global marketing - entry strategies

Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004

1

Global Marketing ManagementGlobal Marketing Management

Masaaki Kotabe & Kristiaan HelsenMasaaki Kotabe & Kristiaan HelsenThird EditionThird Edition

John Wiley & Sons, Inc., 2004John Wiley & Sons, Inc., 2004


2

Chapter 9Chapter 9

Global Market-Entry StrategiesGlobal Market-Entry Strategies


3

Chapter OverviewChapter Overview

1. Target Market Selection1. Target Market Selection2. Choosing the Mode of Entry2. Choosing the Mode of Entry3. Exporting3. Exporting4. Licensing4. Licensing5. Franchising5. Franchising6. Contract Manufacturing6. Contract Manufacturing7. Joint Ventures7. Joint Ventures8. Wholly Owned Subsidiaries8. Wholly Owned Subsidiaries


4

Chapter Overview (contd.)Chapter Overview (contd.)

9. Strategic Alliances9. Strategic Alliances10. Timing of Entry10. Timing of Entry11. Exit Strategies11. Exit Strategies


5

IntroductionIntroduction

The need for a solid market entry decision is an The need for a solid market entry decision is an integral part of a global market entry strategy.integral part of a global market entry strategy.

Entry decisions will heavily influence the firm’s Entry decisions will heavily influence the firm’s other marketing-mix decisions.other marketing-mix decisions.

Global marketers have to make a multitude of Global marketers have to make a multitude of decisions regarding the entry mode which may decisions regarding the entry mode which may include: include: – (1) the target product/market(1) the target product/market– (2) the goals of the target markets(2) the goals of the target markets– (3) the mode of entry(3) the mode of entry


6

Introduction (contd.)Introduction (contd.)

– (4) The time of entry(4) The time of entry– (5) A marketing-mix plan(5) A marketing-mix plan– (6) A control system to check the performance (6) A control system to check the performance

in the entered marketsin the entered markets


7

1. Target Market Selection1. Target Market Selection

A crucial step in developing a global expansion A crucial step in developing a global expansion strategy is the selection of potential target markets strategy is the selection of potential target markets (see Exhibit 9-1 for the entry decision process).(see Exhibit 9-1 for the entry decision process).

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

1. Select indicators and collect data1. Select indicators and collect data2. Determine importance of country indicators2. Determine importance of country indicators3. Rate the countries in the pool on each3. Rate the countries in the pool on each

indicatorindicator4. Compute overall score for each country4. Compute overall score for each country


8

2. Choosing the Mode of Entry2. Choosing the Mode of Entry

Decision Criteria for Mode of Entry (see Exhibit 9-Decision Criteria for Mode of Entry (see Exhibit 9-12):12):– Market Size and GrowthMarket Size and Growth– RiskRisk– Government RegulationsGovernment Regulations– Competitive EnvironmentCompetitive Environment– Local InfrastructureLocal Infrastructure

» Classification of MarketsClassification of Markets::Platform Countries (Singapore & Hong Platform Countries (Singapore & Hong

Kong)Kong)


9

2. Choosing the Mode of Entry (contd.)2. Choosing the Mode of Entry (contd.)

Emerging Countries (Vietnam & the Emerging Countries (Vietnam & the Philippines)Philippines)

Growth Countries (China & India)Growth Countries (China & India)Maturing and established countries Maturing and established countries

(examples: South Korea, Taiwan & (examples: South Korea, Taiwan & Japan)Japan)

– Company ObjectivesCompany Objectives– Need for ControlNeed for Control– Internal Resources, Assets and CapabilitiesInternal Resources, Assets and Capabilities– FlexibilityFlexibility


10

2. Choosing the Mode of Entry (contd.)2. Choosing the Mode of Entry (contd.)

Mode of Entry Choice: A Transaction Cost Mode of Entry Choice: A Transaction Cost ExplanationExplanation– Regarding entry modes, companies normally Regarding entry modes, companies normally

face a tradeoff between the benefits of face a tradeoff between the benefits of increased control and the costs of resource increased control and the costs of resource commitment and risk.commitment and risk.

– Transaction Cost Analysis (TCA) perspectiveTransaction Cost Analysis (TCA) perspective– Transaction-Specific Assets (assets valuable for Transaction-Specific Assets (assets valuable for

a very narrow range of applications)a very narrow range of applications)


11

3. Exporting3. Exporting

Indirect ExportingIndirect Exporting– Export management companiesExport management companies

Cooperative ExportingCooperative Exporting– Piggyback ExportingPiggyback Exporting

Direct ExportingDirect Exporting– Firms set up their own exporting departmentsFirms set up their own exporting departments


12

4. Licensing4. Licensing Licensor and the licenseeLicensor and the licensee BenefitsBenefits::

– Appealing to small companies that lack Appealing to small companies that lack resourcesresources

– Faster access to the marketFaster access to the market– Rapid penetration of the global marketsRapid penetration of the global markets

CaveatsCaveats::– Other entry mode choices may be affectedOther entry mode choices may be affected– Licensee may not be committedLicensee may not be committed– Lack of enthusiasm on the part of a licenseeLack of enthusiasm on the part of a licensee


13

4. Licensing (contd.)4. Licensing (contd.)

– Biggest danger is the risk of opportunismBiggest danger is the risk of opportunism– Licensee may become a future competitorLicensee may become a future competitor

How to seek a good licensing agreementHow to seek a good licensing agreement::– Seek patent or trademark protectionSeek patent or trademark protection– Thorough profitability analysisThorough profitability analysis– Careful selection of prospective licenseesCareful selection of prospective licensees– Contract parameter (technology package, use Contract parameter (technology package, use

conditions, compensation, and provisions for conditions, compensation, and provisions for the settlement of disputes)the settlement of disputes)


14

5. Franchising5. Franchising Franchisor and the franchiseeFranchisor and the franchisee Master franchisingMaster franchising BenefitsBenefits::

– Overseas expansion with a minimum Overseas expansion with a minimum investmentinvestment

– Franchisees’ profits tied to their effortsFranchisees’ profits tied to their efforts– Availability of local franchisees’ knowledgeAvailability of local franchisees’ knowledge

CaveatsCaveats::– Revenues may not be adequateRevenues may not be adequate– Availability of a master franchiseeAvailability of a master franchisee


15

5. Franchising (contd.)5. Franchising (contd.)

– Limited franchising opportunities overseasLimited franchising opportunities overseas– Lack of control over the franchisees’ operationsLack of control over the franchisees’ operations– Problem in performance standardsProblem in performance standards– Cultural problemsCultural problems– Physical proximityPhysical proximity


16

6. Contract Manufacturing6. Contract Manufacturing

BenefitsBenefits::– Labor cost advantagesLabor cost advantages– Savings via taxation, lower energy costs, raw Savings via taxation, lower energy costs, raw

materials, and overheadsmaterials, and overheads– Lower political and economic riskLower political and economic risk– Quicker access to marketsQuicker access to markets

CaveatsCaveats::– Contract manufacturer may become a future Contract manufacturer may become a future

competitorcompetitor– Lower productivity standardsLower productivity standards


17

6. Contract Manufacturing (contd.)6. Contract Manufacturing (contd.)

– Backlash from the company’s home-market Backlash from the company’s home-market employees regarding HR and labor issuesemployees regarding HR and labor issues

– Issues of quality and production standardsIssues of quality and production standardsQualities of an ideal subcontractor:Qualities of an ideal subcontractor:– Flexible/geared toward just-in-time deliveryFlexible/geared toward just-in-time delivery– Able to meet quality standardsAble to meet quality standards– Solid financial footingsSolid financial footings– Able to integrate with company’s businessAble to integrate with company’s business– Must have contingency plans Must have contingency plans


18

7. Joint Ventures7. Joint Ventures

Cooperative joint ventureCooperative joint venture Equity joint ventureEquity joint venture BenefitsBenefits::

– Higher rate of return and more control over the Higher rate of return and more control over the operationsoperations

– Creation of synergyCreation of synergy– Sharing of resourcesSharing of resources– Access to distribution networkAccess to distribution network– Contact with local suppliers and government Contact with local suppliers and government

officialsofficials


19

7. Joint Ventures (contd.)7. Joint Ventures (contd.)

CaveatsCaveats::– Lack of controlLack of control– Lack of trustLack of trust– Conflicts arising over matters such as Conflicts arising over matters such as

strategies, resource allocation, transfer pricing, strategies, resource allocation, transfer pricing, ownership of critical assets like technologies ownership of critical assets like technologies and brand namesand brand names

Drivers Behind Successful International Joint Drivers Behind Successful International Joint VenturesVentures : :– Pick the right partnerPick the right partner


20

7. Joint Ventures (contd.)7. Joint Ventures (contd.)

– Establish clear objectives from the beginningEstablish clear objectives from the beginning– Bridge cultural gapsBridge cultural gaps– Gain top managerial commitment and respectGain top managerial commitment and respect– Use incremental approachUse incremental approach


21

8. Wholly Owned Subsidiaries8. Wholly Owned Subsidiaries

AcquisitionsAcquisitions Greenfield OperationsGreenfield Operations BenefitsBenefits::

– Greater control and higher profitsGreater control and higher profits– Strong commitment to the local market on the Strong commitment to the local market on the

part of companiespart of companies– Allows the investor to manage and control Allows the investor to manage and control

marketing, production, and sourcing decisionsmarketing, production, and sourcing decisions CaveatsCaveats::

– Risks of full ownershipRisks of full ownership


22

8. Wholly Owned Subsidiaries (contd.)8. Wholly Owned Subsidiaries (contd.)

– Developing a foreign presence without the Developing a foreign presence without the support of a third partsupport of a third part

– Risk of nationalizationRisk of nationalization– Issues of cultural and economic sovereignty of Issues of cultural and economic sovereignty of

the host countrythe host country Acquisitions and MergersAcquisitions and Mergers

– Quick access to the local marketQuick access to the local market– Good way to get access to the local brandsGood way to get access to the local brands


24

9. Strategic Alliances 9. Strategic Alliances

Greenfield OperationsGreenfield Operations– Offer the company more flexibility than Offer the company more flexibility than

acquisitions in the areas of human resources, acquisitions in the areas of human resources, suppliers, logistics, plant layout, and suppliers, logistics, plant layout, and manufacturing technology.manufacturing technology.

Types of Strategic Alliances Types of Strategic Alliances – Simple licensing agreements between two Simple licensing agreements between two

partnerspartners– Market-based alliances Market-based alliances


25

9. Strategic Alliances (contd.)9. Strategic Alliances (contd.)

– Operations and logistics alliancesOperations and logistics alliances– Operations-based alliancesOperations-based alliances

The Logic Behind Strategic Alliances The Logic Behind Strategic Alliances – DefendDefend– Catch-Up Catch-Up – RemainRemain– RestructureRestructure

Cross-Border Alliances that Succeed:Cross-Border Alliances that Succeed:– Alliances between strong and weak partnersAlliances between strong and weak partners


27


seldom work.seldom work.– Autonomy and flexibilityAutonomy and flexibility– Equal ownershipEqual ownership– Other factors: Other factors:

» Commitment and support of the top of the Commitment and support of the top of the partners’ organizationspartners’ organizations

» Strong alliance managers are the keyStrong alliance managers are the key


28


» Alliances between partners that are related in Alliances between partners that are related in terms of products, technologies, and marketsterms of products, technologies, and markets

» Similar cultures, assets sizes and venturing Similar cultures, assets sizes and venturing experienceexperience

» A shared vision on goals and mutual benefitsA shared vision on goals and mutual benefits


29

10. Timing of Entry10. Timing of Entry

International market entry decisions should also International market entry decisions should also cover the following timing-of-entry issues: cover the following timing-of-entry issues: – When should the firm enter a foreign market?When should the firm enter a foreign market?– Other important factors include: level of Other important factors include: level of

international experience, firm sizeinternational experience, firm size– Mode of entry issues, market knowledge, Mode of entry issues, market knowledge,

various economic attractiveness variables, etc.various economic attractiveness variables, etc.


30

10. Timing of Entry (contd.)10. Timing of Entry (contd.)

Reasons for exitReasons for exit::– Sustained lossesSustained losses– VolatilityVolatility– Premature entryPremature entry– Ethical reasonsEthical reasons– Intense competitionIntense competition– Resource reallocationResource reallocation


31

11. Exit Strategies11. Exit Strategies Risks of exitRisks of exit::

– Fixed costs of exitFixed costs of exit– Disposition of assetsDisposition of assets– Signal to other marketsSignal to other markets– Long-term opportunitiesLong-term opportunities

Guidelines:Guidelines:– Contemplate and assess all options to salvage Contemplate and assess all options to salvage

the foreign businessthe foreign business– Incremental exitIncremental exit– Migrate customersMigrate customers

global marketing - entry strategies

Education