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Market Entry Strategy. Tekle Sebhatu , Ph.D. http://www.stcinternational.us [email protected] Market Entry Strategy Agenda. Market Entry Decision Questions Market Entry Modes Exporting Licensing Joint venture Wholly owned subsidiary (FDI) Reducing partnership risk

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market entry strategy
Market Entry Strategy

TekleSebhatu, Ph.D.

http://www.stcinternational.us

[email protected]

market entry strategy agenda
Market Entry Strategy Agenda
  • Market Entry Decision Questions
  • Market Entry Modes
      • Exporting
      • Licensing
      • Joint venture
      • Wholly owned subsidiary (FDI)
  • Reducing partnership risk
  • Partner selection
  • Q & A
market entry decisions
Market Entry Decisions
  • Which markets to enter?
  • When to enter the markets?
  • What scale of entry?
  • Cost of entering markets?
which market to enter
Which Market to Enter?
  • Analyze external environmental factors
      • Economic environment b) Political environment

c) Socio –cultural environment d) Legal environment

e) Technological environment

  • Analyze the market size, product acceptability and customer perceptions.
  • Analyze internal environmental factors
      • Product b) Price

c) Place (distribution) d) Promotion

  • Based on potential markets, profit margin and market share potential analysis focus on no more than 3 countries.
timing of entry
Timing of Entry?
  • First-mover advantage:
    • Preempt rivals and capture demand.
    • Build sales volume and brand
    • Move down experience curve before rivals and achieve cost advantage.
  • Disadvantages:
    • First mover disadvantage - pioneering costs.
    • Changes in government policy.

Costs early entrant

bears that later

entrant can avoid.

scale of entry
Scale of Entry?
  • Large scale entry
    • Strategic Commitments - a decision that has a long-term impact and is difficult to reverse.
    • May cause rivals to rethink market entry.
  • Small scale entry:
    • No long term commitment.
    • Increase market/experience learning curve.
    • Reduces exposure risk.
cost of entering markets
Cost Of Entering Markets
  • Initial investment –Extra cost
  • Research and development
  • Training
  • Participation at tradeshow/mission
entry modes

Joint

Ventures

Exporting

Licensing

Turnkey

Projects

Wholly Owned

Subsidiaries

Franchising

Entry Modes
exporting
Exporting
  • Advantages:
    • Avoids cost of establishing manufacturing operations.
    • May help achieve experience curve.
  • Disadvantages:
    • May compete with low-cost location manufacturers.
    • Possible high transportation costs.
    • Tariff barriers.
    • Possible lack of control over marketing reps.
slide10

Selection of Channel

Direct Exporting

vs.

Indirect Exporting

indirect exporting
Indirect Exporting
  • Export Management Companies (EMC)
  • Export Trading Companies (ETC)
  • Selling Through Trade Associations
  • Piggyback Marketing
  • Export Merchants or Re-Marketers
licensing

Agreement where

licensor grants rights to

intangible property to another

entity for a specified period

of time in return

for royalties.

Licensing
  • Advantages:
    • Reduces development costs and risks of establishing foreign enterprise.
    • Overcomes restrictive investment barriers.
  • Disadvantages:
    • Lack of control.
    • Creating a competitor.
joint ventures
Joint Ventures
  • Advantages:
    • Benefit from local partner’s knowledge.
    • Shared costs/risks with partner.
    • Reduced political risk.
  • Disadvantages:
    • Risk giving control of technology to partner.
    • Shared ownership can lead to conflict.
wholly owned subsidiary
Wholly Owned Subsidiary

Greenfield

Acquisition

  • Advantages:
    • No risk of losing technical competence to a competitor.
    • Tight control of operations.
    • Realize experience and location economies.
  • Disadvantage:
    • Bear full cost and high risk.
structuring partnership to reduce opportunism
Structuring Partnership to Reduce Opportunism

Walling off

critical technology

Establishing

contractual

safeguards

Opportunism by partner

reduced by:

Agreeing to swap

valuable skills

and technologies

Seeking credible

commitments

partner selection
Partner Selection
  • Get as much information as possible on the potential partner
  • Collect data from informed third parties
    • former partners (suppliers)
    • Banks, FF, CHB
    • former employees
  • Get to know the potential partner before committing
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