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Market Entry Strategies

An organization considering entering an international market faces important strategic decisions around their market entry strategy. There are several options available, including exporting, licensing, franchising, joint ventures, contract manufacturing, mergers and acquisitions, and fully owned manufacturing facilities. Each option provides varying levels of cost, risk, and control. Choosing the optimal market entry strategy requires evaluating these factors based on the target market and business objectives.

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448 views33 pages

Market Entry Strategies

An organization considering entering an international market faces important strategic decisions around their market entry strategy. There are several options available, including exporting, licensing, franchising, joint ventures, contract manufacturing, mergers and acquisitions, and fully owned manufacturing facilities. Each option provides varying levels of cost, risk, and control. Choosing the optimal market entry strategy requires evaluating these factors based on the target market and business objectives.

Uploaded by

mm1979
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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O
R
T
IN

When an organization has made a decision to enter an overseas


market, there are a variety of options open to it.

These options vary with cost, risk & the degree of control which
can be exercised over them.

One of the most important strategic decisions in international


business is the mode of entering the foreign market.

N
I
F
DE

N
O
I
AT

Amarket entry strategyis the


planned method of delivering
goodsorservices to a
target marketand distributing
them there. Whenimportingor
exportingservices, it refers to
establishing and managing
contracts in a foreign country.

C
I
S
BA ES
U
S
IS

An organization willing to go international


faces 3 major issues.

Marketing which countries, which

segments, how to manage, how to enter,


with what information.

Sourcing whether to obtain products,


make or buy.

Investment & Control Joint Venture,


global partner, acquisition.

MARKET ENTRY
STRATAGIES

EXPORTING
LICENSING
FRANCHISING
JOINT VENTURING
CONTRACT MANUFACTURING
MERGERS & ACQUASITIONS
FULLY OWNED MANUFACTURING FACILITIES

COUNTER TRADE
TURNKEY CONTRACTS
THIRD COUNTRY LOCATION

O
P
EX

G
N
I
RT

Exporting is the most traditional and well established


form of operating in foreign markets.

Exporting can be defined as the marketing of goods


produced in one country into another.

Whilst no direct manufacturing is required in an


overseas country, significant investments in marketing
are required.

The tendency may be not to obtain as much detailed


marketing information as compared to manufacturing in
marketing country.

Those firms who are aggressive have clearly defined plans and
strategy, including product, price, promotion, distribution and
research elements.

In countries like Tanzania and Zambia, which have embarked on


structural adjustment programs, organizations are being
encouraged to export, motivated by foreign exchange earnings
potential, saturated domestic markets, growth and expansion
objectives, and the need to repay debts incurred by the borrowings
to finance the programs.

The type of export response is dependent on how the pressures are


perceived by the decision maker.

f
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A po
Ex

The advantages of exporting are :


Manufacturing is home based thus, it
is less risky than overseas based
Gives an opportunity to "learn"
overseas markets before investing in
bricks and mortar
Reduces the potential risks of
operating overseas.

s
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g
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g
a
n
v ti
d
r
a
o
s p
i
D Ex
of

The disadvantage is

mainly that one can


be at the "mercy" of
overseas agents and
so the lack of control
has to be weighed
against the
advantages.

C
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A
R
F

G
N
I

S
I
H

Players : Franchisor & Franchisee.


In terms of distribution, the franchisor is a
supplier who allows an operator, or a
franchisee, to use the supplier's trademark
and distribute the supplier's goods.
In return, the operator pays the supplier a
fee.
Thirty three countries, including the United
States, and Australia, have laws that
regulate franchising.

Franchising is the practice of using

another firm's successful business model.

For the franchisor, the franchise is an alternative to


building Chain Stores to distribute goods that
avoids the investments and liability of a chain.

The franchisor's success depends on the success of


the franchisees.

The franchisee is said to have a greater incentive


than a direct employee because he or she has a
direct stake in the business.

Exam

p le s

ADV
AN T
AGE
S

Freedom of

Employment
Proven products &
Services
Proven Trade Mark
Reduced Risk of
Failure

E
C
I
L

I
S
N

G
N

Licensing is defined as

"the method of foreign


operation whereby a firm
in one country agrees to
permit a company in
another country to use
the manufacturing,
processing, trademark,
know-how or some other
skill provided by the
licensor".

Licensing involves little expense and involvement.


The only cost is signing the agreement and policing

its implementation.
It is quite similar to the "franchise" operation.
Coca Cola is an excellent example of licensing.
In Zimbabwe, United Bottlers have the license to
make Coke.

s
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a
v s in
d
A en
c
i
L

of

Good way to start in foreign

operations and open the door to


low risk manufacturing
relationships
Linkage of parent and receiving
partner interests means both get
most out of marketing effort
Capital not tied up in foreign
operation and
Options to buy into partner exist
or provision to take royalties in
stock

s
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g
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a g
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n
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i
a
s
v
n
d

e
a
s Lic
i
D f
o

Limited form of participation - to length of


agreement, specific product, process or
trademark.
Potential returns from marketing and
manufacturing may be lost.
Partner develops know-how and so
license is short.
Licensees become competitors overcome by having cross technology
transfer deals and
Requires considerable fact finding,
planning, investigation and interpretation.

T
N
I
JO ES
R
U

T
N
E
V

Joint ventures can be defined as


"an enterprise in which two or
more investors share ownership and
control over property rights and
operation."

It is a very common strategy of


entering the foreign market.

Any form of association which implies collaboration for


more than a transitory period is a joint venture.

A joint venture may be brought about by a foreign investor


showing an interest in local company,

A local firm acquiring an interest in an existing foreign firm


or

By both the foreign and local entrepreneurs jointly forming


a new enterprise.

Sharing of RISK.
s
Joint financial strength.

e
g
a
May be only means of entry in

t
n
some
countries.
a
v
d
A

v
d
a
s
i

t
n
a

ag

es

Partners do not have full control

of management.
May be impossible to recover
capital if need be.
Partners may have different
views on expected benefits.

Exam

p le s

T
E
N
D
U
A
O
C TR It is a form of international trade in which

certain export and import transactions are


directly linked with each other.
Largest indirect method of exporting is
countertrade.
Competitive intensity means more and
more investment in marketing.
In this situation the organization may
expand operations by operating in
markets where competition is less intense
but currency based exchange is not
possible.

Also, countries may wish to trade in spite of the degree of


competition, but currency again is a problem.

Countertrade can also be used to stimulate home

industries or where raw materials are in short supply.

It can, also, give a basis for reciprocal trade.


Estimates vary, but countertrade accounts for about 2030% of world trade, involving some 90 nations and
between US $100-150 billion in value.

ADVANTAGES:
Its main attraction is that it can give a firm a way to finance
export when other means are not available.

DISADVANTAGES:

o Variety is low so marketing is limited


o Difficult to set prices and service quality
o Inconsistency of delivery and specification,
o Difficult to revert to currency trading - so quality may decline
further and therefore product is harder to market.

Y S
E
K CT
N
R RA

U
T NT
CO

Turnkey contracts are


common in international
business in the supply,
erection & commissioning of
plants, as in the case oil
refineries, steel mills,
cement & fertilizer plants
etc.. Construction projects &
franchising agreements.

A turnkey operation is an agreement by the seller to

supply a buyer with a facility fully equipped & ready to be


operated by the buyer, who will be trained by the seller.

The term is used in fast food franchising when a franchiser


agrees to select a store site, build he store, equip it, train
the franchisee & employee.

Many turnkey contracts involve government/public sector


as buyer.

A turnkey contractor may subcontract different


phases/parts of the project.

G
N
T
I
C
R
A TU A company doing international
R
T
C
N
marketing contracts with firms in foreign
A
F
O
C NU
countries to manufacture or assemble
A
the products while retaining the
M
responsibility of marketing the product.

This is a common practice in


international business.

Many multinationals employ this in

India example: Park Davis Hindustan


Lever, Ponds.

It frees the company from risks of

s
e
investing in foreign countries.
g
a
t
n
It does not have to commit

a
v

Ad

resource for setting up


production facilities.

There can be a loss on

d
a
s
i
D
s

manufacturing.
e
g
a
Less control over manufacturing
t

n
a
process.
v

Risk of developing potential


competitors.

Y
R
T
N
U I ON
O
C
T
A
D
C
This is sometimes used as an entry

R
I
O
L
TH
strategy.

When there is no commercial

transaction between 2 nations


because of political reasons,
or when direct transactions
between 2 nations are difficult &
if one nation wants to enter other
nation,
then the nation will have to operate
from the third country base.

It may be helpful to take advantage of the friendly trade


relations between the third party & the foreign market
concerned.

Sometimes commercial reasons encourage third country


location.

Example: Rank Xerox found it convenient to enter USSR


through its Indian joint venture Modi Xerox.

& S
S N
R
O
E
I
This strategy is also known as an
G

T
I
R IS
E
expansion strategy.
M QU
M&As have been imp & powerful

C
A
driver of globalization.
Between 1980 2000 the value of

cross border grew at an average


annual rate of 40%.
A large no. of foreign firms have
entered India through acquisition.
Example: Automobiles, Pharmacy,
banking, telecom etc.

a
v
Ad

a
t
n

s
e
g

Increasing the market

power.
Acquisition of
Technology.
Optimum utilization of
Resources.
Minimization of Risks.
Tax Benefits

i sa

a
v
d

a
t
n

s
e
g

Some of the units

acquired would have


problems such as old
plant, obsolete
technology, surplus, or
demoralized labor.

The firm may not have

the experience &


expertise to manage the
unit taken over if it is an
entirely new field.

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