global market entry strategies: export marketing & licensing, investment, strategic alliances

Global Market Entry Strategies:

Export Marketing & Licensing, Investment,

Strategic Alliances

©2011 Pearson Education, Inc.

Global Market Entry


Introduction : Export Selling vs. Export Marketing

• Export selling involves selling the same product, at the same price, with the same promotional tools in a different place

• Export marketing tailors the marketing mix to international customers

the integrated marketing of goods and services that are destined for customers in international markets


Requirements for Export Marketing

• An understanding of the target market environment

• The use of market research and identification of market potential

• Decisions concerning product design, pricing, distribution and channels, advertising, and communications


Organizational Export Activities

1. The firm is unwilling to export; it will not even fill an unsolicited export order

2. The firm fills unsolicited export orders but does not pursue unsolicited orders. Such a firm is an export seller.

3. The firm explores the feasibility of exporting (this stage may bypass stage 2).

4. The firm exports to one or more markets on a trial basis.


Organizational Export Activities

5. The firm is an experienced exporter to one or more markets

6. After this success, the firm pursues country- or region-focused marketing based on certain criteria

7. The firm evaluates global market potential before screening for the “best” target markets to include in its marketing strategy and plan


Potential Export Problems


National Policies Governing Exports and Imports

• Most nations encourage exports and restrict imports

• Goods and services imported into the U.S. almost doubled in seven years

• In 2008, the total was $2.5 trillion


Share of U.S. Apparel Market by

Exporting Country, 20081. China 35.4

2. India 5.6

3. Mexico 5.5

4. Vietnam 5.3

5. Indonesia 4.3

6. Bangladesh 3.6

7. Pakistan 3.2

8. Honduras 2.7

9. Cambodia 2.4

10. Italy 2.4


Government Programs that Support Exports

• Tax incentives• Subsidies• Governmental

assistance• Free trade zones

The Miami Free Trade Zone, near the airport and port of Miami, manages

transactions of over $1 billion of trade a year.


Governmental Actions to Discourage Imports and Block Market Access

• Tariffs• Import controls• Nontariff barriers ğ any measure other

than a tariff that is a deterrent or obstacle to the sale of products in a foreign market. – Quotas– Discriminatory procurement policies– Restrictive customs procedures– Arbitrary monetary policies– Restrictive regulations


Tariff Systems

• Single-column tariff – Simplest type of tariff– Schedule of duties in which rate

applies to imports from all countries on the same basis

• Two-column tariff– General duties plus special duties

apply


Preferential Tariff

• Reduced tariff rate applied to imports from certain countries

• GATT prohibits the use, with three exceptions:– Historical preference arrangements already

existed– Preference is part of formal economic

integration treaty– Industrial countries are permitted to grant

preferential market access to LDCs


Customs Duties

• Ad valorem duty– Expressed as percentage of value of

goods• Specific duty

– Expressed as specific amount of currency per unit of weight, volume, length, or other unit of measurement

• Compound or mixed duties– Apply both ad valorem and specific on the

same items


Other Duties and Import Charges

• Anti-dumping Duties– Dumping is the sale of merchandise in

export markets at unfair prices– Special import charges equal to the

dumping margin

• Countervailing Duties: additional duties levied to offset subsidies granted in the exporting country.


Other Duties and Import Charges

• Variable import levies: applies to certain categories of imported agricultural products.– If prices of imported products would undercut those

of domestic products, the effect of these levies would be to raise the price of imported products to the domestic price level.

• Temporary surcharges: introduced from time to time by certain countries, to provide additional protection for local industry and, in particular, in response to balance-of-payments deficits.


Key Export Participants

• Foreign purchasing agents

• Export brokers• Export merchants • Export

management companies

• Export distributor• Export

commission representative

• Cooperative exporter

• Freight forwarders• Manufacturer’s

export representatives


Organizing for Exporting in the Manufacturer’s Country

• Exports can be handled – As a part-time activity performed by

domestic employees– Through an export partner – Through an export department– Through an export department within

an international division– For multi-divisional companies; each

possibility exists for each division


Organizing for Exporting in the Market Country

• Direct market representation– Advantages: control and

communications

• Representation by independent intermediaries– Advantages: best for situations with

small sales volume


Appendix --Useful links for exporting

activities


Undersecretariat of the Prime Ministry for Foreign Trade (www.dtm.gov.tr)


www.dtm.gov.tr


Export Promotion Center (İhracatı Geliştirme Merkezi - www.igeme.org.tr)


Exporter Unions (İhracatçı Birlikleri)


Istanbul Exporter Unions (www.iib.org.tr)


İstanbul Tekstil ve Konfeksiyon İhracatçı Birlikleri (www.itkib.org.tr)


İstanbul Maden ve Metaller İhracatçı Birlikleri (www.immib.org.tr)


Market Entry Modes

• Trade barriers are falling around the world

• Companies need to have a strategy to enter world markets

• Starbucks has used direct ownership, licensing, and franchising for shops and products

In 2008, Starbucks had 12,000 cafes in 35 countries and sales of $10.8

billion.


9-35

Investment Cost of Market Entry Strategies


Which Strategy Should Be Used?

• It depends on:– Vision– Attitude toward risk– Available investment

capital – How much control is

desired


Licensing

• A contractual agreement whereby one company -the licensor- makes an asset available to another company -the licensee - in exchange for royalties, license fees, or some other form of compensation– Patent– Trade secret– Brand name– Product formulations


Advantages to Licensing

• Provides additional profitability with little initial investment

• Provides method of circumventing tariffs, quotas, and other export barriers

• Attractive ROI• Low costs to implement• License agreements should have cross-

technology agreements to inequities


Disadvantages to Licensing

• Limited participation• Returns may be lost• Lack of control• Licensee may become competitor• Licensee may exploit company

resources


Special Licensing Arrangements

• Contract manufacturing– Company provides technical specifications to a

subcontractor or local manufacturer– Allows company to specialize in product design

while contractors accept responsibility for manufacturing facilities

• Franchising– Contract between a parent company-franchisor and

a franchisee that allows the franchisee to operate a business developed by the franchisor in return for a fee and adherence to franchise-wide policies


9-41

Worldwide Franchise Activity


Franchising Questions

• Will local consumers buy your product?• How tough is the local competition?• Does the government respect trademark and

franchiser rights?• Can your profits be easily repatriated?• Can you buy all the supplies you need locally?• Is commercial space available and are rents

affordable?• Are your local partners financially sound and

do they understand the basics of franchising?


Investment

• Partial or full ownership of operations outside of home country – Foreign Direct Investment

•Forms–Joint ventures

–Minority or majority equity

stakes–Outright

acquisitionIKEA, with affordable furniture and housewares, spent $2 billion in Russia.


Joint Ventures

• Entry strategy for a single target country in which the partners share ownership of a newly-created business entity

• Builds upon each partner’s strengths

– Examples: Budweiser and Kirin (Japan), GM and Toyota, GM and Russian government, Ericsson’s cell phones and Sony, Ford and Mazda, Chrysler and BMW


Joint Ventures

• Advantages– Allows for risk sharing–

financial and political– Provides opportunity

to learn new environment

– Provides opportunity to achieve synergy by combining strengths of partners

– May be the only way to enter market given barriers to entry

• Disadvantages– Requires more

investment than a licensing agreement

– Must share rewards as well as risks

– Requires strong coordination

– Potential for conflict among partners

– Partner may become a competitor


Investment viaDirect Foreign Investment

• Start-up of new operations– Greenfield operations or – Greenfield investment

• Merger with an existing enterprise• Acquisition of an existing enterprise

– Examples: Volkswagen, 70% stake in Skoda Motors, Czech Republic (equity), Honda, $550 million auto assembly plant in Indiana (new operations)


Global Strategic Partnerships

• Possible terms:– Collaborative

agreements– Strategic alliances– Strategic

international alliances

– Global strategic partnerships

The Star Alliance is a GSP


The Nature of Global Strategic Partnerships


The Nature of Global Strategic Partnerships

• Participants remain independent following formation of the alliance

• Participants share benefits of alliance as well as control over performance of assigned tasks

• Participants make ongoing contributions in technology, products, and other key strategic areas


Five Attributes of True Global Strategic Partnerships

1. Two or more companies develop a joint long-term strategy

2. Relationship is reciprocal3. Partners’ vision and efforts are global4. Relationship is organized along

horizontal lines (not vertical)5. When competing in markets not

covered by alliance, participants retain national and ideological identities


Success Factors of Alliances

• Mission: Successful GSPs create win-win situations, where participants pursue objectives on the basis of mutual need or advantage.

• Strategy: A company may establish separate GSPs with different partners; strategy must be thought out up front to avoid conflicts.

• Governance: Discussion and consensus must be the norms. Partners must be viewed as equals.


Success Factors

• Culture: Personal chemistry is important, as is the successful development of a shared set of values.

• Organization: Innovative structures and designs may be needed to offset the complexity of multi-country management.

• Management: Potentially divisive issues must be identified in advance and clear, unitary lines of authority established that will result in commitment by all partners.


Alliances with Asian Competitors

• Four common problem areas– Each partner had a different dream– Each must contribute to the alliance

and each must depend on the other to a degree that justifies the alliance

– Differences in management philosophy, expectations, and approaches

– No corporate memory


Cooperative Strategies in Japan: Keiretsu

• Inter-business alliance or enterprise groups in which business families join together to fight for market share

• Often cemented by bank ownership of large blocks of stock and by cross-ownership of stock between a company and its buyers and non-financial suppliers

• Keiretsu executives can legally sit on each other’s boards, share information, and coordinate prices


Cooperative Strategies in South Korea: Chaebol

• Composed of dozens of companies, centered around a bank or holding company, and dominated by a founding family– Samsung– LG– Hyundai– Daewoo


21st Century Cooperative Strategies: Targeting the Digital Future

• Alliances between companies in several industries that are undergoing transformation and convergence– Computers– Communications– Consumer electronics– Entertainment


Beyond Strategic Alliances

• Next stage of evolution of the strategic alliance– Super-alliance– Virtual corporation


Market Expansion Strategies

• Companies must decide to expand by:– Seeking new markets in existing countries– Seeking new country markets for already

identified and served market segments

global market entry strategies: export marketing & licensing, investment, strategic alliances

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