Global Market Entry

8/8/2019 Global Market Entry

http://slidepdf.com/reader/full/global-market-entry 1/32

Chapter 9 Kotabe & Helsen's Global MarketingManagement, Third Edition, 2004

1

Global Marketing ManagementGlobal Marketing Management

Masaaki Kotabe & Kristiaan HelsenMasaaki Kotabe & Kristiaan HelsenThird EditionThird Edition

John Wiley & Sons, Inc., 2004John Wiley & Sons, Inc., 2004




2

Chapter 9Chapter 9

Global MarketGlobal Market--Entry StrategiesEntry Strategies




3

Chapter OverviewChapter Overview

1. Target Market Selection1. Target Market Selection

2. Choosing the Mode of Entry2. Choosing the Mode of Entry

3. Exporting3. Exporting

4. Licensing4. Licensing

5. Franchising5. Franchising

6. Contract Manufacturing6. Contract Manufacturing7. Joint Ventures7. Joint Ventures

8. Wholly Owned Subsidiaries8. Wholly Owned Subsidiaries




4

Chapter Overview (contd.)Chapter Overview (contd.)

9. Strategic Alliances9. Strategic Alliances

10. Timing of Entry10. Timing of Entry

11. Exit Strategies11. Exit Strategies




5

IntroductionIntroduction

The need for a solid market entry decision is anThe need for a solid market entry decision is anintegral part of a global market entry strategy.integral part of a global market entry strategy.

Entry decisions will heavily influence the firm¶sEntry decisions will heavily influence the firm¶s

other marketingother marketing--mix decisions.mix decisions. Global marketers have to make a multitude of Global marketers have to make a multitude of

decisions regarding the entry mode which maydecisions regarding the entry mode which mayinclude:include:

± ± (1) the target product/market(1) the target product/market ± ± (2) the goals of the target markets(2) the goals of the target markets

± ± (3) the mode of entry(3) the mode of entry




6

Introduction (contd.)Introduction (contd.)

± ± (4) The time of entry(4) The time of entry

± ± (5) A marketing(5) A marketing--mix planmix plan

± ± (6) A control system to check the performance(6) A control system to check the performancein the entered marketsin the entered markets




7

1. Target Market Selection1. Target Market Selection

A crucial step in developing a global expansionA crucial step in developing a global expansionstrategy is the selection of potential target marketsstrategy is the selection of potential target markets(see Exhibit 9(see Exhibit 9--1 for the entry decision process).1 for the entry decision process).

A four A four--step procedure for the initial screeningstep procedure for the initial screening process: process:

1. Select indicators and collect data1. Select indicators and collect data

2. Determine importance of country indicators2. Determine importance of country indicators

3. Rate the countries in the pool on each3. Rate the countries in the pool on each

indicator indicator

4. Compute overall score for each country4. Compute overall score for each country




8

2. Choosing the Mode of Entry2. Choosing the Mode of Entry

Decision Criteria for Mode of Entry (see ExhibitDecision Criteria for Mode of Entry (see Exhibit99--12):12):

± ± Market Size and GrowthMarket Size and Growth

± ± Risk Risk

± ± Government RegulationsGovernment Regulations

± ± Competitive EnvironmentCompetitive Environment

± ± Local InfrastructureLocal Infrastructure»» Classification of MarketsClassification of Markets::

Platform Countries (Singapore & HongPlatform Countries (Singapore & HongKong)Kong)




9

2. Choosing the Mode of Entry (contd.)2. Choosing the Mode of Entry (contd.)

Emerging Countries (Vietnam & theEmerging Countries (Vietnam & thePhilippines)Philippines)

Growth Countries (China & India)Growth Countries (China & India)

Maturing and established countriesMaturing and established countries(examples: South Korea, Taiwan &(examples: South Korea, Taiwan &Japan)Japan)

± ± Company ObjectivesCompany Objectives

± ± Need for Control Need for Control

± ± Internal Resources, Assets and CapabilitiesInternal Resources, Assets and Capabilities

± ± FlexibilityFlexibility




10

2. Choosing the Mode of Entry (contd.)2. Choosing the Mode of Entry (contd.)

Mode of Entry Choice: A Transaction CostMode of Entry Choice: A Transaction Cost

ExplanationExplanation

± ± Regarding entry modes, companies normallyRegarding entry modes, companies normally

face a tradeoff between the benefits of face a tradeoff between the benefits of

increased control and the costs of resourceincreased control and the costs of resource

commitment and risk.commitment and risk.

± ± Transaction Cost Analysis (TCA) perspectiveTransaction Cost Analysis (TCA) perspective ± ± TransactionTransaction--Specific Assets (assets valuable for Specific Assets (assets valuable for

a very narrow range of applications)a very narrow range of applications)




11

3. Exporting3. Exporting

Indirect ExportingIndirect Exporting

± ± Export management companiesExport management companies

Cooperative ExportingCooperative Exporting ± ± Piggyback ExportingPiggyback Exporting

Direct ExportingDirect Exporting

± ± Firms set up their own exporting departmentsFirms set up their own exporting departments




12

4. Licensing4. Licensing

Licensor and the licenseeLicensor and the licensee

BenefitsBenefits::

± ± Appealing to small companies that lack Appealing to small companies that lack

resourcesresources ± ± Faster access to the marketFaster access to the market

± ± Rapid penetration of the global marketsRapid penetration of the global markets

CaveatsCaveats::

± ± Other entry mode choices may be affectedOther entry mode choices may be affected

± ± Licensee may not be committedLicensee may not be committed

± ± Lack of enthusiasm on the part of a licenseeLack of enthusiasm on the part of a licensee



Chapter 9 Kotabe & Helsen's Global MarketingManagement, Third Edition, 2004 13

4. Licensing (contd.)4. Licensing (contd.)

± ± Biggest danger is the risk of opportunismBiggest danger is the risk of opportunism

± ± Licensee may become a future competitor Licensee may become a future competitor

How to seek a good licensing agreementHow to seek a good licensing agreement:: ± ± Seek patent or trademark protectionSeek patent or trademark protection

± ± Thorough profitability analysisThorough profitability analysis

± ± Careful selection of prospective licenseesCareful selection of prospective licensees

± ± Contract parameter (technology package, useContract parameter (technology package, use

conditions, compensation, and provisions for conditions, compensation, and provisions for

the settlement of disputes)the settlement of disputes)




5. Franchising5. Franchising

Franchisor and the franchiseeFranchisor and the franchisee

Master franchisingMaster franchising

BenefitsBenefits::

± ± Overseas expansion with a minimumOverseas expansion with a minimuminvestmentinvestment

± ± Franchisees¶ profits tied to their effortsFranchisees¶ profits tied to their efforts

± ± Availability of local franchisees¶ knowledgeAvailability of local franchisees¶ knowledge

CaveatsCaveats::

± ± Revenues may not be adequateRevenues may not be adequate

± ± Availability of a master franchiseeAvailability of a master franchisee




5. Franchising (contd.)5. Franchising (contd.)

± ± Limited franchising opportunities overseasLimited franchising opportunities overseas

± ± Lack of control over the franchisees¶ operationsLack of control over the franchisees¶ operations

± ± Problem in performance standardsProblem in performance standards ± ± Cultural problemsCultural problems

± ± Physical proximityPhysical proximity




6. Contract Manufacturing6. Contract Manufacturing

BenefitsBenefits::

± ± Labor cost advantagesLabor cost advantages

± ± Savings via taxation, lower energy costs, rawSavings via taxation, lower energy costs, raw

materials, and overheadsmaterials, and overheads

± ± Lower political and economic risk Lower political and economic risk

± ± Quicker access to marketsQuicker access to markets

CaveatsCaveats::

± ± Contract manufacturer may become a futureContract manufacturer may become a futurecompetitor competitor

± ± Lower productivity standardsLower productivity standards




6. Contract Manufacturing (contd.)6. Contract Manufacturing (contd.)

± ± Backlash from the company¶s homeBacklash from the company¶s home--marketmarketemployees regarding HR and labor issuesemployees regarding HR and labor issues

± ± Issues of quality and production standardsIssues of quality and production standards

Qualities of an ideal subcontractor:Qualities of an ideal subcontractor:

± ± Flexible/geared toward justFlexible/geared toward just--inin--time deliverytime delivery

± ± Able to meet quality standardsAble to meet quality standards

± ± Solid financial footingsSolid financial footings

± ± Able to integrate with company¶s businessAble to integrate with company¶s business

± ± Must have contingency plansMust have contingency plans




7. Joint Ventures7. Joint Ventures

Cooperative joint ventureCooperative joint venture

Equity joint ventureEquity joint venture

BenefitsBenefits::

± ± Higher rate of return and more control over theHigher rate of return and more control over theoperationsoperations

± ± Creation of synergyCreation of synergy

± ± Sharing of resourcesSharing of resources

± ± Access to distribution network Access to distribution network

± ± Contact with local suppliers and governmentContact with local suppliers and governmentofficialsofficials




7. Joint Ventures (contd.)7. Joint Ventures (contd.)

CaveatsCaveats::

± ± Lack of controlLack of control

± ± Lack of trustLack of trust

± ± Conflicts arising over matters such asConflicts arising over matters such asstrategies, resource allocation, transfer pricing,strategies, resource allocation, transfer pricing,ownership of critical assets like technologiesownership of critical assets like technologiesand brand namesand brand names

Drivers Behind Successful International JointDrivers Behind Successful International JointVenturesVentures ::

± ± Pick the right partner Pick the right partner




7. Joint Ventures (contd.)7. Joint Ventures (contd.)

± ± Establish clear objectives from the beginningEstablish clear objectives from the beginning

± ± Bridge cultural gapsBridge cultural gaps

± ± Gain top managerial commitment and respectGain top managerial commitment and respect ± ± Use incremental approachUse incremental approach




8. Wholly Owned Subsidiaries8. Wholly Owned Subsidiaries

AcquisitionsAcquisitions

Greenfield OperationsGreenfield Operations

BenefitsBenefits::

± ± Greater control and higher profitsGreater control and higher profits

± ± Strong commitment to the local market on theStrong commitment to the local market on the part of companies part of companies

± ± Allows the investor to manage and controlAllows the investor to manage and controlmarketing, production, and sourcing decisionsmarketing, production, and sourcing decisions

CaveatsCaveats::

± ± Risks of full ownershipRisks of full ownership




8. Wholly Owned Subsidiaries (contd.)8. Wholly Owned Subsidiaries (contd.)

± ± Developing a foreign presence without theDeveloping a foreign presence without the

support of a third partsupport of a third part

± ± Risk of nationalizationRisk of nationalization

± ± Issues of cultural and economic sovereignty of Issues of cultural and economic sovereignty of

the host countrythe host country

Acquisitions and MergersAcquisitions and Mergers

± ± Quick access to the local marketQuick access to the local market ± ± Good way to get access to the local brandsGood way to get access to the local brands




9. Strategic Alliances9. Strategic Alliances

Greenfield OperationsGreenfield Operations

± ± Offer the company more flexibility thanOffer the company more flexibility than

acquisitions in the areas of human resources,acquisitions in the areas of human resources,

suppliers, logistics, plant layout, andsuppliers, logistics, plant layout, and

manufacturing technology.manufacturing technology.

Types of Strategic AlliancesTypes of Strategic Alliances

± ± Simple licensing agreements between twoSimple licensing agreements between two partners partners

± ± MarketMarket--based alliances based alliances



Chapter 9 Kotabe & Helsen's Global Marketing

Management, Third Edition, 2004

25

9. Strategic Alliances (contd.)9. Strategic Alliances (contd.)

± ± Operations and logistics alliancesOperations and logistics alliances

± ± OperationsOperations--based alliances based alliances

The Logic Behind Strategic AlliancesThe Logic Behind Strategic Alliances

± ± DefendDefend

± ± CatchCatch--UpUp

± ± RemainRemain

± ± RestructureRestructure CrossCross--Border Alliances that Succeed:Border Alliances that Succeed:

± ± Alliances between strong and weak partnersAlliances between strong and weak partners





27


seldom work.seldom work.

± ± Autonomy and flexibilityAutonomy and flexibility

± ± Equal ownershipEqual ownership

± ± Other factors:Other factors:

»» Commitment and support of the top of theCommitment and support of the top of the

partners¶ organizations partners¶ organizations

»» Strong alliance managers are the keyStrong alliance managers are the key





28


»» Alliances between partners that are related inAlliances between partners that are related in

terms of products, technologies, and marketsterms of products, technologies, and markets

»» Similar cultures, assets sizes and venturingSimilar cultures, assets sizes and venturing

experienceexperience

»» A shared vision on goals and mutual benefitsA shared vision on goals and mutual benefits





29

10. Timing of Entry10. Timing of Entry

International market entry decisions should alsoInternational market entry decisions should also

cover the following timingcover the following timing--of of--entry issues:entry issues:

± ± When should the firm enter a foreign market?When should the firm enter a foreign market?

± ± Other important factors include: level of Other important factors include: level of

international experience, firm sizeinternational experience, firm size

± ± Mode of entry issues, market knowledge,Mode of entry issues, market knowledge,

various economic attractiveness variables, etc.various economic attractiveness variables, etc.





30

10. Timing of Entry (contd.)10. Timing of Entry (contd.)

Reasons for exitReasons for exit::

± ± Sustained lossesSustained losses

± ± VolatilityVolatility

± ± Premature entryPremature entry

± ± Ethical reasonsEthical reasons

± ± Intense competitionIntense competition

± ± Resource reallocationResource reallocation





31

11. Exit Strategies11. Exit Strategies

Risks of exitRisks of exit:: ± ± Fixed costs of exitFixed costs of exit

± ± Disposition of assetsDisposition of assets

± ± Signal to other marketsSignal to other markets

± ± LongLong--term opportunitiesterm opportunities

Guidelines:Guidelines:

± ± Contemplate and assess all options to salvageContemplate and assess all options to salvage

the foreign businessthe foreign business ± ± Incremental exitIncremental exit

± ± Migrate customersMigrate customers

Global Market Entry

Documents

Transcript of Global Market Entry