2. 312MKT International Marketing
Lecture Eight

3. Learning objectives
Identify the various market entry options available to companies seeking to develop new markets
Understanding the factors affecting the selection of market entry mode.
Understand Risk and Control

4. Market Entry Method
“The market entry decision is taken within the firm and is determined to a large extent by the firm’s objectives and attitudes to international marketing and the confidence in the capability of its managers to operate in foreign countries” (Doole and Lowe, 2012)

5. Market Entry Method
Refer to “an institutional arrangements for the entry of a company’s products and services into a new foreign market. The main types are export, intermediate and hierarchical modes” (Hollensen, 2017).

6. Market Entry Method
The following criteria are necessary to consider when deciding on a market entry method:
The company objectives and expectations relating to the size and value of anticipated business.
The size and financial resources of the company
Its existing foreign market investment
The skills abilities and attitudes of the company management towards international marketing
(Doole and Lowe, 2012)

7. Market Entry Method
2 important characteristics associated with the different market entry methods
The level of involvement of the firm in international operations
The level of risk and control
“The higher level of involvement brings greater potential for control exercised by the company over its foreign country marketing activities and also higher potential risk, usually due to the high cost of investment”
(Doole and Lowe, 2012)

8. Market Entry Methods and the Levels of Involvement in International Markets
Wholly-owned subsidiary
Company acquisition
Assembly operations
Joint Venture
Strategic Alliance
Licencing
Contract manufacture
Direct Marketing
Franchising
Distributors and agents
Sales force
Trading companies
Export management companies
Piggyback operations
Domestic purchasing
Levels of
Involvement
(Doole and Lowe, 2012)

9. Risk and Control in Market Entry
Co-operation
Strategies
Joint ventures
Strategic alliances
Manufacturing
Own subsidiary
Acquisition
Assembly
Direct Exporting
Distributors
Agents
Franchising
Management contracts
Indirect Exporting
Piggybacking
EMCs, trading companies etc.
Domestic purchasing
Risk
(Doole and Lowe, 2012)

10. Market Entry Strategies
Indirect Exporting
Suitable for firms with few resources
Advantages: low cost and risk
Disadvantage: low level of control
Main methods domestic purchasing, export houses, piggybacking, trading companies.
Direct Exporting
More proactive approach
Involves direct investment
Main methods: agents, distributors, management contracts, Franchising
Advantages: More influence and control
on international activities
Disadvantages: high cost and financial burdens
(Doole and Lowe, 2012)

11. Direct and Indirect Franchising Models
Host Country
Home Country
Franchisee
Franchisor
Franchisee
Franchisee
Indirect Franchising Model
Master Franchisee
(Sub-Franchisor)
Franchisor
Franchisee
Franchisee
Franchisee
Source: based on Welsh et al (2006) in Hollensen S. (2008)

12. Components of the Export Marketing Mix
Product: selection, development and sourcing
Pricing: policy, strategies, discount structures and trading terms
Promotion: corporate promotions and local selling, trade shows and literature
Distribution: sales force management, agents, distributors, and logistics
(Doole and Lowe, 2012)

13. Components of the Export Marketing Mix
Services: market research, training, and sales servicing
Finance: budget, order processing, insurance and credit control
Technical: specifications, testing and product quality
and
Administration
(Doole and Lowe, 2012)

14. Market Entry Strategy Factors contributing to successful exporting:
Commitment to the firm’s management
Exporting approach which emphasize the importance of augmenting and maintaining skills
Good marketing information and communication system
Sufficient production capacity and capability, product superiority and competitive pricing
Effective market research
Effective national export policy
(Doole and Lowe, 2012)

15. Manufacturing Entry strategies without direct investment
Manufacturing using production and service supply from overseas plants
Advantages: Product/service, transporting and warehousing, tariffs barriers/quotas, government regulations, market, government contacts, information, informational culture, delivery, labour cost
Types: Contract manufacturing (e.g. Nike, Gap), Licencing (e.g. Disney, Olympic Game committee)
(Doole and Lowe, 2012)

16. Manufacturing Entry strategies with direct investment
Manufacturing by investing to local operations
Reasons/advantages: to gain new business, to defend existing business, to move with an established customer, to save costs, to avoid government restrictions.
Types: Assembly (e.g. Honda), wholly owned subsidiary, company acquisitions and mergers.
(Doole and Lowe, 2012)

17. Manufacturing Entry strategies with direct investment
Manufacturing by investing to local operations
Jaguar’s production operation in China
Web-link
Jaguar’s factory plans in Slovakia
(Doole and Lowe, 2012)

18. Cooperative Strategies
Joint Venture
Occur when a company decides that shared ownership of a specially set up new company for marketing and/or manufacturing is the most appropriate method for exploiting a business opportunity..
Advantages: comply with foreign ownership restrictions, speed up of market entry, new opportunities, competitive advantage, companies can share investment costs and risk, shared knowledge
Disadvantages: high investment cost
(Doole and Lowe, 2012)

19. Cooperative Strategies
Strategic Alliances
Cover a variety of contractual arrangements that are intended to be strategically beneficial to both parties but cannot be defined as clearly as licencing or joint venture.
Reasons: Insufficient resources, pace and innovation of market diffusion, concentration of firms in mature industries, high R&D costs, government co-operations, self-protection, market access.
Advantages: competitive advantage (e.g. airlines star alliances)
(Doole and Lowe, 2012)

20. Strategic Alliances: 3 types
Marketing (eg.airlines?)
R & D (eg. pharmaceuticals)
Production(eg. cars)

21. Classifications of Market Entry Modes
Export modes
100% Externalizing
(low control, low risk, high flexibility)
Intermediate modes
(contractual modes)
(shared control and risk, split ownership)
Hierarchical modes
(investment modes)
100% Internalizing
(high control, high risk , low flexibility)
(Hollensen, 2017)

22. Factors for Selecting Foreign Appropriate Market Entry Mode
Internal factors
Desired mode
characteristics
Transaction-
specific factors
External factors
Entry mode
decision
(Hollensen, 2017)

23. Internal Factors Firm size
Increased resource availability provides the basis for increased international involvement over time.
International experience
International experience reduces the cost and uncertainty of serving a market and increases the probability of firms committing resources and directly investing in foreign markets.
Product/service
Physical characteristics of the product or service such as it value/weight ratio, perishability and composition, are important in determining where production is located
(Hollensen, 2017)

24. Desired mode characteristics
Risk-averse
If decision makers are risk-averse they will prefer export modes (e.g. indirect and direct exporting) or licensing (an intermediate mode)
Control
The less the resource commitment (e.g. indirect exporting) the less the control.
Flexibility
The hierarchical modes (involving substantial equity investment) are typically the most costly, but the least flexible and most difficult to change in the short run.
(Hollensen, 2017)

25. Transaction-specific factors
Tacit nature of know how
The more the tacit the firm’s know how, the more favourable the hierarchical modes which facilitate the intra-organizational transfer of know how.
External Factors
Sociocultural distance between home country and host country
The greater the perceived distance between the home and host country in terms of culture, economic systems and business practices, the more likely the firm will be reluctant to enter the specific host country regardless of the mode of entry.
(Hollensen, 2017)

26. External Factors Country risk/demand uncertainty
Risk analysis of both the country and the mode of entry. The higher the risk the higher the demand uncertainty experienced by the firm.
Direct and indirect trade barriers
Tariffs or quotas on the import of foreign goods components favour the establishment of local production
Trade regulations
(Hollensen, 2017)

27. External Factors Intensity of Competition
The greater the intensity of competition in the host market, the more the firm will favour entry modes that involve low resource commitments.
Small number of relevant intermediaries available
Companies in this case tend to favour the use of hierarchical modes in order to reduce the scope for opportunistic behaviour
(Hollensen, 2017)

28. Subway Story International Expansion
Weblink:
(Hollensen, 2017)

29. Doole and Lowe: Chapters 5, 7 Hollensen: Chapters 9,10,11,12 and 13
Readings
Doole and Lowe: Chapters 5, 7
&
Hollensen: Chapters 9,10,11,12 and 13