chapter 07 slides - l5

8/6/2019 Chapter 07 Slides - L5

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Prepared by Kiefer Lee

Global Marketing

ManagementSecond Edition

Market Entry

Chapter Seven


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Learning Objectives

Consider the differenttheories ofinternationalization and theireffect on market entrystrategies

Examine the factors to beconsidered in the choice ofmarket entry strategies

Describe and discuss thedifferent types of market

entry modes Examine some of the critical

strategic considerations inmarket entry


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Determining Market Entry Strategy

The most significant international marketingdecision

Commitment of resources in every aspects

over a long period of time It signifies the companys attitude and

ambition in international markets

It determines the competitive position of the

company Degree of control over the entire

product/service offer, distribution, andprofitability (repatriation)


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Fig 7.1 The Effects of International marketenvironment on market entry decision

Decision on

entry strategy

and controlControl

Entry Mode

Socio-Economic Technological Legal

PoliticalCompetitive

Ethical


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Process of Internationalisation

Stages

Models

Born

GlobalNetworks

Market Entry ModesDirect or Indirect

ExportingFranchiseJoint Venture

Strategic Alliance FDI

Acquisition or

Merger

Corporate

Level

Country or

Market

Level

Fig. 7.2 Market Entry Strategy

Bargaining

Power

International Business ModelSubscription Network Effect

Multi-Level

Marketing

Razor and Blade AuctionMonopoly

TheoreticalApproach

Disintermediation Loyalty BusinessClicks and Mortar


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Process of Firms Internationalisation

The process that an organisation goes through to bean international (and ultimately a global) company

Lee and Carter (2005)

Tend to begin with experimental or tentative

attempts, then gradually increase commitment asexperience and knowledge improve

Not always a smooth, immutable path ofdevelopment de-internationalisation can occur atany time

Main Approaches: The Stage Models

Network

Born Global


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The Stage Models Process of internationalisation is

'incremental', 'gradual' and 'sequential'

Commitment increases as experience andlearning build up

Stage 1: No regular export activity

Stage 2: Export via independent representative

Stage 3: Establish own sales subsidiaries Stage 4: Overseas manufacturing

Concept of 'psychic distance'


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Fig 7.3 Internationalization Process

of Organizations

Market

Knowledge

Market

Commitment

State

Aspects

Commitment

Decisions

Current

Activities

Change

Aspects

Source: Based on Johansson and Vahlne (1990:12)


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The Network Perspective

Articulates how organisations make use ofbusiness networks as a 'mechanism' tointernationalisation

The networks may comprise customers,

customers' customers, competitors, suppliers,suppliers' suppliers, distributors, agents andconsultants

Similar to the 'Stages' models in thatcommitment is built up when expertise,knowledge and experience improve

Offer a clearer explanation of 'how'organisations can make a 'step change' in theinternationalisation process

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Fig 7.4 The Network Effect

The

FIRM

SCC

DC

SSCCDS

S1 D

CC

DC

SC

SCCCDSAS

CCD

DCA

SSC

SSCD

CCDCCSSCA

DDCA

SSCAC

SSCDCC

DCACC

DCA

DomesticNetworks

International

Networks

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The Born Globals

The recent increases in the number of 'instantinternational' or 'born global' companies (Jolly et.al.1992; Knight and cavusgil, 1996; McAuley, 1999)

Patterns of internationalisation do not conform to thetraditional approaches

Often have 'global outlook' from the beginning; andderive a large proportion of sales from internationalactivities

Enabling factors for 'born global': Changing consumer preferences and shortened PLC

demand for specialist and/or customised products/services(global niche)

Advances in affordable production technologies easier forsmall companies to customise

New communication and E-commerce (or e-deliverytechnologies)

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Other Theories of Internationalization

Transactional Cost Analysis Theory (TCA) Based on the premise that firms will

internationalize if they can perform a lowertransaction cost than if it exported or entered intoa local partnership

Assumes markets are competitive, with low controlentry methods

Assumes that cost is the ONLY driver of firmsbehaviour neglects relationships, loyalty andreciprocal obligation to local partners.

Eclectic Theory or Contingency Theory Built upon the assumption that ownership specific

factors and location specific costs have strongimpact on firms internationalization

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The Agency Approach Based on the principle of a contract where one

party delegates to another

E.g. franchising, licensing, joint ventures and

strategic alliances Decisions focus on (a) which mode to target

specific market and (b) how to evaluateperformance of the agent

The Business Strategy Approach Based on the organisation making a number

of trade-offs between the number of variablesin its internationalization and the methods it

adopts to do so



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The Bargaining Power (BP) Approach Sees the choice of entry mode as the outcome

of negotiations between the firm and the hostcountrys government

It explains the Japanese and other East Asianperspective on international expansionwhich often isnt transaction cost based

Eight important factors: Stake of the firm; stake of host country; need for

local contribution to the venture; riskiness ofinvestment; intensity of competition for investment;level of resource commitment; host governmentrestrictions; and size of the firm.



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Fig 7.5 Factors influencing the choice and importance ofmarket entry mode

Corporate

and MarketObjectives

Nature of

Market

Time

Horizon of

Payback

Financial,

Physical

and human

resources

Investment

and Market

Costs

Unique

Skills

Levels of

Risk and

Control

Previous

Experience

andExisting

Expertise

Competitiv

e advantage

Terms of

Entry

Workforce

attitude

Entry Mode

Flexibility

Ease of Exit

Timing

International

Life Cycle

Level of

InvolvementAdministrative

Requirements



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Principal Market Entry ModesInvolvement, Risk and Control

MarketingOriented

ContractualShared Ownedand Controlled

Wholly Ownedand Fully

Controlled

Direct ExportingAgentsDistributorsE-CommerceE-BusinessInteractive TV

LicensingFranchisingContract ManufactureAlliancesManagement servicecontract

Joint venturesPartial mergers andacquisitions

SubsidiariesRepresentativesAssembly

Indirect ExportingVia domesticorganisationsTrading companiesExport housesPiggy backing



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Market Entry ModesCriteria for Selection

The company objectives and expectationsrelating to the size and value of anticipatedbusiness

The size and financial resources of thecompany

Existing foreign market involvement

The skills, abilities and attitudes of the

company management towards internationalmarketing

The nature and power of the competitionwithin the market



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Collaborative ventures

Platforms (FIAT 500 & new FORD Ka)economies of scope;

FIAT & FORD: shared production facilities (Poland)

Engine development (PSA and BMW)Escalating R & D costs will stimulate further collaborative

activity in the automobile sector

chapter 07 slides - l5

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