Global Market Entry Strategies. Copyright © Houghton Mifflin Company. All rights reserved. 9-2...

Global Global Market Entry Market Entry

StrategiesStrategies

Copyright © Houghton Mifflin Company. All rights reserved. 9-2

Discussion OutlineDiscussion Outline Exporting as an entry strategyExporting as an entry strategy

Indirect exporting, direct exportingIndirect exporting, direct exporting Foreign production as an entry strategyForeign production as an entry strategy

Licensing, franchising, local Licensing, franchising, local manufacturingmanufacturing

Ownership strategiesOwnership strategiesWholly owned subsidiaries, JVs, alliancesWholly owned subsidiaries, JVs, alliances

Entering markets through mergers & Entering markets through mergers & acquisitionsacquisitions


2 Methods of Exporting2 Methods of Exporting

IndirectIndirect - Reaching - Reaching markets with the use of markets with the use of an intermediary located an intermediary located in the exporter’s home in the exporter’s home countrycountry Leverage intermediary’s Leverage intermediary’s

expertiseexpertise Good for firms with little Good for firms with little

international experienceinternational experience

-- Less profit, less control, Less profit, less control, do not gain experience do not gain experience curve effectscurve effects


Intermediaries for Indirect ExportingIntermediaries for Indirect Exporting

Export Management Company (EMC)Export Management Company (EMC) Handles all aspects of export operationsHandles all aspects of export operations

Marketing research, patent protection, Marketing research, patent protection, channel credit, shipping, logistics, and actual channel credit, shipping, logistics, and actual marketing of productmarketing of product

Can act as merchant (Can act as merchant (taking title of taking title of productproduct) or as agent () or as agent (receiving fee or receiving fee or commission on product salecommission on product sale))


Intermediaries for Indirect ExportingIntermediaries for Indirect Exporting

Export AgentsExport Agents Individuals or firms that assist Individuals or firms that assist

manufacturers in exporting goodsmanufacturers in exporting goods

Similar to EMCs; but tend to provide more Similar to EMCs; but tend to provide more limited services and focus on 1 country or limited services and focus on 1 country or part of the worldpart of the world Focus more on sale and handling of goodsFocus more on sale and handling of goods Exporting firms may need to utilize several Exporting firms may need to utilize several

export agents to gain adequate worldwide export agents to gain adequate worldwide market coveragemarket coverage


2 Methods of Exporting2 Methods of Exporting

DirectDirect – Reaching markets either yourself – Reaching markets either yourself or with the use of an intermediary located or with the use of an intermediary located in the foreign market in the foreign market + More profit, greater control, able to leverage More profit, greater control, able to leverage

experience curve effectsexperience curve effects- Requires more expertise, management time, Requires more expertise, management time,

and financial resourcesand financial resources


Direct Export OptionsDirect Export Options Independent DistributorIndependent Distributor

No direct cost to No direct cost to exporter; takes margin exporter; takes margin on selling price of on selling price of productsproducts

Marketing SubsidiaryMarketing Subsidiary Initial and fixed costs Initial and fixed costs

to establish and to establish and maintain subsidiarymaintain subsidiary

Manager, sales Manager, sales manager, clerical manager, clerical staff, warehousing staff, warehousing operation, etc.operation, etc.

LESS PER-UNIT PROFITLESS PER-UNIT PROFIT

USEFUL IF VOLUME LOWUSEFUL IF VOLUME LOW

MORE PER-UNIT PROFITMORE PER-UNIT PROFIT

USEFUL IF VOLUME HIGHUSEFUL IF VOLUME HIGH


Foreign ProductionForeign Production Firms may shift production to foreign Firms may shift production to foreign

marketsmarkets

1.1. Gain market positionGain market position Circumvent import restrictions, communicate Circumvent import restrictions, communicate

commitment to marketcommitment to market

2.2. Defend market positionDefend market position Response to protectionism, currency fluctuationsResponse to protectionism, currency fluctuations Follow the customerFollow the customer

3.3. Save costsSave costs Cheaper production factors, decrease transportation Cheaper production factors, decrease transportation

costs, etccosts, etc..


Types of Foreign ProductionTypes of Foreign Production

LicensingLicensing – Company assigns the – Company assigns the right to a copyright or patent and/or right to a copyright or patent and/or trademark to another company for trademark to another company for a fee or royalty a fee or royalty (% sales volume(% sales volume))


Pros and Cons of LicensingPros and Cons of Licensing+ Leverage local knowledge of Leverage local knowledge of

licenseelicensee

+ Commercial and political risks Commercial and political risks absorbed by licenseeabsorbed by licensee

+ Allows resources to be Allows resources to be concentrated in more lucrative concentrated in more lucrative marketsmarkets

+ Adds to firm’s manufacturing Adds to firm’s manufacturing capacitycapacity

+ Enables firms to enter several Enables firms to enter several markets quicklymarkets quickly

- Possibility of creating a Possibility of creating a competitorcompetitor

- Dependence on licenseeDependence on licensee

- Uncertainty of licensee’s Uncertainty of licensee’s marketing capabilities and marketing capabilities and product qualityproduct quality

- Management time and Management time and resourcesresources


Foreign ProductionForeign Production

FranchisingFranchising – Special type of licensing – Special type of licensing where company makes total marketing where company makes total marketing plan available, including brand name, logo, plan available, including brand name, logo, products, and methods of operation.products, and methods of operation. 15,000 franchising companies worldwide15,000 franchising companies worldwide U.S. is home to the greatest number of franchisersU.S. is home to the greatest number of franchisers Growth rates for franchising are higher in non-U.S. Growth rates for franchising are higher in non-U.S.

marketsmarkets Master franchises – exclusive rights to a whole city or Master franchises – exclusive rights to a whole city or

countrycountry


Foreign ProductionForeign Production

Contract ManufacturingContract Manufacturing – Company – Company arranges to have its products arranges to have its products manufactured by an independent manufactured by an independent local company on a contractual basis.local company on a contractual basis. Avoids having to establish a factory in that market; can Avoids having to establish a factory in that market; can

help to overcome import barriershelp to overcome import barriers Typically chosen for countries with low volume potential Typically chosen for countries with low volume potential

smaller Central American, African, and Asian smaller Central American, African, and Asian countriescountries

Appropriate only when production technology know-Appropriate only when production technology know-how is available in the markethow is available in the market


Foreign ProductionForeign Production Other OptionsOther Options

AssemblyAssembly – Company locates a proportion of – Company locates a proportion of manufacturing process—typically last stages—to manufacturing process—typically last stages—to the foreign countrythe foreign country

E.g Nissan PathfinderE.g Nissan Pathfinder

Full-Scale Integrated ProductionFull-Scale Integrated Production – Company – Company locates a fully integrated production unit in the locates a fully integrated production unit in the foreign countryforeign country


Ownership StrategiesOwnership Strategies

Wholly Owned SubsidiariesWholly Owned Subsidiaries – Operations – Operations fully owned by a foreign parent firm. May fully owned by a foreign parent firm. May involve marketing, assembly, or full-scale involve marketing, assembly, or full-scale integrated production operationsintegrated production operations+ Profit, greater control, able to leverage Profit, greater control, able to leverage

experience curve effectsexperience curve effects+ More easily integrated into firm’s global More easily integrated into firm’s global

networknetwork- Requires substantial expertise, Requires substantial expertise,

management time, and financial management time, and financial resourcesresources


Ownership StrategiesOwnership Strategies

Joint VenturesJoint Ventures (JVs)(JVs) – Foreign company – Foreign company invites an outside partner to share stock invites an outside partner to share stock ownership in a new unit.ownership in a new unit. Equity participation may varyEquity participation may vary Can be successful if partners share the same Can be successful if partners share the same

goals and if one partner accepts primary goals and if one partner accepts primary responsibility for operational matters.responsibility for operational matters.


Reasons to Choose JV for Foreign Reasons to Choose JV for Foreign Market EntryMarket Entry

1.1. JV may be required by local governmentJV may be required by local government

2.2. Partner may have important skills or Partner may have important skills or contacts of valuecontacts of value

May provide local manufacturing or excellent May provide local manufacturing or excellent government or distribution contactsgovernment or distribution contacts

3.3. Partner may be an important customer Partner may be an important customer willing to contract for a portion of new unit’s willing to contract for a portion of new unit’s output in return for equity participationoutput in return for equity participation


Table 9.1 What Motivates Mexican Firms to Seek U.S. Table 9.1 What Motivates Mexican Firms to Seek U.S. Partners?Partners?

MOTIVATION PERCENTAGE OF RESPONDENTS

Access to technologyAccess to recognized brand

7156

Product/service knowledge of partnerAccess to products and services

4740

Supplier accessAccess to new products/market areas

3327

Short-term creditAccess to raw materials

2422

Customer accessReduce costs

2222

Block competitorsCapital access

2019

Source: Gillespie & Teegen, Columbia Journal of World Business (Winter 1995): 63


Joint Venture DivorceJoint Venture Divorce

Regulations that force firms to partner may be Regulations that force firms to partner may be rescindedrescinded

Partner may turn out to be less than idealPartner may turn out to be less than ideal Partners may disagree about strategic Partners may disagree about strategic

directiondirection


Entering Markets Via AcquisitionsEntering Markets Via Acquisitions

Opening of financial markets has made Opening of financial markets has made acquisition of publicly traded firms acquisition of publicly traded firms much easiermuch easierDuring 1990s cross-border mergers and During 1990s cross-border mergers and

acquisitions increased fivefold!acquisitions increased fivefold!


Pros and Cons of AcquisitionsPros and Cons of Acquisitions+ Eliminates need to build Eliminates need to build

manufacturing/ distribution manufacturing/ distribution capabilities from scratchcapabilities from scratch

+ Established brands provide Established brands provide immediate market shareimmediate market share

+ Attractive strategy when market Attractive strategy when market dominated by established brands dominated by established brands and saturated with competitorsand saturated with competitors

+ Government might allow entry Government might allow entry only via acquisitions to protect only via acquisitions to protect depressed industry from entrantsdepressed industry from entrants

- Attractive firms may not Attractive firms may not be available for purchase be available for purchase

- Attractive firms may only Attractive firms may only be available at inflated be available at inflated pricesprices

Global Market Entry Strategies. Copyright © Houghton Mifflin Company. All rights reserved. 9-2...

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