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Chapter 9 Market Entry and Servicing Strategies. John S. Hill. Chapter Outline. Introduction: Exporting Strategies Contractual Forms of Market Entry Investment Options for Servicing Foreign Markets Matching Market Servicing Strategies to Environmental and Corporate Needs.

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chapter outline
Chapter Outline
  • Introduction: Exporting Strategies
  • Contractual Forms of Market Entry
  • Investment Options for Servicing Foreign Markets
  • Matching Market Servicing Strategies to Environmental and Corporate Needs
chapter outline market entry and servicing strategies
Chapter Outline: Market Entry and Servicing Strategies

Market Entry and Servicing Strategy

  • Exporting Strategies
  • Indirect Exporting
  • Direct exporting
  • Contractual Methods of Market Entry & Servicing
  • Licensing
  • Franchising
  • Contract manufacturing
  • Co-production
  • Investment Options
  • International Joint-Ventures
  • Mergers & Acquisitions
  • Greenfield Operations

Matching Market Entry and Servicing Strategies to Environmental & Corporate Needs

exporting strategies
Exporting Strategies
  • Indirect Exporting and Use of Trading Companies
  • Direct Exporting
export strategies
Export Strategies
  • Indirect Exporting and Use of Trading Companies
  • Indirect exporting uses third party intermediaries
  • US Trading Companies and Associations: ETC (Export Trading Companies) & WPA (Webb-Pomerene Associations )
  • Taiwanese Trading Companies: independent producers and suppliers
  • Mainland China Trading Companies: industry-centered
  • Japanese Trading Companies, “big nine” sogo shosha, over 1000 overseas offices, annual turnover tops $350 billion
export strategies6
Export Strategies
  • Direct Exporting
  • For small and medium sized firms, cheap and flexible
  • For large international firms, exporting/importing are vital parts of international operations
  • Key elements in global company supply chains for material supplies and distribution of final products
  • International firms account for 2/3 world trade
contractual forms of market entry
Contractual Forms of Market Entry
  • Three Major Types of Agreements
  • Management Contracts
  • Contract Manufacturing
  • Co-production Agreements
contractual forms of market entry8
Contractual Forms of Market Entry
  • Three Types of Most Popular Agreements
  • Licensing
  • Allowing foreign-based firm use of production processes, marketing logos, trademarks or brand names for a defined time period in specific market and for a pre-specified royalty fee
  • Danisco Cultor in Asia: low cost manufacturing after patent expiry
  • Ferrari Motor Sports: publicize brand through clothing
  • Umbro: low cost way tt compete with Adidas and Nike
contractual forms of market entry9
Contractual Forms of Market Entry
  • Three Major Types of Agreements
  • Franchising
  • Franchisees given rights for production or marketing of the product; considerable control exerted over both the production processes and marketing strategy
  • McDonalds, KFC and Pizza Hut
  • Hyatt and Holiday Inn, require up to $100 million in real estate and capital expenditures per hotel
contractual forms of market entry10
Contractual Forms of Market Entry
  • Three Major Types of Agreements
  • Franchising
    • Controlling Foreign Franchisees
      • Concentrating ownership via trusted master franchisers
      • Diluting ownership: many independent operators
contractual forms of market entry11
Contractual Forms of Market Entry
  • Three Types of Most Popular Agreements
  • Master Franchising
  • Individuals supervise and develop a number of franchises within a country or region
  • HFC, a leading franchiser of brand name hotels (e.g., Howard Johnson, Day’s Inn, Ramada), residential real estate (Century 21, Caldwell Banker, ERA) and rental cars (Avis)
contractual forms of market entry12
Contractual Forms of Market Entry
  • Dealing with Local Market Environments
  • Archaic legal frameworks and bureaucracies
  • Political Unrest: dependencies on local businesspeople and buoyant local economies
  • Cultural obstacles: culturally

sensitive foods industries where

menus are adapted

contractual forms of market entry13
Contractual Forms of Market Entry
  • Other Contracts and Agreements
  • Management Contracts, international companies, for a fee, train local employees and manage foreign-based facilities for a prescribed time period (hotels)
  • Contract Manufacturing, foreign firms using specific materials and/or processes to manufacture products or provide services for third party companies. May be home-market or foreign manufacture; flexibility advantages but control disadvantages
  • Co-Production Agreements, manufacturing joint ventures, with partners retaining their independent marketing and distribution rights
investment options for servicing foreign markets
Investment Options for Servicing Foreign Markets
  • International Joint Ventures (IJVs)
  • Mergers and Acquisitions (M&A)
  • Greenfield Operations
investment options for servicing foreign markets15
Investment Options for Servicing Foreign Markets
  • International Joint Ventures (IJVs): Definition & Key Decision Areas
  • International corporations and local firms join forces to share ownership and management responsibilities in specially created enterprises
  • Equity Structure, control over IJV operations
  • Technology Transfer Arrangements, ‘the best’ technologies v.s. those matching market needs
  • Asset Valuation problems, value land, buildings, equipment and intangible assets (good will, brand names, etc.)
investment options for servicing foreign markets16
Investment Options for Servicing Foreign Markets
  • International Joint Ventures (IJVs)
  • Divisions of management responsibility, ‘who is really in control?’
  • Financial Policy and Strategic Objectives, dividend and profit reinvestment/repatriation policies
  • Blending of global corporate objectives with local goals, manufacturing for other subsidiaries, allocating export rights, and pricing issues
  • Cultural problems and changing relationships
investment options for servicing foreign markets17
Investment Options for Servicing Foreign Markets
  • Mergers and Acquisitions (M&A)
  • Over 75 percent (or over $866 billion) were M&A in the $1.2 trillion equipment and management assets over 1999-2000; gives quick access and impact in highly competitive markets
  • Seven types of companies in M&A
  • Carnivores: M & A an everyday function. Nestle, Unilever, Electrolux and GE
  • Dairy Farmers: buy and sell businesses to increase shareholder value. Hanson
  • Vegetarian: infrequent opportunistic acquirers. Sony’s and Matsushita’s purchase of Hollywood
investment options for servicing foreign markets18
Investment Options for Servicing Foreign Markets
  • Mergers and Acquisitions (M&A)
  • Seven types of companies in M&A
  • White Hunters: frequently go for firms that are bigger than they are. UK supermarket trolley maker WPP’s takeover of US advertising agency giant J. Walter Thompson
  • Gentleman Shooters: large takeovers after exhaustive research. BMW’s takeover of British auto firm Rover
  • Cross-Breeders, leading national companies to form regional (or global) powerhouses. Sweden’s ASEA and Brown-Boveri of Switzerland in heavy electrical equipment
  • Global mega-mergers, to build critical mass and presences in the international markets. Renault’s $5.4 billion investment in Japan’s number 2 car maker, Nissan.
investment options for servicing foreign markets19
Investment Options for Servicing Foreign Markets
  • Implementing M & A Strategies
  • Evaluation of Prospects
  • Financial analysis
  • Strengths-weaknesses-opportunities-threats

(SWOT)

  • Cost and value chain analysis
  • Competitive analysis
investment options for servicing foreign markets20
Investment Options for Servicing Foreign Markets
  • Implementing M & A Strategies
  • Post Acquisition Strategies
  • Stand-alone policies: leave the acquired company as it is; little interference
  • Integration strategies: into parent company operations to reap financial, manufacturing, marketing synergies
  • M&A Assessment: was it worth

it and did we execute it well?

investment options for servicing foreign markets21
Investment Options for Servicing Foreign Markets
  • Greenfield Operations
  • Build foreign subsidiaries to suit their needs
  • Advantages
  • Need not deal with existing managements and facilities
  • Start fresh with the firm’s own technologies, management styles and corporate cultures
  • Complete control of subsidiary development and market strategies
investment options for servicing foreign markets22
Investment Options for Servicing Foreign Markets
  • Greenfield Operations
  • Disadvantages
  • Must build in-market relationships with suppliers, distributors from scratch
  • Competitors have time to adjust their strategies and prepare for a new rival
  • The risks of making major resource commitments and of financing losses until facilities reach their full market potential
investment options for servicing foreign markets23
Investment Options for Servicing Foreign Markets
  • Greenfield Operations
  • Conditions favoring:
  • Financing needs are low
  • Markets are developing slowly and industry competition levels are low
  • Leading edge products and process technologies; can guard against intellectual property theft
  • Global brands and reputations are advantages
  • Strong corporate cultures are keys to corporate success
investment options for servicing foreign markets24
Investment Options for Servicing Foreign Markets
  • Greenfield Operations
  • Country Selection Criteria
  • Proven manufacturing capabilities in the global context
  • Market potential
  • Competitor presences (they are there,

why aren’t we?)

  • Favorable environment: no major

operating problems

investment options for servicing foreign markets25
Investment Options for Servicing Foreign Markets
  • Greenfield Operations
  • Site Location Within the Country determined by:
  • Government location incentives (undeveloped regions)
  • Economically significant centers (customers)
  • Availability of qualified personnel
  • Essential resources are available
  • Transportation and infrastructures must be

adequate

investment options for servicing foreign markets26
Investment Options for Servicing Foreign Markets
  • Greenfield Operations
  • Siting Research and Development Capabilities
  • Historical patterns: home market-based
  • Current R&D strategies
    • Research labs in traditional fields: located in major markets or ‘competence regions’ (e.g. silicon valley)
    • Development labs: product adaptations to local needs
    • Facilities in new emerging areas: Latin America, Asia
  • Managing the R&D Site: size is important; and leadership (reputation, connections)
matching market servicing strategy to environmental and corporate needs
Matching Market Servicing Strategy to Environmental and Corporate Needs
  • External Factors
  • Internal Factors
matching market servicing strategy to environmental and corporate needs28
Matching Market Servicing Strategy to Environmental and Corporate Needs
  • External Factors
  • Global industry analyses: Countries with significant market sizes and high market growth
  • Market environment analyses: less problematic for experienced firms; essential for newcomers
  • Competitive Factors: alert firms to competitor presences and what facilities rivals have in particular markets; competitive advantages can accrue (e.g. producing and customizing in-market to counter import competition)
matching market servicing strategy to environmental and corporate needs29
Matching Market Servicing Strategy to Environmental and Corporate Needs
  • Internal Factors
    • Corporate Objectives
  • Learning and market feedback: build up global expertise
  • Flexibility: the ability to switch resources quickly in response to corporate and marketplace needs (exporting)
  • Control over products and

manufacturing processes

matching market servicing strategy to environmental and corporate needs30
Matching Market Servicing Strategy to Environmental and Corporate Needs
  • Internal Factors
    • Corporate Resources
  • Managerial resource scarcity may be countered by use of third party expertise
  • International management expertise: necessary for direct exporting; less so for contractual modes of market entry (licensing, franchising, turnkey operations, etc); essential for investments
  • Marketing and operating costs: cheaper for indirect exporters, necessary for all entry strategies
  • Competitive advantage: firms seek to leverage home market advantages into foreign country environments; brand/corporate reputation, service, customization
key points
Key Points
  • Many types of entry strategies
  • Exporting (direct/indirect)
  • Contractual Methods
  • Investment Options
  • Site Selection
  • R&D Facilities
  • Strategies to match company’s external and internal needs