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GLOBAL MARKET ENTRY
STRATEGIES
‘Global Marketing Management’ by
Lee & Carter
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Determining Market Entry
Strategy• The most significant international marketing decision
• Commitment of resources in every aspects over a long period of time
• It signifies the company’s attitude and ambition ininternational markets
• It determines the competitive position of the company
• Degree of control over the entire product/service offer,
distribution, and profitability (repatriation)
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Process of Firm’s
Internationalization• The process that an organization goes through to be an
international (and ultimately a global) companyLee and Carter (2005)
• Tend to begin with experimental or tentative attempts, thengradually increase commitment as experience andknowledge improve
• Not always a ‘smooth, immutable path of development’ –
‘de-internationalization’ can occur at any time
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Process of Firm’s Internationalization:
Main Approaches
The ‘Stage’ Models Approach
Network Approach
Born Global Approach
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Internationalization Approaches:
The ‘Stage’ Models (1)
• Process of internationalization is 'incremental', 'gradual'
and 'sequential'
• Commitment increases as experience and learning build
up
– Stage 1: No regular export activity
– Stage 2: Export via independent representative
– Stage 3: Establish own sales subsidiaries
– Stage 4: Overseas manufacturing
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Internationalisation Approaches:
The Network Perspective(2)
• Articulates how organizations make use of businessnetworks as a 'mechanism' to internationalization
• The networks may comprise customers, customers'customers, competitors, suppliers, suppliers' suppliers,distributors, agents and consultants
• Similar to the 'Stages' models in that commitment is builtup when expertise, knowledge and experience improve
• Offer a clearer explanation of 'how' organizations canmake a 'step change' in the internationalization process
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Internationalization Approaches:
The Born Globals(3)
• The recent increases in the number of 'instant international' or 'bornglobal' companies (Jolly et.al. 1992; Knight and Cavusgil, 1996; McAuley, 1999)
• Patterns of internationalization do not conform to the traditionalapproaches
• Often have 'global outlook' from the beginning; and derive a large proportion of sales from international activities
• Enabling factors for 'born global':
– Changing consumer preferences and shortened PLC – demand forspecialist and/or customized products/services (global niche)
– Advances in affordable production technologies – easier for smallcompanies to customize
– New communication and E-commerce (or e-delivery technologies)
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Factors influencing the choice and importance of
market entry mode
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Market Entry Modes
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Foreign Market Entry Modes
Exporting Foreign Production
Indirect
Direct
Assembly
Full-scale Integrated Production
Distributor Alliance
Marketing
Subsidiary
Ownership Strategies
Contract Manuf.
Licensing/Franch.
Joint Venture
Strategic Alliance
Wholly Owned Sub
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Exporting
• Export selling/export marketing
• Export selling:
– Does not involve tailoring the marketing mix
– May work for some products/services or for unique
products with little international competition
– Companies new to exporting use this
• Export Marketing: – As companies mature in the global market place, they
engage in export marketing
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Two Methods of Exporting
• Direct – Reaching markets either yourself orwith the use of an intermediary located in theforeign market+ More profit, greater control, able to leverage
experience curve effects
- Requires more expertise, management time, andfinancial resources
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Some Examples of Direct
Exporting Activities
• Identifying market opportunity – Product, price, place, promotion
– Ensuring payment
• Distributing the product – Shipping the product
• Insurance, freight forwarding
– Clearing customs
– Getting it into the hands of buyers• Warehousing, transporting to retail, etc.
• Providing after-sales support
Lots to Do!
No wonder many
firms choosean intermediary
to do this for them
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Direct Export Options
• Independent Distributor
– No direct cost to
exporter; takes margin
on selling price of products
• Marketing Subsidiary
– Initial and fixed costs to
establish and maintain
subsidiary• Manager, sales manager,clerical staff, warehousing
operation, etc.
LESS PER-UNIT PROFITUSEFUL IF VOLUME
LOW
MORE PER-UNIT PROFITUSEFUL IF VOLUME
HIGH
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Intermediaries for Indirect Exporting
• Export Management Company (EMC)
– Handles all aspects of export operations
• Marketing research, patent protection, channel
credit, shipping, logistics, and actual marketing of product
– Can act as merchant (taking title of product ) or
as agent (receiving fee or commission on
product sale)
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Intermediaries for Indirect Exporting (cont’d)
• Export Agents
– Individuals or firms that assist manufacturers inexporting goods
– Similar to EMCs; but tend to provide more limitedservices and focus on one country or part of theworld
• Focus more on sale and handling of goods
• Exporting firms may need to utilize several exportagents to gain adequate worldwide market coverage
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Licensing
• …is a contractual agreement whereby one company(the licensor) makes an asset available to another
company (the licensee) in exchange for royalties,
license fees, or some other form of compensation.
• The licensed asset may be a patent, trade secret, orcompany name.
Who can use this and why?A company with advanced technology , know-how, or a strong brand image can
use licensing agreements to supplement its bottom-line profitability with
little initial investment
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Pros and Cons of Licensing
+ Leverage local knowledgeof licensee
+ Commercial and politicalrisks absorbed by licensee
+ Allows resources to beconcentrated in morelucrative markets
+ Adds to firm’smanufacturing capacity
+ Enables firms to enterseveral markets quickly
– Possibility of creating a
competitor
– Dependence on licensee
–
Uncertainty of licensee’smarketing capabilities and
product quality
– Management time and
resources
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Franchising
• …is a contractual agreement between a franchiser
and a franchisee whereby the franchiser grants the
right to sell goods/services to a franchisee.
• The franchisee agrees to operate the businessaccording to a plan defined by the franchiser and
under a trade name owned by the franchiser.
• http://www.franchisedirect.com/top100globalfranchises/
http://www.franchisedirect.com/top100globalfranchises/http://www.franchisedirect.com/top100globalfranchises/http://www.franchisedirect.com/top100globalfranchises/http://www.franchisedirect.com/top100globalfranchises/
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McDonalds:The Big Mac of Franchising
• 30,000+ locations; 119 countries
• 70% franchises
• New franchise $500,000
– At least $100,000 cash• McDonalds gets
– Initial fee
– % sales volume
– McDonalds supplies:• Pre-planning market and location research
• Operations and standards training
• Management training
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Foreign Production
– Contract Manufacturing
Company arranges to have its products manufactured byan independent local company on a contractual basis
– Avoids having to establish a factory in that market; canhelp to overcome import barriers
– Typically chosen for countries with low volume potential smaller Central American, African, and Asian countries
– Appropriate only when production technology know-how
is available in the market
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Foreign Production
Other Options
– Assembly – Company locates a proportion of manufacturing
process — typically last stages — to the foreign country
– Full-Scale Integrated Production – Company locates a fullyintegrated production unit in the foreign country
– Manufacturing and Inter-firm Licensing – If taxes on
royalties are less than taxes on repatriated profits, a firm may
license its trademark or technology to its manufacturing
subsidiary
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Joint Ventures
• More extensive form of participation thanexporting or licensing.
• Companies lacking sufficient capital resources
might seek partner to jointly finance a project.• Advantages:
– Sharing of risk
– Ability to combine different value chain strengthssuch as manufacturing, international marketingcapability, etc.
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Wholly owned & fully controlled
• ….after gaining experience outside home country via
exporting/ licensing/joint ventures
• Invest/acquire plant, equipment, or other assets
outside the home country• Investor has control or significant influence over the
investment
• Requires greatest commitment of capital andmanagerial effort
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The End