FOREIGN

MARKET
ENTRY
STRATEGIES

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Target Market Selection

Choosing the Mode of Entry
Exporting
Licensing
Franchising
Contract Manufacturing
Joint Ventures
Wholly Owned Subsidiaries
Strategic Alliances
Timing of Entry
Exit Strategies

WHICH STRATEGY SHOULD BE USED?

It depends on:
a. Vision
b. Attitude toward risk
c. How much investment capital is available
d. How much control is desired

SELECTING THE TARGET MARKET

A crucial step in developing a global expansion strategy
is the selection of potential target markets.
A four-step procedure for the initial screening process:
1. Select indicators and collect data.
2. Determine importance of country indicators.
3. Rate the countries in the pool on each
indicator.
4. Compute overall score for each country.

CHOOSING THE MODE OF ENTRY

1. Decision Criteria for Mode of Entry
a. Market Size and Growth
b. Risk
c. Government Regulations
d. Competitive Environment/Cultural Distance
e. Local Infrastructure

CHOOSING THE MODE OF ENTRY

2. Classification of Markets
a. Platform Countries (Singapore & Hong Kong)
b. Emerging Countries (Vietnam & the
Philippines)
c. Growth Countries (China & India)
d. Maturing and established countries (examples:
South Korea, Taiwan & Japan)
3. Company Objectives
4. Need for Control
5. Internal Resources, Assets and Capabilities
6. Flexibility

EXPORTING
- It is a strategy of producing in the home
country and then selling to buyers in foreign
markets or abroad.
- A function of international trade whereby
goods produced in one country are shipped to
another country for future sale or trade. The
sale of such goods adds to the producing
nation's gross output.

Forms of Exporting
Direct Exporting
- Direct export works the best if the volumes are
small . The main characteristics of direct exports entry
is that there is no intermediaries.
Indirect Exporting
- Indirect exporting is the process of exporting through
domestically based export intermediaries.
- The exporter have no control over its products in the
foreign market.
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Advantages of Exporting:
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Increased Sales and Profits

Gain Global Market Shares
Diversification
Lower Per Unit Costs
Create Potential for Company Expansion.
Sell Excess Production Capacity
Gain New Knowledge and Experience.
Expand Life Cycle of Product.
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Disadvantages of Exporting:
- Extra Costs
- Product Modification
- Financial Risk.
- Export Licenses and Documentation
- Market Information

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LICENSING
A contractual agreement whereby one company
(the licensor) makes an asset available to
another company (the licensee) in exchange for
royalties, license fees, or some other form of
compensation
1) Patent
2) Trade secret
3) Brand name
4) Product formulations

ADVANTAGES TO LICENSING
1. Provides additional profitability with little initial
investment
2. Provides method of circumventing tariffs, quotas, and
other export barriers
3. Attractive ROI
4. Low costs to implement

DISADVANTAGES TO LICENSING
1. Limited participation
2. Returns may be lost
3. Lack of control
4. Licensee may become competitor
5. Licensee may exploit company resources

FRANCHISING
Contract between a parent companyfranchisor and a franchisee that allows
the franchisee to operate a business
developed by the franchisor in return for
a fee and adherence to franchise-wide
policies

FRANCHISING
1. Franchisor and the franchisee
2. Master franchising
Advantages:
a. Overseas expansion with a minimum investment
b. Franchisees profits tied to their efforts
c. Availability of local franchisees knowledge

FRANCHISING
Disadvantages:
a. Revenues may not be adequate
b. Availability of a master franchisee
c. Limited franchising opportunities overseas
d. Lack of control over the franchisees operations
e. Problem in performance standards
f. Cultural problems
g. Physical proximity

CONTRACT MANUFACTURING
(Outsourcing)
Company provides technical specifications

to a

subcontractor or local manufacturer

Allows company to specialize in product design while
contractors accept responsibility for manufacturing
facilities

CONTRACT MANUFACTURING (Outsourcing)

1. Advantages:
a. Labor cost advantages
b. Savings via taxation, lower energy costs, raw materials,
and overheads
c. Lower political and economic risk
d. Quicker access to markets
2. Disadvantages:
a. Contract manufacturer may become a future competitor
b. Lower productivity standards
c. Backlash from the companys home-market employees
regarding HR and labor issues
d. Issues of quality and production standards

CONTRACT MANUFACTURING (Outsourcing)

Qualities of an ideal subcontractor:

a. Flexible/geared toward just-in-time delivery
b. Able to meet quality standards
c. Solid financial balances
d. Able to integrate with companys business
e. Must have contingency plans

Joint Ventures
Entry strategy for a single target country in
which the partners share ownership of a newlycreated business entity

Joint Ventures
Advantages:
a. Allows for sharing of risk (both financial
and political)
b. Provides opportunity to learn new
environment
c. Provides opportunity to achieve synergy by
combining strengths of partners
d. May be the only way to enter market given
barriers to entry

Joint Ventures
Disadvantages:
a. Requires more investment than a licensing
agreement
b. Must share rewards as well as risks
c. Requires strong coordination
d. Potential for conflict among partners
e. Partner may become a competitor

Wholly Owned Subsidiary

Locating own operations in a foreign site
A wholly owned subsidiary is the most costly method of serving a
foreign market. Companies taking this approach have to bear the full
costs and risks associated with setting up overseas operations.

Advantages:
a.Greater control and higher profits
b.Strong commitment to the local market on the
part of companies
c.diversification
d.provide few legal benefits

Wholly Owned Subsidiary

Disadvantages:
a.Developing a foreign presence without the support of
a third part
b.Issues of cultural and economic sovereignty of the
host country
c.the firm bears the full cost and risk of setting up
overseas operations
d.Need for the huge amount of initial investment

Strategic Alliances
1. Strategic Alliance = Cooperative Agreement
Long-term, explicit agreement between at
least two firms
Exchange can involve financial renumeration,
goods/services, information, or a
combination of the three

Types of Strategic Alliances

1.Simple licensing agreements between two
partners
2.Market-based alliances
3.Operations and logistics alliances
4.Operations-based alliances

The Logic Behind Strategic Alliances

1.Defend
2.Catch-Up
3.Remain
4.Restructure

Timing of Entry
International market entry decisions should also
cover the following timing-of-entry issues:
1. When should the firm enter a foreign market?
2. Other important factors include: level of
international experience, firm size
3. Also, the broader the scope of products and
services
4. Mode of entry issues, market knowledge,
various economic attractiveness variables

Timing of Entry
Reasons for exit:
a. Sustained losses
b. Volatility
c. Premature entry
d. Ethical reasons
e. Intense competition
f. Resource reallocation

Exit strategies
Exit strategies are techniques used by
companies to abandon products, divisions, or
even entire industries.

Exit strategies are implemented when a

company decides that it is no longer beneficial
to remain active in a given market or industry.

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types of exit strategies:

Merger with another company
Acquisation by another company
franchise of the company
Initial Public Offering

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considerations:
consider your future role in the business
think about your company future potential
asses market conditions and all options to salvage the foreign
business.

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