market entry. three basic decisions which markets to enter? when to enter these markets? what...
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Market EntryMarket Entry
Three Basic DecisionsThree Basic Decisions
Which markets to enter? When to enter these markets? What scale and what nature should this entry have?
Enter Which Foreign Market(s)?Enter Which Foreign Market(s)?
There are more than 200 countries
– 191 are member-nations of the UN… (8/04)
Each country’s attractiveness as a
market to a particular firm depends on:
– The firm’s objectives
– A balance of benefits, costs, and risks
Timing of entry: 1Timing of entry: 1stst Mover Advantages Mover Advantages
Preempt rivals; establish strong brand name; capture demand
Build sales volume; ride down experience curve ahead of competitors; cost advantage
Create switching costs; tie customers to 1st mover’s products
Establish social ties ahead of following foreign competitors
Timing of entry 1Timing of entry 1stst-mover disadvantages; -mover disadvantages; Pioneering costsPioneering costs
Time spent to learn dos-don’ts may benefit competitors who can learn from 1st mover
1st mover who starts a new industry builds the infrastructure
1st mover “trains” customers for followers Breaks through host country’s adjustment to
“foreignness” issues– Regulations may change due to 1st mover’s entry– Followers benefit from 1st mover’s efforts/costs
Scale of entryScale of entryLevel of resources
– How much needed to commit for success?– What level can firm afford to commit?– 1st mover advantages and large scale linked– Small scale entry allows learning at low risk– Entry in small or large potential market may require
the same level of initial resources
A strategic commitment is difficult to reverse– Has a long-term impact– Means that the resources cannot be used elsewhere
External or “arms-length” Modes of EntryExternal or “arms-length” Modes of Entry
Firm does business overseas without own assets and human resources in target market
Export– Sell “domestically” produced products abroad through local
independent agents or directly to customers
Turnkey project: a firm sets up production plant facilities then local firm takes over
– “Exporting firm” builds a facility overseas, starts it up, turns it over to host country owner, then departs
– Examples: Oil firms, construction firms, manufacturers
External or “arms-length” Modes -External or “arms-length” Modes -LicensingLicensing
Licensor grants rights to licensee for
– Intangible property use: patents, inventions, formulas,
processes, designs, copyrights, trademarks
– Specified period of time
– Specified compensation
Licensee typically gives licensor
– Quality assurance rights
– Strategic brand control if licensee sells to consumers using
the licensor’s brand name
External or “arms-length” Modes - External or “arms-length” Modes - Franchising, AlliancesFranchising, Alliances
Franchising– Franchisor, grants franchisee use of
intangibles under the condition that franchisee follow strict rules of operating the business
– Mode of operation is part of the brand image– Similarities to Licensing
International strategic alliances– Cooperative agreements between competitors
from different countries (Chapter 12)
““Internal” Modes of EntryInternal” Modes of EntryThese involve Foreign Direct Investment
– Wholly owned subsidiaries Firms owned 100% by a company in a foreign
country
– International joint ventures Firms that are owned jointly by two or more
otherwise independent firms; most IJVs are between two firms
One (or more) parent firms are non-resident in the host market
Foreign participation varies from majority owned, to 50% owned, to minority owned
Entry Mode Advantage DisadvantageWhollyownedsubsidiaries
Enables global strategiccoordination
Protects technology Realizes (potentially) location
and experience economies
High costs and risks Requires overseas
management skills May be slower to implement
InternationalJointVentures
Gives access to local partner'sknowledge
Allows sharing of developmentcosts and risks
May be more politicallyacceptable than 100% foreignownership
Allows foreign parent dodeploy resources across morenational markets at once
Loss of control overtechnology and managerialknow-how
May impede globalcoordination
May make realization oflocation and experienceeconomies more difficult
Sharing of profit "pie"
InternationalStrategicAlliances
Similar to international jointventures
May be more difficult tomanage than internationaljoint ventures
Entry Mode Advantage DisadvantageFranchising Low financial risk
Relatively lowdevelopment costs
Lack of direct control over quality Successful international franchising
requires considerable start-up andongoing presence overseas (cost)
Is likely to impede, make globalcoordination costlier than ownership
Growth may be slower dependingon franchisee's intentions
Sharing of profit "pie" Possible loss of know-how to
potential competitorLicensing Similar to franchising
Fewer "maintenance"costs than franchising
Similar to franchising
Exporting Ability to realizeexperience curveeconomies
Transport costs Trade barriers Motivation of local agents a
challenge