Opportunity Identification and Country Selection

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5/23/2013

Foreign Market Entry

Firm Specific Characteristics Objectives of Market Entry

Product Selection

Country Selection

Mode of Entry

Strategy and Time of Entry

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5/23/2013

1. Firm Specific Characteristics

Firm Specific Characteristics Provide the Lens to Assess the Foreign Market Entry Decision. Product Selection, Country Selection, Mode of Entry, Strategy, and Timing All Depend on Firm Specific Characteristics.

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1. Firm Specific Characteristics -Company Resources Core Competencies Financial Resources Ability to take Risk Human Resources R&D Sources of Supply Alliances and Strategic Networks Connections with Customers, Politicians, Governmental Agencies, Related Companies

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1. Firm Specific Characteristics (Cont.) - Industry Environment Market Presence Size, Growth, Maturity Fragmented versus Concentrated

Profitability of Industry
Target Market

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1. Firm Specific Characteristics (Cont.)

-Competitive Environment

Positioning
Competitive Advantage Strength and Weaknesses

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2. Objectives of Market Entry 2.1 Production Focused - Cost Advantages Economies of Scale Global Sourcing Labor Cost Cost to Protect Environment Taxes
-Knowledge Transfer -Potential for Innovation -Access to Skilled Labor

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2. Objectives of Market Entry (Cont.)

Porters Diamond Firm strategy, structure and rivalry

Factor conditions

Demand conditions

Related and supporting industries

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2. Objectives of Market Entry (Cont.)

Innovation and Competition

Companies gain advantage against the worlds best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive home based suppliers, and demanding local customers Michael Porter

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5/23/2013

Without Coke, Pepsi would have a tough time being an original and lively competitor..And on the other side of the fence, Im sure the folks at Coke would say that nothing contributes as much to the present day success of the CocaCola Company thanPepsi

Roger Enrico Ex-CEO of Pepsi Cola

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2. Objectives of Market Entry (Cont.)

Innovation and Economic Clusters

Clusters are geographic concentrations of interconnected companies and institutions in a particular field.
- Clusters increase competition and cooperation - Clusters increase communication between companies and employees. Clusters decrease transaction cost by establishing trust. - Clusters increase productivity. Clusters offer access to skilled labor, local suppliers, and public institutions - Clusters offer a high potential for innovation. Companies in clusters are close to competition, customers, and public institutions. Employees might feel peer pressure.
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2. Objectives of Market Entry (Cont.)

Innovation and Economic Clusters

Strategic Implications: Choosing location not only based on input cost. Consideration of Potential for Innovation is a critical factor for long term success.

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5/23/2013

2. Objectives of Market Entry (Cont.) 2.2 Market Focused -Capturing new Markets - Diversification - Brand name Leverage - Economies of Scope - Access to Know How and Qualified Employees 2.3. Competition Focused - First Mover Advantage - Preemptive Strike - Learning in Leading Markets - First - Mover (Dis)Advantage
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If you are going to be the worlds best furnishing company, you have to show you can succeed in America, because there is so much to learn here. Goran Carstedt
Head of Marketing IKEA

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5/23/2013

3. Country Selection

Sociopolitical Factors

Cost / Factors

Fit with Company

Regulatory Factors Strategic Factors Demand Factors

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5/23/2013

3. Country Selection
1. Region Identification 2. Preliminary Screening Potential candidates are identified using easily available statistical data.

Involves rating the identified countries on macro level indicators, such as political stability, geographic distance and economic c development. 3. In-depth Screening Analyzes data specific to the industry and product markets and segments. Analyses of Market Attractiveness 4. Final Selection Company objectives are brought to bear for a match.

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3. Country Selection (cont.)

Analysis of Market Attractiveness Economic Freedom Index Size http://www.heritage.org/Index/Ranking.aspx Growth Competition Market Potential Index Trade Barriers http://globaledge.msu.edu/resourcedesk/mpi/ Analysis of Political Risk Currency Infrastructure Capital Requirements Production Cost Taxes

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5/23/2013

General Data Resources

o Michigan State CIBER international business information repository:
o http://globaledge.msu.edu/

o U.S. Commercial Service - Export assistance arm of the Department of Commerce o http://export.gov/ o Available through UNLV Library Electronic Collections
o Global Market Information Database
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4. Mode of Entry

Exporting
Licensing Strategic Alliance

Joint Venture
M&A Direct Investment

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4. Mode of Entry (Cont.)

Considerations affecting mode of entry

Local Factors

Legal requirements Cultural distance

vs.

relevant MNE experience

Customers Human resources Distribution chain/supply chain

Political risk/value of connections

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5/23/2013

4. Mode of Entry (Cont.)

Considerations affecting mode of entry

Nature of the Product

Importance of control of brand, product leakquality, etc. Importance of technical knowledge vs. relevant local expertise Danger of leakage of critical technology

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4. Mode of Entry (Cont.)

Considerations affecting mode of entry

Strategic considerations

Risk tolerance vs. relative size of project Importance of learning from the market Important to demonstrate commitment?

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5. Strategy and Time of Entry

- Domestic Market Extension - Multinational - Global -Market Concentration versus Market Spreading

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5. Strategy and Time of Entry (Cont.)

Market Spreading versus Market Concentration:

Market Concentration
High Penetration High Control Knowledge of Market Conditions Economies of Scale Economies of Information Steep Learning Curve

Market Spreading
Low Penetration Low Control Little Effort in Single Markets Target Market Does not Reflect National Borders Diversification

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5. Strategy and Time of Entry (Cont.)

Profit and Risk in International Markets

Operating Profit

Risk

Domestic Operations Only

International Experience

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5/23/2013