Week 2: Export Market Selection / Market Entry Flashcards
Uppsala Stages Model of Internationalisation
- Firms start exporting before utilising higher risk entry modes e.g. FDI
- Rationale – Enter foreign markets with greater ‘psychic distance’
‘Internationalisation Process’ Model
- Firms take a gradual/incremental approach to internationalisation
- Rationale – firms gradually build up their ‘experiential’ knowledge to manage risk
Business Network Internationalisation Process Model
- Rationale – markets are networks of relationships / insider-ship is necessary for successful internationalisation
Reactive Exporting
Choice of export market is already given e.g. firm responds to an unsolicited order from abroad (still needs to examine/evaluate market before responding to order)
- Risky without research
- Overseas company provides info
Proactive Exporting
Initiating need to export
A firm decides to export ‘proactively’ – evaluate market opportunities / ensure potential opportunities are relevant to firm and its capabilities / ensure product market fits consistently with long-term growth opportunity / profitability
- More work involved
Indirect Exporting
Exporters use independent marketing organisations located in home country
By selling to / through channel partner
Indirect Exporting Advantages
- Market entry / sales growth = fast
- Channel partner’s existing knowledge / networks
- Sales, marketing, costs shared
Indirect Exporting Disadvantages
- No control over pricing / branding / marketing
- Must provide sales support for continuing growth
Direct Exporting
Selling directly to target markets. By own dependent unit (e.g. export department) or by using foreign marketing organisation
Direct Exporting Advantages
- In control of pricing/ brand
- Own / maintain customer relationships
Direct Exporting Disadvantages
- Market progress slower
- Commit lots of time, energy, staff resources and money
Intra-Corporate Transfer
Type of exporting for MNCs – lend itself to tax maximisation
Piggyback
Cross between direct/indirect export
- Occurs when one manufacturer (carrier) uses its foreign distribution facilities to sell another company’s (supplier) products
Advantage:
- Easy/low-risk way for smaller manufactures to export through an established firm without investing heavily in foreign marketing
Disadvantage:
- No control over marketing of products
Wholly Owned Subsidiary
+/-
- Enables global strategic coordination
- Realises location / experience economies
- $$$$$ / risks
- Requires overseas management skills
- Slower to implement
IJV
+/-
- Exchange knowledge Sharing development costs / risks
- More politically acceptable than 100% foreign ownership
- Quicker market access
- Loss of control over technology / managerial know-how / flexibility
- Relationship problems
- Gov. regulations
Int. Strategic Alliance
+/-
Similar to IJV
More difficult to manage than IJV
Franchising
+/-
• Low financial risk/ development costs
- No control over quality
- Growth slower
- Chance of exploitation
- Loss of know-how
Licensing
+/-
- Low risk / commitment of resources
- Quick cash flow / market access
- Limited control
- Chance of competition / exploitation
- Opportunity costs
FDI
+/-
- High level of control
- Greater access to inputs / customers
- $$
- Greater resource commitment
- Exposure to risks
- Suited well-est. exporters
Service Modes International Entry
- Cross-border supply e.g. market research company provides consultation for overseas customer
- Consumer abroad e.g. foreign student in Australia for tertiary education
- Commercial presence e.g. bank sets up overseas through direct investment
- Presence of a natural person e.g. engineer goes overseas for a project
E-Strategy
- Supports internationalisation of a business
- Selling/promotion
- Customer support/feedback
E-Strategy Benefits
- Complements needs of most businesses
- May assist in creating international reputation/awareness
- May ease entry into international markets
E-Strategy Limitations
- Most businesses cannot rely on internet sales alone to generate sufficient profits
- Does not easily replace traditional distribution channels
- Although useful, a website alone does not provide sustainable competitive advantage
Start-Up Approach
Firms export in an overseas market before selling in domestic market
- Know to be used by some born-global firms
- Considered unorthodox approach – contradicts traditional ‘incremental / stages’ theories of internationalisation
