Entry strategies of companies
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Transcript of Entry strategies of companies
Entry Strategies in International Markets
Jostin S
Adi shankara Institute of Management and Technology
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Introduction
• The need for entering a foreign market is a strategic management decision.
• A firm may enter in overseas markets to prolong product life cycle. Products may be at a decline stage in the home market, but may have growing demand in overseas markets, especially in the least developed countries.
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Other factors
• Saturation in local markets.
• Competitors.
• New economic grounds.
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Introduction
• Global marketers 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
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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 country5
Exporting
• Exporting is the process of selling of goods and services produced in one country to other countries.
• Export brings in revenue to the firm.
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Direct export
• Direct exports represent the most basic mode of exporting made by a (holding) company.
• Direct export works the best if the volumes are small. The main characteristic of direct exports entry model is that there are no intermediaries.
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Advantages
• Control over selection of foreign markets and choice of foreign representative companies
• Good information feedback from target market, developing better relationships with the buyers
• Better protection of trademarks, patents, goodwill, and other intangible property
• Potentially greater sales, and therefore greater profit, than with indirect exporting
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Disadvantages
• Higher start-up costs and higher risks as opposed to indirect exporting
• Requires higher investments of time, resources and personnel and also organisational changes
• Greater information requirements
• Longer time-to-market as opposed to indirect exporting
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Indirect export
• Indirect exports is the process of exporting through domestically based export intermediaries. The exporter has no control over its products in the foreign market.
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Advantages
• Fast market access
• Concentration of resources towards production
• No direct handle of export processes
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Disadvantages
• Higher risk than with direct exporting
• Little or no control over distribution, sales, marketing, etc. as opposed to direct exporting
• Inability to learn how to operate overseas
• Wrong choice of market and distributor may lead to inadequate market feedback affecting the international success of the company
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• Infosys
• Cipla ltd
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Licensing
• A firm in one country allows a firm in other country to use its intellectual property.
• The licensee will have to pay royalty to use the property.
• Benefits:
• Appealing to small companies that lack resources
• Faster access to the market
• Rapid penetration of the global markets
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Licensing
• Disadvantages :
• Licensee may not be committed
• Lack of enthusiasm on the part of a licensee
• Licensee may become a future competitor
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Licensing
• In India for CoCa Cola the bottling license is given to Hindustan coca cola beverages ltd.
• Covers approximately 65% of bottling operations for the Coca-Cola System in India.
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Franchising
• There will be a parent company ,who will allow an independent entity to do business in a prescribed form.
• Franchisor and the franchisee
• This right allows to use the franchisor’s product, name, production techniques, marketing techniques etc.
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• Benefits:
• Overseas expansion with a minimum investment
• Franchisees’ profits tied to their efforts
• Availability of local franchisees’ knowledge
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Franchising
• Drawbacks :• Revenues may not be adequate
• Limited franchising opportunities overseas
• Lack of control over the franchisees’ operations
• Problem in performance standards
• Cultural problems
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• Dominos pizza – managed by Jubilant foodworks ltd.
• Have rights to operate in India, Bangladesh, Sri lanka, Nepal.
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Contract Manufacturing
• A company does international marketing contract with firms in foreign countries to manufacture, assemble products while retaining the rights to market those products.
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Contract Manufacturing
• Benefits:
• Labor cost advantages
• Savings via taxation, lower energy costs, raw materials, and overheads
• Lower political and economic risk
• Quicker access to markets
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Contract Manufacturing
• Drawbacks :
• Contract manufacturer may become a future competitor
• Lower productivity standards
• Issues of quality and production standards
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Contract Manufacturing
Qualities of an ideal subcontractor:
• Flexible/geared toward just-in-time delivery
• Able to meet quality standards
• Solid financial footings
• Able to integrate with company’s business
• Must have contingency plans
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• Nike has a contract manufacturing for its textiles. The major part of clothing is prepared in Tirupur, India.
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Joint Ventures
• Cooperative joint venture• share revenues, expenses and assets. • both parties are equally invested in the
project in terms of money, time, and effort
• Benefits:• Higher rate of return and more control over the
operations• Sharing of resources• Access to distribution network• Contact with local suppliers and government officials
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Joint Ventures
• Drawback:
• 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
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Joint Ventures
• 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 approach28
• Bharti Walmart between bharti enterprises and walmart
• Sony-Ericsson is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones
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Mergers and Acquisitions
Provides instant access to markets and distribution network.
It is a corporate strategy of dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector
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• 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
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• The take over of Land rover and Jaguar by TATA is an example.
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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
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Thank You
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