1. Market Entry Strategy Tekle Sebhatu, Ph.D. http://www.stcinternational.us stcintL@q.com Tekle Sebhatu, Ph.D. http://www.stcinternational.us stcintL@q.com

2. Market Entry Strategy Agenda Market Entry Decision Questions Market Entry Modes Exporting Licensing Joint venture Wholly owned subsidiary (FDI) Reducing partnership risk Partner selection Q & A

3. Market Entry Decisions Which markets to enter? When to enter the markets? What scale of entry? Cost of entering markets?

4. Which Market to Enter? 1.Analyze external environmental factors a)Economic environment b) Political environment c) Socio –cultural environment d) Legal environment e)Technological environment 2.Analyze the market size, product acceptability and customer perceptions. 3.Analyze internal environmental factors a)Productb) Price c)Place (distribution)d) Promotion 4.Based on potential markets, profit margin and market share potential analysis focus on no more than 3 countries.

5. Timing of Entry? First-mover advantage: –Preempt rivals and capture demand. –Build sales volume and brand –Move down experience curve before rivals and achieve cost advantage. Disadvantages: –First mover disadvantage - pioneering costs. –Changes in government policy. Costs early entrant bears that later entrant can avoid.

6. Scale of Entry? Large scale entry –Strategic Commitments - a decision that has a long- term impact and is difficult to reverse. –May cause rivals to rethink market entry. Small scale entry: –No long term commitment. –Increase market/experience learning curve. –Reduces exposure risk.

7. Cost Of Entering Markets Initial investment –Extra cost Research and development Training Participation at tradeshow/mission

8. Entry Modes Exporting Turnkey Projects Licensing Franchising Joint Ventures Wholly Owned Subsidiaries

9. Exporting Advantages: –Avoids cost of establishing manufacturing operations. –May help achieve experience curve. Disadvantages: –May compete with low-cost location manufacturers. –Possible high transportation costs. –Tariff barriers. –Possible lack of control over marketing reps.

10. Selection of Channel Direct Exporting Indirect Exporting vs.

11. Indirect Exporting Export Management Companies (EMC) Export Trading Companies (ETC) Selling Through Trade Associations Piggyback Marketing Export Merchants or Re-Marketers

12. Licensing Advantages: –Reduces development costs and risks of establishing foreign enterprise. –Overcomes restrictive investment barriers. Disadvantages: –Lack of control. –Creating a competitor. Agreement where licensor grants rights to intangible property to another entity for a specified period of time in return for royalties.

13. Joint Ventures Advantages: –Benefit from local partner’s knowledge. –Shared costs/risks with partner. –Reduced political risk. Disadvantages: –Risk giving control of technology to partner. –Shared ownership can lead to conflict.

14. Wholly Owned Subsidiary Advantages: –No risk of losing technical competence to a competitor. –Tight control of operations. –Realize experience and location economies. Disadvantage: –Bear full cost and high risk. Greenfield Acquisition

15. Structuring Partnership to Reduce Opportunism Opportunism by partner reduced by: Seeking credible commitments Agreeing to swap valuable skills and technologies Establishing contractual safeguards Walling off critical technology

16. Partner Selection Get as much information as possible on the potential partner Collect data from informed third parties –former partners (suppliers) –Banks, FF, CHB –former employees Get to know the potential partner before committing

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