Global Market Entry Strategies

Question 1

What are the four market entry strategies?

Answer 1

Exporting Indirect/Direct

Foreign Production Licensing, franchising, contract manufacturing, assembly, fully integrate production

Ownership strategies Wholly owned subsidiaries, Joint ventures, alliances, acquisitions

Entry Analysis Sales, costs, assets, profitability, risk factors

Question 2

What is indirect exporting?

Answer 2

Indirect - Reaching markets with the use of an intermediary located in the exporter’s home country (leverage the intermediary’s expertise, good for firms with little international experience, less profit+control+don’t gain experience

Question 3

What are the two intermediaries for indirect exporting discussed?

Answer 3

Export Agents (Individuals or firms that assist manufacturers in exporting goods, Provide limited services and focus on one country or part of the world, Exporting firms may need to utilize several export agents to gain adequate worldwide market coverage)

Export Management Company (EMC) (Handles all aspects of export operations, marketing+patents+shipping+logistics etc., can act as a merchant (taking the title of the product) or as the agent (receiving fee or commission on sales).

Question 4

What is direct exporting?

Answer 4

Direct – Reaching markets either yourself or with the use of an intermediary located in the foreign market

• More profit, greater control, and able to leverage experience curve effects.
• Requires more expertise, management time and financial resources.

Question 5

What are some examples of direct exporting activities?

Answer 5

Identifying a market opportunity (product, price, place, promotion, ensuring payment)

Distributing the product (shipping the product, clearing customs, getting it into the hands of buyers (warehousing, transporting to retail etc.)

Providing after-sales support

Question 6

What are the two main direct export options?

Answer 6

1. Independent distributor (no direct cost to exporter, takes margin on selling price of products) less per unit profit, useful if volume low
2. Marketing Subsidiary (initial and fixed costs to establish and maintain subsidiary (manager, sales manager, clerical staff, operation etc.) more per unit profit, useful if volume is high

Question 7

What should you know about exporting and the internet? Example?

Answer 7

The internet has greatly increased the ability of firms to export directly especially beneficial for small and medium sized enterprises (SMEs)

B2B website: Alibaba

Question 8

What do you need to understand in the market entry process?

Answer 8

• Understand customers’ needs, market size, and market structure
• Evaluate and select the entry option
• Search for partner, distributor, agent
• Managing the partner, distributor, agent

Question 9

Name the five types of foreign production.

Answer 9

Licensing
Franchising
Contract manufacturing
Assembly
Fully integrated production

Question 10

Explain Licensing, a form of foreign production.

Answer 10

• Licensing – The company assigns the right to a copyright or patent and/or trademark to another company for a fee or royalty (% sales volume) ex. Harry Potter and Xbox

Question 11

Explain Franchising, a form of foreign production.

Answer 11

• Franchising is a special type of licensing in which the company makes its total marketing plan available, including the brand name, logo, products, and methods of operation.

• 15,000 franchising companies worldwide

• The U.S. is home to the greatest number of franchisers

Ex. McDonald’s: 114 countries, 36,000 locations, 50% are franchises. Get initial fee, on going royalty, ad fee,

Question 12

Explain Contract Manufacturing, a form of foreign production.

Answer 12

• Contract Manufacturing – The company
arranges to have its products manufactured by an
independent local company on a contractual
basis

• Avoids having to establish a factory in that market; can
help to overcome import barriers

• Appropriate only when production technology know-how
is available in the market

Question 13

Explain Assembly, a form of foreign production

Answer 13

Assembly – The company locates a proportion of the
manufacturing process—typically the last stages—to the foreign market ex. Cars

Question 14

Explain Full-scale integrated production, a form of foreign production

Answer 14

• Full-Scale Integrated Production – The Company
locates a fully integrated production unit in a foreign country

Question 15

Explain Wholly owned subsidiaries, a form of ownership strategy.

Answer 15

Operations fully owned by a foreign parent firm (May involve marketing, assembly, or full-scale integrated production operations)
+ profit, control, leverage, easily integrated into the firms global network
- Requires substantial expertise, management time and financial resources.

Ex. Marvel studio is Disney’s wholly-owned subsidiary

Question 16

Explain Joint Ventures, a form of ownership strategy.

Answer 16

A foreign company invites an outside partner to share stock
ownership in a new unit.
• Equity participation may vary
• Can be successful if partners share the same goals and if one partner accepts primary responsibility for operational matters.

Ex. SAIC motor and GM

Reasons to choose it

• JV may be required by local government
• Partner may have important skills or contacts of value
• May provide local manufacturing or excellent government or distribution contact

Question 17

What is a joint venture divorce?

Answer 17

• Regulations that force firms to partner may be rescinded (ex. Unilever)
• Partner may turn out to be less than ideal
• Partners may disagree about strategic direction

50% of JVs Divorce

Question 18

Explain Strategic Alliances, a form of ownership strategy

Answer 18

an alliance involving two or more global firms in which each partner brings a particular skill or resource to the relationship.

• Technology-based Ex. Apple and IBM

• Production-based Ex. Star Alliance

• Distribution-based Ex. General Mills

Question 19

Explain Acquisitions, a form of ownership strategy

Answer 19

Ex. SAB (South African Breweries) purchases Miller Beer

**Buying an established brand gives the firm an immediate market presence and market share

Pros of acquisitions: Eliminates need to build manufacturing/distribution from scratch, immediate market share, attractive when market in dominated by established brands, gov may only allow this form of entry

Cons: attractive firms not available for purchase or are but at inflated prices

Question 20

Explain the Risk verses ownership and control chart

Answer 20

High risk, high degree of ownership - Wholly owned subsidiary, joint venture

Medium risk, medium degree of ownership - strategic alliance, franchising

Low risk, low degree of ownership - licensing, exporting

Question 21

Sometimes circumstances may make companies want to
leave a country or market. What are the two common exit strategies?

Answer 21

• Market Consolidation – rationalizing overseas operations, abandoning particular markets. (If firm fails to establish itself in a particularly competitive market, May be done to raise $$$) ex. HSBC existed Canadian markets.

• Political Considerations – Political events may change the attractiveness and/or viability of the market (Changing government regulations, Political risk, Negative reactions to the firm’s home market)

Question 22

What is market re-entry? What are some examples of market re-entry?

Answer 22

• Several of the markets left by international firms over the
past decades have become attractive again, and some
companies have reversed their exit decisions and entered
those markets a second time

Ex. Burger King left Japanese Market in 2001, but returned in 2007

Dunkin’s Donuts and Chinese Market