2. Chapter 12 Market Entry

3. 12 - 3 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Three Basic Decisions Which markets to enter? When to enter these markets? What scale and what nature should this entry have?

4. 12 - 4 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Enter Which Foreign Market(s)? There are more than 200 countries -191 are member-nations of the UN… (8/04) Each country’s attractiveness as a market to a particular firm depends on: -The firm’s objectives -A balance of benefits, costs, and risks

5. 12 - 5 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Timing of entry: First Mover Advantages Preempt rivals; establish strong brand name; capture demand Build sales volume; ride down experience curve ahead of competitors; cost advantage Create switching costs; tie customers to 1st mover’s products Establish social ties ahead of following foreign competitors

6. 12 - 6 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Timing of entry First-mover disadvantages; Pioneering costs Time spent to learn dos-don’ts may benefit competitors who can learn from 1st mover 1st mover who starts a new industry builds the infrastructure 1st mover “trains” customers for followers Breaks through host country’s adjustment to “foreignness” issues -Regulations may change due to 1st mover’s entry -Followers benefit from 1st mover’s efforts/costs

7. 12 - 7 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Scale of entry Level of resources -How much needed to commit for success? -What level can firm afford to commit? -1st mover advantages and large scale linked -Small scale entry allows learning at low risk -Entry in small or large potential market may require the same level of initial resources A strategic commitment is difficult to reverse -Has a long-term impact -Means that the resources cannot be used elsewhere

8. 12 - 8 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. External or “arms-length” Modes of Entry Firm does business overseas without own assets and human resources in target market Export -Sell “domestically” produced products abroad through local independent agents or directly to customers Turnkey project: a firm sets up production plant facilities then local firm takes over -“Exporting firm” builds a facility overseas, starts it up, turns it over to host country owner, then departs -Examples: Oil firms, construction firms, manufacturers

9. 12 - 9 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. External or “arms-length” Modes -Licensing Licensor grants rights to licensee for -Intangible property use: patents, inventions, formulas, processes, designs, copyrights, trademarks -Specified period of time -Specified compensation Licensee typically gives licensor -Quality assurance rights -Strategic brand control if licensee sells to consumers using the licensor’s brand name

10. 12 - 10 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. External or “arms-length” Modes - Franchising, Alliances Franchising -Franchisor, grants franchisee use of intangibles under the condition that franchisee follow strict rules of operating the business -Mode of operation is part of the brand image -Similarities to Licensing International strategic alliances -Cooperative agreements between competitors from different countries (Chapter 12)

11. 12 - 11 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. “Internal” Modes of Entry These involve Foreign Direct Investment -Wholly owned subsidiaries Firms owned 100% by a company in a foreign country -International joint ventures Firms that are owned jointly by two or more otherwise independent firms; most IJVs are between two firms One (or more) parent firms are non-resident in the host market Foreign participation varies from majority owned, to 50% owned, to minority owned

12. 12 - 12 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

13. 12 - 13 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.