ENTRY STRATEGIES

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Course: MBA-ISubject: MARKETING MANAGEMENT - 1Unit: IV

Prof.Sushil\IITD\Session-VI 2

The Top Five Strategic Reasons for Outsourcing

1. Improve Business Focus1. Improve Business Focus

2. Access to World-Class Capabil i t ies2. Access to World-Class Capabil i t ies

3. Accelerated Reengineering Benefits3. Accelerated Reengineering Benefits

4. Shared Risks4. Shared Risks

5. Free Resources for Other Purposes5. Free Resources for Other Purposes

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Overview1. Target Market Selection2. Choosing the Mode of Entry3. Exporting4. Licensing5. Franchising6. Contract Manufacturing7. Joint Ventures8. Wholly Owned Subsidiaries9. Strategic Alliances10. Timing of Entry11. Exit Strategies

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Introduction 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.

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

markets

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1. Selecting the Target Market A crucial step in developing a global

expansion strategy is the selection of potential target markets (see Exhibit 9-1 for the entry decision process).

A four-step procedure for the initial screening process:

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

indicator4. Compute overall score for each country

Chapter 9Copyright (c) 2007 John Wiley &

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1. Selecting the Target Market

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2. Choosing the Mode of Entry Decision Criteria for Mode of Entry:

Market Size and Growth Risk Government Regulations Competitive Environment/Cultural Distance Local Infrastructure

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2. Choosing the Mode of Entry

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2. Choosing the Mode of Entry

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2. Choosing the Mode of Entry Classification of Markets:

Platform Countries (Singapore & Hong Kong)

Emerging Countries (Vietnam & the Philippines)

Growth Countries (China & India) Maturing and established countries

(examples: South Korea, Taiwan & Japan) Company Objectives Need for Control Internal Resources, Assets and Capabilities Flexibility

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2. Choosing the Mode of Entry Mode of Entry Choice: A Transaction Cost

Explanation Regarding entry modes, companies

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

Transaction Cost Analysis (TCA) perspective

Transaction-Specific Assets (assets valuable for a very narrow range of applications)

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3. Exporting Indirect Exporting

Export merchants Export agents Export management companies (EMC)

Cooperative Exporting Piggyback Exporting

Direct Exporting Firms set up their own exporting

departments

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4. Licensing Licensor and the licensee Benefits:

Appealing to small companies that lack resources Faster access to the market Rapid penetration of the global markets

Caveats: Other entry mode choices may be affected Licensee may not be committed Lack of enthusiasm on the part of a licensee Biggest danger is the risk of opportunism Licensee may become a future competitor

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5. Franchising Franchisor and the

franchisee Master franchising Benefits:

Overseas expansion with a minimum investment

Franchisees’ profits tied to their efforts

Availability of local franchisees’ knowledge

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

franchiseefranchisee– Limited franchising Limited franchising

opportunities overseasopportunities overseas– Lack of control over the Lack of control over the

franchisees’ operationsfranchisees’ operations– Problem in performance Problem in performance

standardsstandards– Cultural problemsCultural problems– Physical proximityPhysical proximity

Chapter 9Copyright (c) 2007 John Wiley &

Sons, Inc. 15

5. Franchising

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6. Contract Manufacturing (Outsourcing) Benefits:

Labor cost advantages Savings via taxation, lower energy costs, raw materials,

and overheads Lower political and economic risk Quicker access to markets

Caveats: Contract manufacturer may become a future competitor Lower productivity standards Backlash from the company’s home-market employees

regarding HR and labor issues Issues of quality and production standards

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6. Contract Manufacturing (Outsourcing)

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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7. Expanding through Joint Ventures Cooperative joint venture Equity joint venture Benefits:

Higher rate of return and more control over the operations

Creation of synergy Sharing of resources Access to distribution network Contact with local suppliers and

government officials

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7. Expanding through Joint Ventures Caveats:

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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7. Expanding through 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 approach Create a launch team during the launch phase: (1) Build and maintain strategic alignment (2) Create a governance system (3) Manage the economic interdependencies (4) Build the organization for the joint venture

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8. Entering New Markets through Wholly Owned Subsidiaries Acquisitions Greenfield Operations 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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8. Entering New Markets through Wholly Owned Subsidiaries

Caveats: Risks of full ownership Developing a foreign presence without the

support of a third part Risk of nationalization Issues of cultural and economic sovereignty of

the host country

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8. Entering New Markets through Wholly Owned Subsidiaries Acquisitions and Mergers

Quick access to the local market Good way to get access to the local brands

Greenfield Operations Offer the company more flexibility than

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

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9. Creating Strategic Alliances Types of Strategic Alliances

Simple licensing agreements between two partners

Market-based alliances Operations and logistics alliances Operations-based alliances

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9. Creating Strategic Alliances The Logic Behind Strategic Alliances

Defend Catch-Up Remain Restructure

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9. Creating Strategic Alliances

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9. Creating Strategic Alliances Cross-Border Alliances that Succeed:

Alliances between strong and weak partners seldom work.

Autonomy and flexibility Equal ownership

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9. Creating Strategic Alliances Other factors:

Commitment and support of the top of the partners’ organizations

Strong alliance managers are the key Alliances between partners that are related in

terms of products, technologies, and markets Have similar cultures, assets sizes and

venturing experience Tend to start on a narrow basis and broaden

over time A shared vision on goals and mutual benefits

Developing global marketing strategies Product strategies Promotion strategies Pricing strategies Place strategies

SameSameProductProduct

One ProductOne MessageOne ProductOne Message

Product AdaptationProduct

Adaptation

MessageAdaptationMessage

AdaptationProduct InventionProduct Invention

SameSameMessageMessage

ChangeChangeMessageMessage

ChangeChangeProductProduct

Product and Promotion Strategies for Global Marketing

Pricing Strategy

Hurts the local businesses

Gray Market or Parallel Importing – (individuals)

Dumping – (companies)

Pricing Strategy

Countertrade - a form of trade in which the payment for goods and services is in the form of other goods and services

Hurts the local governments

Protectionism

Protectionism is the practice of shielding one or more industries within a country’s economy from foreign competition through the use of tariffs or quotas.

Protectionism is the practice of shielding one or more industries within a country’s economy from foreign competition through the use of tariffs or quotas.

Multidomestic Marketing Strategy

A multidomestic marketing strategy is used by multinational firms that have as many different product variations, brand names, and advertising programs as countries in which they do business.

A multidomestic marketing strategy is used by multinational firms that have as many different product variations, brand names, and advertising programs as countries in which they do business.

Global Marketing Strategy

A global marketing strategy is used by transnational firms that employ the practice of standardizing marketing activities when there are cultural similarities and adapting them when cultures differ.

A global marketing strategy is used by transnational firms that employ the practice of standardizing marketing activities when there are cultural similarities and adapting them when cultures differ.

Global Brand

A global brand is a brand marketed under the same name in multiple countries with similar and centrally coordinated marketing programs.

A global brand is a brand marketed under the same name in multiple countries with similar and centrally coordinated marketing programs.

A gray market is a situation where products are sold through unauthorized channels of distribution. Also called parallel importing.

A gray market is a situation where products are sold through unauthorized channels of distribution. Also called parallel importing.

Gray Market

Dumping is when a firm sells aproduct in a foreign country belowits domestic price or below its actual cost.

Dumping is when a firm sells aproduct in a foreign country belowits domestic price or below its actual cost.

Dumping

The impact of environmental forces on global marketing. Economic environment. Political environment. Social and cultural environment. Legal and regulatory environment. Technological environment.

REFERENCES wweb.uta.edu/insyopma/prater/Chap

%203%20Entry%20Strategies.ppt PHILIP KOTLER (BOOK- MARKETING

MANAGEMENT CHAPTER-13)

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