Chapter 9 Market Entry and Servicing Strategies John S. Hill.
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Transcript of Chapter 9 Market Entry and Servicing Strategies John S. Hill.
Chapter 9Market Entry and Servicing Strategies
John S. Hill
Chapter Outline
Introduction: Exporting Strategies Contractual Forms of Market Entry Investment Options for Servicing
Foreign Markets Matching Market Servicing Strategies
to Environmental and Corporate Needs
Chapter Outline: Market Entry and Servicing Strategies Market Entry and Servicing Strategy
Exporting StrategiesIndirect ExportingDirect exporting
Contractual Methods of Market Entry & ServicingLicensingFranchisingContract manufacturingCo-production
Investment OptionsInternational Joint-VenturesMergers & AcquisitionsGreenfield Operations
Matching Market Entry and Servicing Strategies to Environmental & Corporate Needs
Exporting Strategies
Indirect Exporting and Use of Trading Companies
Direct Exporting
Export Strategies
Indirect Exporting and Use of Trading Companies Indirect exporting uses third party intermediaries US Trading Companies and Associations: ETC (Export
Trading Companies) & WPA (Webb-Pomerene Associations )
Taiwanese Trading Companies: independent producers and suppliers
Mainland China Trading Companies: industry-centered Japanese Trading Companies, “big nine” sogo shosha,
over 1000 overseas offices, annual turnover tops $350 billion
Export Strategies
Direct Exporting For small and medium sized firms, cheap and
flexible For large international firms,
exporting/importing are vital parts of international operations
Key elements in global company supply chains for material supplies and distribution of final products
International firms account for 2/3 world trade
Contractual Forms of Market Entry
Three Major Types of Agreements
Management Contracts
Contract Manufacturing
Co-production Agreements
Contractual Forms of Market Entry
Three Types of Most Popular Agreements Licensing Allowing foreign-based firm use of production
processes, marketing logos, trademarks or brand names for a defined time period in specific market and for a pre-specified royalty fee
Danisco Cultor in Asia: low cost manufacturing after patent expiry
Ferrari Motor Sports: publicize brand through clothing Umbro: low cost way tt compete with Adidas and Nike
Contractual Forms of Market Entry
Three Major Types of Agreements Franchising Franchisees given rights for production or
marketing of the product; considerable control exerted over both the production processes and marketing strategy
McDonalds, KFC and Pizza Hut Hyatt and Holiday Inn, require up to $100 million
in real estate and capital expenditures per hotel
Contractual Forms of Market Entry
Three Major Types of Agreements
Franchising Controlling Foreign Franchisees
Concentrating ownership via trusted master franchisers
Diluting ownership: many independent operators
Contractual Forms of Market Entry
Three Types of Most Popular Agreements
Master Franchising Individuals supervise and develop a number
of franchises within a country or region HFC, a leading franchiser of brand name
hotels (e.g., Howard Johnson, Day’s Inn, Ramada), residential real estate (Century 21, Caldwell Banker, ERA) and rental cars (Avis)
Contractual Forms of Market Entry
Dealing with Local Market Environments Archaic legal frameworks and bureaucracies Political Unrest: dependencies on local
businesspeople and buoyant local economies Cultural obstacles: culturally sensitive foods industries where menus are adapted
Contractual Forms of Market Entry
Other Contracts and Agreements Management Contracts, international companies, for
a fee, train local employees and manage foreign-based facilities for a prescribed time period (hotels)
Contract Manufacturing, foreign firms using specific materials and/or processes to manufacture products or provide services for third party companies. May be home-market or foreign manufacture; flexibility advantages but control disadvantages
Co-Production Agreements, manufacturing joint ventures, with partners retaining their independent marketing and distribution rights
Investment Options for Servicing Foreign Markets
International Joint Ventures (IJVs)
Mergers and Acquisitions (M&A)
Greenfield Operations
Investment Options for Servicing Foreign Markets
International Joint Ventures (IJVs): Definition & Key Decision Areas
International corporations and local firms join forces to share ownership and management responsibilities in specially created enterprises
Equity Structure, control over IJV operations Technology Transfer Arrangements, ‘the best’
technologies v.s. those matching market needs Asset Valuation problems, value land, buildings,
equipment and intangible assets (good will, brand names, etc.)
Investment Options for Servicing Foreign Markets
International Joint Ventures (IJVs) Divisions of management responsibility, ‘who is
really in control?’ Financial Policy and Strategic Objectives, dividend
and profit reinvestment/repatriation policies Blending of global corporate objectives with local
goals, manufacturing for other subsidiaries, allocating export rights, and pricing issues
Cultural problems and changing relationships
Investment Options for Servicing Foreign Markets
Mergers and Acquisitions (M&A) Over 75 percent (or over $866 billion) were M&A in
the $1.2 trillion equipment and management assets over 1999-2000; gives quick access and impact in highly competitive markets
Seven types of companies in M&A Carnivores: M & A an everyday function. Nestle,
Unilever, Electrolux and GE Dairy Farmers: buy and sell businesses to increase
shareholder value. Hanson Vegetarian: infrequent opportunistic acquirers. Sony’s
and Matsushita’s purchase of Hollywood
Investment Options for Servicing Foreign Markets
Mergers and Acquisitions (M&A) Seven types of companies in M&A White Hunters: frequently go for firms that are bigger than
they are. UK supermarket trolley maker WPP’s takeover of US advertising agency giant J. Walter Thompson
Gentleman Shooters: large takeovers after exhaustive research. BMW’s takeover of British auto firm Rover
Cross-Breeders, leading national companies to form regional (or global) powerhouses. Sweden’s ASEA and Brown-Boveri of Switzerland in heavy electrical equipment
Global mega-mergers, to build critical mass and presences in the international markets. Renault’s $5.4 billion investment in Japan’s number 2 car maker, Nissan.
Investment Options for Servicing Foreign Markets
Implementing M & A Strategies Evaluation of Prospects Financial analysis Strengths-weaknesses-opportunities-threats (SWOT) Cost and value chain analysis Competitive analysis
Investment Options for Servicing Foreign Markets
Implementing M & A Strategies Post Acquisition Strategies Stand-alone policies: leave the acquired
company as it is; little interference Integration strategies: into parent
company operations to reap financial, manufacturing, marketing synergies
M&A Assessment: was it worthit and did we execute it well?
Investment Options for Servicing Foreign Markets
Greenfield Operations Build foreign subsidiaries to suit their needs Advantages Need not deal with existing managements and
facilities Start fresh with the firm’s own technologies,
management styles and corporate cultures Complete control of subsidiary development
and market strategies
Investment Options for Servicing Foreign Markets
Greenfield Operations Disadvantages Must build in-market relationships with
suppliers, distributors from scratch Competitors have time to adjust their
strategies and prepare for a new rival The risks of making major resource
commitments and of financing losses until facilities reach their full market potential
Investment Options for Servicing Foreign Markets
Greenfield Operations Conditions favoring: Financing needs are low Markets are developing slowly and industry
competition levels are low Leading edge products and process technologies;
can guard against intellectual property theft Global brands and reputations are advantages Strong corporate cultures are keys to corporate
success
Investment Options for Servicing Foreign Markets Greenfield Operations Country Selection Criteria Proven manufacturing capabilities in the
global context Market potential Competitor presences (they are there, why aren’t we?) Favorable environment: no major operating problems
Investment Options for Servicing Foreign Markets
Greenfield Operations Site Location Within the Country determined
by: Government location incentives
(undeveloped regions) Economically significant centers (customers) Availability of qualified personnel Essential resources are available Transportation and infrastructures must be adequate
Investment Options for Servicing Foreign Markets
Greenfield Operations Siting Research and Development Capabilities Historical patterns: home market-based Current R&D strategies
Research labs in traditional fields: located in major markets or ‘competence regions’ (e.g. silicon valley)
Development labs: product adaptations to local needs
Facilities in new emerging areas: Latin America, Asia Managing the R&D Site: size is important; and
leadership (reputation, connections)
Matching Market Servicing Strategy to Environmental and Corporate Needs
External Factors Internal Factors
Matching Market Servicing Strategy to Environmental and Corporate Needs
External Factors Global industry analyses: Countries with
significant market sizes and high market growth Market environment analyses: less problematic
for experienced firms; essential for newcomers Competitive Factors: alert firms to competitor
presences and what facilities rivals have in particular markets; competitive advantages can accrue (e.g. producing and customizing in-market to counter import competition)
Matching Market Servicing Strategy to Environmental and Corporate Needs
Internal Factors Corporate Objectives
Learning and market feedback: build up global expertise
Flexibility: the ability to switch resources quickly in response to corporate and marketplace needs (exporting)
Control over products and manufacturing processes
Matching Market Servicing Strategy to Environmental and Corporate Needs
Internal Factors Corporate Resources
Managerial resource scarcity may be countered by use of third party expertise
International management expertise: necessary for direct exporting; less so for contractual modes of market entry (licensing, franchising, turnkey operations, etc); essential for investments
Marketing and operating costs: cheaper for indirect exporters, necessary for all entry strategies
Competitive advantage: firms seek to leverage home market advantages into foreign country environments; brand/corporate reputation, service, customization
Key Points
Many types of entry strategies
Exporting (direct/indirect) Contractual Methods Investment Options Site Selection R&D Facilities Strategies to match
company’s external and internal needs