“ when a company makes the commitment to go international, it must choose an entry mode...
TRANSCRIPT
“When a company makes the commitment to go international,
it must choose an entry mode strategy.”
• Exporting– Indirect exporting– Direct exporting
• Licensing• Franchising• Joint venture• Consortia• Wholly owned subsidiary
– Greenfielding• Strategic Alliances
– Manufacturing alliance– Marketing alliances– Distribution Alliances– Outsourcing
Methods of Market Entry
• Exporting (most common, least risky)– Indirect Company sells its products in the
company home country to intermediaries (EMCs, ETCs) who sell the product overseas.
Lowest risk, lowest control
– Direct Company sells its own products overseas directly to customers or overseas distributors.
Methods of Market Entry
• Licensing Company shares its know-how, technology, and/or brand name with licensee for a fee. Lower-risk entry mode; limits exposure to economic, financial, and
political instability Permits the company access to markets that may be closed or that
may have high entry barriers On downside can result in new competitor
Methods of Market Entry
• Franchising Franchisor gives franchisee right to use brand name, trademarks and business know-how for a fee and royalty
– Fastest growing strategy, suitable for emerging economies
– Franchisor experiences has less risk, higher level of control
– Allows for very rapid market penetration– Can create future competitors who understand the
operations of the franchise
Queen Street Mall, Brisbane Australia – Happy Jack’s
Mannheim, Germany
Venice and Mantua, Italy
Montevideo, Uruguay
• Joint Venture Partnership of two or more companies that have joined forces to set up separate legal entity
– Lessen political and economic risk
– Preferred entry mode of governments of developing countries; Help develop local expertise
– Might be the only option permitted by the local government to perform business in the target country.
– Joint-venture partners can turn into viable competitors;
– May be unable or unwilling to share control; 70% of all joint ventures break up within 3.5 years.
Methods of Market Entry
General Mills• Established Cereal Partners Worldwide CPW joint
venture with Nestle– markets cereals in more than 130 countries under brands
such as Zucosos, Chocapic, Nesquik and Shreddies.
General Mills International Strategy
• Established joint venture Snack Ventures (SVE) Europe with PepsiCo
– Created the Continent’s largest snack company; brands include Smiths, Lays, Fritos, Doritos and Bugles.
Methods of Market Entry
• Consortia Company created with the participation of three or more companies Allowed where expensive R&D is involved in underserved market in markets where the government and/or the marketplace can
control its activity
Methods of Market Entry
• Wholly Owned Subsidiaries - Involves establishing new company in foreign country
Can be developed by the company – greenfielding – or can be purchased (acquisition or merger)
Involve long-term market commitment High cost High control of operations Greatest level of risk
Methods of Market Entry• Strategic Alliances Any type of relationship between or more
companies attempting to reach joint goals; typically, the term refers to nonequity alliances.– Manufacturing – one firm handles manufacturing for other– Marketing– Distribution
What method would you recommend for the following businesses to go international?
Murumbateman Winery
How Do You decide which Country(s) to Enter?
• With the addition of East Timor in May of 2002, there are 193 sovereign nations in the world, 61 dependent areas, and six disputed territories.
• Companies Use Different Selection Criteria
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Political/legalforces
Economicforces
1
2
Environmentaluncontrollablescountry market A
Environmentaluncontrollablescountrymarket B
Environmentaluncontrollablescountrymarket C
CompetitiveForces
Level of Technology
Geography and
Infrastructure
Foreign environment(uncontrollable)
Demographic
Cultural forces
3
45
6
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Irwin/McGraw-Hill Copyright©2002 by The McGraw-Hill Companies, Inc. All rights reserved.
• Countries vary on these factors.
• Factors in country keep changing.
Geographic Factors
• Many factors are included– Transportation to or in the country or market
and legal restrictions on travel– Infrastructure– Terrain– Climate humidity
Demographic Forces
• Market size, growth rate • Unemployment trends and • Educational levels• Age• Life Expectancy• Income• Labor (e.g. Availability, Technical
Expertise, Skill Level)
Australia
• Population: 20,264,082 (July 2006 est.)
• Median age: total: 36.9 years male: 36 years female: 37.7 years (2006 est.)
• Population growth rate: 0.85% (2006 est.)
Economic Forces
• Many factors affect economic stability of a marketplace (and country). – GDP growth rate– Per capita income– Unemployment rate – Inflation– Markets that are stable and growing are obviously more
attractive.– Financial Considerations (e.g. Corporate Taxes, Incentives,
Transfer of Earnings, Foreign Exchange Rates)– Labor (e.g. Cost, Wages, Productivity Levels) Availability, Union
Rules, Technical Expertise, Skill Level)
Australia
• Economy - overview: Australia has an enviable Western-style capitalist economy with a per capita GDP on par with the four dominant West European economies. Rising output in the domestic economy, robust business and consumer confidence, and rising exports of raw materials and agricultural products are fueling the economy. Australia's emphasis on reforms, low inflation, and growing ties with China are other key factors behind the economy's strength.
Competitive Forces
• Location of Competitors
• Location of Suppliers (e.g. Proximity to, Availability)
Cultural Forces
• Customs and culture also affect consumption of goods.– Colors, numbers, and language
• U.S. yellow cowardice, whereas it takes on religious and mystical undertones in India.
– Attitude towards foreigners, Attitudes toward work, Knowledge of English
– Quality of Life (e.g. Cost of living, Availability of housing, Access to international schools, Safety, Quality of food, wine, recreation areas)
Goulbourn
Residential Neighborhood Canberra
The Big Merino 15 meters high
Political/Legal Forces
• Political climate includes:– Type of political system; stability– Tariff rates and licensing requirements– Attitudes towards doing business with United
States