1. Chapter 7 – Market Entry Strategies
Doole, Lowe and Kenyon
International Marketing Strategy

2. Learning Objectives
Identify the alternative market entry options available to firms seeking to develop new country markets
Compare the different levels of involvement, risk and marketing control of these market entry methods
Understand the criteria for selecting between the market entry options
Appreciate the advantages and disadvantages of the different market entry methods
Understand the motivations and challenges of market entry partnership strategies, such as alliances and joint ventures

3. The alternative market entry methods
Criteria for Selecting Appropriate Market Entry Method
The company objectives and expectations relating to the size and value of anticipated business (e.g. expectation of shareholders)
The size and financial resources of the company (e.g. if a firm can borrow money for entering a foreign market)
Existing foreign market involvement (e.g. direct exporting or foreign direct investment)
The skills, abilities and attitudes of the company management towards international marketing (e.g. language ability and understanding or local culture)
The nature and power of the competition with the market (e.g. the stage of product life cycle)

4. The alternative market entry methods (cont.)
Criteria for Selecting Appropriate Market Entry Method
The nature of existing and anticipated tariff and non-tariff barriers (e.g. the new tariff policy of new U.S. government)
The nature of the product itself, particularly any areas of competitive advantage, such as trademark or patent protection (e.g. technological products such as smart phone)
The timing of the move in relation to the market and competitive situation (e.g. the stage of product life cycle)
The above list is exhaustive, as the entry method might be influenced by other factors which are specific to the firm’s particular. For example, the laws of a host country might prevent a firm from owning 100 per cent of an operation in that country.

5. The alternative market entry methods (cont.)
In general, because of amount of capital investment required, the higher the control, the higher the risk.

6. The alternative market entry methods (cont.)
In general, the higher the control, the higher the risk.

7. Indirect exporting 1. Domestic Purchasing
For firms that few resources for international marketing, the simplest and lowest cost method of market entry is for them to have their products sold overseas by others. There are FOUR main methods.
1. Domestic Purchasing
Foreign organization purchases the product for export to another country
Gives access to and limited knowledge of the international market
Little control over choice of markets entered
For longer term, need a more proactive approach (i.e. understanding target foreign market)
2. Export Management Companies / Export Houses
Specialist companies act as the export department for a range of companies
Help SMEs to initiate/develop/maintain international sales
Deal with documentation, government regulation
E.g. a foreign company (importer) purchases goods in Hong Kong and export to the UK. The company can also be an importer in the UK.
Export houses or expert marketing companies (EMCs) are specialist companies set up to act as the export department for a range of SME companies.

8. Indirect exporting (cont.)
3. Piggybacking
An established international distribution network of one manufacturer used to carry products of a second manufacturer
Particularly good for firms from developing countries
Often poorly considered terms and conditions
4. Trading Companies
Their extensive operations and controls enable operation in more difficult trading areas
Manage countertrade activities
Piggyback exporting describes a situation in which one company markets its products through the distribution channels of a second company.
Trading companies are businesses working with different kinds of products which are sold for consumer, business or government purposes. Trading companies buy a specialized range of products, maintain a stock or a shop, and deliver products to customers

9. Direct exporting (cont.)
Factors for success in exporting
Commitment of the firm’s management
Exporting approach emphasizing the skills base
Good marketing and information communication system
Production capacity & capability, product superiority, competitive pricing
Effective market research
Effective national export policy
Source: Katsikeas et al. (2000)

10. Direct exporting (cont.)
Agents
Financial strength of the agents
Their contacts with potential customers
The nature and extent of their responsibilities to other organizations
Their premises, equipment and resources (including sales representatives)
Agents provide the most common form of how-cost direct involvement in foreign markets and are independent individuals or firms who are contracted to act on behalf of experts to otan orders on a commission basis.

11. Direct exporting (cont.)
Achieving a satisfactory manufacturer–agent relationship
Allocate time and resources to find a suitable agent
Ensure that both understand what each expects of the other (e.g. especially cultural differences)
Ensure that the agent is motivated to improve performance (e.g. suitable financial terms)
Provide adequate support on a continuing basis
Ensure that there is sufficient advice and information transfer in both directions

12. Reasons for setting up overseas manufacture and service operations
Direct exporting (cont.)
Reasons for setting up overseas manufacture and service operations
Market
Local manufacture viewed favourably by market?
Government contacts
Market information feedback
International culture in firm
Local manufacture
faster response and just-in-time delivery
Lower labour cost
Product
avoiding problems, e.g. perishability
Services
Dependant for success on local intellectual property, knowledge & sensitivity
Costs of transporting and warehousing
Tariff barriers and quotas
Government regulations,
e.g. local investment

13. Foreign manufacturing strategies without direct investment
Licensing
Develop a clear policy and plan
Allocate licensing responsibility to a senior manager
Select licensees carefully
Draft the agreement carefully to include duration, royalties, trade secrets, quality control and performance measures
Licensing also requires relatively low levels of investment. Organizations involved in the film, television and sports industries, as diverse as Disney, the Olympic Games Committee and Manchester United Football Club, have been particularly successful in licensing the use of brands, characters and themes, generating huge sales of licenced products.
Sarathy et al (2006)

14. Foreign manufacturing strategies without direct investment (cont.)
Licensing (cont.)
Supply the critical ingredients
Obtain equity in the licensee
Limit the product and territorial coverage
Retain patents, trademarks, copyrights
Be an important part of the licensee’s business
In accounting, equity (or owner's equity) is the difference between the value of the assets and the cost of the liabilities of something owned. For example, if someone owns a car worth $15,000 but owes $5,000 on a loan against that car, the car represents $10,000 equity. Equity can be negative if liability exceeds assets.
Sarathy et al (2006)

15. Foreign manufacturing strategies with direct investment
Reasons for investment in local operations
To gain new business: local production demonstrates strong commitment (e.g. to persuade customers to change suppliers.)
To defend existing business (e.g. car imports to a number of countries are subject to restriction.)
To move with an established customer (e.g. to retain existing customers.)
To save costs: (e.g. labour, raw materials and transport)
To avoid government restrictions (e.g. to avoid import restrictions of certain good)

16. Cooperative strategies

17. Cooperative strategies
Strategic alliances
Insufficient resources (e.g. skills, human and capital)
Pace of innovation and market diffusion (e.g. technological products)
High research and development costs
Concentration of firms in mature industries
Government cooperation (e.g. high-cost project such as European Airbus has been developed to challenge Boeing.)
Self-protection (e.g. to increase protection or strengthes)
Market access (e.g. access to difficult markets)
A strategic alliance is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations. A strategic alliance will usually fall short of a legal partnership entity, agency, or corporate affiliate relationship. Typically, two companies form a strategic alliance when each possesses one or more business assets or have expertise that will help the other by enhancing their businesses.