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 1 . Target Market Selection
A crucial step in developing a global expansion strategy is the selection of potential target markets. A four-step procedure for the initial screening process: 1 . Select indicators and collect data 2. Determine importance of country indicators 3. Rate the countries in the pool on each indicator 4. Compute overall score for each country 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 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) Key criteria for choosing entry modes: Company Objectives Need for Control Internal Resources, Assets and Capabilities Flexibility 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 (ETC) perspective Transaction-specific Assets (assets valuable for a very narrow range of applications) 3. Exporting Indirect Exporting
Export merchants Export management companies (EMCEE) Cooperative Exporting Piggyback Exporting Direct Exporting Firms set up their own exporting departments 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 How to seek a good licensing agreement: Seek patent or trademark protection
Thorough profitability analysis Careful selection of prospective licensees Contract parameter (technology package, use conditions, compensation, and provisions for the settlement of disputes) 5. Franchising Franchiser and the franchisee Master franchising Overseas expansion with a minimum investment Franchisees’ profits tied to their efforts Availability of local franchisees’ knowledge Revenues may not be adequate Availability of a master franchisee Limited franchising opportunities overseas Lack of control over the franchisees’ operations Problem in performance standards Cultural problems Physical proximity .
Contract Manufacturing (Outsourcing) a. Labor cost advantages b. Savings via taxation, lower energy costs, raw materials, and overheads c. Lower political and economic risk d. Quicker access to markets f. Lower productivity standards g. Backlash from the company’s home-market employees regarding HER and labor issues h. Issues of quality and production standards 7. Joint Ventures Cooperative Joint venture Equity Joint venture 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
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 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 .
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.
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 Caveats: Risks of full ownership Developing a foreign presence without the support of a third part Risk of centralization Issues of cultural and economic sovereignty of the host country 9. Strategic Alliances Types of Strategic Alliances Simple licensing agreements between two partners Operations and logistics alliances Operations-based alliances Cross-Border Alliances that Succeed: Alliances between strong and weak partners seldom work.
Autonomy and flexibility Equal ownership 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 arrests Have similar cultures, asset sizes and venturing experience Tend to start on a narrow basis and broaden over time A shared vision on goals and mutual benefits.