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International MarketEntry Strategies
Nilesh Dhumal-KHR2011SMBA24P002
Ramesh Gaonkar-KHR2011SMBA24P006
Batch 24
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1. Target Market Selection2. Choosing the Mode of Entry
3. Exporting
4. Foreign Production5. Owner Ship Strategies
6. Entry Analysis
7. Exit Strategies
8. Conclusion
Index
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1-Target Market Selection
A crucial step in developing a global expansionstrategy is the selection of potential targetmarkets
A four-step procedure for the initial screeningprocess:
1. Select indicators and collect data
2. Determine importance of country indicators
3. Rate the countries in the pool on eachindicator
4. Compute overall score for each country
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Decision Criteria for Mode of Entry: Market Size and Growth
Risk
Government Regulations
Competitive Environment/Cultural Distance
Local Infrastructure
2-Choosing the Mode of Entry
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2-Choosing the Mode of Entry
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ExportingIndirect ExportingDirect Exporting(Companyowned Subsidiary)
Foreign ProductionLicensingFranchisingContract ManufacturingAssemblyLocal Production
Ownership Strategies
AlliancesJoint Ventures
Entry AnalysisProfitabilityAssets
CostsSalesRisk Factors
Entry Strategy Alternatives
Exist Strategy
EntryStrategy
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3-Exporting
1. Indirect Exporting
Export merchants
Export agents
Export management companies (EMC)2. Cooperative Exporting
Piggyback Exporting
3. Direct Exporting
Firms set up their own exportingdepartments ( Company own Subsidiary) E.g. International Representative, Local Agents,
Foreign Distributers and Commercial Subsidiary
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4-Foreign Production
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
-Patent
-Trade secret
-Brand name-Product formulations
4.1 Licensing
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4-Foreign Production
Benefit to Licensing-Provides additional profitability with little initial
investment
-Provides method of circumventing tariffs, quotas, andother export barriers
-Attractive ROI
-Low costs to implement
4.1 Licensing
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4-Foreign Production
Caveats to Licensing-Limited participation
-Returns may be lost
-Lack of control
-Licensee may become competitor
-Licensee may exploit company resources
4.1 Licensing
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4-Foreign Production
Contract between a parent company-franchisor and a franchisee
that allows the franchisee to operate a business developed by the
franchisor in return for a fee and adherence to franchise-wide
policies
4.2 Franchising
Benefits:
Overseas expansionwith a minimuminvestment
Franchisees profits tiedto their efforts
Availability of localfranchisees knowledge
Caveats:
Revenues may not be adequate
Availability of a master franchisee
Limited franchising opportunities overseas Lack of control over the franchisees
operations
Problem in performance standards
Cultural problems
Physical proximity
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4-Foreign Production
Company provides technical specifications to a subcontractor or
local manufacturer
Allows company to specialize in product design while contractorsaccept responsibility for manufacturing facilities
Looking at this emerging trend, some smart Indian hardware
product companies like D-Link, TVS Electronics and WeP
Peripherals have started offering CM services.
TVS Electronics, which recently launched Indias first
indigenously developed printer for the retail market.Anothersuccessful company is D-Link, one of the very few hardware
companies in India that does local manufacturing.
4.3 Contract manufacturing
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Benefits:
Labor cost advantages
Savings via taxation, lower
energy costs, raw materials,and overheads
Lower political andeconomic risk
Quicker access to markets
Caveats:
Contract manufacturer may becomea future competitor
Lower productivity standards
Backlash from the companys home-market employees regarding HRand labor issues
Issues of quality and productionstandards
4.3 Contract manufacturing-Cont
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4-Foreign Production
It is a strategy in which an international firm locates a portion of
manufacturing process in the foreign country .
Typically consist of only last stages of manufacturing
Depends on ready supply of components or manufactured parts
to be shipped in from another country.
Motor vehicle manufacturers majorly uses this strategye.g. G.M, Toyota, Ford,
4.4 Assembly
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4-Foreign Production
To take advantage of lower cost in a country ,international
companies may establish factories in those country to gain new
business and providing a better basis for competing the local firms.
Important in industrial market where service and reliability of
supply are main factors demining product of supplier choice.
Moving with established customers
Shifting production abroad to save cost like Compaq computers
shifted factory from USA to European market in 1985 and double
the size of factory with in two years due to high sales in Europe.
4.5 Local Production.
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ExportingIndirect ExportingDirect Exporting(Companyowned Subsidiary)
Foreign Production
LicensingFranchisingContract ManufacturingAssemblyLocal Production
Ownership StrategiesAlliancesJoint Ventures
Entry AnalysisProfitabilityAssets
CostsSalesRisk Factors
Entry Strategy Alternatives
Exist Strategy
EntryStrategy
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5-Ownership Strategies
AStrategic Alliance is a relationship between two or more parties to
pursue a set of agreed upon goals or to meet a critical business need
while remaining independent organizations. This form of cooperation
lies between M&A and organic growth.
Type of Strategic alliancesTechnology Based, Production
Based, Distribution Based.
For Example, Rival private airlines Jet Airways and KingfisherAirlines, announced a strategic alliance to help them reduce cost and
enhance efficiency. The alliance will involve code-sharing on domestic
and international flights, an interline agreement, joint fuel
management, common ground-handling services and cross-selling
flights through the global ticketing system.
5.1 Strategic Alliance.
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5-Ownership Strategies
A joint venture (JV) is a business agreement in which parties agreeto develop, for a finite time, a new entity and new assets bycontributing equity. They exercise control over the enterprise andconsequently share revenues, expenses and assetsBenefits:
Higher rate of return and more control over the operationsCreation of synergySharing of resourcesAccess to distribution network
Contact with local suppliers and government officialsCaveats:
Lack of control
Lack of trust
Conflicts arising over matters such as strategies, resource allocation,
transfer pricing, ownership of critical assets like technologies and brand
names
5.2 Joint Ventures
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6-Strategy Entry Analysis
International market entry decisions should also cover the following
timing-of-entry issues:When should the firm enter a foreign market?
Other important factors include: level of international experience, firm
size
Also, the broader the scope of products and services
Mode of entry issues, market knowledge, various economic
attractiveness variables, etc.
Analyst must go through following factors for strategic Entry:SalesCosts
Assets
Profitability
International Risk factors
Maintaining flexibility
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6-Strategy Entry Analysis
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7- Exit Strategies
Reasons for exit:Sustained lossesVolatility
Premature entry
Ethical reasons
Intense competition
Resource reallocation
Risks of exit:Fixed costs of exitDisposition of assets
Signal to other marketsLong-term opportunities
Guidelines:Contemplate and assess all options to salvage the foreign businessIncremental exit
Migrate customers
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8-Conclusion
The World is comprised of total 242 countries or markets as on
Today.
So entry decisions for International companies make most
frequently
Type of Entry Strategy is related to Market Success andtherefore need to be based on Careful Analysis
Also to Survive in Global battle, companies must become bolder
and more creative in their Entry Strategy Choices.
We expect other types of entry strategies in future that will
change international markets like Super Alliance, VirtualCooperation etc.
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Thank You