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Int MKTG - Entry Strategies

When expanding internationally, companies must choose an entry strategy. The choice depends on market characteristics, company capabilities, and management's commitment level. There are four main entry strategies: exporting, contractual agreements like licensing and franchising, strategic alliances, and direct foreign investment through wholly owned subsidiaries or joint ventures. The optimal strategy balances the company's willingness to commit resources with its desire for control and risk tolerance.

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0% found this document useful (0 votes)
164 views18 pages

Int MKTG - Entry Strategies

When expanding internationally, companies must choose an entry strategy. The choice depends on market characteristics, company capabilities, and management's commitment level. There are four main entry strategies: exporting, contractual agreements like licensing and franchising, strategic alliances, and direct foreign investment through wholly owned subsidiaries or joint ventures. The optimal strategy balances the company's willingness to commit resources with its desire for control and risk tolerance.

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INTERNATIONAL

MARKET ENTRY
STRATEGIES
International Market-Entry Strategies
When a company makes the commitment to go international, it
must choose an entry strategy

The choice of entry strategy depends on:

• market characteristics (such as potential


sales, strategic importance, cultural
differences, and country restrictions)
• company capabilities and characteristics,
including the degree of near-market
knowledge, marketing involvement, and
• commitment that management is prepared
to make
FACTORS AFFECTING SELECTION OF ENTRY
MODE
EXTERNAL FACTORS INTERNAL FACTORS

 Market size  Company Objectives


 Market Growth
 Availability of
 Government regulations
Company resources
 Level of competition
 Level of Commitment
 Physical infrastructure
 Level of Risk  International

 Political experience
 Economic  Flexibility
 Operational
 Production and shipping
costs
INTERNATIONAL MARKET ENTRY
Root (1994) defines the market entry strategy for
international markets
“as a comprehensive plan which sets forth
the objectives, goals, resources and policies
that guide a company’s international
business operations over a future period
long enough to achieve sustainable growth
in world markets”.
Mode Of Entry Determined By:
 The Ability And Willingness Of The Firm To
Commit Resources
 The Firms’ Desire To Have A Level Of Control
Over International Operations
 The Level Of Risk The Firm Is Willing To
Take
Alternative Market-Entry Strategies
• Import regulations may be imposed to protect health, conserve
foreign exchange, protect home industry, or provide revenue in
the form of tariffs

• A company has four different modes of foreign market entry


from which to select:

• exporting
• contractual agreements
• strategic alliances, and
• direct foreign investment
Exporting
• Exporting can be either direct or
indirect
• In direct exporting the company sells
to a customer in another country
• In contrast, indirect exporting usually
means that the company sells to a
buyer (importer or distributor) in the
home country who in turn exports the
product
• The Internet is becoming increasingly
important as a foreign market entry
method
Contractual Agreements
Contractual agreements are long-term, non-equity associations
between a company and another in a foreign market

• Contractual agreements generally involve the transfer of


technology, processes, trademarks, or human skills
• Contractual forms of market entry include:
(1) Licensing: A means of establishing a foothold in foreign markets
without large capital outlays wherein patent rights, trademark rights and
the rights to use technological processes are granted by the domestic
company.
(2) Franchising: A contract in which the franchisee acquires the right to
market the producer’s products and services in a prescribed fashion
using the franchiser's brand name, processing and production methods
and marketing guidelines.
LICENSING
Pros Cons

 Facilitates rapid  Product quality and


penetration consistency is of prime
 Reduces political and concern
economic risks  May restrict the

 Helps licensor realize licenser’s own


the expenditure marketing activities
incurred on R&D  May unknowingly be
creating a potential
competitor
OVERSEAS TURNKEY PROJECTS
A firm conceptualizes, designs, installs, constructs,
and carries out preliminary testing of a
production facility or engineering structure for
the overseas client organization.
 Built and transfer (BT)

 Built operate and transfer (BOT)

 Built operate and own. (BOO)

Air-conditioning of Hong Kong Airport, Etsilat


Building done by Voltas
EIL, L&T, PEC
INTERNATIONAL MANAGEMENT
CONTRACTS

 A company provides its technical and managerial


expertise for a specific duration to an overseas
firm.
 Low risk, low cost mode of entry

 Good market in African and some Latin


American countries which are at a lower stage of
development than India.
Strategic International Alliances
• Strategic alliances have grown in importance over the last few
decades as a competitive strategy in global marketing
management
• A strategic international alliance (SIA) is a business
relationship established by two or more companies to
cooperate out of mutual need and to share risk in achieving a
common objective
• SIAs are sought as a way to shore up weaknesses and increase
competitive strengths
• SIAs offer opportunities for rapid expansion into new markets,
access to new technology, more efficient production and marketing
costs
• An example of SIAs in the airlines industry is that of the alliance
partners made up of American Airlines, Cathay Pacific, British
Airways, Canadian Airlines.
International Joint Ventures
• International joint ventures (IJVs) have been increasingly
used since 1970s
• a means of lessening political and economic risks by the amount
of the partner’s contribution to the venture
• a less risky way to enter markets
• A joint venture is different from strategic alliances or
collaborative relationships in that a joint venture is a partnership
of two or more participating companies that have joined forces
to create a separate legal entity
International Joint Ventures (contd.)
• Four factors are associated with joint ventures:

1. JVs are established, separate, legal


entities;
2. they acknowledge intent by the partners
to share in the management of the JV;
3. they are partnerships between legally
incorporated entities such as companies,
chartered organizations, or governments,
and not between individuals;
4. equity positions are held by each of the
partners
Consortia
• Consortia are similar to joint ventures and could be classified as
such except for two unique characteristics:

(1) They typically involve a large


number of participants, and
(2) They frequently operate in a
country or market in which
none of the participants is
currently active

• Consortia are developed to pool financial and managerial


resources and to lessen risks.
Direct Foreign Investment

• A fourth means of foreign market development and entry is


direct foreign investment

• Companies may manufacture locally to capitalize on low-cost


labor, to avoid high import taxes, to reduce the high costs of
transportation to market, to gain access to raw materials, or as
a means of gaining market entry.
• Firms may either invest in or buy local companies or establish
new operations facilities
CHOOSING THE RIGHT INTERNATIONAL
MARKETING MIX
Country Wholly JV Marketing Distributor
Market / Owned office
Entry subsidiary
Strategy

Dr. Reddy’s US, France, Russia, Ukraine, Cambodia,


Labs. Singapore, China Romania Laos,
Netherlands Kazakhastan Some African
and Hong Kong Vietnam, countries
Sri Lanka
Myanmar

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