global marketing management, 5e chapter 9copyright (c) 2009 john wiley & sons, inc. 1 chapter 9...

Global Marketing Management, 5e

Chapter 9Copyright (c) 2009 John Wiley & Sons, Inc.

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Chapter 9

Global Market Entry Strategies

Chapter Overview

1. Target Market Selection2. Choosing the Mode of Entry3. Exporting4. Licensing5. Franchising6. Contract Manufacturing (Outsourcing)7. Expanding through Joint Ventures8. Wholly Owned Subsidiaries9. Strategic Alliances10. Timing of Entry11. Exit Strategies


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Introduction

The need for a solid market entry decision is an integral part of a global market entry strategy.

Entry decisions will heavily influence the firm’s other marketing-mix decisions.

Global marketers have to make a multitude of decisions regarding the entry mode which may include: (1) the target product/market (2) the goals of the target markets (3) the mode of entry (4) The time of entry (5) A marketing-mix plan (6) A control system to check the performance in the entered markets


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1. Target Market Selection

A crucial step in developing a global expansion strategy is the selection of potential target markets (Exhibit 9-1).

A four-step procedure for the initial screening process:

1. Select indicators and collect data2. Determine importance of country indicators3. Rate the countries in the pool on each

indicator4. Compute overall score for each country


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Exhibit 9-1: Logical Flowchart of the Entry Decision Process


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2. Choosing the Mode of Entry

Decision Criteria for Mode of Entry: Market Size and Growth Risk Government Regulations Competitive Environment/Cultural Distance Local Infrastructure(See Exhibits 9-2 and 9-3.)


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Exhibit 9-2: Method for Prescreening Market Opportunities

Exhibit 9-3: Opportunity Matrix for Henkel in Asia Pacific


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Classification of Markets:Platform Countries (Singapore & Hong Kong)Emerging Countries (Vietnam & the

Philippines)Growth Countries (China & India)Maturing and established countries

(examples: South Korea, Taiwan & Japan) Company Objectives Need for Control Internal Resources, Assets and Capabilities Flexibility(See Exhibit 9-4.)


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Exhibit 9-4: Entry Modes and Market Development


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Mode of Entry Choice: A Transaction Cost Explanation Regarding entry modes, companies

normally face a tradeoff between the benefits of increased control and the costs of resource commitment and risk.

Transaction Cost Analysis (TCA) perspective Transaction-Specific Assets (assets valuable

for a very narrow range of applications)


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3. Exporting

Indirect Exporting Export merchants Export agents Export management companies (EMC)

Cooperative Exporting Piggyback Exporting

Direct Exporting Firms set up their own exporting

departments


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4. Licensing

Licensor and the licensee Benefits:

Appealing to small companies that lack resources

Faster access to the market Rapid penetration of the global markets

Caveats: Other entry mode choices may be affected Licensee may not be committed Lack of enthusiasm on the part of a licensee Biggest danger is the risk of opportunism Licensee may become a future competitorChapter 9Copyright (c) 2009 John Wiley & Sons, Inc.

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4. Licensing

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)


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5. Franchising

Franchisor and the franchisee

Master franchising Benefits:

Overseas expansion with a minimum investment

Franchisees’ profits tied to their efforts

Availability of local franchisees’ knowledge


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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

Exhibit 9-5: International Efforts of Ten Well-Known Franchise Companies


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Exhibit 9-6: International Franchising with Papa John’s

6. Contract Manufacturing (Outsourcing) Benefits:

Labor cost advantages Savings via taxation, lower energy costs, raw

materials, and overheads Lower political and economic risk Quicker access to markets

Caveats: Contract manufacturer may become a future

competitor Lower productivity standards Backlash from the company’s home-market

employees regarding HR and labor issues Issues of quality and production standardsChapter 9Copyright (c) 2009 John Wiley & Sons, Inc.

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6. Contract Manufacturing (Outsourcing)

Qualities of An Ideal Subcontractor: Flexible/geared toward just-in-time delivery Able to meet quality standards Solid financial footings Able to integrate with company’s business Must have contingency plans


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7. Joint Ventures

Cooperative joint venture Equity joint venture Benefits:

Higher rate of return and more control over the operations

Creation of synergy Sharing of resources Access to distribution network Contact with local suppliers and

government officials


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7. Joint Ventures

Caveats: Lack of control Lack of trust Conflicts arising over matters such as

strategies, resource allocation, transfer pricing, ownership of critical assets like technologies and brand names (Exhibit 9-7)


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Exhibit 9-7: Conflicting Objective in Chinese Joint Ventures

7. Joint Ventures

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 Create a launch team during the launch phase:

(1) Build and maintain strategic alignment(2) Create a governance system(3) Manage the economic interdependencies(4) Build the organization for the joint venture


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Exhibit 9-8: Starbuck’s Coffee’s Criteria in Selecting Partners

8. Wholly Owned Subsidiaries

Acquisitions and Mergers Quick access to the local market Good way to get access to the local brands

Greenfield Operations Offer the company more flexibility than

acquisitions in the areas of human resources, suppliers, logistics, plant layout, and manufacturing technology.


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Benefits:Greater control and higher profitsStrong commitment to the local market

on the part of companiesAllows the investor to manage and

control marketing, production, and sourcing decisions


Caveats:Risks of full ownershipDeveloping a foreign presence without

the support of a third partRisk of nationalizationIssues of cultural and economic

sovereignty of the host country


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9. Strategic Alliances

Types of Strategic Alliances Simple licensing agreements between two

partners Market-based alliances Operations and logistics alliances Operations-based alliances


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The Logic Behind Strategic Alliances Defend Catch-Up Remain Restructure


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Exhibit 9-9: Generic Motives for Strategic Alliances


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Cross-Border Alliances that Succeed: Alliances between strong and weak

partners seldom work. Autonomy and flexibility Equal ownership


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Other factors: Commitment and support of the top of the

partners’ organizationsStrong alliance managers are the keyAlliances between partners that are related in

terms of products, technologies, and marketsHave similar cultures, asset sizes and

venturing experienceTend to start on a narrow basis and broaden

over timeA shared vision on goals and mutual benefits


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10. 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, and breadth of product & service offerings.

Mode of entry issues, market knowledge, various economic attractiveness variables, etc.


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Exhibit 9-10: Timeline of Wal-Mart’s International Expansion

11. Exit Strategies

Reasons for Exit: Sustained losses Volatility Premature entry Ethical reasons Intense competition Resource reallocation


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11. Exit Strategies

Risks of Exit: Fixed costs of exit Disposition of assets Signal to other markets Long-term opportunities

Guidelines: Contemplate and assess all options to

salvage the foreign business Incremental exit Migrate customers


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Exhibit 9-11: Advantages and Disadvantages of Different Modes of Entry

global marketing management, 5e chapter 9copyright (c) 2009 john wiley & sons, inc. 1 chapter 9...

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