Professional Documents
Culture Documents
MODES OF ENTRY
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A market screening model
General characteristics High degree of measurability,
Geographic
accessibility and actionability
Language
Political factors
Demography
Economy
Industrial sectors
Technology
Social organization
Religion
Education
Specific characteristics
Cultural characteristics
Lifestyle
Personality/behaviour
Attitudes and tastes…
e
Market/country attractiveness
S at
y thorough research programme. str
vit
l ecti ies
Se ateg
str Harvest/divest
Low
Competitive strength
Harvest/divest High Low
Low
Competitive strength These are the secondary markets(key markets), where
High Low opportunities are identified but political or economic risk is
perceived as being too high to make long-term irrevocable
commitments. A comprehensive marketing information system
would be needed.
These are the tertiary markets. They will be perceived as high risk, and
so the allocation of resources will be minimal. Objectives in such
countries would be short term and opportunistic, firms would give no
real commitment. No significant research would be carried out.
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Relative competitive strength
Dimensions of market/country attractiveness and competitive strength
Market/country attractiveness
Competitive strength
Market size (total and segments)
Market share
Market growth (total and segments)
Marketing ability and capacity (country-
Buying power of customers
specific know-how)
Market cycle and fluctuations
Products fit to market demands
Income distribution
Prices points
Competitive conditions (concentration, intensity,
Gross margin
entry barriers, etc.)
Image
Market prohibitive conditions (tariff/non-tariff
Technology position
barriers, imports restrictions, etc.)
Product quality
Government regulations (price controls, local
Marketing support
content, compensatory exports, etc.)
Quality of distributors and services
Economic and political stability
Financial resources
Psychic distance (from home base to foreign
Access to distribution channels
market)
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Thailand
High India
Market/country attractiveness
Indonesia Argentina
Japan
Australia
Colombia
Brazil
1 Pakistan
Low
Competitive strength
5 1
High Low
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Choosing the Mode of Entry
Mode of Entry
1. Exporting
Is a strategy in which a company without any marketing or production organization overseas exports a
product from its home base
✦ Direct exporting - firm handles all tasks to sell within host countries
✦ Indirect exporting - firm delegates the exporting tasks to an intermediary
Advantages
– Minimizes political risk
– Useful when market potential is hard to assess
– Offers channel flexibility
– Prepares firm for greater involvement
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– Offers ease in market withdrawal
✦ Disadvantages
– Exchange rate fluctuations and governmental intervention can affect earnings
– Lack of market presence can affect response time
– Loss of marketing control can affect corporate image
Types of Tariffs
A tariff may be one of the following four kinds:
(1) Ad valorem (2) Specific (3) Alternative (4) Compound
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"specific" part of the compound duty (called compensatory duty) is levied as protection for the local raw
material industry.
– Nontariff Barriers
◆ Quotas
◆ Discriminatory Procurement Policies
◆ Restrictive Custom Procedures
◆ Selective Monetary Controls
◆ Restrictive Administrative and Technical Regulations
Export Intermediaries
✦ Examples of facilitating intermediaries
– Export Management Companies (EMCs)
– Webb-Pomerene Associations
– Trading Companies
–
Export Management Companies
✦ Domestic firms that specialize in performing international marketing services as commission
representatives or distributors
✦ As commission representatives
– Develop foreign marketing and sales strategies
– Establish contacts abroad
✦ As distributors
– Purchases products from the domestic firm, takes title to goods and assumes all trading risks; operating
internationally on their own.
Webb-Pomerene Associations
✦ Associations of firms which are legally permitted under an antitrust exemption to cooperate in market
allocation, quota fixing, and selection of distributors and brokers in international markets so long as such
activities do not reduce competition within the United States.
Trading Companies
✦ Early trading companies
– East India Company of the Netherlands
– British East India Company
– French East India Company
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– Economies of scale in the vast transaction volume to obtain preferential treatment
– Large internal global markets creating opportunities for barter trade
– Access to vast quantities of capital on a global scale
Licensing
Is an agreement that permits a foreign company to use industrial property, technical know how and skills,
architectural and engineering designs or any combination of these in a foreign market
✦ Licensor and the licensee
Benefits:
– Appealing to small companies that lack resources
– Faster access to the market
– Rapid penetration of the global markets
Corporate Insight
Matshushita and IBM PCs
License manufacturing
✦ Benefits: Caveats:
– Overseas expansion with a minimum – Revenues may not be adequate
investment – Availability of a master franchisee
– Franchisees’ profits tied to their efforts – Limited franchising opportunities overseas
– Availability of local franchisees’ knowledge – Lack of control over the franchisees’
operations
– Problem in performance standards
– Cultural problems
– Physical proximity
Contract Manufacturing
Benefits: – Savings via taxation, lower energy costs,
– Labor cost advantages raw materials, and overheads
– Lower political and economic risk
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Quicker access to markets – Lower productivity standards
Caveats: – Backlash from the company’s home-market
– Contract manufacturer may become a future employees regarding HR and labor issues
competitor
– Issues of quality and production standards
Joint Ventures
Is an enterprise formed by two or more investors sharing ownership and control
1. Cooperative joint venture
2. Equity joint venture
✦ Benefits:
– Higher rate of return and more control over ✦ Caveats:
the operations – Lack of control
– Creation of synergy – Lack of trust
– Sharing of resources
– Conflicts arising over matters such as
– Access to distribution network strategies, resource allocation, transfer pricing,
– Contact with local suppliers and government ownership of critical assets like technologies and
officials brand names
Corporate insight
TACO's new Joint Venture with STADCO February 2005
TACO has signed a joint venture with STADCO, UK for automotive sheet assemblies / BIW engineering and
manufacturing business. STADCO is a leading engineering and manufacturing company for BIW assemblies in
the UK and has an annual turnover of euro 300 million. STADCO's main customers are Ford, Rolls Royce,
Land Rover, MG Rover, Nissan, AML, Bentley, Ascari and Lotus.
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NUMMI between General Motors and Toyota
Benefits: Caveats:
– Greater control and higher profits – Risks of full ownership
– Developing a foreign presence without the
– Strong commitment to the local market on support of a third part
the part of companies – Risk of nationalization
– Allows the investor to manage and control – Issues of cultural and economic sovereignty
marketing, production, and sourcing decisions of the host country
Strategic Alliances
Is more a contractual arrangement whereby two or more partners agree to cooperate with each other and
utilize each partner’s resources and expertise to achieve rapid global market penetration
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Cross-Border Alliances that Succeed:
– Alliances between strong and weak partners seldom work.
– Autonomy and flexibility
– Equal ownership
Corporate Insight
Examples of Successful joint ventures at international level
1.SAP Solutions
For more than a decade Intel and SAP have worked together to optimize the
performance of SAP Solutions on Intel®-based architecture, from the backend to the
mobile client. Today Intel and SAP continue to develop new usage models that extend
the value of core business applications.
2. BEA Solutions
Intel and BEA provide a jointly optimized infrastructure enterprise solution—the BEA
WebLogic* application server—designed to achieve scalable performance on flexible
Intel ® Itanium® 2 processor-based servers and Intel® Xeon® processor-based servers.
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4. Sony and Philips (R&D alliance)
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
– Mode of entry issues, market knowledge, various economic attractiveness variables, etc.
Exiting a Market
✦ Reasons for exit:
– Sustained losses
– Volatility
– Premature entry
– Ethical reasons
– Intense competition
– Resource reallocation
Exit Strategies
✦ Risks of exit:
– Fixed costs of exit
– Disposition of assets
– Signal to other markets
– Long-term opportunities
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