1. International marketing
Week 11 lecture
Hierarchical modes of entry

2. Agenda Describe the main hierarchical modes
Compare and contrast the two investment alternatives: acquisition versus greenfield
Explain the different determinants that influence the decision to withdraw investments from a foreign market

3. Hierarchical modes
The firm completely owns and controls the foreign entry mode/ organization
How many and which value chain function can be transferred to the market.
According to definition needs to be owned 100% but in practice the company with 75% can have nearly full control
There follows an explanation of some key terms:
Coordinate its marketing activities: coordinating and integrating marketing strategies and implementing them across global markets, which involves centralization, delegation, standardization and local responsiveness.
Find global customer needs: this involves carrying out international marketing research and analysing market segments, as well as seeking to understand similarities and differences in customer groups across countries.
Satisfy global customers: adapting products, services and elements of the marketing mix to satisfy different customer needs across countries and regions.
Being better than the competition: assessing, monitoring and responding to global competition by offering better value, low prices, high quality, superior distribution, great advertising strategies or superior brand image.

5. Introduction
As the firm goes through hierarchical modes, it chooses to
decentralize more of its activities to foreign markets.
As it moves further, it goes from one internationalization stage to another (Perlmutter, 1969):
Ethnocentric orientation:
represented by the domestic-based sales representatives.
Polycentric orientation:
represented by country subsidiaries.
Regiocentric orientation:
represented by a region of the world.
Geocentric orientation:
represented by the transnational organization.

6. Domestic-based sales representatives/ manufacturer’s own sales force

7. Domestic-based sales representative
Resides in the home country of the manufacturer and travels abroad to perform the sales function
Ethnocentric: extension of the marketing methods used in the home country to foreign markets
Often used in industrial markets where there are only a few large customers that require close contact with suppliers
There follows an explanation of some key terms:
Coordinate its marketing activities: coordinating and integrating marketing strategies and implementing them across global markets, which involves centralization, delegation, standardization and local responsiveness.
Find global customer needs: this involves carrying out international marketing research and analysing market segments, as well as seeking to understand similarities and differences in customer groups across countries.
Satisfy global customers: adapting products, services and elements of the marketing mix to satisfy different customer needs across countries and regions.
Being better than the competition: assessing, monitoring and responding to global competition by offering better value, low prices, high quality, superior distribution, great advertising strategies or superior brand image.

8. Domestic-based sales representatives
Advantages
Better control of sales
Close contact with customers
More control and feedback compared to agent or distributor
Disadvantages
High travel expenses
Too expensive for markets far from home

9. Resident sales representatives/sales subsidiary

10. Subsidiary
Local company owned and operated by a foreign company under the laws and taxation of the host country
Foreign branch: extension and a legal part of manufacturer where taxation of profits takes place in the home country.
There follows an explanation of some key terms:
Coordinate its marketing activities: coordinating and integrating marketing strategies and implementing them across global markets, which involves centralization, delegation, standardization and local responsiveness.
Find global customer needs: this involves carrying out international marketing research and analysing market segments, as well as seeking to understand similarities and differences in customer groups across countries.
Satisfy global customers: adapting products, services and elements of the marketing mix to satisfy different customer needs across countries and regions.
Being better than the competition: assessing, monitoring and responding to global competition by offering better value, low prices, high quality, superior distribution, great advertising strategies or superior brand image.

11. Resident sales representatives/sales subsidiary
Greater customer commitment than using domestic based sales representatives
Consider following factor in choosing between domestic sales representatives or resident sales representatives
Order making/order taking
The nature of the product

12. Sales subsidiary Complete control of sales function
Central marketing function but sometime a local marketing function can be included
All foreign order are channelled through the subsidiary, which then sells to foreign buyers at wholesale or retail price

13. Sales subsidiary Reasons for choosing sales subsidiary
Transferring greater autonomy and responsibilities to subunits to become close to customer
Tax advantage: establishing subsidiaries in a countries with low business income taxes

14. Sales and production subsidiary

15. Sales and production subsidiary
Sales subsidiary: taking money out of the country and contributing nothing of value to the host country
Local demands for a manufacturing or production base
Firm involves in this only if they believe that the product have long term market potential and the country is politically stable.

16. Sales and production subsidiary
Require more time, commitment and money
Considerable risk:
withdrawal from the market can be costly- financially and
also reputation in international and domestic market

17. Reasons for establishing local production facilities
To defend existing business
To gain new business
To save costs
To avoid government restrictions

18. Region center

19. Region Centres (regional headquarters)

20. Roles of regional headquarters
Coordination role is to ensure that
One subsidiary does not harm another
Synergies are identified and exploited
Stimulator role is
to facilitate the translation of global products into local country strategies
Supporting local subsidiaries in their development

21. The lead country concept

22. Lead country
The choice of lead country is influenced by several factors:
Marketing competences of foreign subsidiary
Quality of human resources in the countries represented
Location of production
Legal restrictions of host countries

23. Summary of region centres
Advantages
Synergies on regional/global scale
Ability to leverage learning on cross-national scale
Disadvantages
Potential for increased bureaucracy
Limited national level responsiveness
Missing communication between head office and centre

24. Transnational organization
An organization which has integrated and coordinated its operations across national boundaries in order to achieve synergies on a global scale
Management view world as a series of interrelated markets
Common R&D and frequent geographical exchange of human resource across borders
Goal is to achieve global competitiveness through recognizing cross-border market similarities and differences and linking the capabilities of the organization across national boundaries
e.g. Unilever
There follows an explanation of some key terms:
Coordinate its marketing activities: coordinating and integrating marketing strategies and implementing them across global markets, which involves centralization, delegation, standardization and local responsiveness.
Find global customer needs: this involves carrying out international marketing research and analysing market segments, as well as seeking to understand similarities and differences in customer groups across countries.
Satisfy global customers: adapting products, services and elements of the marketing mix to satisfy different customer needs across countries and regions.
Being better than the competition: assessing, monitoring and responding to global competition by offering better value, low prices, high quality, superior distribution, great advertising strategies or superior brand image.

25. Transnational organization
Managing a TO requires to understand:
When a global brand makes sense or when a local requirements should take precendence
When to transfer innovation and expertise from one market to another
When a local idea has global potential
When to bring international teams together fast to focus on key opportunities

26. Methods of establishing a wholly-owned subsidiary
Acquisition
Greenfield
investment

27. Acquisition Enables rapid entry
Provide a bridge to entry into the market
Advantageous for a firm with limited international management
It is feasible when the market is saturated: more competition, little room for entry

28. Acquisition Acquisition takes many form
Horizontal- product lines and markets of the acquired and acquiring firms are similar
Vertical- acquiring suppliers or customer
Concentric- acquired firm has same market but different technology or vice versa
Conglomerate- acquired firm in different industry

29. Greenfield investment
Establish operations from the scratch
Done when
production logistics is a key industry success factor,
no appropriate acquisition targets are available, or
they are costly

30. Greenfield investment
Advantages
Optimum format possible
Optimum technology possible
Disadvantages
High investment cost
Slow entry of new markets

31. Foreign divestment: withdrawing from a foreign market