Foreign Market Entry 3/17, 2016

Market Expansion Strategies Concentration Diversification Concentration Narrow Focus Country Focus Country Country Diversification Global Diversification Diversification

Set of countries for further screening Country Screening: The First Cut POLITICAL RISK General instability Expropriation Exchange rates reject accept ENVIRONMENT Physical Socio-cultural Economic Regulatory reject accept Set of countries for further screening

COUNTRY IDENTIFICATON PRELIMINARY SCREENING Entry Evaluation Procedure COUNTRY IDENTIFICATON accept reject PRELIMINARY SCREENING accept reject IN-DEPTH SCREENING accept FINAL SELECTION (personal visit) reject accept Entry Mode Analysis

Personal Visit “So if I asked you about art, you probably give me the skinny on every art book ever written. Michelangelo, you know a lot about him. Life’s work, political aspirations, him and the pope, sexual orientations, the whole works, right? But I’ll bet you can’t tell me what it smells like in the Sistine Chapel. You’ve never actually stood there and looked up at that beautiful ceiling; seen that.” --Memorable Quotes for Good Will Hunting

Ceiling of the Sistine Chapel

Decision Criteria for Mode of Entry Market Size and Growth Risk Government Regulations Competitive Environment Local Infrastructure Company Objectives Need for Control Internal Resources, Assets, and Capabilities Flexibility Market Attractiveness

Four Basic Modes of Entry Exporting Indirect Exporting Direct Exporting Licensing Incl. Franchising Strategic Alliances (SA) Joint ventures Collaborations between companies Wholly Owned Manufacturing Subsidiary The company commits investment capital in plant and machinery.

Modes of Entry (I) Exporting Indirect Exporting Cooperative Exporting

Modes of Entry (II) Licensing Technical Licensing Contract Manufacturing Original Equipment Manufacturing (OEM) Management Contracts Turnkey Contracts Franchising

Modes of Entry (III) Strategic Alliance Distribution Alliance Manufacturing Alliance R&D Alliance Joint Venture

Modes of Entry (IV) Wholly Owned Subsidiary Assembly Full-Fledged Manufacturing Research and Development Acquisition

The “Cultural Distance” Effect Most of the export expansion paths followed by firms begin in countries “psychologically” or “culturally” similar to their own or countries they already export to Geographical proximity plays a role but is only one part of the broader notion of “cultural distance” at the heart of expansion by gradually internationalizing The cultural distance effects works so as to create very natural “biases”

The International Learning Curve The cultural distance path also allows the gradual accumulation of know-how about how to do business abroad, like following a learning curve that gradually increases the productivity of the managers involved The reason behind the pattern is mainly a desire to limit transaction costs The learning curve is also at work when the experienced international marketer eyes new and important country markets European firms enter the U.S. market via Canada, allowing time to elapse before crossing the border

An Optimal Entry Mode Strategy Company Strategic Posture Product/market situation Emerging High-growth Mature Services Incremental Protected Control Indirect exports Indirect exports Direct exports Licensing/alliances Joint venture Indirect exports Alliance/licensing Licensing Wholly owned Acquisition/ Wholly owned Franchising/alliance/ subsidiary alliance subsidiary exporting

Sequencing Internationalization Strategies Delayed Sequential Parallel Simultaneous Waterfall Strategy Sprinkler Strategy