INTERNATIONAL MARKET

ENTRY STRATEGIES

• International market entry

concept & modes
• Factors affecting the
selection of entry mode
•
•
 Concept of international market
entry
•mode of entry: an institutional mechanism by which a
firm makes its products or services available
consumers in international markets.
•mode of entry determined by:
- the ability and willingness of the firm to commit
resources
- the firms’ desire to have a level of control over
international operations
- the level of risk the firm is willing to take
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Market entry strategies

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 Market entry strategies
Exporting
n Direct
– Domestic base
– Overseas sales branch
– Traveling sales representative
– Foreign-based distributors/agent
–
n Indirect-occasional, or active exporting
– Domestic-based export merchant
– Domestic-based export agent
– Cooperative organizations
– Export-management company

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 Market entry strategies
Contractual Agreements
•

– Franchising: A contractual arrangement where a wholesaler

or retailer (the Franchisee) agrees to make some payment
and to meet the operating requirements of a manufacturer
or other franchiser in exchange for the right to use the
firm’s name and to market its goods or services
–
– Foreign Licensing: an agreement that grants foreign
marketers the right to distribute a firm’s merchandise or to
use its trademark, patent, or process in a specified
geographic area.
–
– Subcontracting: a contractual agreement where a firm hires
a local company to produce goods or services in a specific
geographic area.
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•
 Market entry strategies
International Direct Investment
n An additional strategy for entering global markets
n Requires direct investment in foreign firms, production, and/or
marketing facilities
n Advantages
– cheaper labor cost in some countries
– government incentives
– creates better image
– deeper relationships with government, customers, suppliers
and distributors
– full control of operations and marketing
n Risks involved:
– economic difficulties of the host country
– political instability and negative perception
–
• international market entry Rajesh Narang 6
Modes of international market entry

Production in home country

exports: production is carried out in home country

and finished goods are shipped to the overseas
markets for sale
indirect exports: process of selling products to an
export intermediary in the company’s home country
who in turn sells the products in the overseas
markets
direct exports: process of selling the firm’s
products directly to an importer in the overseas
market

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 Modes (contd)

complementary exporting: use of distribution channels

of an overseas firm to make the product available in the
overseas market

provide offshore services: to overseas clients with the

help of information and communication technology

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 Modes (contd)
Production in a foreign country

• contractual entry modes

international licensing: process by which a domestic
company allows a foreign company to use its intellectual
property and specific business skills for a compensation
(royalty)

international franchising: transfer of intellectual

property and other assistance over an extended period of
time with greater control compared to licensing

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Selecting the International
Entry Mode, continued
n Licensing
§ Licensor offers know-how, shares technology, and
shares brand name with licensee
§ Licensee pays royalties
§ 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
–
• DOWNSIDE: Can produce competitor in the licensee

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Selecting the International
Entry Mode, continued
n Franchising
§ Franchisor gives franchisee right to use brand name,
trademarks and business know-how
Less risk, higher level of control
Very rapid market penetration
•

• DOWNSIDE: Can create future competitors who

understand the operations of the franchise

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 Modes (contd)

overseas turnkey projects: conceptualize, design,

install, construct, and carry out primary testing of
manufacturing facilities or engineering structures for an
overseas client organisation
types : built and transfer (BT), built, operate, and
transfer (BOT), built, operate, own (BOO)
international management contracts: a company
provides its technical and managerial expertise for a
specific duration to an overseas firm

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 Modes (contd)

international strategic alliance: the relationship

between two or more firms that cooperate with each
other to achieve common strategic goals but do not
form a separate company

international contract manufacturing: a contractual

arrangement under which a firm’s manufacturing
operations are carried out in a foreign countries

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International Strategic Alliances
n Typically,
the term refers to nonequity
alliances; for example:
n Manufacturing
§ Contract manufacturing, engineering, technological, and
research and development alliances
n Marketing
§ One firm handles marketing for another, or some aspect of
the marketing process
n Distribution
§ One firm handles the distribution for another, or some
aspect of the distribution process
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 Modes (contd)
Investment entry modes

assembly in overseas markets: refers to exporting

various components of the product in completely
knocked down (CKD) condition and assembles them
overseas

international joint ventures: equity participation of

two or more firms resulting into formation of a new
entity

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Selecting the International
Entry Mode, continued
n Joint Venture
§ Preferred entry mode of governments of developing
countries
- Help develop local expertise
- If production is exported, helps with
country’s balance of trade
§ Foreign company and local company establish a jointly-
owned new company
§ Parties share capital, equity, labor
§ 70% of all joint ventures break up within 3.5 years
• DOWNSIDE: Joint-venture partners can turn into viable
competitors; and 70% of all joint ventures break up
within 3.5 years.
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Selecting the International
Entry Mode, continued
n Consortia
§ Involve three or more companies
§ Monopoly effect
§ Allowed
- where expensive R&D is
involved
- in underserved markets
- in markets where the
government and/or the
marketplace can control its
activity

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Factors for selecting partners for
cooperation

•the alliance partner should have some strength which

can be translated into business values for the alliance

•the alliance partners should be committed to

cooperative goals

•it is preferable that the alliance partner should have

multi-cultural business environment

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 Investment mode (contd)

Wholly owned foreign subsidiaries

•to have complete control and ownership of

international operations a firm opts for foreign
direct investment through:
1. acquiring a foreign company and all its resources in
a foreign market (acquistion)
2. the establishment of production and marketing
facilities by a firm on its own from scratch (green field)

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Selecting the International
Entry Mode, continued
n Wholly Owned Subsidiaries
§ 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

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Selecting the International
Entry Mode, continued
n Branch Offices
§ Entities are part of the international company,
rather than a new company (as in the case of
the subsidiary)
§ Involves substantial investment
sales office
showroom
§ Engages in a full spectrum of marketing activity
§ High level of control

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 Comparison of Market Entry Strategies
–
• Form Control Risk Advantage
•

• Export Very limited Low Low cost

•

• Licensing Limited Moderate Low cost

•

• Joint Ventures Shared Moderate Local

expertise
•

• Ownership Total High Control

•

• Internet Total High No physical

• presence required
•

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Factors affecting the selection of
entry mode
External factors

•Market size
•Market growth
•Government regulations
•Level of competition
•Level of risk
•political
•economic
•operational
•Production and shipping costs

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Factors affecting the selection of
entry mode (contd)

Internal factors

• Company objectives

•availability of company resources

•level of commitment

•international experience

•flexibility

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Foreign market portfolios: technique and
analysis
Company high medium low
competitive
Market
attractivness

high Invest/grow Invest/grow divest

dominate Joint venture

medium Invest/grow Selective

strategies

low Harvest/divest/
License/combine
countries

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Thank you