exporting strategies - j.s. hill

Chapter 9Market Entry and Servicing Strategies

John S. Hill

Chapter Outline

Introduction: Exporting Strategies Contractual Forms of Market Entry Investment Options for Servicing

Foreign Markets Matching Market Servicing Strategies

to Environmental and Corporate Needs

Chapter Outline: Market Entry and Servicing Strategies Market Entry and Servicing Strategy

Exporting StrategiesIndirect ExportingDirect exporting

Contractual Methods of Market Entry & ServicingLicensingFranchisingContract manufacturingCo-production

Investment OptionsInternational Joint-VenturesMergers & AcquisitionsGreenfield Operations

Matching Market Entry and Servicing Strategies to Environmental & Corporate Needs

Exporting Strategies

Indirect Exporting and Use of Trading Companies

Direct Exporting

Export Strategies

Indirect Exporting and Use of Trading Companies Indirect exporting uses third party intermediaries US Trading Companies and Associations: ETC (Export

Trading Companies) & WPA (Webb-Pomerene Associations )

Taiwanese Trading Companies: independent producers and suppliers

Mainland China Trading Companies: industry-centered Japanese Trading Companies, “big nine” sogo shosha,

over 1000 overseas offices, annual turnover tops $350 billion

Export Strategies

Direct Exporting For small and medium sized firms, cheap and

flexible For large international firms,

exporting/importing are vital parts of international operations

Key elements in global company supply chains for material supplies and distribution of final products

International firms account for 2/3 world trade

Contractual Forms of Market Entry

Three Major Types of Agreements

Management Contracts

Contract Manufacturing

Co-production Agreements


Three Types of Most Popular Agreements Licensing Allowing foreign-based firm use of production

processes, marketing logos, trademarks or brand names for a defined time period in specific market and for a pre-specified royalty fee

Danisco Cultor in Asia: low cost manufacturing after patent expiry

Ferrari Motor Sports: publicize brand through clothing Umbro: low cost way tt compete with Adidas and Nike


Three Major Types of Agreements Franchising Franchisees given rights for production or

marketing of the product; considerable control exerted over both the production processes and marketing strategy

McDonalds, KFC and Pizza Hut Hyatt and Holiday Inn, require up to $100 million

in real estate and capital expenditures per hotel


Three Major Types of Agreements

Franchising Controlling Foreign Franchisees

Concentrating ownership via trusted master franchisers

Diluting ownership: many independent operators


Three Types of Most Popular Agreements

Master Franchising Individuals supervise and develop a number

of franchises within a country or region HFC, a leading franchiser of brand name

hotels (e.g., Howard Johnson, Day’s Inn, Ramada), residential real estate (Century 21, Caldwell Banker, ERA) and rental cars (Avis)


Dealing with Local Market Environments Archaic legal frameworks and bureaucracies Political Unrest: dependencies on local

businesspeople and buoyant local economies Cultural obstacles: culturally sensitive foods industries where menus are adapted


Other Contracts and Agreements Management Contracts, international companies, for

a fee, train local employees and manage foreign-based facilities for a prescribed time period (hotels)

Contract Manufacturing, foreign firms using specific materials and/or processes to manufacture products or provide services for third party companies. May be home-market or foreign manufacture; flexibility advantages but control disadvantages

Co-Production Agreements, manufacturing joint ventures, with partners retaining their independent marketing and distribution rights

Investment Options for Servicing Foreign Markets

International Joint Ventures (IJVs)

Mergers and Acquisitions (M&A)

Greenfield Operations


International Joint Ventures (IJVs): Definition & Key Decision Areas

International corporations and local firms join forces to share ownership and management responsibilities in specially created enterprises

Equity Structure, control over IJV operations Technology Transfer Arrangements, ‘the best’

technologies v.s. those matching market needs Asset Valuation problems, value land, buildings,

equipment and intangible assets (good will, brand names, etc.)


International Joint Ventures (IJVs) Divisions of management responsibility, ‘who is

really in control?’ Financial Policy and Strategic Objectives, dividend

and profit reinvestment/repatriation policies Blending of global corporate objectives with local

goals, manufacturing for other subsidiaries, allocating export rights, and pricing issues

Cultural problems and changing relationships


Mergers and Acquisitions (M&A) Over 75 percent (or over $866 billion) were M&A in

the $1.2 trillion equipment and management assets over 1999-2000; gives quick access and impact in highly competitive markets

Seven types of companies in M&A Carnivores: M & A an everyday function. Nestle,

Unilever, Electrolux and GE Dairy Farmers: buy and sell businesses to increase

shareholder value. Hanson Vegetarian: infrequent opportunistic acquirers. Sony’s

and Matsushita’s purchase of Hollywood


Mergers and Acquisitions (M&A) Seven types of companies in M&A White Hunters: frequently go for firms that are bigger than

they are. UK supermarket trolley maker WPP’s takeover of US advertising agency giant J. Walter Thompson

Gentleman Shooters: large takeovers after exhaustive research. BMW’s takeover of British auto firm Rover

Cross-Breeders, leading national companies to form regional (or global) powerhouses. Sweden’s ASEA and Brown-Boveri of Switzerland in heavy electrical equipment

Global mega-mergers, to build critical mass and presences in the international markets. Renault’s $5.4 billion investment in Japan’s number 2 car maker, Nissan.


Implementing M & A Strategies Evaluation of Prospects Financial analysis Strengths-weaknesses-opportunities-threats (SWOT) Cost and value chain analysis Competitive analysis

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Implementing M & A Strategies Post Acquisition Strategies Stand-alone policies: leave the acquired

company as it is; little interference Integration strategies: into parent

company operations to reap financial, manufacturing, marketing synergies

M&A Assessment: was it worthit and did we execute it well?

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Greenfield Operations Build foreign subsidiaries to suit their needs Advantages Need not deal with existing managements and

facilities Start fresh with the firm’s own technologies,

management styles and corporate cultures Complete control of subsidiary development

and market strategies


Greenfield Operations Disadvantages Must build in-market relationships with

suppliers, distributors from scratch Competitors have time to adjust their

strategies and prepare for a new rival The risks of making major resource

commitments and of financing losses until facilities reach their full market potential


Greenfield Operations Conditions favoring: Financing needs are low Markets are developing slowly and industry

competition levels are low Leading edge products and process technologies;

can guard against intellectual property theft Global brands and reputations are advantages Strong corporate cultures are keys to corporate

success

Investment Options for Servicing Foreign Markets Greenfield Operations Country Selection Criteria Proven manufacturing capabilities in the

global context Market potential Competitor presences (they are there, why aren’t we?) Favorable environment: no major operating problems


Greenfield Operations Site Location Within the Country determined

by: Government location incentives

(undeveloped regions) Economically significant centers (customers) Availability of qualified personnel Essential resources are available Transportation and infrastructures must be adequate


Greenfield Operations Siting Research and Development Capabilities Historical patterns: home market-based Current R&D strategies

Research labs in traditional fields: located in major markets or ‘competence regions’ (e.g. silicon valley)

Development labs: product adaptations to local needs

Facilities in new emerging areas: Latin America, Asia Managing the R&D Site: size is important; and

leadership (reputation, connections)

Matching Market Servicing Strategy to Environmental and Corporate Needs

External Factors Internal Factors


External Factors Global industry analyses: Countries with

significant market sizes and high market growth Market environment analyses: less problematic

for experienced firms; essential for newcomers Competitive Factors: alert firms to competitor

presences and what facilities rivals have in particular markets; competitive advantages can accrue (e.g. producing and customizing in-market to counter import competition)


Internal Factors Corporate Objectives

Learning and market feedback: build up global expertise

Flexibility: the ability to switch resources quickly in response to corporate and marketplace needs (exporting)

Control over products and manufacturing processes

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Internal Factors Corporate Resources

Managerial resource scarcity may be countered by use of third party expertise

International management expertise: necessary for direct exporting; less so for contractual modes of market entry (licensing, franchising, turnkey operations, etc); essential for investments

Marketing and operating costs: cheaper for indirect exporters, necessary for all entry strategies

Competitive advantage: firms seek to leverage home market advantages into foreign country environments; brand/corporate reputation, service, customization

Key Points

Many types of entry strategies

Exporting (direct/indirect) Contractual Methods Investment Options Site Selection R&D Facilities Strategies to match

company’s external and internal needs

exporting strategies - j.s. hill

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