Transcript Market Analysis and Foreign Market Entry Strategies.

Market Analysis and Foreign
Market Entry Strategies.
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Market Analysis.
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6.
Market potential.
Economic growth.
Availability of natural resources.
Availability of labor.
Political risk.
Market access & trade barrier.
7. Factor costs & conditions.
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Labor cost.
Land material capital cost.
8. Shipping considerations.
9. Country infrastructure.
10.Foreign exchange.
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Creating a product market profile – 9
W’s.
Who buys our product?
Who does not buy our product?
What need or function does our product
serve?
What problem does our product solve?
What are customer’s currently buying to
satisfy the need or solve the problem for
which our product is targeted?
What price are they paying for the
products they are currently buying?
When is our product purchased?
Where is our product purchased?
Why is our product purchased?
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Market selection criteria.
Market potential.
Market access.
Shipping cost & time.
Potential competition.
Service requirement.
Product fit.
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Visit the potential market.
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Entry & expansion decision model.
A. Exporting.
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a.
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Exporting is appropriate strategy when one of
more of the following conditions prevail.
The volume of foreign business is not large
enough to justify production in the foreign
market.
Cost of production in the foreign market is high.
The foreign market is characterized by
production bottlenecks like infrastructural
problems, material supplies etc.
There are political or other risks of investment
in the foreign country.
The company has no permanent interest in the
foreign market or there is no guarantee of the
market available for a long period.
f.
g.
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a.
b.
c.
Foreign investment is not favored by the foreign
country concerned.
Licensing or contact manufacturing is not a
better alternative.
Export marketing requires.
An understanding of target market
environment.
The use of marketing research & the
identification of market potential.
Decisions concerning product design, pricing,
distributions & channels, advertising &
communication.
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a.
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b.
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Export related problems.
Logistics.
Arranging transportation.
Transport rate determination.
Handling documents.
Obtaining financial information.
Distribution co-ordination.
Packaging.
Obtaining insurance.
Legal procedure.
Government red tape.
Product liability.
Licensing.
Customer / Duty.
c.
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d.
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e.
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Servicing Export.
Providing parts availability.
Providing repair service.
Providing technical advice.
Providing ware housing.
Sales Promotion.
Advertising.
Sales effort.
Marketing information.
Foreign market intelligence.
Locating markets.
Trade restrictions.
Competition overseas.
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a.
Organizing for exporting.
Organizing in the manufacturer’s country.
 In house export organization.
The possible arrangement for handling
exports include the following.
1. As a part time activity performed by
domestic employee.
2. Through an export partner affiliated with the
domestic marketing structure that takes
possession of the goods before they leave
the country.
3. Export department.
4. Export department within an international
division.
External independent organization.
Export trading company.
Export management company.
Export merchant.
Export brokers.
Combination export managers.
Manufacturer’s export representatives or
commission agent.
7. Export distributors.
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b.
Organizing in the market country.
 Direct representation.
 Advantages.
o Direct representation by a company’s own
employee in the market control &
communication.
o Direct representation allows decisions
regarding program development, resource
allocation & price changes.
 Independent representation.
 Criteria.
o Smaller markets.
o Independent representation handles
numerous other products.
 Piggyback marketing.
B. Sourcing.
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a.
b.
c.
d.
e.
f.
The opposite of exporting is importing.
Sourcing decisions factors.
Factor cost & conditions.
Logistics.
Country infrastructure.
Political risk.
Market access.
Exchange rate, availability & convertibility of
local money.
C. Licensing.
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Licensing is an agreement that permits foreign
company to use industrial property (i.e.
patents, trademarks & copyrights), technical
know-how & skills (i.e. feasibility studies,
manuals, technical advice), architectural &
engineering design or any combination of these
in a foreign market.
Licensing is not only restricted to tangible
products.
 Licensing offers several advantages.
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It allows company to spread out it’s research &
development & investment cost while enabling
it to receive incremental income with negligible
expenses.
 Why Licensing should be used?
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Trade barriers.
When capital is scares.
When country is sensitive to foreign ownership.
It allows quick & easy way to enter the market.
When transportation cost is high.
A company can avoid substantial risk & other
difficulties with licensing.
Benefits from brand Licensing.
Brand Licensing receives an intangible benefits
also.
Brand is extended into new product categories
in which trademark owner has no expertise.
 Negative aspects of Licensing.
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Reduced profit with reduced risk.
Manufacturer may be nurturing competitor.
When licensee performs poorly.
Agreement can also prevent the licensor from
entering that market directly.
Inconsistent product quality can injure the
reputation of the product.
Even when exact product formulations are
followed, licensing can still sometimes can
damage the product’s image – Psychologically.
 Licensing is a sound strategy under
certain circumstances.
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Licensing term must be carefully negotiated &
explicitly treated.
o License contract should include basic elements.
 Product & territorial coverage.
 Length of contract.
 Quality control.
 Grant back & cross licensing.
 Royalty rate & structure.
 Choice of currency.
 Choice of law.
o A US licensor must pay attention to anti trust
consideration.
o A prudent licensor does not assign a trademark
to a licensee.
o A licensing should be considered a two way street
because a license also allows the original licensor
to gain access to the licensees technology &
product.
o Over licensing or under licensing is not desirable.
o Under licensing results in potential profit being
lost where as over licensing leads to a weakened
market through over exposure.
D. Joint Venture.
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A joint venture is a simply a partnership at
corporate level & it can be domestic or
international.
A joint venture is an enterprise formed for a
specific business purpose by two or more
investors sharing ownership & control.
 There are two separate overseas
process.
1.
Natural or non political investment process.
In this process technology supplying firm gains
a foot hold in an unfamiliar market by acquiring
a partner that can contribute local knowledge &
marketing sill.
2.
The second investment process occurs when the
local firms political leverage, through government
persuasion, halts or reverses the natural
economic process.
 Partners committed to joint ventures is a
function of perceived benefits (satisfaction
& economic performance.) of the
relationship.
 Joint venture enjoy certain advantages.
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Joint ventures substantially reduces the amount
of resources (Money & Personnel).
Joint venture strategy is the only way other
than through licensing that a firm can enter a
foreign market.
MNC’s manage risks by structuring joint venture
sharing arrangements.
Sometimes social rather than legal
circumstances require a joint venture to be
formed.
Joint venture can also work to satisfy social,
economic & political circumstances.
 Joint venture limitations.
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If the partners to the joint venture have not
established clear cut decision making policy.
o Whenever two individuals or organizations work
together there are bound to be conflicts.
o Reasons.
 Cultural problem.
 Divergent goals.
 Disagreement over production & marketing
strategies.
 We contribution by one or other partners.
o Problem is matter of control.
E. Manufacturing.
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Manufacturing process can be employed as a
strategy involving all or some manufacturing in
foreign country.
One kind of manufacturing process known as
Sourcing, which involves manufacturing
operations in host country not so much to sell
there, but for the purpose of exporting from
that country to the company’s home country or
to other countries.
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Methods.
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Complete manufacturing to contract
manufacturing.
Partial manufacturing.
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• Why host country want foreign
capital?
o Job creation.
o Brings additional resources like technology,
management expertise & access to export
market.
• Why company chooses to invest in
manufacturing facility abroad?
o Gaining access to raw material.
o Advantage of resources for it’s manufacturing
operation.
o Backward vertical integration.
o Lower labor cost.
o Other factors of production like labor, energy &
other inputs.
o To reduce the transportation cost.
o To minimize or avoid import taxes & other trade
barriers.
 Manufacturer should consider no. of
factors before investment.
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Restriction on inter company payments.
Control on dividend remittance.
Import duty concession.
Guarantee against expropriation.
Tax holidays.
 Marketing consideration.
o Product image deserves attention.
o Competition.
o Resources of various countries to determine
comparative advantage.
o Relative labor cost.
o Types of products made.
o Taxation.
o Investment climate.
o Chip unskilled labor importance is diminishing
due to technology development.
F. Assembly operations.
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Assembly means the fitting or joining together
of fabricated components.
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Strategy.
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Parts or components produced in various
countries.
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Capital intensive parts may be produced in advance
nations.
Labor intensive assemblies may be produced in LDC.
Assembly operations allow company products to
enter many markets without being subject to
tariffs & quotas.
Host country objects for screw driver assembly.
G. Management contract.
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In some cases government pressure &
restriction force a foreign company either to sell
it’s domestic operation or to relinquish control.
The other way to generate revenue is to sign a
management contract.
H. Turn key operations.
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It is an agreement by the seller to supply a
buyer with a facility fully equipped & ready to
be operated by the buyers personnel, who will
be trained by the seller.
I.
Acquisition.
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When manufacturer wants to enter a foreign
market rapidly & yet retain maximum control,
direct investment through acquisition should
be considered.
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Reasons.
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Product / Geographical diversification.
Acquisition of expertise (Technology,
Marketing, Management).
Rapid entry.
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 Government welcomes foreign investment
that starts up a new enterprise (Green
Field Enterprise) since that investment
increases employment & enlarges tax
base.
 Acquisition fails to do this.
 Value of currency may either reduce or
increase the cost of an acquisition.
J. Strategic Alliance.
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A relatively new organizational form of market
entry & competitive co-operation is strategic
alliance.
Strategic alliance may be the result of mergers,
acquisitions, joint ventures & licensing
agreements.
Unlike joint ventures which requires two or
more partners to create a separate entity, a
strategic alliance does not necessarily require a
new legal entity.
Strategic alliance may be more of a contractual
arrangement where by two or more partners
agree to co-operate with each other & utilize
each partner’s resources & expertise to achieve
rapid global market penetration.

Three types of Strategic Alliances.
1. Shared distribution.
2. Licensed manufacturing.
3. R&D Alliance.