1. Global Marketing Management, 5e
Chapter 9
Global Market Entry Strategies
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

2. Chapter Overview
1. Target Market Selection 2. Choosing the Mode of Entry 3. Exporting 4. Licensing 5. Franchising 6. Contract Manufacturing (Outsourcing) 7. Expanding through Joint Ventures 8. Wholly Owned Subsidiaries 9. Strategic Alliances 10. Timing of Entry 11. Exit Strategies
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

3. 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
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

4. 1. Target Market Selection
A crucial step in developing a global expansion strategy is the selection of potential target markets (Exhibit 9-1).
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
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

5. Exhibit 9-1: Logical Flowchart of the Entry Decision Process
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

6. 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
(See Exhibits 9-2 and 9-3.)
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

7. Exhibit 9-2: Method for Prescreening Market Opportunities
Copyright (c) 2007 John Wiley & Sons, Inc.
Chapter 9

8. Exhibit 9-3: Opportunity Matrix for Henkel in Asia Pacific
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

9. 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
(See Exhibit 9-4.)
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

10. Exhibit 9-4: Entry Modes and Market Development
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

11. 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)
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

12. 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
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

13. 4. Licensing Licensor and the licensee Benefits:
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
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

14. 4. Licensing How to seek a good licensing agreement:
Seek patent or trademark protection
Thorough profitability analysis
Careful selection of prospective licensees
Contract parameter (technology package, use conditions, compensation, and provisions for the settlement of disputes)
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

15. 5. Franchising Franchisor and the franchisee Master franchising
Benefits:
Overseas expansion with a minimum investment
Franchisees’ profits tied to their efforts
Availability of local franchisees’ knowledge
Caveats:
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
Chapter 9
Copyright (c) 2009 John Wiley & Sons, Inc.

16. Exhibit 9-5: International Efforts of Ten Well-Known Franchise Companies
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

17. Exhibit 9-6: International Franchising with Papa John’s
Copyright (c) 2007 John Wiley & Sons, Inc.
Chapter 9

18. 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
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

19. 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
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

20. 7. 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
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

21. 7. 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 (Exhibit 9-7)
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

22. Exhibit 9-7: Conflicting Objective in Chinese Joint Ventures
Copyright (c) 2007 John Wiley & Sons, Inc.
Chapter 9

23. 7. 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
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

24. Exhibit 9-8: Starbuck’s Coffee’s Criteria in Selecting Partners
Copyright (c) 2007 John Wiley & Sons, Inc.
Chapter 9

25. 8. 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.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

26. 8. Wholly Owned Subsidiaries
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
Copyright (c) 2007 John Wiley & Sons, Inc.
Chapter 9

27. 8. 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
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

28. 9. Strategic Alliances Types of Strategic Alliances
Simple licensing agreements between two partners
Market-based alliances
Operations and logistics alliances
Operations-based alliances
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

29. 9. Strategic Alliances The Logic Behind Strategic Alliances Defend
Catch-Up
Remain
Restructure
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

30. Exhibit 9-9: Generic Motives for Strategic Alliances
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

31. 9. Strategic Alliances Cross-Border Alliances that Succeed:
Alliances between strong and weak partners seldom work.
Autonomy and flexibility
Equal ownership
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

32. 9. 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, asset sizes and venturing experience
Tend to start on a narrow basis and broaden over time
A shared vision on goals and mutual benefits
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

33. 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, and breadth of product & service offerings.
Mode of entry issues, market knowledge, various economic attractiveness variables, etc.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

34. Exhibit 9-10: Timeline of Wal-Mart’s International Expansion
Copyright (c) 2007 John Wiley & Sons, Inc.
Chapter 9

35. 11. Exit Strategies Reasons for Exit: Sustained losses Volatility
Premature entry
Ethical reasons
Intense competition
Resource reallocation
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

36. 11. Exit Strategies Risks of Exit: Guidelines: 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
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 9

37. Exhibit 9-11: Advantages and Disadvantages of Different Modes of Entry
Copyright (c) 2007 John Wiley & Sons, Inc.
Chapter 9