Market Entry Strategy

Tekle Sebhatu, Ph.D.

http://www.stcinternational.usstcintL@q.com

Market Entry Strategy Agenda

• Market Entry Decision Questions• Market Entry Modes

• Exporting• Licensing• Joint venture• Wholly owned subsidiary (FDI)

• Reducing partnership risk• Partner selection• Q & A

Market Entry Decisions• Which markets to enter?

• When to enter the markets?

• What scale of entry?

• Cost of entering markets?

Which Market to Enter?

1. Analyze external environmental factorsa) Economic environment b) Political environmentc) Socio –cultural environment d) Legal environment e) Technological environment

2. Analyze the market size, product acceptability and customer perceptions.

3. Analyze internal environmental factorsa) Product b) Pricec) Place (distribution) d) Promotion

4. Based on potential markets, profit margin and market share potential analysis focus on no more than 3 countries.

Timing of Entry?• First-mover advantage:

– Preempt rivals and capture demand.– Build sales volume and brand– Move down experience curve before rivals and achieve cost

advantage.

• Disadvantages:– First mover disadvantage - pioneering costs.– Changes in government policy.

Costs early entrant bears that later

entrant can avoid.

Scale of Entry?• Large scale entry

– Strategic Commitments - a decision that has a long-term impact and is difficult to reverse.

– May cause rivals to rethink market entry.

• Small scale entry:– No long term commitment.– Increase market/experience learning curve.– Reduces exposure risk.

Cost Of Entering Markets• Initial investment –Extra cost

• Research and development

• Training

• Participation at tradeshow/mission

Entry Modes

Exporting

TurnkeyProjects

Licensing

Franchising

JointVentures

Wholly OwnedSubsidiaries

Exporting

• Advantages:– Avoids cost of establishing manufacturing

operations.– May help achieve experience curve.

• Disadvantages:– May compete with low-cost location manufacturers.– Possible high transportation costs.– Tariff barriers.– Possible lack of control over marketing reps.

Selection of Channel

Direct Exporting

Indirect Exporting

vs.

Indirect Exporting

• Export Management Companies (EMC)• Export Trading Companies (ETC)• Selling Through Trade Associations• Piggyback Marketing• Export Merchants or Re-Marketers

Licensing• Advantages:

– Reduces development costs and risks of establishing foreign enterprise.

– Overcomes restrictive investment barriers.

• Disadvantages:– Lack of control.– Creating a competitor.

Agreement wherelicensor grants rights to

intangible property to another entity for a specified period

of time in returnfor royalties.

Joint Ventures• Advantages:

– Benefit from local partner’s knowledge.– Shared costs/risks with partner.– Reduced political risk.

• Disadvantages:– Risk giving control of technology to partner.– Shared ownership can lead to conflict.

Wholly Owned Subsidiary

• Advantages:– No risk of losing technical competence to a

competitor.– Tight control of operations.– Realize experience and location economies.

• Disadvantage:– Bear full cost and high risk.

GreenfieldAcquisition

Structuring Partnership to Reduce Opportunism

Opportunism by partnerreduced by:

Seeking crediblecommitments

Agreeing to swapvaluable skills

and technologies

Establishingcontractual safeguards

Walling offcritical technology

Partner Selection

• Get as much information as possible on the potential partner

• Collect data from informed third parties– former partners (suppliers)– Banks, FF, CHB– former employees

• Get to know the potential partner before committing

Thank You for participating!

http://www.stcinternational.usstcintL@q.com