Market Entry Strategies
(Chapter 10)
GLOBAL BUSINESS
MARKET ENTRY STRATEGIES
Overview; Entry strategies vary in terms of their advantages,
disadvantages, and levels of involvement.
The marketing options open to firms are in part determined by
mode of entry
Entry Strategies
• Exporting --Historically Most Popular
1. Types
a.Direct - firm handles all tasks to sell within host country
b.Indirect - firm delegates the tasks to an intermediary
Export Entry Modes:
Indirect Exports:
Occurs when the manufacturing firm does not take direct care of exporting
activities, instead another domestic company performs these activities
often without the manufacturing firm involvement in the foreign sales of
its products
Entry Strategies
2. Advantages
a. Minimizes political risk
b.Useful when market potential is hard to assess
c. Offers channel flexibility
d. Prepares firm for greater involvement
e. Offers ease in market withdrawal
Entry Strategies
3. Disadvantages
a.Exchange rate fluctuations and governmental intervention
can affect earnings
b.Lack of market presence can affect response time
c.Loss of marketing control can affect corporate image
Entry Strategies
Licensing - Payment of Fee or Royalty for Use of
Anything of Value
1. Advantages
a. To firm, cost effective
b.To importing country, brings technology and managerial
expertise
Entry Strategies
2. Disadvantages
a.Can restrict firm’s full realization of market potential
b. Can create third market competitors
c.Can result in loss of control over technology and
product quality
d. Can result in conflicts between parties
Entry Strategies
• Franchising - Payment of Fee and Royalty in Exchange for
Anything of Value Plus Operational and Managerial Help
1. Advantages: same as for licensing
2. Disadvantages: same as for licensing
Entry Strategies
• Contract Manufacturing - Contractual Partner manufactures
Parts or Product for Firm
1. Advantages
a.Firm can focus exclusively on marketing
b. Economical means of expansion
Entry Strategies
2. Disadvantages
a. Partner may turn competitor
b. Loss of control over manufacturing
c.Products may not always be available on time
Partner Mindshare
The level of mindshare that the manufacturer's product occupies in the mind of the
export partner e.g. agent or distributor. There is a strong correlation between mindshare
levels and how willing an export intermediary is to place one company brand in front of
another. Drivers of mindshare:
a) Commitment and trust
b) Collaboration
c) Mutuality of interest and common purpose
Indirect Export Modes:
1. Export Buying Agent (Export Commission House)
2. Broker
3. Export Management Company/ Export House
4. Trading Company
5. Piggyback
Indirect Export Modes:
Export Buying Agent (Export Commission House):
A representative of foreign buyers who is located in the exporter's home country.
The agent offers services to the foreign buyers, such as identifying potential sellers
and negotiating prices
This type of agent is customer's hired purchasing agent in the exporters domestic
country operating on the basis of orders received from these buyers.
Buyer pays them a commission
Indirect Export Modes:
a) Export Buying Agent
Advantages Disadvantages
Easy way to export Little direct control over the global
Prompt Payments marketing of products
Problems of Physical Movement of
goods are taken out of hands Not good for longer term viability for
Low credit risk export business
Exporter only has to fulfil order
according to specifications
Indirect Export Modes:
Broker: Agent based in home country whose function is to bring a buyer and a seller
together
He is a specialist in performing the contractual function and does not actually handle the
products sold or bought.
The distinguishing characteristic of export brokers is that they may act as an agent for
either the seller or the buyer
- they are paid a 5% commission by the principal
- they specialize in products or classes of products - (one or two products)
- deals in basic commodities for many potential export marketers - this type of agents
does not represent a practical alternative channel of distribution
Indirect Export Modes:
Export Management Company/ Export House (EMC)
EMC are specialist companies' setup to act as the export department for a range
of non-competing companies.
All correspondence with buyers and contracts are negotiated in the name of the
manufacturer and all quotations and orders are subject to confirmation by the
manufacturer – its a third party working on your behalf under your name
Indirect Export Modes:
Export Management Company/ Export House (EMC)
Advantages Disadvantages
- EMCs spread their costs of transportation, - Selection of Markets is on the basis of EMCs
selling and administration by dealing with objectives rather than manufacturers e.g. EMCs
more products and companies enjoying geographical area, product or customer type
economies of scale
- Concentrate on products having immediate sales
- Their knowledge of local purchasing potential - rather than ones requiring greater
practices and government regulations is customer education and sustained marketing effort
useful in markets that might prove difficult (for commission)
to penetrate
- EMCs may not give importance to manufacturers
- Allows companies a wider exposure in products due to a wide range of businesses they
foreign markets deal with
Indirect Export Modes:
Trading Company:
Smaller Trading Companies: Limit activities to foreign trade
Larger General Trading Companies: involved in Foreign trade, domestic distribution and other
activities
Trading companies play a central role in diverse areas like;
Shipping,
Warehousing,
Finance,
Technology Transfer,
Planning Resource Development,
Construction and Regional Development,
Insurance,
Consulting,
Real Estate and
Deal making
Financial services including; guaranteeing of loans, financing of accounts receivable and payable,
issuing of promissory notes, major foreign exchange transactions, equity investment and direct
loans.
- they manage counter trade activities (barter)
Indirect Export Modes:
Piggyback:
In piggybacking the export inexperienced SME (rider) deals with a larger company
(carrier) which already operates in certain foreign markets and is willing to act on behalf
of the ride that wishes to export to those markets enabling the carrier to fully utilize its
export facilities 7 foreign distribution
It is normally used for products from unrelated companies that are non-competitive &
complementary
Carrier acts as :
a) an agent when paid by commission
b) an independent distributor - when buys the product outright
FOR CARRIER:
Advantages Disadvantages
- Carrier can get the product quickly - Concerns about quality control and warranty
- a low-cost way of getting the product as there is no - Concern about continuity of Supply
need of the carrier to invest in R&D, production or
market testing for the new product
- Carrier firm can broaden its product range without
having to develop and manufacture extra products
FOR RIDER
Advantages Disadvantages
- Rider can export conveniently without having to - It means giving up control over the marketing of
establish their own distribution systems its products
- Easy and low risk way of export marketing - lack of commitment on part of the carrier and
operations - loss of lucrative sales opportunities in regions not
- they can learn from the carrier's experience for covered by carrier
taking over own export transactions
Export Entry Modes:
Direct Exports:
The Manufacturer sells directly to an importer, agent or distributor located in the
foreign target market.
Here, the producing firm takes care of exporting activities and is in direct contact with
the first intermediary in the foreign target market.
The firm is involved in documentation, physical delivery, and pricing policies with the
product being sold to agents and distributors
Direct Export Modes:
1.Distributors:
Independent companies that stock the manufacturer's product. They will have
substantial freedom to choose their own customers and price. They profit from the
difference between their selling price and the buying price from the manufacturer.
They are the exclusive representatives of the company and are generally sole
importers of the company's product in their markets.
Direct Export Modes:
2. Agents: An independent company that sells on to customers on behalf of the manufacturer
(exporter). Usually it will not stock the product and profits from commission (5-10%) paid by
manufacturer on a pre-agreed basis.
They can be:
exclusive rights to specified sales territories
semi-exclusive; where agent handles exporters goods along with other non-
competing goods from other companies
non-exclusive; where agents handles a variety of goods including those of
competitors
Direct Export Modes:
Agents & Distributors
Advantages Disadvantages
- They have a direct incentive to sell through
commission or profit margin but since their
remuneration is tied upto sales. They may be
They are familiar with local market, customs and reluctant to devote much time and effort to
conventions having existing business contacts & developing a market for a new product
employ foreign nationals
- The amount of market feedback is maybe
limited as the agent/distributor may see itself as
a purchasing agent for its customers rather than
as a selling agent for the exporter.
