PP 6 Market Entry Strategies

Question 1

Stage 1: Some Preliminary Research -

Answer 1

Know your Organization
Know your Product
Know your Home Market
Pick your Target Market
Be Aware of the Self-Reference Criterion (SRC)
Redesign the “Value Proposition”

Question 2

Stage 1: The Domestic Evaluation - Know your Organization

Answer 2

Know your Organization: The ‘SW’ of SWOT (in combination with your values and Mission Statement).

Know your Organization:

• Overinvesting in an international expansion leaves the home market (which is financing the entire venture) open to international competition.
• Does your Executive’s management style (in terms of Mission and Vision statements) support an international expansion?
• Be aware of the ‘Self-Reference Criterion (SRC): Your culturally-based perceptions will bias the evaluation process unless you are aware of their influence.

Question 3

Stage 1: The Domestic Evaluation - Know your Products

Answer 3

Know your Products: In regard to each of your products or product lines:

What is their Life Cycle position?

Which products are evolving or are ‘stalled’?

Which seem to have international appeal?

Which are generating the income that supports your international project; is that market protected?

Question 4

Stage 2: The Global Evaluation

Answer 4

The first round of segmentation focuses on identifying the ideal countries to enter.
–> The most significant issue at this stage is political stability (which accounts for approximately 80% of the ‘known’ variables).

The second round of segmentation focuses on the market potential of the identified countries.

Question 5

The research variables related to the second round of segmentation include:

Answer 5

Secondary data: climate, consumer types, available segment data, estimated demand, current competition.

Primary data: specific research, segmentation, targeting and positioning to estimate market potential, risk and profits.

A research issue: Have you done research to the point of ‘diminishing returns’?

Question 6

Also based on the second round of segmentation, build the ‘value proposition’ as follows:

Answer 6

Describe your current marketing mix (the 4Ps) from your home country’s cultural perspective.

Re-define that marketing mix based on the target’s cultural preferences.

Adjust the mix to suit; a function of standardization vs customization.

Question 7

Stage 3: Entry Mode

Answer 7

Exporting (Indirect, Direct or Internet)

Question 8

Export Selling:

Answer 8

involves selling the same product, at the same price, using the same promotional tools for each individual target audience and location.

Question 9

Export Selling as an approach may work for:

Answer 9

(i) unique products with little or no international competition,
(ii) products that use global recognition (such as industrial equipment or airplanes).

Question 10

Export Marketing:

Answer 10

the 4P’s are customized for each target audience.

Question 11

Requirements for Export Marketing

Answer 11

• Research to develop a basic understanding of the target market.
• Market research to estimate the potential size of the market (which may cross borders to access similar segments).
• Decisions concerning redesigning the 4Ps (including additional costs related to taxes, duties and logistics costs).
• An economic justification for all required changes.
• A Risk Assessment.

Question 12

After the research effort has selected a potential market, there is no substitute for a personal visit to begin the development of an actual marketing program. A market visit will:

Answer 12

• Confirm (or contradict) market assumptions.
• Gather the additional data necessary for the decision.
• Introduce international distributors and possibly develop a marketing plan in cooperation with a local agent or distributor.

A good starting point would be through a trade show or a government-sponsored trade mission.

Question 13

The Evolution of an Organization’s Plan

Answer 13

Global research has shown that a business’s exporting activities are a developmental process; an evolution that can be divided into distinct stages.

Question 14

The Evolution of an Organization’s Plan - Part 1

Answer 14

The firm advertises domestically. It has turned down international orders because it doesn’t know how to manage them.

Question 15

The Evolution of an Organization’s Plan - Part 2

Answer 15

The firm fills unsolicited export orders but still doesn’t advertise internationally. There are no staff assigned to international marketing. [Moving beyond this stage requires management’s attitude (and confidence level) toward exporting to shift; this is the first step towards an international perspective.]

Question 16

The Evolution of an Organization’s Plan - Part 3

Answer 16

Based on the number of international orders being received, the firm decides to ‘sample’ one international market by focusing on the country that is requesting the most orders. [The degree of management commitment determines the success of this stage.]

Question 17

The Evolution of an Organization’s Plan - Part 4

Answer 17

As international order increase, the firm assigns staff to international activities and becomes an experienced exporter to one or more markets.

Question 18

The Evolution of an Organization’s Plan - Part 5

Answer 18

The firm expands from a single country to a regional focus (based on similar segmentation).

Question 19

The Evolution of an Organization’s Plan - Part 6

Answer 19

The firm moves from a regional to global perspective (with a consistent focus on its target segment).

Question 20

Beyond exporting:

Answer 20

The firm opens a manufacturing facility closer to the new market.

The firm closes the original factory in the home country; the off-shore facility now serves the home market.

Question 21

Potential Export Problems: Logistics

Answer 21

Legal Procedures
Arranging Transportation
Transport Rate Determination
Handling Documentation
Obtaining Financial Information
Distribution/ Coordination
Packaging
Government Red Tape
Product Liability
Licensing
Customs/Duty
Contract
Agent/Distributor Agreements
Obtaining Insurance

Question 22

Government Programs that Support Exports

Answer 22

1. Tax Incentives
2. Subsidies
3. Governmental Assistance
4. Free Trade Zones

Question 23

Tax Incentives:

Answer 23

examples include varying degrees of tax exemption or tax deferral on export income, accelerated depreciation of export-related assets, and preferential tax treatment of overseas market development activities (which all support domestic employment).

Question 24

Subsidies:

Answer 24

these are typically direct or indirect financial support for exporting producers. Subsidies distort trade patterns when subsidized producers compete in world markets.
The result; eventually, all affected countries offer the same subsidies; this will eliminate competition and maintain pricing at an artificially high level.

Question 25

Governmental Assistance:

Answer 25

companies will access government information concerning the location of markets and credit risks. Essentially, they are transferring their research costs to the taxpayer.

Question 26

Free Trade Zones:

Answer 26

geographic regions operating under a trade agreement will simplify customs procedures and reduce cross-border regulations.

Question 27

Governmental Actions to Discourage Imports

Answer 27

Tariffs: rules, rates, regulations. Nontariff barriers: --> Quotas: a government-imposed limit on the number of units that can be imported. --> Discriminatory procurement policies: example; minimum local-content laws. --> Discriminatory exchange rate policies: a country will keep its currency at an artificially low value to create a competitive price advantage for its domestic businesses in world markets. --> Restrictive customs procedures: administrative rules designed to make compliance difficult and expensive. --> Restrictive administrative & technical regulations: antidumping, safety, health, pollution regulations, packaging requirements being applied to only imports, not domestic products.

Question 28

Export Participants

Answer 28

Agents, brokers, distributors, forwarders, merchants. Foreign purchasing agents Export brokers Export merchants Export management companies Export distributor Export commission representative Freight forwarders Manufacturer’s export representatives

Question 29

International Distribution Alternatives

Answer 29

Analysis of Home Country and Foreign Country - see Power Point Slide 28

Question 30

Customs Duties

Answer 30

Ad valorem duty, Specific duty and Compound or mixed duties

Question 31

Ad valorem duty:

Answer 31

Expressed as percentage of value of goods.

Question 32

Specific duty:

Answer 32

Expressed as a specific amount of currency per unit of weight, volume, length, or other unit of measurement.

Question 33

Compound or mixed duties:

Answer 33

A combination of the above or the addition of any variables that will give an advantage to domestic producers. Example: Genetically Modified Organisms (GMO) import restrictions would protect domestic producers (even if they produce GMO products).

Question 34

Other Duties and Import Charges

Answer 34

Dumping duties Variable import levies: Countervailing duties: Temporary Surcharges:

Question 35

Dumping duties:

Answer 35

applied to imported products that are also manufactured or grown in the importing (target) country. --> These charges are often equal or exceeding the dumping margin. --> This is usually a political decision, not an economic decision.

Question 36

Countervailing duties:

Answer 36

subsidies designed to offset supportive duties from the source country.

Question 37

Temporary Surcharges:

Answer 37

designed to protect local industries. --> Although called ‘temporary’, they are usually permanent (subject to political changes).

Question 38

Variable import levies:

Answer 38

applied to imported agricultural and community products. --> They are designed to raise prices which allows domestic producers to sell at a higher profit margin.

Question 39

Global Sourcing - Some factors for Executive to consider before using global sources:

Answer 39

- The sources should reflect the values of company’s Mission Statement (i.e.: a ‘public relations’ issue) or accept the ‘public relations’ consequences. - Concentrating several sources into one country provides for an economy of scale (from a logistics perspective), but increases political risk. - Leverage the firm’s knowledge and contacts. - Research and product development can be shared, but never share a business’s ‘core competency’; that decision will create competitors.

Question 40

Factors that Affect Sourcing

Answer 40

Management’s vision - two extreme perspectives Factor costs and logistics: Customer’s expectations: Country infrastructure issues: Political risk: Exchange rates and convertibility of local money:

Question 41

Management’s vision - two extreme perspectives:

Answer 41

--> Keep manufacturing at home to maintain quality control. --> Contract everything.

Question 42

Factor costs and logistics:

Answer 42

this issue involves costs and savings related to: labour outsourcing savings vs. cost of land, initial outlay, shipping and duties. --> If the product doesn’t have labour-intensive costs (because of automation), taxes and shipping costs may overrule the decision to source off-shore.

Question 43

Customer’s expectations:

Answer 43

Call Centers are sometimes moved back to the home country to solve language barriers.

Question 44

Country infrastructure issues:

Answer 44

These problems relate to physical (shipping) and virtual (electronic data and currency interchange) reliability and security issues.

Question 45

Political risk:

Answer 45

(i) protectionist laws, (ii) stability.

Question 46

Exchange rates and convertibility of local money:

Answer 46

a country with an undervalued currency will attract international business.

Question 47

Degree of Involvement in Mode of Entry

Answer 47

Low Involvement/Low Cost = Exporting, Licensing, Contract Manufacturing, Joint Venture, Equity Stake or Acquisition = High Involvement/High Cost

Question 48

Exporting

Answer 48

Indirect via domestic (home) distributors Or Direct to customers or distributors abroad

Question 49

Contractual Agreements

Answer 49

Contract Manufacturing or Licensing or Franchising

Question 50

International Alliances

Answer 50

Strategic International Alliances or International joint ventures

Question 51

Foreign Direct Investment

Answer 51

Sales Office or M&A or Greenfield

Question 52

The selected strategy will be determined by:

Answer 52

The Executive’s Vision. The Executive’s attitude toward Risk. The Executive’s tolerance for maintaining or releasing control. Available investment capital.

Question 53

Licensing

Answer 53

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. That asset is typically a: - Patent - Manufacturing secret - Product formulation - Brand name

Question 54

Advantages to Licensing

Answer 54

- Provides additional profitability with little initial investment (low cost to implement; attractive ROI). - Provides a method to avoid tariffs, quotas and other export barriers. - The control of marketing variables can be maintained or delegated. Specifically, a contract can be written that states: - The Licensee cannot alter some (or any) of the 4Ps, or - The Licensee has the authority to adapt products to local tastes.

Question 55

Disadvantages to Licensing

Answer 55

- Limited participation/control: the licensor is not directly involved in the licensee’s marketing program (subject to contractual restrictions). - A new competitor: the licensee modifies the technology to create a new product (or sells the same product under a new name). - Licensee may exploit company resources. To limit these disadvantages, the Licensee agreements should have cross-technology agreements to share developments that would otherwise create a competitive advantage for one party.

Question 56

Special Licensing Arrangements - Contract Manufacturing

Answer 56

the Company provides technical specifications to a subcontractor or local manufacturer. The agreement allows: - The company to maintain control of Research/Development. - The contractors to accept responsibility for manufacturing.

Question 57

Contract Manufacturing Advantages:

Answer 57

- Limited financial/managerial commitment. - Quick entry into target countries.

Question 58

Contract Manufacturing Disadvantages:

Answer 58

- Loss of quality control. - Shared confidential ‘trade secrets’.

Question 59

Special Licensing Arrangements - Franchising

Answer 59

A contract between a parent company (franchisor) and a franchisee that allows the franchisee to operate a business developed by the franchisor. - Its key feature; it allows market expansion at a rate that is far beyond the financial capabilities of the parent organization. - Most franchises have very restrictive contracts. For example: (i) the products cannot be modified from their original design (common for technology applications), or (ii) the products can be modified to suit the local market (common for clothing and food), but only with permission.

Question 60

Franchising Questions

Answer 60

How tough is the local competition? Will local consumers buy your product? (This question addresses established market dominance). Will the government’s legal system protect your trademark and franchiser rights? Can your profits be brought home? Can you buy your supplies locally? Who has final approval of a local supplier selection? Is commercial space available and are rents affordable?

Question 61

Investment - FDI

Answer 61

Foreign Direct Investment (FDI): Unlike exporting (which has no international financial commitment) and licensing (which has no ‘asset’ investment), FDI is the commitment of funds toward physical assets such as a factory, sales organizations, or R&D commitments. Some common models include: Joint ventures Minority or majority equity stakes Outright acquisition Global Strategic Alliance

Question 62

Joint Venture

Answer 62

This is an entry strategy for a single target country (or a single project) in which the partners share ownership of a newly-created business entity. The intent is to build on each partner’s strengths by sharing: technology, geographic advantage, physical size. For example: --> Two automobile companies partner to enter a new sector. --> Two businesses combine their resources to meet the requirements of a business opportunity’s ‘Request for Proposal’.

Question 63

Joint Venture Advantages

Answer 63

Allows for risk sharing; financial and political. Provides access to a new environment. Provides an opportunity to combine the strengths of partners (which may be the only way to enter the market).

Question 64

Joint Venture Disadvantages

Answer 64

Requires more investment than exporting or licensing. Must share rewards as well as risks. Potential for conflict among partners. The Partner who learns your internal processes becomes a stronger competitor. Example: Korean vs. American car companies.

Question 65

Investment via Foreign Direct Investment

Answer 65

Taking an ‘Equity’ position: Start-up of new operations: Greenfield investment: Merger with an existing enterprise: Acquisition of an existing enterprise:

Question 66

Taking an ‘Equity’ position:

Answer 66

Minority < 50%; minimal cost, but no control. Majority > 50%; substantial cost, but gives control. Full ownership = 100%; greenfield or acquisition.

Question 67

Start-up of new operations: Greenfield investment:

Answer 67

Full control, full risk, full access to profits.

Question 68

Merger with an existing enterprise:

Answer 68

Immediate access to a local reputation (in regard to market share, financial support, political protection).

Question 69

Acquisition of an existing enterprise:

Answer 69

Advantages: (i) an immediate ‘presence’, (ii) no ‘partner’ issues, (iii) sometimes less expensive than greenfield (after considering the value of a developed market share). Disadvantages: (i) integrating the new company into your current organizational structure, (ii) adjusting the acquisition’s internal ‘culture’ to the new parent’s expectations, (iii) government restrictions on foreign ownership.

Question 70

Global Strategic Partnerships - Some of the common references include:

Answer 70

--> Collaborative agreements. --> Strategic alliances and Strategic international alliances. --> Global strategic partnerships.

Question 71

The Attributes of Global Strategic Partnerships

Answer 71

Participants are still competitors outside of the alliance, but a properly-designed agreement will limit most competitive conflicts due to different products, services, or geographic regions. Each Participant must teach its staff the boundaries of sharing information or technology. Participants make ongoing improvements to technology. They also share benefits, risks, profits and control. But each Participant will protect any exclusive trade secrets. This is a horizontal relationship; it is not ‘vertical integration’.

Question 72

Success Factors of Alliances

Answer 72

Mission Statement: creates win-win situations and recognizes a mutual need or advantage. Strategic Plan: this is something that needs to be defined at the beginning (and adjusted as required). Governance: an equal level of influence. Culture: has the ‘Corporate Culture’ been researched and understood? For example, several equal partners will result in a new culture, but one dominant member will force minority players to adapt. Organization: a detailed hierarchy is developed to define the multi-country management structure (who makes decisions?). Clear lines of authority will need to be established and accepted by both parties.

Question 73

Market Expansion Strategies

Answer 73

Companies must decide to expand by: 1. Concentrating on only a few countries with: (i) a narrow market focus or (ii) a multi-market focus. 2. Taking a global perspective with: (iii) a focus on a specific market in each country or (iv) expand into multiple segments with multiple products (usually through acquisition).

Question 74

4 options for Market Expansion

Answer 74

1. Narrow Focus (Country and Market Concentration) 2. Country Focus (Country Concentration & Market Diversification) 3. Country Diversification (Country Diversification & Market Concentration) 4. Global Diversification (Country and Market Diversification)

Question 75

Strategy 1: Country and Market Concentration.

Answer 75

This is the starting point for most companies. The company will use research and segmentation to find the identical segment in a new country (or a few countries).

Question 76

Strategy 2: Country Concentration and Segment Diversification.

Answer 76

This strategy will have a company expand its product offering to include new segments (based on market research) but stay within a few countries. Example: an EU-based business stays within Europe to leverage its market knowledge to introduce new products.

Question 77

Strategy 3: Country Diversification and Market Concentration.

Answer 77

This strategy will have a company expand into several new countries, but (based on market research) search for the segments that are already proven to be interested in their products.

Question 78

Strategy 4: Country and Segment Diversification.

Answer 78

This is a global corporate strategy. Using mergers and acquisitions, the company diversifies into various business units to serve multiple segments. Outsourcing of individual parts to access inexpensive labour is a key component of this strategy.

Question 79

The Evolution of Partnership Dependency

Answer 79

1. Outsourcing of labour-intensive individual parts manufacturing to access inexpensive labour. 2. Outsourcing of low-value component module assembly to access inexpensive labour. 3. Outsourcing of higher-value component module assembly to access inexpensive labour. 4. Manufacturing skills and technology moved abroad. 5. Quality control, precision manufacturing moved abroad. 6. Core skills (manufacturing secrets, in-house developed processes, R&D) moved abroad. 7. Your partner is now your competitor.

Question 80

Stage 4: The Promotion Strategy

Answer 80

Waterfall Strategy: the firm pours all of its available resources into one or a select few markets. --> A waterfall strategy may be the best option if local competition is strong, or the target market is particularly attractive (i.e.: time sensitive; a ‘first-mover’ advantage) and the firm wants to establish a leadership position. --> Issue; if there are multiple parts to this plan, are there time or sequence issues that need to be coordinated?

Question 81

Sprinkler Strategy:

Answer 81

spreading the company’s resources in order to gain small market entry points across as many markets as possible. --> A sprinkler strategy will be a better option when the reverse conditions apply; minimal competition, no specific area is more attractive than others, no time-sensitive advantage. --> Cross-market opportunities – can the strategy be extended across national borders to similar segments (to leverage economies of scale)?

Question 82

Waterfall Strategy:

Answer 82

the firm pours all of its available resources into one or a select few markets.

Question 83

Stage 5: The Tactical Plan; 4Ps & Logistics (Product)

Answer 83

Product: Positioning Branding Styling & Features Packaging & Labelling Services & Warranty Standards

Question 84

Stage 5: The Tactical Plan; 4Ps & Logistics (Price)

Answer 84

Price: Price Level Penetration vs Skimming Discounts

Question 85

Stage 5: The Tactical Plan; 4Ps & Logistics (Place

Answer 85

Place: Channels Scope Logistics

Question 86

Stage 5: The Tactical Plan; 4Ps & Logistics (Promotion)

Answer 86

Promotion: Advertising Personal Selling Sales Promotion Publicity and PR

Question 87

To Summarize

Answer 87

Export Selling vs Export Marketing The Evolution of an Organization’s Plan Duties and Import Charges Global Sourcing Licensing, Investment and Strategic Alliances Market Expansion and Promotion Strategies