business”, John Wiley and Sons,
Inc. (Available Library)
• Yip, G., (1995), “Total Global Strategy”, Prentice Hall.