Global Market Entry Strategies: Export Marketing & Licensing, Investment, Strategic Alliances

Global Market Entry

Introduction : Export Selling vs. Export Marketing Export selling involves selling the same product, at the same price, with the same promotional tools in a different place Export marketing tailors the marketing mix to international customers the integrated marketing of goods and services that are destined for customers in international markets

Requirements for Export Marketing An understanding of the target market environment The use of market research and identification of market potential Decisions concerning product design, pricing, distribution and channels, advertising, and communications

Organizational Export Activities The firm is unwilling to export; it will not even fill an unsolicited export order The firm fills unsolicited export orders but does not pursue unsolicited orders. Such a firm is an export seller. The firm explores the feasibility of exporting (this stage may bypass stage 2). The firm exports to one or more markets on a trial basis.

Organizational Export Activities The firm is an experienced exporter to one or more markets After this success, the firm pursues country- or region-focused marketing based on certain criteria The firm evaluates global market potential before screening for the “best” target markets to include in its marketing strategy and plan

Potential Export Problems

National Policies Governing Exports and Imports Most nations encourage exports and restrict imports Goods and services imported into the U.S. almost doubled in seven years In 2008, the total was $2.5 trillion

Share of U.S. Apparel Market by Exporting Country, 2008 China 35.4 India 5.6 Mexico 5.5 Vietnam 5.3 Indonesia 4.3 Bangladesh 3.6 Pakistan 3.2 Honduras 2.7 Cambodia 2.4 Italy 2.4

Government Programs that Support Exports Tax incentives Subsidies Governmental assistance Free trade zones The Miami Free Trade Zone, near the airport and port of Miami, manages transactions of over $1 billion of trade a year.

Governmental Actions to Discourage Imports and Block Market Access Tariffs Import controls Nontariff barriers ğ any measure other than a tariff that is a deterrent or obstacle to the sale of products in a foreign market. Quotas Discriminatory procurement policies Restrictive customs procedures Arbitrary monetary policies Restrictive regulations

Tariff Systems Single-column tariff Two-column tariff Simplest type of tariff Schedule of duties in which rate applies to imports from all countries on the same basis Two-column tariff General duties plus special duties apply

Sample Rates of Duty for U.S. Imports Tariff Systems Sample Rates of Duty for U.S. Imports

Preferential Tariff Reduced tariff rate applied to imports from certain countries GATT prohibits the use, with three exceptions: Historical preference arrangements already existed Preference is part of formal economic integration treaty Industrial countries are permitted to grant preferential market access to LDCs

Customs Duties Ad valorem duty Expressed as percentage of value of goods Specific duty Expressed as specific amount of currency per unit of weight, volume, length, or other unit of measurement Compound or mixed duties Apply both ad valorem and specific on the same items

Other Duties and Import Charges Anti-dumping Duties Dumping is the sale of merchandise in export markets at unfair prices Special import charges equal to the dumping margin Countervailing Duties: additional duties levied to offset subsidies granted in the exporting country.

Other Duties and Import Charges Variable import levies: applies to certain categories of imported agricultural products. If prices of imported products would undercut those of domestic products, the effect of these levies would be to raise the price of imported products to the domestic price level. Temporary surcharges: introduced from time to time by certain countries, to provide additional protection for local industry and, in particular, in response to balance-of-payments deficits.

Key Export Participants Foreign purchasing agents Export brokers Export merchants Export management companies Export distributor Export commission representative Cooperative exporter Freight forwarders Manufacturer’s export representatives

Organizing for Exporting in the Manufacturer’s Country Exports can be handled As a part-time activity performed by domestic employees Through an export partner Through an export department Through an export department within an international division For multi-divisional companies; each possibility exists for each division

Organizing for Exporting in the Market Country Direct market representation Advantages: control and communications Representation by independent intermediaries Advantages: best for situations with small sales volume

Appendix -- Useful links for exporting activities

Undersecretariat of the Prime Ministry for Foreign Trade (www.dtm.gov.tr)

www.dtm.gov.tr

Export Promotion Center (İhracatı Geliştirme Merkezi - www. igeme. org Export Promotion Center (İhracatı Geliştirme Merkezi - www.igeme.org.tr)

Exporter Unions (İhracatçı Birlikleri)

Istanbul Exporter Unions (www.iib.org.tr)

İstanbul Tekstil ve Konfeksiyon İhracatçı Birlikleri (www. itkib. org İstanbul Tekstil ve Konfeksiyon İhracatçı Birlikleri (www.itkib.org.tr)

İstanbul Maden ve Metaller İhracatçı Birlikleri (www.immib.org.tr)

Export Financing and Methods of Payment Documentary credits (letter of credit) Documentary collections (bill of exchange) Cash in advance Sales on open account Sales on consignment basis

Flow Chart of Documentary Credit

Sourcing Must emphasize benefits of sourcing from country other than home country Must assess vision and values of company leadership Advantage can be gained by Concentrating some of the marketing activities in a single location Leveraging company’s know-how Tapping opportunities for product development and R&D

Factors that Affect Sourcing Management Vision Factor costs and conditions Customer Needs Logistics Country infrastructure Political risk Exchange rate, availability, and convertibility of local money

Market Entry Modes Trade barriers are falling around the world Companies need to have a strategy to enter world markets Starbucks has used direct ownership, licensing, and franchising for shops and products In 2008, Starbucks had 12,000 cafes in 35 countries and sales of $10.8 billion.

Investment Cost of Market Entry Strategies

Which Strategy Should Be Used? It depends on: Vision Attitude toward risk Available investment capital How much control is desired

Licensing A contractual agreement whereby one company -the licensor- makes an asset available to another company -the licensee - in exchange for royalties, license fees, or some other form of compensation Patent Trade secret Brand name Product formulations

Advantages to Licensing Provides additional profitability with little initial investment Provides method of circumventing tariffs, quotas, and other export barriers Attractive ROI Low costs to implement License agreements should have cross-technology agreements to inequities

Disadvantages to Licensing Limited participation Returns may be lost Lack of control Licensee may become competitor Licensee may exploit company resources

Special Licensing Arrangements Contract manufacturing Company provides technical specifications to a subcontractor or local manufacturer Allows company to specialize in product design while contractors accept responsibility for manufacturing facilities Franchising Contract between a parent company-franchisor and a franchisee that allows the franchisee to operate a business developed by the franchisor in return for a fee and adherence to franchise-wide policies

Worldwide Franchise Activity

Franchising Questions Will local consumers buy your product? How tough is the local competition? Does the government respect trademark and franchiser rights? Can your profits be easily repatriated? Can you buy all the supplies you need locally? Is commercial space available and are rents affordable? Are your local partners financially sound and do they understand the basics of franchising?

Minority or majority equity stakes Investment Partial or full ownership of operations outside of home country Foreign Direct Investment Forms Joint ventures Minority or majority equity stakes Outright acquisition IKEA, with affordable furniture and housewares, spent $2 billion in Russia.

Direct Foreign Investment and the U.S. Top Foreign Countries Investing in the U.S. United Kingdom Japan The Netherlands 2000 investment by foreign companies in U.S. = $1.2 trillion Top Target Countries for U.S. Investment United Kingdom Canada The Netherlands 2000 cumulative total by U.S. companies = $1.2 trillion

Joint Ventures Entry strategy for a single target country in which the partners share ownership of a newly-created business entity Builds upon each partner’s strengths Examples: Budweiser and Kirin (Japan), GM and Toyota, GM and Russian government, Ericsson’s cell phones and Sony, Ford and Mazda, Chrysler and BMW

Joint Ventures Advantages Disadvantages Allows for risk sharing–financial and political Provides opportunity to learn new environment Provides opportunity to achieve synergy by combining strengths of partners May be the only way to enter market given barriers to entry Disadvantages Requires more investment than a licensing agreement Must share rewards as well as risks Requires strong coordination Potential for conflict among partners Partner may become a competitor

Investment via Direct Foreign Investment Start-up of new operations Greenfield operations or Greenfield investment Merger with an existing enterprise Acquisition of an existing enterprise Examples: Volkswagen, 70% stake in Skoda Motors, Czech Republic (equity), Honda, $550 million auto assembly plant in Indiana (new operations)

Global Strategic Partnerships Possible terms: Collaborative agreements Strategic alliances Strategic international alliances Global strategic partnerships The Star Alliance is a GSP

The Nature of Global Strategic Partnerships

The Nature of Global Strategic Partnerships Participants remain independent following formation of the alliance Participants share benefits of alliance as well as control over performance of assigned tasks Participants make ongoing contributions in technology, products, and other key strategic areas

Five Attributes of True Global Strategic Partnerships Two or more companies develop a joint long-term strategy Relationship is reciprocal Partners’ vision and efforts are global Relationship is organized along horizontal lines (not vertical) When competing in markets not covered by alliance, participants retain national and ideological identities

Success Factors of Alliances Mission: Successful GSPs create win-win situations, where participants pursue objectives on the basis of mutual need or advantage. Strategy: A company may establish separate GSPs with different partners; strategy must be thought out up front to avoid conflicts. Governance: Discussion and consensus must be the norms. Partners must be viewed as equals.

Success Factors Culture: Personal chemistry is important, as is the successful development of a shared set of values. Organization: Innovative structures and designs may be needed to offset the complexity of multi-country management. Management: Potentially divisive issues must be identified in advance and clear, unitary lines of authority established that will result in commitment by all partners.

Alliances with Asian Competitors Four common problem areas Each partner had a different dream Each must contribute to the alliance and each must depend on the other to a degree that justifies the alliance Differences in management philosophy, expectations, and approaches No corporate memory

Cooperative Strategies in Japan: Keiretsu Inter-business alliance or enterprise groups in which business families join together to fight for market share Often cemented by bank ownership of large blocks of stock and by cross-ownership of stock between a company and its buyers and non-financial suppliers Keiretsu executives can legally sit on each other’s boards, share information, and coordinate prices

Cooperative Strategies in South Korea: Chaebol Composed of dozens of companies, centered around a bank or holding company, and dominated by a founding family Samsung LG Hyundai Daewoo

21st Century Cooperative Strategies: Targeting the Digital Future Alliances between companies in several industries that are undergoing transformation and convergence Computers Communications Consumer electronics Entertainment

Beyond Strategic Alliances Next stage of evolution of the strategic alliance Super-alliance Virtual corporation

Market Expansion Strategies Companies must decide to expand by: Seeking new markets in existing countries Seeking new country markets for already identified and served market segments