global entry strategies
TRANSCRIPT
Global Entry Strategies Presented by: Shashank Choudhary
Content
Global Entry Strategy
Major Issues In Global Entry
Political Issues
Rules Of Entry Mode Selection
Benefits Of Going Global
Factors Affecting Modes Of Entry
Global Market Entry Strategy
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Global Entry Strategy
A Global Entry Strategy is the planned method of delivering goods or services to a new target market and distributing them there. When importing or exporting services, it refers to establishing and managing contracts in a foreign country.
The need for a solid market entry decision is an integral part of a global market entry strategy.
Entry decisions will heavily influence the firm’s other marketing-mix decisions.
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Major Issues In Going Global
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 market
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Political Issues
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Political Issues
Political issues will be faced mostly by the companies who want to enter a country that with unsustainable political environment
A political decisions will affect the business environment in a country and affect the profitability of the business in the country
Organizations with investments in such opaque countries as Zimbabwe, Myanmar, and Vietnam have long-term experiences about how the political risk affects their business behaviors
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Examples of Political issues
1.The politically jailing of Mikhail Khodorkovsky, the business giant, in Russia
2. The "Open-door" policy of China
3.The Ukraine disputed elections resulting in the uncertain president recent years
4.The corrupt legal system in many countries, such as Russia
Contd.
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There are three different rules of entry based on the statement of Hollensen
1. Naïve rule
2. Pragmatic rule
3. Strategy rules
Besides these three rules, managers have their own ways to select entry modes
If the company could not generate a mature market research, the manager tend to choose the entry modes most suitable for the industry or make decisions by intuition
Rules Of Entry Mode Selection
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1. Naïve rule
The decision maker uses the same entry mode for all foreign markets
The companies use this rule as the entry mode selection ignore the differences of individual foreign markets
The performance of this selection could not be calculated, because it highly depends on the luck of the manager
Contd.
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2. Pragmatic rule
The decision maker uses a workable entry mode for each foreign market
which means that the manager use different entry modes depend on the time stage or the business stage
For example, as the first step to international business, companies tend to use exporting
Contd.
Contd.
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3. Strategy rules
This approach means that the company systematically compared all of the entry modes and evaluated the value before any choice is made
This approach is common in large firms, because the research requires resources, capital and time
It is rarely to see a small or medium-sized company use this approach
Contd.
Benefits Of Going Global
More Revenue Streams
A primary motive to become global is to gain access to new sources of revenue. Companies that have saturated their local markets and dried up growth opportunities close to home can turn to global expansion to grow their business. Successful navigation in multiple national markets provides a much broader customer base from which you can generate business.
Resources and Supplies
Global companies can use capital raised in other markets for further marketing and expansion. Plus, global companies also gain access to new materials and resources and have the ability to form strategic alliances around the globe. This leads to synergy as new relationships and suppliers are used to strengthen the global brand.
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Contd.
Market Development
Globalization also provides business some level of insulation from slumping performance in one country or region. In essence, global customer diversity spreads business risks across a broader customer base. This means that if the economy, supply issues, environment or government regulations in one country negatively affect the business, it can still find success in other countries.
Larger Talent Pool
While creating a strong global work culture is difficult, global companies have access to a much greater pool of talent. Many set up global work teams where marketing or human resources employees can collaborate with colleagues virtually throughout the company. Having diverse employees who can interact well with diverse populations and business partners is also an advantage.
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Contd.
Factors Affecting Modes Of Entry External Factors:
1. Market Size: An international marketer has to keep in mind when selecting an entry mode. Countries with a large market size justify the modes of entry with long-term commitment requiring higher level of investment
2. Market Growth: Most of the large, established markets, such as the US, Europe, and Japan, has more or less reached a point of saturation for consumer goods such as automobiles, consumer electronics. Therefore, the growth of markets in these countries is showing a declining trend
3. Government Regulations: The selection of a market entry mode is to a great extent affected by the legislative framework of the overseas market. The governments of most of the Gulf countries have made it mandatory for foreign firms to have a local partner
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Contd.
4. Level of Competition: Presence of competitors and their level of involvement in an overseas market is another crucial factor in deciding on an entry mode so as to effectively respond to competitive market forces
5. Physical Infrastructure: The level of development of physical infrastructure such as roads, railways, telecommunications, financial institutions, and marketing channels is a pre-condition for a company to commit more resources to an overseas market
6. Level of Risk: From the point of view of entry mode selection, a firm should evaluate the following risks:
a) Political Risk: Political instability and turmoil dissuades firms from committing more resources to a market.
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Contd.
b) Economic Risk: Economic risk may arise due to volatility of exchange rates of the target market’s currency, upheavals in balance of payments situations that may affect the cost of other inputs for production, and marketing activities in foreign markets. International companies find it difficult to manage their operations in markets wherein the inflation rate is extremely high.
c) Operational Risk: In case the marketing system in an overseas country is similar to that of the firm’s home country, the firm has a better understanding of operational problems in the foreign market.
7. Production and Shipping Costs: Markets with substantial cost of shipping as in the case of low-value high-volume goods may increase the logistics cost.
8. Lower Cost of Production: It may also be one of the key factors in firms deciding to establish manufacturing operations in foreign countries.
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Contd.
Internal Factors:
1. Company Objectives: Companies operating in domestic markets with limited aspirations generally enter foreign markets as a result of a reactive approach to international marketing opportunities
2. Availability of Company Resources: Venturing into international markets needs substantial commitment of financial and human resources and therefore choice of an entry mode depends upon the financial strength of a firm.
3. Level of Commitment: In view of the market potential, the willingness of the company to commit resources in a particular market also determines the entry mode choice. Companies need to evaluate various investment alternatives for allocating scarce resources
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Contd..
4. International Experience: A company well exposed to the dynamics of the international marketing environment would be at ease when making a decision regarding entering into international markets with a highly intensive mode of entry
5. Flexibility: Companies should also keep in mind exit barriers when entering international markets. A market which presently appears attractive may not necessarily continue to be so.
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Global Market Entry Strategies*
Trade Related Contractual Investment Entry
Exporting
Indirect
Piggy-Backing
DirectManagement
Contracts
Franchising Turn Key Projects
Licensing
Contract Manufacturing
Joint Venture
Mergers & Acquisitions
Foreign Direct
Investment
Over Seas Assembly
18GROUP NO.7 *Source: International Business by Rakesh Mohan Joshi(Pg No.443)
Strategic Alliance
Wholly Owned
Subsidiaries Countertrade
Trade Related Entry
Exporting Exporting is the most traditional and well established form of operating in foreign markets.
Exporting can be defined as the marketing of goods produced in one country into another. Whilst no direct manufacturing is required in an overseas country, significant investments in marketing are required.
The tendency may be not to obtain as much detailed marketing information as compared to manufacturing in marketing country;
Exporting commonly requires coordination between four players –
Exporter
Importer
Transport provider
Government
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Methods of exporting
Direct Exporting
In direct exporting the organisation may use an agent, distributor, or overseas subsidiary, or act via a Government agency.
The exporter's task is to choose a market, find a representative or agent, set up the physical distribution and documentation, promote and price the product.
Indirect Exporting
Indirect export is the process of exporting through domestically based export intermediaries. The exporter has no control over its products in the foreign market.
Piggy-Backing
This means using a company with an established export distribution system to sell your product as well as its own.
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Methods Of Direct Exporting
Agents
A representative that assists a business in transporting and/or selling their products in a foreign country. An export agent might be paid a sales commission by the company they represent or have distribution rights for a product within a specified region.
Overseas Distributors
Overseas distributors buy your goods from you and then sell them on in an overseas market. Distributors may expect heavy discounts and a long period of exclusivity, so you need to research and choose one with proven experience in your target market.
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Foreign Retailers
A company may also sell directly to a foreign retailer, although in such transactions, products are generally limited to consumer lines.. Many large retailers maintain overseas buying offices and use these offices to sell abroad when practicable.
Contd.
Direct Sales To End Users
A business may sell its products or services directly to end users in foreign countries. These buyers can be foreign governments; institutions such as hospitals, banks, and schools; or businesses. Buyers can be identified at trade shows, through international publications, or through government contact.
Counter Trade
Countertrade means exchanging goods or services which are paid for, in whole or part, with other goods or services, rather than with money. A monetary valuation can however be used in countertrade for accounting purposes. In dealings between sovereign states, the term bilateral trade is used.
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Methods Of Indirect Exporting
Export Management Companies (EMCs)
These are similar to ETCs in the way that they usually export for producers. Unlike ETCs, they rarely take on export credit risks and carry one type of product, not representing competing ones. Usually, EMCs trade on behalf of their suppliers as their export departments
Export Trading Companies (ETCs)
These provide support services of the entire export process for one or more suppliers. Attractive to suppliers that are not familiar with exporting as ETCs usually perform all the necessary work: locate overseas trading partners, present the product, quote on specific enquiries, etc.
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Export merchants are wholesale companies that buy unpackaged products from suppliers/manufacturers for resale overseas under their own brand names. The advantage of export merchants is promotion
Export Merchants
Direct exporting
Advantages
Control over selection of foreign markets and choice of foreign representative companies
Good information feedback from target market
Better protection of trademarks, patents, goodwill, and other intangible property
Potentially greater sales, and therefore greater profit
Disadvantages
Higher start-up costs and higher risks as opposed to indirect exporting
Requires higher investments of time, resources and personnel and also organizational changes
Greater information requirements
Longer time-to-market as opposed to indirect exporting
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Indirect exporting
Advantages
Fast market access Concentration of resources towards
production Little or no financial commitment. Low risk exists for companies who
consider their domestic market to be more important.
Export management is outsourced, alleviating pressure from management team
No direct handle of export processes
Disadvantages
Little or no control over distribution, sales, marketing, etc. as opposed to direct exporting
Wrong choice of distributor, and by effect, market, may lead to inadequate market feedback
Potentially lower sales as compared to direct exporting
Export partners that incorrectly select a specific distributor/market may hinder a firm's functional ability
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Piggy Backing
Advantages
You don’t have to have international experience yourself
Will gain fast entry to the international market
Will have little or no increased financial commitment.
Disadvantages
Having only a low level of control
Choosing the wrong market and the wrong distributor
Receiving inadequate market feedback
Achieving potentially lower sales
Erosion of your brand.
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Contractual Entry
Contractual Manufacturing
Contractual entry modes are better suited to intangible productsSince some products are intangible, companies can use a variety of
contractual entry modes to market to market highly specialized assets and skills in international markets
It Includes Licencing, franchising, manufacturing contracts, turnkey projects etc.
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Methods Of Contractual Manufacturing
Franchising
It is a system in which semi-independent business owners (franchisees) pay fees and royalties to a parent company (franchiser) in return for the right to become identified with its trademark, to sell its products or services
Manufacturing
Manufacturing is a contractual mode of market entry that can give your brand and company local manufacturing cost advantages whilst you still retain marketing, sales and distribution rights and responsibilities for your brand
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Contd.
Licensing Licensing is the contractual granting of intellectual property rights which could be in the form of technology, patents, or trademarks to brand usage. It is a low cost of entry mode and may lead to possible further direct investment with licensees down the line
Management contracts
Here, one company provides another company with managerial expertise for a specified period of time. Sectors that commonly use management contracts are utilities services
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Contd.
Turnkey Projects
A turnkey project refers to a project when clients pay contractors to design and construct new facilities and train personnel. A turnkey project is a way for a foreign company to export its process and technology to other countries by building a plant in that country.
Strategic Alliance
• A strategic alliance is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property.
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Franchising
Advantages
Low political risk
Low cost
Allows simultaneous expansion into different regions of the world
Well selected partners bring financial investment as well as managerial capabilities to the operation
Disadvantages Maintaining control over franchisee may be
difficult
Conflicts with franchisee are likely, including legal disputes
Preserving franchisor's image in the foreign market may be challenging
Requires monitoring and evaluating performance of franchisees, and providing ongoing assistance
Franchisees may take advantage of acquired knowledge and become competitors in the future
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Manufacturing
Advantages Saving in capital expenditure
Reduced upfront risk associated
Two-way technology transfer and learning
Intellectual property around your product composition or manufacturing process
Disadvantages
Communication Barriers
Dependence on Suppliers
If suppliers make poor choices, it could result in higher costs, declining product quality and inefficient production practices
The reputation of a company and its brands can be damaged by sending production abroad
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Licencing
Advantages
Obtain extra income for technical know-how and services
Reach new markets not accessible by export from existing facilities
Quickly expand without much risk and large capital investment
Pave the way for future investments in the market
Retain established markets closed by trade restrictions
Disadvantages
Lower income than in other entry modes
Loss of control of the licensee manufacture and marketing operations and practices leading to loss of quality
Risk of having the trademark and reputation ruined by an incompetent partner
The foreign partner can also become a competitor by selling its production in places where the parental company is already in
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Management Contracts
Advantages Benefit from hiring a contract
management company to handle the day-to-day details of your company
Responsibilities you can turn over to the management team
expertise of an entire management team that usually brings to the table experience in a number of management areas, such as employee tax codes, marketing and accounting.
Disadvantages Loss of privacy issue and rise of
confidential disputes. These contracts make the business expose to ethical breaches, fraud and public exposure
Management contract companies have the information of the business finance also. This puts the business in a vulnerable position
If a country is going through a political or social turmoil, the managers life is put at a risk to carry on the business in such a situation
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Turnkey Projects
Advantages Possibility for a company to establish a
plant and earn profits in a foreign country especially in which foreign direct investment opportunities are limited and lack of expertise in a specific area exists
Industrial companies that specialize in complex production technologies normally use turnkey projects as an entry strategy
Disadvantages Risk of revealing companies secrets to
rivals
Takeover of their plant by the host country
Entering a market with a turnkey project can prove that a company has no long-term interest in the country
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Strategic Alliance
Advantages
The partnerships allow the involved companies to offset their market exposure.
Using the partner´s distribution networks in combination with taking advantage of a good brand image can help a company to grow faster
Partnerships can help to lower costs, especially in non-profit areas like research & development.
Disadvantages
In a Strategic Alliance the partners must share resources and profits and often skills and know-how. This can be critical if business secrets are included in this knowledge
Focusing and committing is necessary to run a Strategic Alliance successfully but might discourage from taking other opportunities
Sometimes the decision powers are distributed very unevenly
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Investment Entry
Methods For Investment Entry
Overseas Assembly
The U.S. Bureau of Labor Statistics (BLS) defines outsourcing as "the movement of work that was formerly conducted in-house, by employees paid directly by a company, to a different company."
Foreign Direct Investment
Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans". In a narrow sense, foreign direct investment refers just to building new facility, a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor
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Contd..
Mergers & Acquisition
Mergers and acquisitions (M&A) are transactions in which the ownership of companies, other business organizations or their operating units are transferred or combined.
A merger is a legal consolidation of two entities into one entity
An acquisition occurs when one entity takes ownership of another entity's stock, equity interests or assets.
Joint Venture
A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance. Key elements of a joint venture's design include: 1) the number of parties; 2) the geographic, product, technology and value-chain scope within which the JV will operate; 3) the contributions of the parties; 4) the structural form
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Contd.
Wholly Owned Subsidiary
A wholly owned subsidiary includes: Greenfield investment and Acquisitions
Greenfield investment is high risk due to the costs of establishing a new business in a new country.
Acquisition has been increasing because it is a way to achieve greater market power
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Wholly Owned Subsidiaries
Advantages
Wholly-owned subsidiary reduces risk over losing control when there is technological competence.
Give firm tight control over operations in country- engage in strategic coordination with profits.
Can realize location & experience curve economies – centrally determined decisions
Disadvantages
Most costly method of market Entry.
Risk associated with learning to do business in a new culture
By applying acquisitions, some companies significantly increased their levels of debt which can have negative effects on the firms
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Overseas Assembly
Advantages
It ensures lower cost because of the availability of cheap overseas labor , land, etc.
Outsourced labor -- especially overseas labor -- often includes technically skilled, highly educated and multilingual workers
Disadvantages
Security is also generally less certain overseas than in the U.S., sometimes significantly so. Crime, terrorism, corruption and political instability can all cut into your bottom line.
Outsourcing your production, particularly overseas, usually means that you cede a certain amount of daily control to your contractor.
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Foreign Direct Investment
Advantages
Foreign direct investment can stimulate the target country’s economic development, creating a more conducive environment
Foreign direct investment creates new jobs, as investors build new companies in the target country, create new opportunities.
One big advantage brought about by FDI is the development of human capital resources
Can receive tax incentives
Disadvantages
As it focuses its resources elsewhere other than the investor’s home country, it can sometimes hinder domestic invest
Because political issues in other countries can instantly change, it is very risky.
It can affect exchange rates to the advantage of one country and the detriment of another.
Political changes can also lead to expropriation, which is a scenario where the government will have control over your property and assets. 45GROUP NO.7
Mergers & Acquisition
Advantages
Obtain control over the acquired firm such as factories and brand names
Integrate the management of the firm into its overall international strategy
Another advantage is Synergy, that is increased value efficiencies of the new entity
Economies of scale is formed by sharing the resources and services
Disadvantages
As a result of M&A, employees of the small merging firm may require exhaustive re-skilling.
Merging two firms that are doing similar activities may mean duplication and over capability within the company that may need retrenchments.
Increase in costs might result if the right management of modification and also the implementation of the merger and acquisition dealing are delayed.
The merger and acquisition (M&A) reduces flexibility. 46GROUP NO.7
Joint Venture
Advantages
Entering related businesses that previously presented high barriers to entry.
Gaining access to expertise without the need to hire more staff.
Leveraging existing technologies and patents developed by other companies.
Sharing the risk of high-leverage, but uncertain ventures.
Establishing a presence in new, untapped markets, including international opportunities.
Disadvantages
Setting unrealistic objectives that may not be completely clear in advance and not aligned to a common goal.
Coping with differing cultures, management styles, and working relationships that prevail in each company.
Managing communication with senior managers and employees in both companies
Making poor tactical decisions 47GROUP NO.7
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