Entry Strategies in International Markets

Jostin S

Adi shankara Institute of Management and Technology

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Introduction

• The need for entering a foreign market is a strategic management decision.

• A firm may enter in overseas markets to prolong product life cycle. Products may be at a decline stage in the home market, but may have growing demand in overseas markets, especially in the least developed countries.

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Other factors

• Saturation in local markets.

• Competitors.

• New economic grounds.

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Introduction

• Global marketers have to make a multitude of decisions regarding the entry mode which may include: • the target product/market

• the goals of the target markets

• the mode of entry

• the time of entry

• a marketing-mix plan

• a control system to check the performance in the entered markets

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Target Market Selection

• A crucial step in developing a global expansion strategy is the selection of potential target markets.

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

1. Select indicators and collect data

2. Determine importance of country indicators

3. Rate the countries on each indicator

4. Compute overall score for each country5

Exporting

• Exporting is the process of selling of goods and services produced in one country to other countries.

• Export brings in revenue to the firm.

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Direct export

• Direct exports represent the most basic mode of exporting made by a (holding) company.

• Direct export works the best if the volumes are small. The main characteristic of direct exports entry model is that there are no intermediaries.

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Advantages

• Control over selection of foreign markets and choice of foreign representative companies

• Good information feedback from target market, developing better relationships with the buyers

• Better protection of trademarks, patents, goodwill, and other intangible property

• Potentially greater sales, and therefore greater profit, than with indirect exporting

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Disadvantages

• Higher start-up costs and higher risks as opposed to indirect exporting

• Requires higher investments of time, resources and personnel and also organisational changes

• Greater information requirements

• Longer time-to-market as opposed to indirect exporting

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Indirect export

• Indirect exports is the process of exporting through domestically based export intermediaries. The exporter has no control over its products in the foreign market.

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Advantages

• Fast market access

• Concentration of resources towards production

• No direct handle of export processes

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Disadvantages

• Higher risk than with direct exporting

• Little or no control over distribution, sales, marketing, etc. as opposed to direct exporting

• Inability to learn how to operate overseas

• Wrong choice of market and distributor may lead to inadequate market feedback affecting the international success of the company

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• Infosys

• Cipla ltd

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Licensing

• A firm in one country allows a firm in other country to use its intellectual property.

• The licensee will have to pay royalty to use the property.

• Benefits:

• Appealing to small companies that lack resources

• Faster access to the market

• Rapid penetration of the global markets

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Licensing

• Disadvantages :

• Licensee may not be committed

• Lack of enthusiasm on the part of a licensee

• Licensee may become a future competitor

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Licensing

• In India for CoCa Cola the bottling license is given to Hindustan coca cola beverages ltd.

• Covers approximately 65% of bottling operations for the Coca-Cola System in India.

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Franchising

• There will be a parent company ,who will allow an independent entity to do business in a prescribed form.

• Franchisor and the franchisee

• This right allows to use the franchisor’s product, name, production techniques, marketing techniques etc.

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• Benefits:

• Overseas expansion with a minimum investment

• Franchisees’ profits tied to their efforts

• Availability of local franchisees’ knowledge

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Franchising

• Drawbacks :• Revenues may not be adequate

• Limited franchising opportunities overseas

• Lack of control over the franchisees’ operations

• Problem in performance standards

• Cultural problems

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• Dominos pizza – managed by Jubilant foodworks ltd.

• Have rights to operate in India, Bangladesh, Sri lanka, Nepal.

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Contract Manufacturing

• A company does international marketing contract with firms in foreign countries to manufacture, assemble products while retaining the rights to market those products.

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Contract Manufacturing

• Benefits:

• Labor cost advantages

• Savings via taxation, lower energy costs, raw materials, and overheads

• Lower political and economic risk

• Quicker access to markets

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Contract Manufacturing

• Drawbacks :

• Contract manufacturer may become a future competitor

• Lower productivity standards

• Issues of quality and production standards

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Contract Manufacturing

Qualities of an ideal subcontractor:

• Flexible/geared toward just-in-time delivery

• Able to meet quality standards

• Solid financial footings

• Able to integrate with company’s business

• Must have contingency plans

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• Nike has a contract manufacturing for its textiles. The major part of clothing is prepared in Tirupur, India.

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Joint Ventures

• Cooperative joint venture• share revenues, expenses and assets. • both parties are equally invested in the

project in terms of money, time, and effort

• Benefits:• Higher rate of return and more control over the

operations• Sharing of resources• Access to distribution network• Contact with local suppliers and government officials

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Joint Ventures

• Drawback:

• Lack of control

• Lack of trust

• Conflicts arising over matters such as strategies, resource allocation, transfer pricing, ownership of critical assets like technologies and brand names

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Joint Ventures

• Drivers Behind Successful International Joint Ventures :

• Pick the right partner

• Establish clear objectives from the beginning

• Bridge cultural gaps

• Gain top managerial commitment and respect

• Use incremental approach28

• Bharti Walmart between bharti enterprises and walmart

• Sony-Ericsson is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones

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Mergers and Acquisitions

Provides instant access to markets and distribution network.

It is a corporate strategy of dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector

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• Benefits:

• Greater control and higher profits• Strong commitment to the local

market on the part of companies• Allows the investor to manage

and control marketing, production, and sourcing decisions

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• The take over of Land rover and Jaguar by TATA is an example.

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Timing of Entry

• International 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 size

• Mode of entry issues, market knowledge, various economic attractiveness variables, etc.

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Exiting a Market

• Reasons for exit:• Sustained losses

• Volatility

• Premature entry

• Ethical reasons

• Intense competition

• Resource reallocation

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Thank You

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