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INTERNATIONAL MARKETS’ ENTRY STRATEGIES. By Elisante Ole Gabriel (Tanzania) Chartered Marketer egabriel@edenconsult.net , www.olegabriel.com +255-784-455-499. Introduction. The need for a solid market entry decision is an integral part of a global market entry strategy.

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international markets entry strategies
INTERNATIONAL MARKETS’ENTRY STRATEGIES

By

Elisante Ole Gabriel (Tanzania)

Chartered Marketer

egabriel@edenconsult.net, www.olegabriel.com

+255-784-455-499

egabriel@mzumbe.ac.tz , +255-754-434412

introduction
Introduction
  • The need for a solid market entry decision is an integral part of a global market entry strategy.
  • Entry decisions will heavily influence the firm’s other marketing-mix decisions.
  • There are two major entry Modes: PRODUCTION IN HOME COUNTRY & PRODUCTION IN FOREIGN COUNTRY.

egabriel@mzumbe.ac.tz , +255-754-434412

introduction cont
Introduction Cont…
  • International Marketers (you) have to make a multitude of decisions regarding the entry mode which may include:
    • the target product/market
    • the goals of the target markets
    • the mode of entry
    • the time of entry
    • a marketing-mix plan
    • a control system to check the performance in the entered markets

egabriel@mzumbe.ac.tz , +255-754-434412

target market selection
Target Market Selection
  • A crucial step in developing a global expansion strategy is the selection of potential target markets.
  • A four-step procedure for the initial screening process:

1. Select indicators and collect data

2. Determine importance of country indicators

3. Rate the countries on each indicator

4. Compute overall score for each country

egabriel@mzumbe.ac.tz , +255-754-434412

choosing the mode of entry
Choosing the Mode of Entry
  • Decision Criteria for Mode of Entry
    • Market Size and Growth
    • Risk
    • Government Regulations
    • Competitive Environment
    • Local Infrastructure
    • Company Objectives
    • Need for Control
    • Internal Resources, Assets and Capabilities
    • Flexibility

egabriel@mzumbe.ac.tz , +255-754-434412

mode of entry cont
Mode of Entry Cont …
  • Mode of Entry Choice: A Transaction Cost Explanation
    • Regarding entry modes, companies normally face a tradeoff between the benefits of increased control and the costs of resource commitment and risk.
    • Transaction Cost Analysis (TCA) perspective
    • Transaction-Specific Assets (assets valuable for a very narrow range of applications)

egabriel@mzumbe.ac.tz , +255-754-434412

exporting
Exporting
  • Indirect Exporting
    • Export management companies
  • Cooperative Exporting
    • Piggyback Exporting
  • Direct Exporting
    • Firms set up their own exporting departments

egabriel@mzumbe.ac.tz , +255-754-434412

licensing
Licensing
  • Licensor and the licensee
  • Benefits:
    • Appealing to small companies that lack resources
    • Faster access to the market
    • Rapid penetration of the global markets

egabriel@mzumbe.ac.tz , +255-754-434412

licensing cont
Licensing Cont..
  • Caveats (Alerts/warning signals):
    • Other entry mode choices may be affected
    • Licensee may not be committed
    • Lack of enthusiasm on the part of a licensee
    • Biggest danger is the risk of opportunism
    • Licensee may become a future competitor

egabriel@mzumbe.ac.tz , +255-754-434412

licensing cont10
Licensing Cont …
  • How to seek a good licensing agreement:
    • Seek patent or trademark protection
    • Thorough profitability analysis
    • Careful selection of prospective licensees
    • Contract parameter (technology package, use conditions, compensation, and provisions for the settlement of disputes)

egabriel@mzumbe.ac.tz , +255-754-434412

franchising
Franchising
  • Franchisor and the Franchisee (e.g IIFT & IFM)
  • Benefits:
    • Overseas expansion with a minimum investment
    • Franchisees’ profits tied to their efforts
    • Availability of local franchisees’ knowledge

egabriel@mzumbe.ac.tz , +255-754-434412

franchising cont
Franchising Cont …
  • Caveats (Warnings):
    • Revenues may not be adequate
    • Availability of a master franchisee
    • Limited franchising opportunities overseas
    • Lack of control over the franchisees’ operations
    • Problem in performance standards
    • Cultural problems
    • Physical proximity

egabriel@mzumbe.ac.tz , +255-754-434412

contract manufacturing e g microsoft
Contract Manufacturing (e.g Microsoft)
  • Benefits:
    • Labor cost advantages
    • Savings via taxation, lower energy costs, raw materials, and overheads
    • Lower political and economic risk
    • Quicker access to markets

egabriel@mzumbe.ac.tz , +255-754-434412

contract manufacturing cont
Contract Manufacturing Cont …
  • Caveats:
    • Contract manufacturer may become a future competitor
    • Lower productivity standards
    • Backlash from the company’s home-market employees regarding HR and labor issues
    • Issues of quality and production standards

egabriel@mzumbe.ac.tz , +255-754-434412

joint ventures
Joint Ventures
  • Cooperative joint venture
  • Equity joint venture
  • Benefits:
    • Higher rate of return and more control over the operations
    • Creation of synergy
    • Sharing of resources
    • Access to distribution network
    • Contact with local suppliers and government officials

egabriel@mzumbe.ac.tz , +255-754-434412

joint ventures cont
Joint Ventures Cont …
  • Caveats:
    • Lack of control
    • Lack of trust
    • Conflicts arising over matters such as strategies, resource allocation, transfer pricing, ownership of critical assets like technologies and brand names

egabriel@mzumbe.ac.tz , +255-754-434412

joint ventures cont17
Joint Ventures Cont …
  • Drivers Behind Successful International Joint Ventures :
    • Pick the right partner
    • Establish clear objectives from the beginning
    • Bridge cultural gaps
    • Gain top managerial commitment and respect
    • Use incremental approach

egabriel@mzumbe.ac.tz , +255-754-434412

wholly owned subsidiaries
Wholly Owned Subsidiaries
  • Acquisitions
  • Greenfield Operations
  • Benefits:
    • Greater control and higher profits
    • Strong commitment to the local market on the part of companies
    • Allows the investor to manage and control marketing, production, and sourcing decisions

egabriel@mzumbe.ac.tz , +255-754-434412

wholly owned subsidiaries cont
Wholly Owned Subsidiaries Cont …
  • Caveats:
    • Risks of full ownership
    • Developing a foreign presence without the support of a third part
    • Risk of nationalization
    • Issues of cultural and economic sovereignty of the host country
  • Acquisitions and Mergers
    • Quick access to the local market
    • Good way to get access to the local brands

egabriel@mzumbe.ac.tz , +255-754-434412

strategic alliances
Strategic Alliances
  • Types of Strategic Alliances
    • Simple licensing agreements between two partners
    • Market-based alliances
    • Operations and logistics alliances
    • Operations-based alliances

egabriel@mzumbe.ac.tz , +255-754-434412

strategic alliances cont
Strategic Alliances Cont …
  • The Logic Behind Strategic Alliances
    • Defend
    • Catch-Up
    • Remain
    • Restructure

egabriel@mzumbe.ac.tz , +255-754-434412

strategic alliances cont24
Strategic Alliances Cont …

Cross-Border Alliances that Succeed:

  • Alliances between strong and weak partners seldom work.
  • Autonomy and flexibility
  • Equal ownership
  • However, according to Prof. Michael Porter, 90% of SA are destined to fail (A case of BP-AMOCO, 1999)

egabriel@mzumbe.ac.tz , +255-754-434412

strategic alliances cont25
Strategic Alliances Cont …
  • Other success factors:
    • Commitment and support of the top of the partners’ organizations
    • Strong alliance managers are the key
    • Alliances between partners that are related in terms of products, technologies, and markets
    • Similar cultures, assets sizes and venturing experience
    • A shared vision on goals and mutual benefits

egabriel@mzumbe.ac.tz , +255-754-434412

timing of entry
Timing of Entry
  • International market entry decisions should also cover the following timing-of-entry issues:
    • When should the firm enter a foreign market?
    • Other important factors include: level of international experience, firm size
    • Mode of entry issues, market knowledge, various economic attractiveness variables, etc.

egabriel@mzumbe.ac.tz , +255-754-434412

exiting a market
Exiting a Market
  • Reasons for exit:
    • Sustained losses
    • Volatility
    • Premature entry
    • Ethical reasons
    • Intense competition
    • Resource reallocation

egabriel@mzumbe.ac.tz , +255-754-434412

exit strategies
Exit Strategies
  • Assess the Risks of exit:
    • Fixed costs of exit
    • Disposition of assets
    • Signal to other markets
    • Long-term opportunities
  • Guidelines:
    • Contemplate and assess all options to salvage the foreign business
    • Incremental exit
    • Migrate customers

egabriel@mzumbe.ac.tz , +255-754-434412

standardization vs adaptation dif entiation

Finally

STANDARDIZATION Vs. ADAPTATION/DIF’ENTIATION
  • Standardization means a product is manufactured just for the global market with any degree of responsiveness. The major objective is to take the advantage of economies of scale through cost integration.
  • On the other hand, adaptation is an approach whereby a product gets some modification to suit individual domestic markets

egabriel@mzumbe.ac.tz , +255-754-434412

the end
THE END!!!
  • ‘Avoid the exit costs by making a strategic choice of the entry strategies’
  • There is always a dilemma whether to standardize or adapt. International marketers need to resolve this dilemma continuously. Gabriel E., (2005) in his article ‘Export Marketing Strategies’ gave a discussion on how to handle the dilemma. AND..
  • Think Global act Local = GLOCALIZATION

egabriel@mzumbe.ac.tz , +255-754-434412