part one essentials of international marketing chapter two ... · essentials of international...
TRANSCRIPT
![Page 1: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/1.jpg)
International
Marketing
© Daniel W. Baack, Barbara
Czarnecka & Donald Baack
![Page 2: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/2.jpg)
Part One
Essentials of international
marketing
![Page 3: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/3.jpg)
Chapter 4
Country selection and entry
strategies
![Page 4: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/4.jpg)
Learning objectives
1. What two factors drive market economies, and how are these factors different in command economies?
2. How do Rostow’s five stages of economic development apply to the concepts of most-, less-, and least-developed economies, emerging markets, newly industrialized countries, and transition economies?
3. What factors help create a national competitive advantage for an economy?
4. How do the five forces that increase competitive rivalries relate to industry-level competitive advantage?
5. How do the various modes of entry balance a company’s level of control with its level of risk?
4
![Page 5: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/5.jpg)
5
![Page 6: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/6.jpg)
Learning objective #1
• What two factors drive market economies, and how are
these factors different in command economies?
6
![Page 7: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/7.jpg)
Economic systems
7
![Page 8: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/8.jpg)
Market economy
• An economy in which most economic decisions are made in
the marketplace is a market economy.
– The marketplace may be found anywhere money
changes hands in a capitalist economic system.
• Supply and Demand
– Supply is the amount of goods and services that
producers will provide at various prices.
– Demand is the amount or quantity of goods and services
the consumers are willing to buy at various prices.
– The market price, or equilibrium price, represents the
meeting place between supply and demand.
8
![Page 9: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/9.jpg)
Components of market economies
• Profit
– Revenue exceeds costs
– Personal and business
• Private Property Rights
– Allow individuals to buy land, machinery, and other goods
• Competitive Marketplace
– Government does not interfere with prices or sales
9
![Page 10: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/10.jpg)
Most economically free countries
10
![Page 11: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/11.jpg)
Command economy
• A central authority makes all key economic decisions in a command economy.
– Socialism refers to economic systems where the state owns at least some parts of industry.
• Strong command economy
– Heavy governmental control will be present.
– Communism is an extreme form of socialism that bans private ownership of property.
• Moderate command economies
– A degree of private enterprise operates.
– The state owns all of the major resources.
11
![Page 12: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/12.jpg)
Mixed economy
• The marketplace guides part of the economic system and
the government runs the other part.
– Government may oversee defense, education, building
and repairing roads, and/or fire protection.
– Marketplace vends other items, including necessities,
sundries, and luxuries.
• Most countries have mixed economies.
– One force, marketplace or government, tends to be more
dominant.
12
![Page 13: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/13.jpg)
Learning objective #2
• How do Rostow’s five stages of economic development
apply to the concepts of most-, less-, and least-developed
economies, emerging markets, newly industrialized
countries, and transition economies?
13
![Page 14: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/14.jpg)
Economic development
• Degree of economic development in a region or country
drives many international marketing decisions.
• Development can be controversial and rooted in politics and
conflicts between countries.
• Different levels of economic development
14
![Page 15: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/15.jpg)
Stages of economic development
15
![Page 16: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/16.jpg)
Initial stages of development
• Traditional Society
– Subsistence economy
– Agricultural primary occupation and means of production
– Limited technology and capital
• Preconditions for Takeoff
– Technology begins to develop
– Rudimentary transportation to encourage trade
16
![Page 17: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/17.jpg)
Rapid development
• Takeoff
– Manufacturing industries grow rapidly
– Airports, roads, and railways built
– A few leading industries support high levels of economic growth
• The Drive to Maturity
– Growth has spread to all parts of the economy and is self-sustaining
– Modern transportation systems embedded
– Rapid urbanization
– Traditional industries may start to decline
17
![Page 18: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/18.jpg)
Final stage and application
• The Age of Mass Consumption
– Rapid rise of tertiary, third-wave support industries
– Decline in manufacturing
– Citizens enjoy abundance, prosperity, and a variety of
purchasing choices
• At each stage, the presence and growth of potential target
markets changes.
18
![Page 19: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/19.jpg)
Emerging markets
• Emerging markets are countries that are moving through the
transformation from developing to developed.
– Mexico, South Africa, and several countries in Asia
• Big Emerging Markets (BEMs)
– Emerging markets with a large population
– BRIC countries – Brazil, Russia, India, and China
– Large regional (and increasing global) economic and
political footprint
19
![Page 20: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/20.jpg)
Newly industrialized countries (NICs)
• For NICs, rapid economic development places them
between less- and more-developed stages.
– China, Taiwan, South Korea, Mexico, Brazil
• NICs are always emerging markets, but emerging markets
are not always NICs
– Government plays a clear role in NICs and less so in
some emerging markets
20
![Page 21: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/21.jpg)
Characteristics of NICs
21
![Page 22: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/22.jpg)
Transition economies
• Occur in formerly communist countries with centrally
planned economies as the country transitions to a free
market economy.
– Eastern Europe, China
• Opportunity for growth
– Increased standard of living
– Increased purchasing power
– Gaps in market may be filled by foreign companies
22
![Page 23: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/23.jpg)
Features of transition economies
23
![Page 24: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/24.jpg)
Struggles for transition economies
• Split population
– Younger consumers more comfortable with the change
– Older consumers may desire return to old system
– Economic growth more beneficial for urban than for rural
consumers
• Corruption a large problem limiting growth
• “The task may be difficult, but the resources are scarce.”
24
![Page 25: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/25.jpg)
Transparency international corruption index
25
![Page 26: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/26.jpg)
Bottom-of-the-Pyramid
• Low-income, bottom-of-the-pyramid customers are most
likely to reside in least-developed economies or in Rostow’s
traditional societies.
• The potential does exist for products that are tailored to
these consumers.
• As an economy moves forward and infrastructure emerges,
the opportunities tend to grow and expand impressively.
26
![Page 27: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/27.jpg)
Learning objective #3
• What factors help create a national competitive advantage
for an economy?
27
![Page 28: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/28.jpg)
National competitive advantage
• The basis of global economic leadership
• Michael Porter’s Diamond Model
– Demand conditions
– Related and supporting industries
– Firm strategy, structure, and rivalry
– Factor conditions
– Government
28
![Page 29: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/29.jpg)
Demand conditions
• The unique features of demand in a nation make up that
country’s demand conditions.
• Domestic consumers may be more or less representative of
the global consumers.
• Consumers who move the global taste in a category or
industry help a nation become global leaders in that
category.
– France and fashion
– South Korea and technology
29
![Page 30: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/30.jpg)
Related and supporting industries
• Support from various other companies that provide inputs,
support production, or facilitate other aspects of an industry
together count as related and supporting industries.
• Nations with this type of support network exhibit one of the
conditions needed to have a national competitive advantage
in that industry.
– Nokia in Finland is surrounded by needed related and
supporting industries.
30
![Page 31: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/31.jpg)
Firm strategy, structure, and rivalry
• Nations differ in terms of how the government allows
companies to be formed, maintained, and structured,
including control of domestic and potentially foreign
competitors.
• This results in differences in firm strategy, structure, and
rivalry
– In Italy, companies tend to be smaller, family owned, and
privately held.
– In Germany companies tend to be large and highly
structured, and employ managers with technical
backgrounds.
31
![Page 32: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/32.jpg)
Factor conditions
• Factor conditions include components needed for
production of goods or services, such as labor and
infrastructure.
– Each industry has specific factors associated with
success in that field.
• Traditionally, these factors were natural endowments that
nations possessed without effort.
– Labor or land or various natural resources such as oil or
minerals
– Increasingly, resources are created such as trained
human resources.
32
![Page 33: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/33.jpg)
Factor conditions
• Factor conditions most clearly lead to national competitive
advantage when specialization exists.
– The American film industry has the various directors,
actors, producers, and cinematographers needed.
33
![Page 34: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/34.jpg)
Government
• Government, and how government interacts with the free
market, plays a role in creating national competitive
advantage.
• Industry innovation results from competition and
governmental activities can assist this.
– Support for education
– Encouraging cooperation between related industries
– Assisting in the development of new technologies and
emerging industries
• Policies that increase competition while supporting
innovation help create national competitive advantage.
34
![Page 35: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/35.jpg)
Learning objective #4
• How do the five forces that increase competitive rivalries
relate to industry-level competitive advantage?
35
![Page 36: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/36.jpg)
Industry-level competitive advantage
36
![Page 37: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/37.jpg)
Threat of new entrants
• The threat of new entrants affects the nature of local,
national, and international competition.
• The large size of the markets in Big Emerging
Markets alone sparks interest and increases the chance of
new entrants.
• Barriers to entry can be used by companies to prevent or
limit new entrants.
– Potential barriers include brand equity, large initial cost
requirements, regulations, monopolies overdistribution or
needed resources, and/or lack of specific, hard-to-learn
knowledge.
37
![Page 38: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/38.jpg)
Threat of substitute products
• The existence of substitute products increases competitive
intensity.
– Different substitute products exist in international markets.
• When consumers can switch from product to product,
companies face stronger pressure from competitors to get
consumers to make the switch.
– Switching costs increase
– Consumer loyalty increase
• Brand loyalty, unique product benefits, and repeat purchase
rewards all decrease switching.
38
![Page 39: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/39.jpg)
Bargaining power of suppliers
• Companies within an industry typically use the same supplier or a small group of suppliers for the resources needed, including labor and raw materials.
– Suppliers of these resources with strong bargaining power increase the competition within the industry.
• Supplier bargaining power increases when only one or a small number of companies serve as supplier.
• Steps to lower the bargaining power of suppliers:
– Buy the supplier.
– Supply the resource internally.
– Find substitutes for the resource, often by looking internationally.
39
![Page 40: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/40.jpg)
Bargaining power of consumers
• Consumers possess bargaining power.
– When only a few individuals purchase a product, such as
can be the case in business-to-business marketing, those
buyers hold more power.
– Small numbers of consumers increase competition.
• Price sensitivity increases consumer power due to the
increased likelihood of a customer switching to a lower-
priced competitor.
40
![Page 41: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/41.jpg)
Bargaining power of consumers
• Methods to decrease consumer bargaining power:
– Brand loyalty
– Opening new markets or increasing market share
– Growth in market size
41
![Page 42: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/42.jpg)
Rivalry among competitors
• Together, the four forces above work to increase rivalry
among competitors.
• Company-specific factors also increase rivalries among
competitors.
– Widely accessible knowledge and processes result in
more rivalry than does specialized, difficult-to-imitate
knowledge.
– Innovation, especially when legally protected, can reduce
competition within an industry.
• When every company in an industry competes based on
similar, duplicable factors, rivalry becomes intense.
42
![Page 43: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/43.jpg)
Economic forces and international marketing
• Economic forces affect culture.
– Sons are highly valued for their ability to work, whereas
daughters may be viewed as an expense.
– Development increases materialism.
• Economic forces affect language.
– New terms for new technologies
• Economic forces affect political and legal systems.
– Laws governing property rights and commerce
– Laws can speed up or slow down development.
43
![Page 44: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/44.jpg)
Economic forces and international marketing
• Economic forces affect infrastructure.
– Growth leads to more complex and developed
infrastructure.
44
![Page 45: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/45.jpg)
Sustainability and international marketing
• As countries develop economically, sustainability becomes
an increasing concern.
• How can economic development be done sustainably?
• Economic development increases global consumption of
resources.
– Energy
– Water
45
![Page 46: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/46.jpg)
Net virtual water globally
46
![Page 47: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/47.jpg)
Global water consumption footprints
47
![Page 48: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/48.jpg)
Learning objective #5
• How do the various modes of entry balance a company’s
level of control with its level of risk?
48
![Page 49: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/49.jpg)
Modes of entry
49
![Page 50: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/50.jpg)
Exporting
• The product is shipped in one manner or another into a
foreign market.
– Typical initial method to enter a market
– Little control after products leaves home country
• Two broad methods:
– Direct sales
– Use of an intermediary
• The Internet has led to a growth in direct sales.
50
![Page 51: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/51.jpg)
Licensing
• A contract that grants a company (the licensee) the legal
right to use another company’s brand, image, and other
marketing components
• Can provide a quick, low-cost method for entering a foreign
market
– The licensee holds additional knowledge about the local
market that increases the chance for success.
• Primary concern is lack of control.
– Local partner behavior may detract from the image of the
company.
– May make poor marketing choices.
51
![Page 52: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/52.jpg)
Franchising
• The contractual agreement to implement a business model
– McDonald’s, KFC, 7-Eleven, Supercuts, and Jani-King
• In return for an up-front fee, signees obtain access to the
company’s colors, images, and products, which offers
greater control over the marketing process by the parent
company.
• The risk is a poor franchisee.
– Signee may ignore contract or make decisions that hurt
the company.
– Costs accrue to control signees.
52
![Page 53: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/53.jpg)
Joint ventures
• Some companies choose to partner with local businesses
when entering a country.
• When these legal partnerships involve an investment, a
division of ownership, and the creation of a new legal entity,
the newly created business is joint venture.
• The categories of joint ventures include:
– Majority owned, where the foreign company owns 51% or
more of the joint venture;
– Minority owned, where the foreign company owns 49% or
less of the joint venture;
– 50% / 50%, or an equal split of ownership.
53
![Page 54: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/54.jpg)
Joint venture advantages and disadvantages
• Advantages:
– Local partners provide access to local connections.
– Local partners understand the local business
environment.
– Sharing of risk lessens potential losses.
– Costs may be lowered.
54
![Page 55: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/55.jpg)
Joint venture advantages and disadvantages
• Disadvantages:
– Lost or leaked proprietary knowledge.
– Partners may misappropriate company assets and may
even break the joint venture and then use that knowledge
to succeed in separate, independent business ventures.
– Conflicts between partners can also occur.
55
![Page 56: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/56.jpg)
Strategic alliances
• A formal agreement between companies to work together to
achieve a common goal.
– In contrast to joint ventures, a separate legal entity does
not get created.
– Resource sharing, project funding, and knowledge
transfer all happen within most strategic alliances.
• Many strategic alliances investigate problems that affect all
or most members of an industry.
– Sharing research on a new technological breakthrough or
combining resources to enter a new market are two
common goals for strategic alliances.
56
![Page 57: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/57.jpg)
Strategic alliances
• Advantage
– Limited financial commitment and fewer formal legal
lessens risk.
• Disadvantage
– Exposure to a potential partners leaving or stealing
technology.
57
![Page 58: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/58.jpg)
Wholly owned subsidiary
• A 100% ownership stake in a business in that country
– Must comply with local regulations, adjust to local cultural standards and mores, operate in the native language, fit with local economic conditions, and be supportable through the local infrastructure.
• Company is able to use its own brand, logo, and color scheme, and maintains control over both managerial operations and marketing decisions.
– Primary advantage is complete control.
– Primary disadvantage is lack of shared risk and high cost. Also, fail to have a local contact to facilitate entry success.
58
![Page 59: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/59.jpg)
Types of wholly owned subsidiaries
• Acquisitions, the company purchases a local business that
is then transformed into the subsidiary.
• Greenfield investment, the company builds the subsidiary
from the ground up.
• China has a unique type – the wholly foreign-owned
enterprise
– The subsidiary maintains special economic status within
China.
– These businesses typically manufacture goods solely for
export to foreign markets.
59
![Page 60: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/60.jpg)
Entry mode failure and exit
• Put a plan in place regarding market exit pre-entry.
– Set clear, measurable goals regarding entry success with
set deadlines.
• Failure may result from many things.
– Poor planning
– External, unpredictable forces
• When leaving, focus on maintaining the relationships built.
– Settle contracts fairly.
– Focus on maintaining company reputation.
60
![Page 61: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/61.jpg)
Entry mode failure and exit
– The partner in the country being exited might also be a
potential partner in a separate country.
– It is always possible that the firm will choose to enter the
market again at a later date.
61
![Page 62: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/62.jpg)
Theories of entry mode selection
• Explaining entry mode choices is a dominant area of
international business academic theory.
• The three dominant theories:
– Internationalization Theory
– Internalization Theory
– Eclectic or OLI Theory
62
![Page 63: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/63.jpg)
Internationalization theory
• Companies go through four stages during the move to
becoming a completely global company:
– no regular export activities,
– export via independent representatives,
– establishment of an overseas sales subsidiary, and
– foreign production.
• The model views global entry as an incremental process.
– A company’s marketers begin by exporting to close,
familiar markets.
63
![Page 64: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/64.jpg)
Internationalization theory
– Through these exporting activities, the company leaders
gain the knowledge needed to export to other close
similar markets .
– Eventually enough knowledge is gained to expand
globally.
• Key concept is psychic distance or the differences between
managers from different countries.
– It includes differences in language, communication styles,
legal and political structures, education, and overall
cultural values.
64
![Page 65: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/65.jpg)
Internalization theory
• Focuses on advantages to each entry mode type.
• Exporting represents the default, “efficient” choice for market entry.
– Supply and demand guide the process.
– The company exerts little control and less cost is involved.
– The lack of control is acceptable if no unusual risks or uncertainties and trusted partners.
• In many cases, uncertainty and risks exists making exporting too risky.
– Managers choose to internalize the entry – hence the name of the theory.
65
![Page 66: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/66.jpg)
Internalization theory
• Internalization refers to taking some degree of ownership.
– Choosing a nonexporting entry mode such a wholly
owned subsidiary or a joint venture
– The high costs are offset by the level of control resulting
from ownership.
– Greater control allows for better response to risk and
uncertainty.
66
![Page 67: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/67.jpg)
Eclectic or OLI theory
• Assumes that exporting will be the most efficient and
preferred form of entry but that inefficiencies or problems in
the market mean that in many cases the best decision is
another form of entry. These best decisions are based on
three factors:
– Ownership advantages
– Location advantages
– Internalization advantages
67
![Page 68: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/68.jpg)
Ownership advantages
• Ownership advantages can be thought of as the “why” for
multinational corporation foreign activities and represent the
reasons marketers spend the time and effort to enter a
foreign country.
• Two types of ownership advantages:
– Asset advantages represent anything the company does
well that competitors cannot do.
– Transaction ownership advantages relate to the ability to
capture transactional benefits, such as lower costs, from
the common governance of a network of ownership
assets.
68
![Page 69: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/69.jpg)
Location advantages
• Location advantages explains the “where” of entry location
advantages.
• Some markets are more attractive than others and are
entered first due to:
– Local resources, natural and human;
– Governmental activities;
– Market potential; and
– Lower political risk.
69
![Page 70: Part One Essentials of International Marketing Chapter Two ... · Essentials of international marketing . Chapter 4 Country selection and entry strategies . Learning objectives 1](https://reader030.vdocuments.us/reader030/viewer/2022020115/5e0553265a41ea28af129485/html5/thumbnails/70.jpg)
Internalization advantages
• Internalization advantages are the “how” of market entry, and the advantages that come from making the correct entry decision.
• While exporting is the default option, when companies are considering entering an attractive market (location advantages) and have unique assets that will generate sufficient profit (ownership advantages), the correct selection of entry mode type leads to internalization advantages.
• To select the right type of entry mode, companies need to balance risk, uncertainty, the ability to exploit economies of scale, and cost.
70