38467014 marketing-ppt
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INTERNATIONAL MARKET SELECTION
AND ENTRY
by
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Pressures for Cost Reduction and Local Responsiveness
• Pressures for cost reductions– Global competitors seek to minimize unit costs through
location economies .– In commodity-type product industries, intense price
competition.
• Pressures for local responsiveness arise from:– Differences in local consumer tastes and preferences.– Differences in infrastructure and traditional practices.– Differences in distribution channels among countries.– Host government economic and political demands.
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Four Basic Strategies
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Strategic Choice• International strategy– Create value by transferring skills and products abroad.
• Multidomestic strategy– Maximize local responsiveness (taste& preference)by
customizing products and marketing strategy for local markets.
• Global strategy– Pursue low-cost status, offer standardized global
products.• Transnational strategy– Use global learning to achieve low-cost status,
differentiation, and local responsiveness simultaneously.
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The Advantages and Disadvantages of Different Strategies for Competing Globally
Strategy Advantages Disadvantages
International •Transfer of distinctive competencies to foreign markets
•Lack of local responsiveness
• Inability to realize location economies
•Failure to exploit experience-curve effects
Multidomestic •Ability to customize product offerings and marketing in accordance with local responsiveness
• Inability to realize location economies
•Failure to exploit experience-curve effects
•Failure to transfer distinctive competencies to foreign markets
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The Advantages and Disadvantages of Different Strategies for Competing Globally
Strategy Advantages Disadvantages
Global •Ability to exploit experience-curve effects
•Ability to exploit location economies
•Lack of local responsiveness
Transnational • Ability to exploit experience-curve effects
• Ability to exploit location economies
• Ability to customize product offerings and marketing in accordance with local responsiveness
• Reaping benefits of global learning
•Difficulties in implementation because of organizational problems
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Entry Strategies
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Where are we in the strategy?
Political &Legal EconomicMarketing
Research
Competitive Analysis
Promotions
Logistics and Distribution
Products & Services
Pricing
CultureUncontrollable
ControllableSegmentationand positioning
Market Entry Strategy
Planning
Organising/Restructuring
Environment
We are here!
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Basic Entry Decisions
• Which foreign markets?– Politically and financially stable– Developed and developing nations– Free market systems
• Timing of entry– Pioneering costs versus
first-mover advantages.• Scale of entry and strategic commitments– Scale of entry affects the nature of competition in the
national market. Implications of risks and benefits must be weighed carefully.
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Selecting Market Entry
• Overview– Must decide what country to enter– Must allocate the right resources– Decide what to sell– Decide where to sell– Select the criteria for decision making– Seek an acceptable equity share– Acquire the right fit– Design an exit strategy
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Determinants of Entry Strategy
• Degree of contact with foreign market desired– no contact - export intermediary– some contact - foreign import intermediary– high contact - subsidiary, FDI, etc.
• Determined by:– market potential– firm’s capabilities and experience– managerial commitment to export, market and
risk tolerance
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Basic Entry Decisions
• Which foreign markets?– Politically and financially stable– Developed and developing nations– Free market systems
• Timing of entry– Pioneering costs versus
first-mover advantages.• Scale of entry and strategic commitments– Scale of entry affects the nature of competition in the
national market. Implications of risks and benefits must be weighed carefully.
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The Choice of Entry Mode
• Exporting• Licensing
• Franchising• Joint Ventures
• Wholly Owned Subsidiaries
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ExportingExporting
Choice of International Entry Mode
No need to establish operations in other nations.Establish distribution channels through contractual
relationships.May have high transportation costs.May encounter high import tariffs.May have less control on marketing and distribution.Difficult to customize product.
Common way to enter new international markets.
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Foreign production
• Licensing– no physical asset exposure
• though IP risk remains
Licensor(domestic manufacturer)
Licensee(O/S Manufacturer)
Manufacture & sell
License
Royalties & fees
Owns IP
Qualcomm Ericsson uses CDMA technology in headphones
1 to 15%
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© 2006 by Nelson, a division of Thomson Canada Limited.
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Licensing
Choice of International Entry Mode
Licensing firm is paid a royalty on each unit produced and sold.
Licensee takes risks in manufacturing investments. Least risky way to enter a foreign market. Licensing firm loses control over product quality &
distribution. Relatively low profit potential.
Firm authorizes another firm to manufacture & sell its products -
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Franchising
Franchisor(Country A)
Franchisee(Country B)
Trade nameTrade markBusiness Models (marketing plan)Operating manualsStandardsTrainingQuality monitoring
Royalties & fees
Owns IP
Limited time
Limited territory
Limited time
Limited territory
Master Franchisor
Local entrepreneurs
Examples
•Subway
•World Gym Fitness
•Mailboxes etc.
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• Franchising– A specialized form of licensing where the
franchiser sells intangible property (usually a brand or trademark).
– The franchisee agrees to follow the strict rules and business plans of the company
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Joint Ventures
Firm C
Home country Host country
New entityin host country - bothhave equity
50% 50%
Contribution•Technology•Manufacturing expertise
Firm A Firm B
Contribution•Distribution network•Labour •Finance•Local market knowledge•E.g. McDonald’s
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• Joint Venture– Separate corporations come together to form a
new corporate entity– Two or more companies have an ownership stake,
but combine resources for mutual benefit– Sharing knowledge can be dangerous for the
companies involved
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Problems with joint ventures
• lack of legal structure– e.g. PRC, no accounting standards– poor proprietary rights
• lack of trust– mutual conflicts– resource allocation
• access to technology• profit sharing problems
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© 2006 by Nelson, a division of Thomson Canada Limited.
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Choice of International Entry Mode
Can be very costly.Legal and regulatory requirements may present
barriers to foreign ownership.Usually require complex and costly negotiations.Potentially disparate corporate culture.
Enable firms to make most rapid international expansion.
Acquisitions
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Greenfield VentureGreenfield Venture
Choice of International Entry ModeNew Wholly-Owned Subsidiary –
Most costly & complex of entry alternatives. Achieves greatest degree of control. Potentially most profitable, if successful. Maintain control over technology, marketing and
distribution.May need to acquire expertise & knowledge that is relevant to host country.
Could require hiring host country nationals or consultants at high cost.
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International diversification facilitates innovation in the firm.
May generate resources necessary to sustain a large-scale R&D program.
Generally related to above-average returns, assuming effective implementation and management of international operations.
Provides larger market to gain more and faster returns form investments in innovation.
International diversification provides greater economies of scope and learning.
Strategic Competitiveness Outcomes
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Exit and Re-entry Strategies
• Consolidate operations– reduce plant, close operations– consolidate operations
• Ford: Closing plant in UK• GM: closed plant in UK• Sterile : closed plant in tuticorin
• Re-entry– acquisition:
• e.g., Coke acquired Parle (repurchased of Indian bottler/distributor)
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By
Su.Arumug
ham