1. Global Market Entry Strategies
Session
Global Market Entry Strategies

2. Session Outline Modes of Entry Strategic Alliances Joint Ventures
Exporting
Licensing
Franchising

3. This Session Weekly Activity: Self-study Quizz Task:
Undertake Chapter Self-study Quizz: Griffin & Pustay – International Business Ch. 18.
How did you score?

4. Topic Example Video
The following video discusses the market entry continuim.
Take note of the key points

5. Overview 1. Target Market Selection 2. Choosing the Mode of Entry
3. Exporting
4. Licensing
5. Franchising
6. Contract Manufacturing
7. Joint Ventures
8. Wholly Owned Subsidiaries
9. Strategic Alliances
10. Timing of Entry
11. Exit Strategies

6. Introduction
The need for a solid market entry decision is an integral part of a global market entry strategy.
Entry decisions will heavily influence the firm’s other marketing-mix decisions.
Global marketers have to make a multitude of decisions regarding the entry mode which may include:
(1) the target product/market
(2) the goals of the target markets
(3) the mode of entry
(4) The time of entry
(5) A marketing-mix plan
(6) A control system to check the performance in the entered markets

7. 1. Selecting the Target Market
A crucial step in developing a global expansion strategy is the selection of potential target markets.
A four-step procedure for the initial screening process:
1. Select indicators and collect data
2. Determine importance of country indicators
3. Rate the countries in the pool on each
indicator
4. Compute overall score for each country

9. 2. Choosing the Mode of Entry
Decision Criteria for Mode of Entry:
Market Size and Growth
Risk
Government Regulations
Competitive Environment/Cultural Distance
Local Infrastructure .

10. 2. Choosing the Mode of Entry

11. 2. Choosing the Mode of Entry

12. 2. Choosing the Mode of Entry
Classification of Markets:
Platform Countries (Singapore & Hong Kong)
Emerging Countries (Vietnam & the Philippines)
Growth Countries (China & India)
Maturing and established countries (examples: South Korea, Taiwan & Japan)
Company Objectives
Need for Control
Internal Resources, Assets and Capabilities
Flexibility

13. 2. Choosing the Mode of Entry
Mode of Entry Choice: A Transaction Cost Explanation
Regarding entry modes, companies normally face a tradeoff between the benefits of increased control and the costs of resource commitment and risk.
Transaction Cost Analysis (TCA) perspective
Transaction-Specific Assets (assets valuable for a very narrow range of applications)

14. Topic Example Video
The following video explains exporting and the desire to move offshore for market growth.
Take note of the key points

15. 3. Exporting Indirect Exporting Cooperative Exporting Direct Exporting
Export merchants
Export agents
Export management companies (EMC)
Cooperative Exporting
Piggyback Exporting
Direct Exporting
Firms set up their own exporting departments

16. Topic Example Video
The following video outlines the licensing revenue model.
Take note of the key points

17. 4. Licensing Licensor and the licensee Benefits: Caveats:
Appealing to small companies that lack resources
Faster access to the market
Rapid penetration of the global markets
Caveats:
Other entry mode choices may be affected
Licensee may not be committed
Lack of enthusiasm on the part of a licensee
Biggest danger is the risk of opportunism
Licensee may become a future competitor

18. 5. Franchising Caveats: Franchisor and the franchisee
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
Franchisor and the franchisee
Master franchising
Benefits:
Overseas expansion with a minimum investment
Franchisees’ profits tied to their efforts
Availability of local franchisees’ knowledge

19. Topic Example Video
The following video discusses how outsourcing can be bad for business.
Take note of the key points

20. 6. Contract Manufacturing (Outsourcing)
Benefits:
Labor cost advantages
Savings via taxation, lower energy costs, raw materials, and overheads
Lower political and economic risk
Quicker access to markets
Caveats:
Contract manufacturer may become a future competitor
Lower productivity standards
Backlash from the company’s home-market employees regarding HR and labor issues
Issues of quality and production standards

21. 6. Contract Manufacturing (Outsourcing)
Qualities of an ideal subcontractor:
Flexible/geared toward just-in-time delivery
Able to meet quality standards
Solid financial footings
Able to integrate with company’s business
Must have contingency plans

22. Topic Example Video
The following video discusses the concept of joint ventures.
Take note of the key points

23. 7. Expanding through Joint Ventures
Cooperative joint venture
Equity joint venture
Benefits:
Higher rate of return and more control over the operations
Creation of synergy
Sharing of resources
Access to distribution network
Contact with local suppliers and government officials

24. 7. Expanding through Joint Ventures
Caveats:
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

25. 7. Expanding through Joint Ventures
Drivers Behind Successful International Joint Ventures :
Pick the right partner
Establish clear objectives from the beginning
Bridge cultural gaps
Gain top managerial commitment and respect
Use incremental approach
Create a launch team during the launch phase:
(1) Build and maintain strategic alignment
(2) Create a governance system
(3) Manage the economic interdependencies
(4) Build the organization for the joint venture

26. 8. Entering New Markets through Wholly Owned Subsidiaries
Acquisitions
Greenfield Operations
Benefits:
Greater control and higher profits
Strong commitment to the local market on the part of companies
Allows the investor to manage and control marketing, production, and sourcing decisions

27. 8. Entering New Markets through Wholly Owned Subsidiaries
Caveats:
Risks of full ownership
Developing a foreign presence without the support of a third part
Risk of nationalization
Issues of cultural and economic sovereignty of the host country

28. 8. Entering New Markets through Wholly Owned Subsidiaries
Acquisitions and Mergers
Quick access to the local market
Good way to get access to the local brands
Greenfield Operations
Offer the company more flexibility than acquisitions in the areas of human resources, suppliers, logistics, plant layout, and manufacturing technology.

29. Topic Example Video
The following video explains the concept of strategic alliances.
Take note of the key points

30. 9. Creating Strategic Alliances
Types of Strategic Alliances
Simple licensing agreements between two partners
Market-based alliances
Operations and logistics alliances
Operations-based alliances

31. 9. Creating Strategic Alliances
The Logic Behind Strategic Alliances
Defend
Catch-Up
Remain
Restructure

32. 9. Creating Strategic Alliances

33. 9. Creating Strategic Alliances
Cross-Border Alliances that Succeed:
Alliances between strong and weak partners seldom work.
Autonomy and flexibility
Equal ownership

34. 9. Creating Strategic Alliances
Other factors:
Commitment and support of the top of the partners’ organizations
Strong alliance managers are the key
Alliances between partners that are related in terms of products, technologies, and markets
Have similar cultures, assets sizes and venturing experience
Tend to start on a narrow basis and broaden over time
A shared vision on goals and mutual benefits

35. 10. Timing of Entry
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.

36. 10. Timing of Entry Reasons for exit: Sustained losses Volatility
Premature entry
Ethical reasons
Intense competition
Resource reallocation

37. 11. Exit Strategies Risks of exit: Fixed costs of exit
Disposition of assets
Signal to other markets
Long-term opportunities
Guidelines:
Contemplate and assess all options to salvage the foreign business
Incremental exit
Migrate customers

38. How New is New?
Six categories of new products based on their degree of newness:
New-to-the-world products
New product lines
Additions to existing product lines
Improvements in or revisions of existing products
Repositionings
Cost reductions

39. Categories of New Products Defined According to Their Degree of Newness to the Company and Customers in the Target Market

40. How New is New?
Introducing a product that is new to both the firm and target customers requires the greatest expenditure of effort and resources.
It also involves the greatest amount of uncertainty and risk of failure.
Products new to target customers but not new to the firm are often not very innovative in design or operations, but they may present a great deal of marketing uncertainty.

41. How New is New?
The marketing challenge is to build primary demand, making target customers aware of the product and convincing them to adopt it.
Products new to the company but not to the market often present fewer challenges for R&D and product engineering.

42. Market Entry Strategies: Is it Better to Be a Pioneer or a Follower?
Pioneer strategy
Potential sources of competitive advantage available to pioneers are:
First choice of market segments and positions.
The pioneer defines the rules of the game.
Distribution advantages.
Economies of scale and experience.

43. Market Entry Strategies: Is it Better to Be a Pioneer or a Follower?
Not all pioneers capitalize on their potential advantages
Some pioneers fail.
Some pioneers abandon the product category, go out of business, or get acquired before their industry matures.

44. Market Entry Strategies: Is it Better to Be a Pioneer or a Follower?
Follower strategy
The ability to take advantage of the:
Pioneer’s positioning mistakes.
Pioneer’s product mistakes.
Pioneer’s marketing mistakes.
Latest technology.
Pioneer’s limited resources

45. Market Entry Strategies: Is it Better to Be a Pioneer or a Follower?
A pioneering firm stands the best chance for long-term success in market-share leadership and profitability when:
The new product-market is insulated from the entry of competitors; or
The firm has sufficient size, resources, and competencies to take full advantage of its pioneering position and preserve it in the face of later competitive entries.

46. Market Entry Strategies: Is it Better to Be a Pioneer or a Follower?
A follower will most likely succeed when:
There are few legal, technological, or financial barriers to inhibit entry and
When it has sufficient resources or competencies to overwhelm the pioneer’s early advantage.
A study found that the most successful fast followers had the resources to enter the new market on a larger scale than the pioneer.

47. Strategic Marketing Programs for Pioneers
A pioneer might choose from one of three different types of marketing strategies:
Mass-market penetration
Niche penetration
Skimming and early withdrawal

48. Strategic Marketing Programs for Pioneers
Mass-market penetration
The objective is to capture and maintain a commanding share of the total market for the new product.
Tends to be most successful when entry barriers inhibit or delay the appearance of competitors, or when the pioneer has unique competencies or resources.

49. Strategic Marketing Programs for Pioneers
Niche penetration
Can help the smaller pioneer gain the biggest bang for its limited bucks and avoid direct confrontations with bigger competitors.
Instead of pursuing the objective of capturing and sustaining a leading share of the entire market, it may make more sense for such firms to focus their efforts on a single market segment.

50. Strategic Marketing Programs for Pioneers
Skimming and early withdrawal
Involves setting a high price and engaging in only limited advertising and promotion to maximize per-unit profits and recover the product’s development costs quickly.
The firm may also work to develop new applications for its technology or the next generation of more advanced technology.

51. Strategic Marketing Programs for Pioneers
Marketing program components for a mass-market penetration strategy
Maximizing the number of customers adopting the firm’s new product as quickly as possible with a marketing program focused on:
Aggressively building product awareness and motivation to buy among a broad cross-section of potential customers and
Making it easy for those customers to try the new product, on the assumption that they will try it, like it, develop loyalty, and make repeat purchases.

52. Strategic Marketing Programs for Pioneers
Marketing program components for a mass-market penetration strategy (cont.)
Increasing customers’ awareness and willingness to buy
Increasing customers’ ability to buy
Additional considerations when pioneering global markets

53. Strategic Marketing Programs for Pioneers
Marketing program components for a niche penetration strategy
The marketing program elements are likely to be similar to that of mass-market strategies.
The niche penetrator should keep its marketing efforts clearly focused on the target segment to gain as much impact as possible from its limited resources.

54. Strategic Marketing Programs for Pioneers
Marketing program components for a skimming strategy
A relatively high price is appropriate for a skimming strategy to increase margins and revenues.
Introductory promotional programs might best focus on customer groups who are least sensitive to price and most likely to be early adopters of the new product.

55. Growth-Market Strategies for Market Leaders
Two important facts must be kept in mind.
The dynamics of a growth market make maintaining an early lead in relative market share very difficult.
A firm can maintain its current share position in a growth market only if its sales volume continues to grow at a rate equal to that of the overall market, enabling the firm to stay even in absolute market share.

56. Growth-Market Strategies for Market Leaders
Marketing objectives for share leaders
Retaining current customers.
Stimulating selective demand among later adopters to ensure that it captures a large share of the continuing growth in industry sales.
Stimulating primary demand to help speed up overall market growth.
Expanding total demand is often more critical near the end of the growth stage and early in the maturity stage of a product’s life cycle.

57. Strategic Choices for Share Leaders in Growth Markets

58. Growth-Market Strategies for Market Leaders
Fortress, or position defense, strategy
The most basic defensive strategy is to continually strengthen a strongly held current position.
Actions to improve customer satisfaction and loyalty.
Actions to encourage and simplify repeat purchasing.

59. Growth-Market Strategies for Market Leaders
Flanker Strategy
One shortcoming is that a challenger might simply choose to bypass the leader’s fortress and try to capture territory where the leader has not yet established a strong presence.
To defend against an attack directed at a weakness in its current offering, a leader might develop a second brand to compete directly against the challenger’s offering.

60. Growth-Market Strategies for Market Leaders
Confrontation Strategy
If the leader’s competitive intelligence is good, it may decide to move proactively and change its marketing program before a suspected competitive challenge occurs.
A confrontational strategy is more commonly reactive.

61. Growth-Market Strategies for Market Leaders
Market Expansion
A more aggressive and proactive version of the flanker strategy.
The most obvious way a leader can implement a market expansion strategy is to develop line extensions, new brands, or even alternative product forms utilizing similar technologies to appeal to multiple market segments.

62. Growth-Market Strategies for Market Leaders
Contraction or strategic withdrawal
In some highly fragmented markets, a leader may be unable to defend itself adequately in all segments.
The firm may then have to reduce or abandon its efforts in some segments to focus on areas where it enjoys the greatest relative advantages or that have the greatest potential for future growth.

63. Share-Growth Strategies for Followers
Marketing objectives for followers
Some competitors may seek to build a small but profitable business within a specialized segment of the larger market that earlier entrants have overlooked.
Many followers often seek to displace the leader or at least to become a powerful competitor within the total market.

64. Strategic Choices for Challengers in Growth Markets

65. Share-Growth Strategies for Followers
Frontal attack strategy
A follower wanting to capture an increased market share may use this strategy:
Where the market for a product category is relatively homogeneous,
Has few untapped segments, and
At least one well-established competitor.

66. Share-Growth Strategies for Followers
Frontal attack strategy is most likely to succeed when:
Most existing customers do not have strong brand preferences or loyalties,
The target competitor’s product does not benefit from positive network effects, and
When the challenger’s resources and competencies—particularly in marketing—are greater than the target competitor’s.

67. Share-Growth Strategies for Followers
Leapfrog strategy
Attracting repeat or replacement purchases from a competitor’s current customers by offering a product that is attractively differentiated from the competitor’s offerings.
The odds of success might be even greater if the challenger can offer a far superior product based on advanced technology or a more sophisticated design.

68. Share-Growth Strategies for Followers
Flanking and encirclement strategies
A flank attack is appropriate:
When the market can be broken into two or more large segments
When the leader and/or other major competitors hold a strong position in the primary segment, and
When no existing brand fully satisfies the needs of customers in at least one other segment.
In some cases, a successful flank attack need not involve unique product features.

69. Share-Growth Strategies for Followers
Flanking and encirclement strategies
Encirclement
Involves targeting several smaller untapped or underdeveloped segments in the market simultaneously.
It usually involves developing a varied line of products with features tailored to the needs of different segments

70. Share-Growth Strategies for Followers
Supporting evidence
Businesses that increased the quality of their products relative to those of competitors achieved greater share increases than businesses whose product quality remained constant or declined.
Share-gaining businesses typically developed and added more new products, line extensions, or product modifications to their line than share-losing businesses.

71. Share-Growth Strategies for Followers
Supporting evidence
Share-gaining businesses tended to increase their marketing expenditures faster than the rate of market growth.
Surprisingly, there was little difference in the relative prices charged between firms that gained and those that lost market share.

72. Recap Video
The following video recaps on what are international marketing strategies.
Take note of the key points

73. Next Session Weekly Activity: Export Assistance Go to: www.efic.gov.au
Select one of the case studies listed on the website
Explain how EFIC supported your selected Australian business.
Investigate and compare how this Australian business is currently doing overseas.
Was it a successful move for this business? Comment on your research.
Word Count: 200 – 300