global entry strategies by cleopas chiyangwa

Global Entry Strategies

By Cleopas ChiyangwaMBA Global Business and Sustainability, Universita Cattolica Del Sacro Cuore, Italy.

Objectives

• Choice of market to enter.• Definition of entry scale.• Strategic alliances • Choice of entry mode

Global Entry Strategies by Cleopas Chiyangwa 2013

Favourable factors for foreign markets selection.

• Political stability.• Type of economic system-i.e. free market system.• Benefit cost risk trade off.• Inflation-less dramatic inflation upsurges.• Availability of raw materials• Cheap labour.


Unfavourable factors for foreign markets selection

• Political instability, i.e. wars.• Speculative financial bubbles.• Mixed or command economy.• Effectiveness of rule of law.• Appropriation of assets, i.e. empowerment policies.


Timing

• Early Mover (Pioneer)• Demand capturing.• Establishment of market share.• Strategic advantages over late movers.• More pre-emptive opportunities.

• Demerits for an early mover (pioneer) in a market• Government policy and regulations.• Entrance cost-market and distribution channel design.• Operational risks.• Poor infrastructure systems.


Early mover advantages


Scale of entry

Entry Scale

Market

Company exposure

Resources

Small Large

Less time to learn about the market

More time to learn about the market.

Limited Easier to attract customers

More resource distribution

Fewer resources to commit elsewhere.


Mode of entry

• Exporting.• Turnkey Projects.• Licensing.• Franchising.• Joint Ventures.• Wholly Owned Subsidies.


Exporting

Advantages • Avoids the often substantial

cost of establishing manufacturing.

• May help firm achieve experience curve.

• Location economies

Firm may manufacture in centralized location & export to other national markets.

Disadvantages • Not appropriate if lower cost

manufacturing locations.

• High transport costs can make exporting uneconomical especially bulk products.

• Tariff barriers can make exporting uneconomical.

• Can set up wholly owned subsidiaries to handle local marketing & sales.


Turnkey Project

• Means of exporting process technology.

• Know-how to assemble & run technologically complex process is valuable asset –earn economic benefit from asset.

• Strategy useful where governments restrict FDI -less risky than conventional

• Firm has no long term interest in the country – can take minority equity interest in company.

• Firm may inadvertently create a competitor (middle east oil refineries). If firm’s process technology is a source of competitive advantage, then selling technology is also selling competitive advantage.


Advantages Disadvantages

Licensing

• Primarily used by manufacturing firms.

• Allows firm to participate where there are barriers to investment.

• Licensee puts up most of the capital to get the operations going.

• Receive royalties for granting the rights to intangible property to licensee for specified period (patents, inventions, formulas, processes, designs, copy rights, trademarks).

• Firms can lose control over the competitive advantage of their technological know-how.

• Does not allow firm to coordinate strategic moves across countries by using profits earned in one country for competitive attacks in another.

• Does not give firm tight control over manufacturing, marketing & strategy to realize experience curve & location economies.


Advantages Advantages Disadvantages

Franchising

• Involves longer term commitment than licensing. Primarily used by service firms (KFC).

• Firm relieved of many costs & risks of opening new market.

• Royalty payments that are some percentage of franchisee’s revenues

• No manufacturing so no location economies & experience curve.

• Risk of worldwide reputation if no quality control.

• May inhibit the ability to take profits out of one country to support competitive attacks in another



Joint Venture

• Firm benefits from local partner’s knowledge of competitive conditions, culture, language, political system & business system.

• In some countries, political considerations make JVs the only feasible entry mode.

• Sharing market development costs & risks with local partner.

• Risk of giving away your technology to a business partner.

• Shared ownership can lead to conflicts & battles for control if goals/objectives change or they take different views on strategy.

• Does not give firm control over subsidiaries that it might need to realize experience curve or location economies.



Wholly Owned Subsidies.

• Wholly-owned subsidiary reduces risk over losing control when there is technological competence.

• Give firm tight control over operations in country -> engage in strategic coordination with profits.

• Can realize location & experience curve economies – centrally determined decisions.

• Most costly method of market Entry.

• Risk associated with learning to do business in a new culture.



Entry mode risk continuum

Fig1. EM risk continuum The level of involvement, risk,

and financial reward increases as a company moves from market entry strategies such as licensing to joint ventures and ultimately, various forms of investment.


Which strategy should be used?

It depends on:• Vision.• Attitude toward risk.• How much investment capital is available.• How much control is desired.


THANK YOUMAZVIITA!!!


global entry strategies by cleopas chiyangwa

Education