INTERNATIONAL MARKET SELECTION, SCREENING AND

MODES OF ENTRY

Deciding Which Markets to Enter

Before going abroad, the company should try to define its international marketing objectives and policies.
Building a model for International Market Selection

A market screening model

Building a model for International Market

Selection
The firm
Degrees of internationalisation
and overseas experience
Size/amount of resources
Type of industry/nature of the
business
Existing networks of relationships
….
The environment
International industry structure
Degree of internationalisation of the market
Host country:
Market potential (volume and value growth)
Competition (actual and future)
Psychic/geographic distance
Market similarity…

International market segmentation

International market selection

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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…

Low degree of measurability,

accessibility and actionability.
(But high degree of relevance in
specific situations)
A market screening model
Screening of segments to narrow
down the list of markets/countries
Step 3
choice of target markets/countries
This screening process considers:
Fine-grained screening:

Fine-grained screening: This part of the

market screening process takes into These are the primary markets
consideration the competencies of the firm. (key markets), which offer
Market attractiveness/competitive strength the best opportunities for
matrix long term strategic development.
High

High Here firms may want to establish Invest/grow

a permanent presence and should
it y
Invest/grow therefore embark on a tiv s
lec egie
Market/country attractiveness

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)

A market Screening model

5
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

Modes of foreign market entry

A. High control/ Fully owned B. Low Control/ Shared Ownership

1. Wholly owned subsidiaries 1. Exporting 2.Contractual 3.Joint Ventures 4.Strategic alliances
(i) Cross border acquisition (i) Indirect (i) Licensing
(ii) Green Field operations (ii) Cooperative (ii) Franchising
(iii) Direct (iii) Turnkey projects
(iv) Contract Manu.

Decision Criteria for Mode of Entry

1. Market Size and Growth
2. Risk
3. Government Regulations
4. Competitive Environment
5. Local Infrastructure
6. Company Objectives
7. Need for Control
8. Internal Resources, Assets and Capabilities
9. Flexibility

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

✦ Indirect Exporting - Export management companies

✦ Cooperative Exporting -Piggyback Exporting
✦ Direct Exporting- Firms set up their own exporting departments

✦ 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

Potential Export Problems

✦ Logistics
✦ Legal Procedure
✦ Servicing Exports
✦ Promotion
✦ Foreign Market Intelligence

✦ Government Programs That Support Exports

◆ Tax Incentives
◆ Subsidies
◆ Governmental Assistance

✦ Government Programs That Discourage Imports

✦
Tariffs
A tariff : Is a tax levied by the foreign government on goods imported into that country (or import duty). The
tariff increases the price at which the goods are sold in the importing country and therefore makes them less
competitive with locally produced goods.

Types of Tariffs
A tariff may be one of the following four kinds:
(1) Ad valorem (2) Specific (3) Alternative (4) Compound

.1.Ad Valorem duty

The kind most commonly used, is one that is calculated as a percentage of the value of the imported goods - for
example, 10, 25 or 35 per cent. This may be based, depending on the country, either on destination or on the
value of the goods at the port in the country of origin
2. A Specific duty
Is a tax of so much local currency per unit of the goods imported (based on weight, number, length, volume or
other unit of measurement. Specific duties are often levied on foodstuffs and raw materials.
3. An Alternative duty
Is where both an Ad valorem duty and A Specific duty are prescribed for a product, with the requirement that the
more onerous one shall be Ad valorem duty value plus 10 cents per kilo.
4. Compound duties
Are imposed on manufactured goods that contain raw materials that are themselves subject to import duty. The

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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

Trading Companies of Today

✦ The sogoshosha of Japan
– Sumitomo, Mitsubishi, Mitsui

Reasons for the success of the sogoshosha

– Development of information systems to identify market opportunities

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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

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)

Corporate Insight
Matshushita and IBM PCs
License manufacturing

Franchising :- Franchisor and the franchisee

✦ 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

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

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
– Joint Ownership

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.

Birla Sun Life Asset Management Company Ltd.

is a joint venture between the Aditya Birla Group and Sun Life Financial Services of Canada.

AutoAlliance International between Ford Motor Company and Mazda

LG.Philips Components between LG Group and Royal Philips Electronics

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NUMMI between General Motors and Toyota

Sony Ericsson between Sony and Ericsson

Wholly Owned Subsidiaries

1. Acquisitions
2. Greenfield Operations (Starts up with a new enterprise )

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
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

Acquisitions and Mergers

– Quick access to the local market
– Good way to get access to the local brands

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

Types of Strategic Alliances

– Simple licensing agreements between two The Logic Behind Strategic Alliances
partners – Defend
– Market-based alliances – Catch-Up
– Operations and logistics alliances – Remain
– Operations-based alliances – Restructure

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Cross-Border Alliances that Succeed:
– Alliances between strong and weak partners seldom work.
– Autonomy and flexibility
– Equal ownership

Other success 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
◆ Similar cultures, assets sizes and venturing experience
◆ A shared vision on goals and mutual benefits

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.

3. Motorola Inc. and Toshiba corporation

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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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