INTERNATIONAL MARKETS’ ENTRY STRATEGIES

By Elisante Ole Gabriel (Tanzania) Chartered Marketer [email protected]

, www.olegabriel.com

+255-784-455-499 4/30/2020 [email protected] , +255-754 434412 1

Introduction

 The need for a solid market entry decision is an integral part of a global market entry strategy.

 Entry decisions will heavily influence the firm’s other marketing-mix decisions.

 There are two major entry Modes: PRODUCTION IN HOME COUNTRY & PRODUCTION IN FOREIGN COUNTRY.

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Introduction Cont…



International Marketers

(you) have to make a multitude of decisions regarding the entry mode which may include: – the target product/market – the goals of the target markets – the mode of entry – the time of entry – a marketing-mix plan – a control system to check the performance in the entered markets 4/30/2020 [email protected] , +255-754 434412 3

Target Market Selection

 A crucial step in developing a global expansion strategy is the selection of potential target markets.

 A four-step procedure for the initial screening process: 1. Select indicators and collect data 2. Determine importance of country indicators 3. Rate the countries on each indicator 4. Compute overall score for each country 4/30/2020 [email protected] , +255-754 434412 4

Choosing the Mode of Entry

 Decision Criteria for Mode of Entry – Market Size and Growth – Risk – Government Regulations – Competitive Environment – Local Infrastructure – Company Objectives – Need for Control – Internal Resources, Assets and Capabilities – Flexibility 4/30/2020 [email protected] , +255-754 434412 5

Mode of Entry Cont …

 Mode of Entry Choice: A Transaction Cost Explanation – Regarding entry modes, companies normally face a tradeoff between the benefits of increased control and the costs of resource commitment and risk.

– Transaction Cost Analysis (TCA) perspective – Transaction-Specific Assets (assets valuable for a very narrow range of applications) 4/30/2020 [email protected] , +255-754 434412 6

Exporting

 Indirect Exporting – Export management companies  Cooperative Exporting – Piggyback Exporting  Direct Exporting – Firms set up their own exporting departments 4/30/2020 [email protected] , +255-754 434412 7

Licensing

 Licensor and the licensee  Benefits: – Appealing to small companies that lack resources – Faster access to the market – Rapid penetration of the global markets 4/30/2020 [email protected] , +255-754 434412 8

Licensing Cont..

 Caveats (Alerts/warning signals): – Other entry mode choices may be affected – Licensee may not be committed – Lack of enthusiasm on the part of a licensee – Biggest danger is the risk of opportunism – Licensee may become a future competitor 4/30/2020 [email protected] , +255-754 434412 9

Licensing Cont …

 How to seek a good licensing agreement: – Seek patent or trademark protection – Thorough profitability analysis – Careful selection of prospective licensees – Contract parameter (technology package, use conditions, compensation, and provisions for the settlement of disputes) 4/30/2020 [email protected] , +255-754 434412 10

Franchising

 Franchisor and the Franchisee (e.g IIFT & IFM)  Benefits: – Overseas expansion with a minimum investment – Franchisees’ profits tied to their efforts – Availability of local franchisees’ knowledge 4/30/2020 [email protected] , +255-754 434412 11

Franchising Cont …

 Caveats (Warnings): – Revenues may not be adequate – Availability of a master franchisee – Limited franchising opportunities overseas – Lack of control over the franchisees’ operations – Problem in performance standards – Cultural problems – Physical proximity 4/30/2020 [email protected] , +255-754 434412 12

Contract Manufacturing (e.g Microsoft)

 Benefits: – Labor cost advantages – Savings via taxation, lower energy costs, raw materials, and overheads – Lower political and economic risk – Quicker access to markets 4/30/2020 [email protected] , +255-754 434412 13

Contract Manufacturing Cont …

 Caveats: – Contract manufacturer may become a future competitor – Lower productivity standards – Backlash from the company’s home market employees regarding HR and labor issues – Issues of quality and production standards 4/30/2020 [email protected] , +255-754 434412 14

Joint Ventures

 Cooperative joint venture  Equity joint venture  Benefits: – Higher rate of return and more control over the operations – Creation of synergy – Sharing of resources – Access to distribution network – Contact with local suppliers and government officials 4/30/2020 [email protected] , +255-754 434412 15

Joint Ventures Cont …

 Caveats: – Lack of control – Lack of trust – Conflicts arising over matters such as strategies, resource allocation, transfer pricing, ownership of critical assets like technologies and brand names 4/30/2020 [email protected] , +255-754 434412 16

Joint Ventures Cont …

 Drivers Behind Successful International Joint Ventures : – Pick the right partner – Establish clear objectives from the beginning – Bridge cultural gaps – Gain top managerial commitment and respect – Use incremental approach 4/30/2020 [email protected] , +255-754 434412 17

Wholly Owned Subsidiaries

 Acquisitions  Greenfield Operations  Benefits: – Greater control and higher profits – Strong commitment to the local market on the part of companies – Allows the investor to manage and control marketing, production, and sourcing decisions 4/30/2020 [email protected] , +255-754 434412 18

Wholly Owned Subsidiaries Cont …

 Caveats: – Risks of full ownership – Developing a foreign presence without the support of a third part – Risk of nationalization – Issues of cultural and economic sovereignty of the host country  Acquisitions and Mergers – Quick access to the local market – Good way to get access to the local brands 4/30/2020 [email protected] , +255-754 434412 19

Strategic Alliances

 Types of Strategic Alliances – Simple licensing agreements between two partners – Market-based alliances – Operations and logistics alliances – Operations-based alliances 4/30/2020 [email protected] , +255-754 434412 21

Strategic Alliances Cont …

 The Logic Behind Strategic Alliances – Defend – Catch-Up – Remain – Restructure 4/30/2020 [email protected] , +255-754 434412 22

Strategic Alliances Cont …

Cross-Border Alliances that Succeed: – Alliances between strong and weak partners seldom work.

– Autonomy and flexibility – Equal ownership  However, according to Prof. Michael Porter, 90% of SA are destined to fail (A case of BP-AMOCO, 1999) 4/30/2020 [email protected] , +255-754 434412 24

Strategic Alliances Cont …

– Other success factors: » Commitment and support of the top of the partners’ organizations » Strong alliance managers are the key » Alliances between partners that are related in terms of products, technologies, and markets » Similar cultures, assets sizes and venturing experience » A shared vision on goals and mutual benefits 4/30/2020 [email protected] , +255-754 434412 25

Timing of Entry

 International market entry decisions should also cover the following timing-of-entry issues: – When should the firm enter a foreign market?

– Other important factors include: level of international experience, firm size – Mode of entry issues, market knowledge, various economic attractiveness variables, etc.

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Exiting a Market

 Reasons for exit: – Sustained losses – Volatility – Premature entry – Ethical reasons – Intense competition – Resource reallocation 4/30/2020 [email protected] , +255-754 434412 27

Exit Strategies

 Assess the Risks of exit

:

– Fixed costs of exit – Disposition of assets – Signal to other markets – Long-term opportunities  Guidelines: – Contemplate and assess all options to salvage the foreign business – Incremental exit – Migrate customers 4/30/2020 [email protected] , +255-754 434412 28

STANDARDIZATION Vs. ADAPTATION/DIF’ENTIATION

Finally  Standardization means a product is manufactured just for the global market with any degree of responsiveness. The major objective is to take the advantage of economies of scale through cost integration.

 On the other hand, adaptation is an approach whereby a product gets some modification to suit individual domestic markets 4/30/2020 [email protected] , +255-754 434412 29

THE END!!!

 ‘Avoid the exit costs by making a strategic choice of the entry strategies’  There is always a dilemma whether to standardize or adapt. International marketers need to resolve this dilemma continuously. Gabriel E., (2005) in his article ‘

Export

Marketing

Strategies’

gave a discussion on how to handle the dilemma. AND..

 Think Global act Local = GLOCALIZATION 4/30/2020 [email protected] , +255-754 434412 30