Entry StrategiesInternational Business

Prepared By

Manu Melwin Joy

Assistant ProfessorIlahia School of Management Studies

Kerala, India.

Phone – 9744551114Mail – manu_melwinjoy@yahoo.com

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Entry Strategies

• Market entrystrategy isinfluenced by thefirm and productcharacteristics andthe domestic andinternational marketcharacteristics.

Foreign Market Entry and Operations Strategies

Exporting

• Direct Exporting.

• Indirect Exporting.

Contractual Agreement

• Licensing & Franchising.

• Strategic Alliance.

• Contract Manufacturing.

Production facility in foreign

market.

• Assembly Operations.• Wholly owned

manufacturing facility.• Joint Ventures.

Mergers and Acquisitions

Direct exporting

In direct exporting,the firm becomesdirectly involved inmarketing itsproducts in foreignmarkets, because thefirm itself performsthe export task(rather thandelegating it toothers).

Direct exportingTo implement a direct exportingstrategy, the firm must haverepresentation in the foreignmarkets. This can be achieved in anumber of ways:– Sending international sales

representatives into the foreignmarket.

– Selecting local representatives oragents to prospect the market.

– Using independent local distributorswho will buy the products to resellthem in the local market.

– Creating a fully owned commercialsubsidiary to have a greater controlover foreign operations.

Indirect exporting

The market-entrytechnique that offers thelowest level of risk and theleast market control isindirect export, in whichproducts are carriedabroad by others. The firmis not engaging ininternational marketingand no special activity iscarried on within the firm;the sale is handled likedomestic sales

Indirect exportingThere are several differentmethods of indirectexporting:– The simplest method is to deal

with foreign sales through thedomestic sales organisation.

– A second form of indirectexporting is the use ofinternational tradingcompanies with local officesall over the world.

– A third form of indirectexporting is the exportmanagement companylocated in the same country asthe producing firm and whichplays the role of an exportdepartment.

Example

The mumbai basedAmerican Dry Fruits(ADF) which beganselling a range ofpackaged foods likedChutneys, Spices,Canned vegetables,ready to eat dals, etcunder different brandnames later moved toother countries withlarge Indian population.

Licensing & Franchising

Licensing is another wayto enter a foreign marketwith a limited degree ofrisk. Under internationalLicensing, a firm in onecountry permits a firm inanother country to useits intellectual property(Patents, trade marksetc).

Licensing & Franchising

Franchising is a business modelin which many differentowners share a single brandname. A parent companyallows entrepreneurs to usethe company's strategies andtrademarks; in exchange, thefranchisee pays an initial feeand royalties based onrevenues. The parent companyalso provides the franchiseewith support, includingadvertising and training, aspart of the franchisingagreement.

Licensing & Franchising

Licensing is similar tofranchising except thatthe franchisingorganisation tends to bemore directly involved inthe development andcontrol of the marketingprogramme.

Licensing & Franchising

The major drawback oflicensing is the problem ofcontrolling the licenseedue to the absence ofdirect commitment fromthe international firmgranting the licence. Afterfew years, once the know-how is transferred, there isa risk that the foreign firmmay begin to act on itsown and the internationalfirm may therefore losethat market.

ExampleITC Hotels and ITTSheraton corporation hadan agreement under whichITC Hotel’s Welcom groupfranchised two of its hotelsin Bangkok and Hong kongto ITT Sheraton holding, inexchange, the franchise forSheraton in India. Later,partners decided to set upa joint venture withSheraton having majorstake to manage all newITC hotel projects in India.

Strategic Alliance

It is an arrangementbetween two companiesthat have decided to shareresources to undertake aspecific, mutuallybeneficial project. Astrategic alliance is lessinvolved and lesspermanent than a jointventure, in which twocompanies typically poolresources to create aseparate business entity.

Strategic Alliance

In a strategic alliance,each company maintainsits autonomy whilegaining a newopportunity. A strategicalliance could help acompany develop a moreeffective process, expandinto a new market ordevelop an advantageover a competitor,among otherpossibilities.

ExampleAn oil and natural gascompany might form astrategic alliance with aresearch laboratory todevelop more commerciallyviable recovery processes. Aclothing retailer might forma strategic alliance with asingle clothingmanufacturer to ensureconsistent quality andsizing. A major websitecould form a strategicalliance with an analyticscompany to improve itsmarketing efforts.

Contract ManufacturingIn contractmanufacturing, the firm’sproduct is produced inthe foreign market bylocal producer undercontract with the firm.Because the contractcovers onlymanufacturing, marketingis handled by a salessubsidiary of the firmwhich keeps the marketcontrol.

Contract ManufacturingContract manufacturingobviates the need for plantinvestment, transportationcosts and custom tariffs andthe firm gets the advantageof advertising its product aslocally made. Contractmanufacturing also enablesthe firm to avoid labour andother problems that mayarise from its lack offamiliarity with the localeconomy and culture.

ExampleBalsara’s private labelmanufacturing activity isfocused on the supply ofchildren’s toothpasteformulations. Balsara’sempahsis on Private lableproducts and contractmanufacturing hasresulted in increasedbusiness from NorthAmerican and EuropeanMarkets.

Assembly OperationsAssembling is acompromise betweenexporting and foreignmanufacturing. The firmproduces domestically allor most of thecomponents oringredients of its productand ships them to foreignmarkets to be puttogether as a finishedproduct.

Assembly OperationsBy shipping CKD(completely knockeddown), the firm is saving ontransportation costs andalso on custom tariffs whichare generally lower onunassembled equipmentthan on finished products.Another benefit is the useof local employment whichfacilitates the integration ofthe firm in the foreignmarket.

Example

Notable examples of

foreign assembly are the

automobile and farm

equipment industries. In

similar fashion, Coca-Cola

ships its syrup to foreign

markets where local bottle

plants add the water and

the container.

Wholly owned manufacturing facility.

Companies with long termand substantial interest inthe foreign market normallyestablish wholly ownedmanufacturing facilitiesthere. A number of factorslike trade barriers,difference in the productionand other costs encouragethe establishment ofproduction facilities in theforeign markets.

Joint VenturesForeign joint ventures havemuch in common withlicensing. The majordifference is that in jointventures, the internationalfirm has an equity positionand a management voice inthe foreign firm. Apartnership between host-and home-country firms isformed, usually resulting inthe creation of a third firm.

Mergers and AcquisitionsFrom a legal point of view,a merger is a legalconsolidation of twocompanies into oneentity, whereas anacquisition occurs whenone company takes overanother and completelyestablishes itself as thenew owner