1.

Globalization

Global Marketing Environment

2. Global Economic 4. Cultural issues and Buying

Environment Behavior

3. Financial Environment 5. Political/ Legal Environment

Development of Competitive Strategy

6. Global Marketing
Research

7. Global Segmentation and 8. Global Marketing Strategies

Positioning

Contd….
 9. Global Market Entry Mode

Global Marketing Strategy Development

10. Global Product Development 13. Communicating with the

11. Marketing Product and world Consumer
Services 14. Sales Management

15. Global Logistic and

12. Global Pricing Distribution
16. Export/Import Management

Managing Global Operation

17. Planning, Organization and Control of Global Marketing Operations

18. Marketing in Emerging Markets

19. Global Marketing and the Internet

3

Chapter 9
Global Market Entry Modes
 Chapter Overview
4

1. Target Market Selection

2. Choosing the Mode of Entry
3. Exporting
4. Licensing
5. Franchising
6. Contract Manufacturing (Outsourcing)
7. Expanding through Joint Ventures
8. Wholly Owned Subsidiaries
9. Strategic Alliances
10. Timing of Entry
11. Exit Strategies
 Introduction
5

 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
 1. Target Market Selection
6

 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
 Logical Flowchart of the Entry
Decision Process
7
 2. Choosing the Mode of Entry
8

 Decision Criteria for Mode of Entry:

 Market Size and Growth
 Risk
 Government Regulations
 Competitive Environment/Cultural Distance
 Local Infrastructure
 Method for Prescreening Market
Opportunities
9
 Opportunity Matrix for Henkel in
Asia Pacific
10
 2. Choosing the Mode of Entry
11

 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
 Entry Modes and Market
Development
12
 2. Choosing the Mode of Entry
13

 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)
 2. Choosing the Mode of
14
Entry
 A given task can be looked at as a ‘‘make-or-
buy’’ decision: either the firm sources the task
out to third party agents or partners (low-
control modes such as exporting) or it does
the job internally (high control modes such as
foreign direct investment).
 TCE argues that the desirable governance
structure (high- versus low-control mode)
depends on the comparative transaction costs,
that is, the cost of running the operation.
 2. Choosing the Mode of
15
Entry
 In the context of entry mode choice, the TCE
perspective treats each entry as a
‘‘transaction.’’
 The TCE approach begins with the premise that
markets are competitive. Therefore, market
pressure minimizes the need for control.
 Under this utopian scenario, low-control modes
such as exporting are preferable because the
competitive pressures force the outside partner
to comply with its contractual duties.
 2. Choosing the Mode of
16
Entry
 When the market mechanism fails, high-
control entry modes become more
desirable. From the TCE angle, market
failure typically happens when
transaction-specific assets become
valuable. These are assets that are
valuable for only a very narrow range of
applications.
 Examples include brand equity,
proprietary technology, and know-how.
 2. Choosing the Mode of
17
Entry
 When these types of assets become very
important, the firm might be better off to
adopt a high-control entry mode in order
to safeguard these assets against
opportunistic behaviours of its managers
and uncertainty.
 2. Choosing the Mode of Entry
18

 Mode of Entry Choice: A Resource-Based View

(RBV)
 Possessing resources is not sufficient to create
CA, firm should be organized to take full
advantage of its resources.
 Firms with imperfectly imitable RB CA expands
through wholly owned entry modes, as
 It can protect the value of its RB Advantages
against value erosion (patent theft)
 Firm can capture and transfer knowledge between
the parent and foreign subsidiary more efficiently
 2. TCE vs. RBV: prediction of
different entry modes
19

 Mode of Entry Choice: A Resource-Based View (RBV)

 TCE predicts high-control entry modes because of
opportunistic behavior of the firm’s partner( licensee),
RBV attributes market failures to other mechanisms;
 when the MNC has superior capabilities in deploying its
know-how and the prospective (license) faces
challenges in efficiently acquiring and integrating that
knowledge MNC will prefer high-control entities
 TCE focuses on entries as a one time event, RBV looks
at a sequence of entries as a dynamic process where
MNC is able to learn from and build on its previous entry
experience
 2. TCE vs. RBV: prediction of
different entry modes
20

 The third difference relates to the firm-

specific advantages:
 TCE focuses on their exploitation the RBV
stresses both their exploitation and
development
 RBV states that market entries are not only
pushed by the resources held by the MNC,
but that the target entry could also help the
MNC in developing new advantages
 2. TCE vs. RBV: prediction of
different entry modes
21

 An empirical study of entry decisions made by the

180 largest MNCs over a fifteen year period found
that MNCs are most likely to enter with wholly
owned subsidiaries when one of the following
conditions holds:
 The entry involves an R&D-intensive line of
business
 The entry involves an advertising-intensive line
of business (high brand-equity)
 The MNC has accumulated a substantial amount
of experience with foreign entries
 2. TCE vs. RBV: prediction of
different entry modes
22

 On the other hand, MNCs are most likely

to prefer a partnership when one of these
 holds:
 The entry is in a highly risky country
 The entry is in a socioculturally distant
country
 There are legal restrictions on foreign
ownership of assets
 3. Exporting
23

 Indirect Exporting
 Export merchants
 Export agents
 Export management companies (EMC)
 Cooperative Exporting
 Piggyback Exporting
 Direct Exporting
 Firms set up their own exporting
departments
 4. Licensing
24
 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 competitor

 4. Licensing
25

 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)
 5. Franchising
26

 Franchisor and the

franchisee Caveats:
 Master franchising – Revenues may not be adequate
– Availability of a master franchisee
 Benefits:
– Limited franchising opportunities
 Overseas expansion
overseas
with a minimum
investment – Lack of control over the
franchisees’ operations
 Franchisees’ profits
tied to their efforts – Problem in performance
standards
 Availability of local
– Cultural problems
franchisees’
knowledge – Physical proximity
 International Efforts of Ten Well-
27
Known Franchise Companies
 International Franchising with
Papa John’s
28
 6. Contract Manufacturing
(Outsourcing)
29

 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 standards
 6. Contract Manufacturing
(Outsourcing)
30

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

 7. Joint Ventures
31

 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
 7. Joint Ventures
32

 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
 Conflicting Objective in Chinese
Joint Ventures
33
 7. Joint Ventures
34

 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
 Starbuck’s Coffee’s Criteria in
Selecting Partners
35
 8. Wholly Owned Subsidiaries
36

 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.
 8. Wholly Owned Subsidiaries
37

 Benefits:
 Greater control and higher profits
 Strong commitment to the local market
on the part of companies
 Allows the investor to manage and
control marketing, production, and
sourcing decisions
 8. Wholly Owned Subsidiaries
38

 Caveats:
 Risks of full ownership
 Developing a foreign presence without
the support of a third part
 Risk of nationalization
 Issues of cultural and economic
sovereignty of the host country
 9. Strategic Alliances
39

 Types of Strategic Alliances

 Simple licensing agreements between two
partners
 Market-based alliances
 Operations and logistics alliances
 Operations-based alliances
 9. Strategic Alliances
40

 The Logic Behind Strategic Alliances

 Defend
 Catch-Up
 Remain
 Restructure
 Generic Motives for Strategic
Alliances
41
 9. Strategic Alliances
42

 Cross-Border Alliances that Succeed:

 Alliances between strong and weak
partners seldom work.
 Autonomy and flexibility
 Equal ownership
 9. Strategic Alliances
43

 Other factors:
 Commitment and support of the top of the
partners’ organizations
 Strong alliance managers are the key
 Alliances between partners that are related in
terms of products, technologies, and markets
 Have similar cultures, asset sizes and
venturing experience
 Tend to start on a narrow basis and broaden
over time
 A shared vision on goals and mutual benefits
 10. Timing of Entry
44

 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.
 Timeline of Wal-Mart’s
International Expansion
45
 11. Exit Strategies
46

 Reasons for Exit:

 Sustained losses
 Volatility
 Premature entry
 Ethical reasons
 Intense competition
 Resource reallocation
 11. Exit Strategies
47

 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
 Advantages and Disadvantages of
Different Modes of Entry
48