Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Global Marketing Management Masaaki Kotabe & Kristiaan Helsen Third Edition John Wiley & Sons, Inc., 2004

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Chapter 9 Global Market-Entry Strategies

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Chapter Overview 1. Target Market Selection 2. Choosing the Mode of Entry 3. Exporting 4. Licensing 5. Franchising 6. Contract Manufacturing 7. Joint Ventures 8. Wholly Owned Subsidiaries

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Chapter Overview (contd.) 9. Strategic Alliances 10. Timing of Entry 11. Exit Strategies

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Introduction The need for a solid market entry decision is an integral part of a global market entry strategy. 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. 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: 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

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Introduction (contd.) –(4) The time of entry –(5) A marketing-mix plan –(6) A control system to check the performance in the entered markets

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Target Market Selection A crucial step in developing a global expansion strategy is the selection of potential target markets (see Exhibit 9-1 for the entry decision process). A crucial step in developing a global expansion strategy is the selection of potential target markets (see Exhibit 9-1 for the entry decision process). A four-step procedure for the initial screening process: 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 indicator 4. Compute overall score for each country

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Choosing the Mode of Entry Decision Criteria for Mode of Entry (see Exhibit 9-12): Decision Criteria for Mode of Entry (see Exhibit 9-12): –Market Size and Growth –Risk –Government Regulations –Competitive Environment –Local Infrastructure »Classification of Markets: Platform Countries (Singapore & Hong Kong) Platform Countries (Singapore & Hong Kong)

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Choosing the Mode of Entry (contd.) Emerging Countries (Vietnam & the Philippines) Emerging Countries (Vietnam & the Philippines) Growth Countries (China & India) Growth Countries (China & India) Maturing and established countries (examples: South Korea, Taiwan & Japan) Maturing and established countries (examples: South Korea, Taiwan & Japan) –Company Objectives –Need for Control –Internal Resources, Assets and Capabilities –Flexibility

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Choosing the Mode of Entry (contd.) Mode of Entry Choice: A Transaction Cost Explanation 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)

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Exporting Indirect Exporting Indirect Exporting –Export management companies Cooperative Exporting Cooperative Exporting –Piggyback Exporting Direct Exporting Direct Exporting –Firms set up their own exporting departments

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Licensing Licensor and the licensee Licensor and the licensee Benefits: Benefits: –Appealing to small companies that lack resources –Faster access to the market –Rapid penetration of the global markets Caveats: Caveats: –Other entry mode choices may be affected –Licensee may not be committed –Lack of enthusiasm on the part of a licensee

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Licensing (contd.) –Biggest danger is the risk of opportunism –Licensee may become a future competitor How to seek a good licensing agreement: 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)

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Franchising Franchisor and the franchisee Franchisor and the franchisee Master franchising Master franchising Benefits: Benefits: –Overseas expansion with a minimum investment –Franchisees’ profits tied to their efforts –Availability of local franchisees’ knowledge Caveats: Caveats: –Revenues may not be adequate –Availability of a master franchisee

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Franchising (contd.) –Limited franchising opportunities overseas –Lack of control over the franchisees’ operations –Problem in performance standards –Cultural problems –Physical proximity

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Contract Manufacturing Benefits: Benefits: –Labor cost advantages –Savings via taxation, lower energy costs, raw materials, and overheads –Lower political and economic risk –Quicker access to markets Caveats: Caveats: –Contract manufacturer may become a future competitor –Lower productivity standards

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Contract Manufacturing (contd.) –Backlash from the company’s home-market employees regarding HR and labor issues –Issues of quality and production standards 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

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Joint Ventures Cooperative joint venture Cooperative joint venture Equity joint venture Equity joint venture Benefits: 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

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Joint Ventures (contd.) Caveats: 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 Drivers Behind Successful International Joint Ventures : Drivers Behind Successful International Joint Ventures : –Pick the right partner

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Joint Ventures (contd.) –Establish clear objectives from the beginning –Bridge cultural gaps –Gain top managerial commitment and respect –Use incremental approach

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Wholly Owned Subsidiaries Acquisitions Acquisitions Greenfield Operations Greenfield Operations Benefits: 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 Caveats: Caveats: –Risks of full ownership

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Wholly Owned Subsidiaries (contd.) –Developing a foreign presence without the support of a third part –Risk of nationalization –Issues of cultural and economic sovereignty of the host country Acquisitions and Mergers Acquisitions and Mergers –Quick access to the local market –Good way to get access to the local brands

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Strategic Alliances Greenfield Operations Greenfield Operations –Offer the company more flexibility than acquisitions in the areas of human resources, suppliers, logistics, plant layout, and manufacturing technology. Types of Strategic Alliances Types of Strategic Alliances –Simple licensing agreements between two partners –Market-based alliances

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Strategic Alliances (contd.) –Operations and logistics alliances –Operations-based alliances The Logic Behind Strategic Alliances The Logic Behind Strategic Alliances –Defend –Catch-Up –Remain –Restructure Cross-Border Alliances that Succeed: Cross-Border Alliances that Succeed: –Alliances between strong and weak partners

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Strategic Alliances (contd.) seldom work. –Autonomy and flexibility –Equal ownership –Other factors: »Commitment and support of the top of the partners’ organizations »Strong alliance managers are the key

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Strategic Alliances (contd.) »Alliances between partners that are related in terms of products, technologies, and markets »Similar cultures, assets sizes and venturing experience »A shared vision on goals and mutual benefits

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Timing of Entry International market entry decisions should also cover the following timing-of-entry issues: 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 –Mode of entry issues, market knowledge, various economic attractiveness variables, etc.

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Timing of Entry (contd.) Reasons for exit: Reasons for exit: –Sustained losses –Volatility –Premature entry –Ethical reasons –Intense competition –Resource reallocation

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Exit Strategies Risks of exit: Risks of exit: –Fixed costs of exit –Disposition of assets –Signal to other markets –Long-term opportunities Guidelines: Guidelines: –Contemplate and assess all options to salvage the foreign business –Incremental exit –Migrate customers

Chapter 9Kotabe & Helsen's Global Marketing Management, Third Edition, Copyright © John Wiley & Sons, Inc. 2004