Presentation on theme: "Market Entry Strategies"— Presentation transcript:
1 Market Entry Strategies BA 523 International MarketingMelike Demirbag Kaplan, PhD
2 Deciding Whether to Go Global Factors to considerCan the company understand the consumersCan it offer competitively attractive productsWill it be able to adapt to local cultureCan they deal with foreign nationalsDo the company’s managers have the experienceHas management considered regulation and political environment of other countries
3 Deciding Which Markets to Enter Define international marketing objectives and policiesForeign sales volumeHow many countries to market toTypes of countries to market to based on:GeographyIncome and populationPolitical climateNote to InstructorWhen choosing the number of countries, companies must be careful not to spread themselves too thin or to expand beyond their capabilities by operating in too many countries too soon.
4 Deciding Which Markets to Enter Rank potential global markets based on:Market sizeMarket growthCost of doingbusinessCompetitive advantageRisk levelNote to InstructorThere is an interesting case in the text:Just 10 years ago, Procter & Gamble’s Crest brand was unknown to China’s population, most of whom seldom—if ever—brushed their teeth,” says one analyst. “Now P&G…sells more tubes of toothpaste there than it does in America, where Crest has been on store shelves for 52 years.” P&G achieved this by sending researchers to get a feel for what urban and rural Chinese were willing to spend and what flavors they preferred. It discovered that urban Chinese are happy to pay more than $1 dollar for tubes of Crest with exotic flavors such as Icy Mountain Spring and Morning Lotus Fragrance. But Chinese living the countryside prefer the 50 cents Crest Salt White, since many rural Chinese believe that salt whitens the teeth. Armed with such insights, Crest now leads all competitors in China with a 25 percent market share.
5 Deciding Which Markets to Enter The Uppsala intenationalization model(U-Model)Innovation related internationalization models(I-Models)Born GlobalsNote to InstructorWhen choosing the number of countries, companies must be careful not to spread themselves too thin or to expand beyond their capabilities by operating in too many countries too soon.
6 The Uppsala ModelA theory that explains how firms gradually intensify their activities in foreign marketsFirms first gain experience from the domestic market before they move to foreign marketsFirms start their foreign operations from culturally and/or geographically close countries and move gradually to culturally and geographically more distant countriesFirms start their foreign operations by using traditional exports and gradually move to using more intensive and demanding operation modesNote to InstructorWhen choosing the number of countries, companies must be careful not to spread themselves too thin or to expand beyond their capabilities by operating in too many countries too soon.
7 U-Model (Johanson and Wiedersheim-Paul, 1975) Stage 1: No regular export activites.Stage 2: Export via independent representatives (agents).Stage 3: Establishment of an overseas sales subsidiary.Stage 4: Overseas production/manufacturing units.
8 Note to InstructorWays to enter global markets include:ExportingJoint venturingDirect investmentIt is important that a company truly understands who they are working with if they partner for their global markets. Even finding an exporting agent can be quite difficult. This link brings the instructor to the USDA Foreign Agricultural Service listing of types of export agents and their focus.
9 Deciding How to Enter the Market Exporting is when the company produces its goods in the home country and sells them in a foreign market. It is the simplest means involving the least change in the company’s product lines, organization, investments, or mission.Indirect exportingDirect exportingNote to InstructorIndirect exporting is when the firm works through an independent international marketing intermediary. This requires less investment and risk since the firm does not require an overseas organization or network.Direct exporting is when the firm handles its own exports. This requires a greater investment and risk.
10 Deciding How to Enter the Market Joint venturing is when a firm joins with foreign companies to produce or market products or servicesLicensingContract manufacturingManagement contractingJoint ownershipJoint venturing differs from exporting in that the company joins with a host country partner to sell or market abroad
11 Deciding How to Enter the Market Licensing is when a firm enters into an agreement with a licensee in a foreign market. For a fee or royalty, the licensee buys the right to use the company’s process, trademark, patent, trade secret, or other item of value.Toyoko’s Disneyland Resort is operated under a licensing agreement.
13 Deciding How to Enter the Market Contract manufacturing is when a firm contracts with manufacturers in the foreign market to produce its product or provide its service. Benefits include faster startup, less risk, and the opportunity to form a partnership or to buy out the local manufacturer (Form of outsourcing, common in medical and electronics industry)
14 Contract Manufacturing vs. Licensing Contracting maintains your complete ownership of the product. You simply agree on a price for manufacturing the product, and the manufacturer delivers the number of units you request. You will pay cash upfront for this.LicensingIf you need a large number of units, you should consider licensing. This arrangement puts all the risk on the manufacturer. Under a licensing agreement, you agree to let a manufacturer make as many copies of your product as it can, and you get paid a licensing fee. The manufacturer will expect to make money on the product as well.
15 Deciding How to Enter the Market Management contracting is when the domestic firm supplies management skill to a foreign company that supplies capital. The domestic firm is exporting management services rather than products. Joint ownership is when one company joins forces with foreign investors to create a local business in which they share joint ownership and control. Joint ownership is sometimes required for economic or political reasons.
16 Copyright 2007, Prentice-Hall Inc. Joint OwnershipKFC entered Japan through a joint ownership agreement with Japanese conglomerate Mitsubishi.Copyright 2007, Prentice-Hall Inc.
18 Deciding How to Enter the Market Direct investment is the development of foreign-based assembly or manufacturing facilities and offers a number of advantages includingLaborLogisticsControlGovernment incentivesLower costsRaw material
19 Innovation-Related Internationalization Model Focuses on Small and Medium Sized Enterprises (SMEs)Only investigates firms’ internationalization through export behavior (not investment)Emphasizes the learning process but treating it as innovation. That is to say, it considers internationalization as an innovation to a firm (Bilkey and Tesar, 1977; Cavusgil,1980; Reid, 1981).
20 The I-Models (Bilkey and Tesar, 1977) Management is not interested in exportingManagement is willing to fill unsolicited orders, but makes no effort to explore the feasibility of exportingManagement actively explores the feasibility of active exportingThe firm exports on an experimental basis to some psychologically close countriesThe firm is an experienced exporter to that country and adjusts export optimally to changing exchange rates and tariffsManagement explores the feasibility of exporting to additional countries that psychologically further away.
21 The I-Models (Cavusgil, 1980) Domestic marketing: the firms only sell to home marketPre-export stage: the firms search for information and evaluate the feasibility of undertaking exportingExperimental involvement: the firms start export on a limited basis to some psychologically close countriesActive involvement: exporting to more new countries, direct exporting and increased sales volumeCommitment involvement: management constantly makes choices in allocating limited resource between domestic and foreign markets
22 Born Globals (Oviattand McDougall, 1994) Firms that “adopt an international or even global approach right from their birth or very shortly thereafter” (Madsen & Servais, 1997)Compete in niche markets, are very flexible and move fastSmall is beautifulGradual internationalization is dead
23 Born GlobalsStart international operations even before or simultaneously with domestic operationsBase their visions and missions mainly on global markets and customers from inceptionPlan their products, structures, systems and finance on global basisGrow exceptionally fast on global marketsPlan to become global market leaders as part of their vision
24 Distinctive Features of Born Globals Highly active in international markets from or near foundingCharacterized by limited ﬁnancial and tangible resourcesFound across most industriesManagers have a strong international outlook and international entrepreneurial orientationOften emphasize differentiation strategyOften emphasize superior product qualityLeverage advanced communications and information technologiesTypically use external, independent intermediaries for distribution in foreign markets
26 ExamplesHistory and Heraldry is a company in England that specializes in gifts for history buffs and those with English ancestry. Within a few years after the ﬁrm’s founding, History and Heraldry was selling its products in 60 countries, with exports generating about 70% of total production.Cosmos Corporation, Inc., is a young company in the United States that makes binoculars, telescopes, and various other optical devices. Within a few years of its founding, Cosmos began selling its products in Europe and Japan. Soon after that, the ﬁrm had expanded its sales to some 28 countries around the world.T-box from Istanbul, founded in 2003 and expanded its sales to 20 countries in 2005, totaling to 13 million US dollars.