EMERGING MARKET ENTRY STRATEGIES

EMERGING MARKET ENTRY STRATEGIES

Overview

21. Target Market Selection2. Choosing the Mode of Entry3. Exporting4. Licensing5. Franchising6. Contract Manufacturing7. Joint Ventures8. Wholly Owned Subsidiaries9. Strategic Alliances10. Timing of Entry11. Exit Strategies

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Introduction

3The need for a solid market entry decision is an integral part of a global market entry strategy.Entry decisions will heavily influence the firms other marketing-mix decisions.Global marketers have to make a multitude of decisions regarding the entry mode which may include: (1) the target product/market(2) the goals of the target markets(3) the mode of entry(4) The time of entry(5) A marketing-mix plan(6) A control system to check the performance in the entered markets

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1. Selecting the Target Market

4A crucial step in developing a global expansion strategy is the selection of potential target markets (see Exhibit 9-1 for the entry decision process).A four-step procedure for the initial screening process:1. Select indicators and collect data2. Determine importance of country indicators3. Rate the countries in the pool on each indicator4. Compute overall score for each country

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1. Selecting the Target MarketChapter 9Copyright (c) 2007 John Wiley & Sons, Inc.5

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2. Choosing the Mode of Entry

.6Decision Criteria for Mode of Entry:Market Size and GrowthRiskGovernment RegulationsCompetitive Environment/Cultural DistanceLocal Infrastructure

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2. Choosing the Mode of Entry

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2. Choosing the Mode of Entry

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2. Choosing the Mode of Entry

9Classification of Markets:Platform Countries (Singapore & Hong Kong)Emerging Countries (Vietnam & the Philippines)Growth Countries (China & India)Maturing and established countries (examples: South Korea, Taiwan & Japan)Company ObjectivesNeed for ControlInternal Resources, Assets and CapabilitiesFlexibility

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2. Choosing the Mode of Entry

10Mode of Entry Choice: A Transaction Cost ExplanationRegarding entry modes, companies normally face a tradeoff between the benefits of increased control and the costs of resource commitment and risk.Transaction Cost Analysis (TCA) perspectiveTransaction-Specific Assets (assets valuable for a very narrow range of applications)

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3. Exporting

11Indirect Exporting Export merchantsExport agentsExport management companies (EMC)Cooperative ExportingPiggyback Exporting (Piggybackis a form of distribution in foreign markets in which a SME company (the rider), deals with a larger company (the carrier) which already operates in certain foreign markets and is willing to act on behalf of the rider that whishes toexportto those markets.)Direct ExportingFirms set up their own exporting departments

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4. Licensing

12Licensor and the licenseeBenefits:Appealing to small companies that lack resourcesFaster access to the marketRapid penetration of the global marketsCaveats:Other entry mode choices may be affectedLicensee may not be committedLack of enthusiasm on the part of a licenseeBiggest danger is the risk of opportunismLicensee may become a future competitor

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5. Franchising

13Franchisor and the franchiseeMaster franchisingBenefits:Overseas expansion with a minimum investmentFranchisees profits tied to their effortsAvailability of local franchisees knowledgeCaveats:Revenues may not be adequateAvailability of a master franchiseeLimited franchising opportunities overseasLack of control over the franchisees operationsProblem in performance standardsCultural problemsPhysical proximity

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6. Contract Manufacturing (Outsourcing)

14Benefits:Labor cost advantagesSavings via taxation, lower energy costs, raw materials, and overheadsLower political and economic riskQuicker access to marketsCaveats:Contract manufacturer may become a future competitorLower productivity standardsBacklash from the companys home-market employees regarding HR and labor issuesIssues of quality and production standards

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6. Contract Manufacturing (Outsourcing)

15Qualities of an ideal subcontractor:Flexible/geared toward just-in-time deliveryAble to meet quality standardsSolid financial footingsAble to integrate with companys businessMust have contingency plans

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7. Expanding through Joint Ventures

16Cooperative joint ventureEquity joint ventureBenefits:Higher rate of return and more control over the operationsCreation of synergySharing of resourcesAccess to distribution networkContact with local suppliers and government officials

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7. Expanding through Joint Ventures

17Caveats:Lack of controlLack of trustConflicts arising over matters such as strategies, resource allocation, transfer pricing, ownership of critical assets like technologies and brand names

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7. Expanding through Joint Ventures

.18Drivers Behind Successful International Joint Ventures :Pick the right partnerEstablish clear objectives from the beginningBridge cultural gapsGain top managerial commitment and respectUse incremental approachCreate a launch team during the launch phase:(1) Build and maintain strategic alignment(2) Create a governance system(3) Manage the economic interdependencies(4) Build the organization for the joint venture

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8. Entering New Markets through Wholly Owned Subsidiaries

19AcquisitionsGreenfield Operations (A green field investment is a form offoreign direct investmentwhere aparent companystarts a new venture in a foreign country by constructing new operational facilities from the ground up. Eg. Coca-cola, Starbucks)Benefits:Greater control and higher profitsStrong commitment to the local market on the part of companiesAllows the investor to manage and control marketing, production, and sourcing decisions

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8. Entering New Markets through Wholly Owned Subsidiaries

.20Caveats:Risks of full ownershipDeveloping a foreign presence without the support of a third partRisk of nationalizationIssues of cultural and economic sovereignty of the host country

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8. Entering New Markets through Wholly Owned Subsidiaries

.21Acquisitions and MergersQuick access to the local marketGood way to get access to the local brands

Greenfield OperationsOffer the company more flexibility than acquisitions in the areas of human resources, suppliers, logistics, plant layout, and manufacturing technology.

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9. Creating Strategic Alliances

22Types of Strategic Alliances Simple licensing agreements between two partnersMarket-based alliances Operations and logistics alliancesOperations-based alliances

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9. Creating Strategic Alliances

23The Logic Behind Strategic Alliances DefendCatch-Up RemainRestructure

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9. Creating Strategic Alliances

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9. Creating Strategic Alliances

25Cross-Border Alliances that Succeed:Alliances between strong and weak partners seldom work.Autonomy and flexibilityEqual ownership

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10. Timing of Entry

26International 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 sizeAlso, the broader the scope of products and servicesMode of entry issues, market knowledge, various economic attractiveness variables, etc.

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10. Timing of Entry

27Reasons for exit:Sustained lossesVolatilityPremature entryEthical reasonsIntense competitionResource reallocation

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11. Exit Strategies

.28Risks of exit:Fixed costs of exitDisposition of assetsSignal to other marketsLong-term opportunitiesGuidelines:Contemplate and assess all options to salvage the foreign businessIncremental exitMigrate customers

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