2.1. Selection of International Markets

1. 2.1. Selection of International Markets Class 2.

2. Evaluation of International Markets: Two Main Approaches Considering international market as country or group of countries Considering international market as groups of consumers (from different countries) with similar behavior «+» Secondary information is often enough «+» A lot of information on the country «+» Sales and marketing often organized divided by countries «-» From the marketing point of view it is crucial to work similarly with similar customers, and vice versa «+» More adequate information «+» More possibilities to adapt products to the needs of foreign consumers «-» Firm needs to conduct primary research «-» Problems in finding reliable cross-national statistics 2

3. Three Qualifying Criteria Criteria Purpose Accessibility To determine accessibility Can we serve the market effectively and efficiently? What may prevent us from doing so? Profitability To determine profitability Can the market afford us? Can we get adequate profits? What is the likely return on investment and timescale of payback? Market size To determine market size What is the existing market size? Is there a latent market? What is the potential for emerging demand?

4. “Fine” Market Screening Process Internal Environment External Environment • Size / amount of resources • Type and nature of industry • Political, economic, legal, socio-cultural, technological factors • Internationalization objectives • Degree of international knowledge • International industry structure • Competitive environment • Market size, potential Secondary Data Potential Markets (by continent) Specific country within the chosen continent Primary Data Specific segment within the chosen country Target segments of customers 4

5. Globalizing processes as a system of interconnectedelements THE GLOBAL ECONOMY THE REGIONAL ECONOMY THE NATIONAL ECONOMY Transnational corporations Nation-states THE LOCAL ECONOMY Technology& Global Shifts

6. Environmental Analysis Macro Environment • International laws & wars • Economicsituation • Socio-cultural factors • Technological development • Ecological factors Micro Environment • Market Opportunity Analysis • Competitive Environment • Consumer Behavior Regional Environment • Legal • Public policy, risk and regulation • Political • Economic • Socio-cultural • Technological 6

7. Market Opportunity Analysis • Market Opportunity Analysis (MOA) enables the firm to identify opportunities within new markets and thoroughly understand the market structure, competitive landscape, customer needs and competing technologies • The analysis of the findings provides the firm with: • an expert assessment of whether the market is attractive / penetrable; • a market entrance strategy; • the optimal approach to gain market share; • more profitable links in the value chain; • potential partner organizations and acquisition targets and a depth understanding of how to maximize chances of success.

8. Competitive Environment • The competitive landscape • Which companies are active within the market? • Which companies are the major players ? • Who are the specialists that focus on the business ? • Which companies are important but minor players in the business ? • Recent entrants to the market ? • Segments of the market serviced by each competitor • Product and service profiles of suppliers • Claimed product or service advantages • Distribution channels used • Partners • Key information on each competitor (geographical coverage, locations of head offices, production plants and sales offices, staff numbers) • Growth history within the business • Financial performance of suppliers • Nature of the competitive environment (stable, change or rapid change) • Pricing

9. Consumer Behavior • The key components of Consumer Analysis are: • Analysis of buying processes and decision making • Analysis of customer expectations • Customer satisfaction research • Measurement of customer loyalty • Pricing research • The key components of B2B Customer Analysis are: • Composition and structure of decision making unit • Analysis of buying processes and decision making • Analysis of suppliers within target markets • Methods of identifying and evaluating suppliers • Analysis of customer expectations from suppliers • Customer satisfaction research • Measurement of customer loyalty • Pricing research • Analysis of reasons for lost business

10. Capture value from customers Expanded Marketing Process Model Create value for customers and build customer relationships Capture value from customers to create profits and customer quality Understand the marketplace and customer needs and wants Construct a marketing program that delivers superior value Design a customer-driven marketing strategy Build profitable relationships and create customer satisfaction Product and service design: build strong brands Select customers to serve: segmentation and targeting CRM and CEM: build strong relationships with chosen customers Research consumers and market Create satisfied loyal customers Pricing: create real value Capture customer lifetime value Manage marketing information and customer data Decide on a value proposition: differentiation and positioning Partner relationship management: build strong relationships with marketing partners Distribution: manage demand and supply chains Increase share of market and share of customer Promotion: communicate VP Marketing technology Global markets Ethical and social responsibility

11. Marketing Information System Information Processing General data bank Analytical data bank Statistical data bank Information Dissemination Processes / Mechanisms Organization Decision-makers Strategic decisions Managerial decisions Operational decisions Decisions Strategy Market How to compete Marketing Mix Resources Control Internal and Environmental Data / Information

12. Decision to Enter International Market

13. Process of International Markets Selection 5. Target markets within target countries Microsegmentation 4. Market Attractiveness (BCG Matrix, McKinsey Matrix) Targetcountriesselection 3.Scanning (BERI, other indexes) 2. Segment profiles Globalmarketsegmentation 1. Segmentation criteria 13

14. CAGE Model

15. BERI Index – Business Environment Risk Information Index 1) Scale «0» to «4»: 0 – unacceptable terms; 1 – bad terms; 2 – middle terms; 3 – good terms ; 4 – ideal terms • BERI ≥ 80 – favorable investment environment, developed economy; 70 ≤ BERI ≤ 79 – not so favorable and developed; 55 ≤ BERI ≤ 69 – developing economy having investment potential; 40 ≤ BERI ≤ 54 – high level of risk, underdeveloped economy; BERI < 40 – a very high level of risk, investing is possible only exceptionally

16. GE /McKinsey Matrix

17. GE /McKinsey Matrix

18. 2.2.International Market EntryModes Class 2.

19. Entry Mode Choice • Considered by many as the most important aspect of a firm’s internationalization strategy • Entry mode will determine long-term success or withdrawal from foreign markets • Poor decisions can be very costly for the firm

20. Factors in the Entry Mode Decision Target country market factors Target country environmental factors Target country production factors Home country factors Entry mode decision External factors Internal factors Company resource and commitment factors Company product factors

21. Strategies of Foreign Market Entry Step by step (Waterfall model) Simultaneously (Watering canmodel) Developed countries Developing countries Under-developed countries Developed countries Developing countries Under-developed countries Время

22. Foreign Market Entry Modes Entry Modes Export Associated Investment Licensing Joint ventures Indirect Franchising Fully owned companies Direct Managementcontracts Production Acquisitions Strategic alliances 22

23. Types of Exporting • Indirect exporting • Distributor • Export agent • EMC • Direct exporting • Export department • Export sales representatives • E-business • Cooperative exporting • Export groups • Piggyback exporting

24. Foreign Direct Investment (FDI) • The ultimate form of foreign involvement • Direct ownership of foreign-based assembly, manufacturing or sales facilities • The company can buy part or full interest in a local company (M&A) or build its own facilities (GFI, ex nihilo) • Considered the “preferred” mode of entry

25. Advantages and Disadvantages of FDI Advantages • Cost economies (labor, raw materials, incentives, freight savings, etc…) • Better image in host country • Deeper relationship with government, customers, local suppliers, distributors • Better adaptation • Full control of investments • Long term objectives Disadvantages • High initial and operating costs • High level of risk

26. FDI Options • Make-or-buy decision • Greenfield investment / Ex nihilo • Mergers and acquisition • Branch or subsidiary? • Structure • Legal status • Analyzing FDI project • Assessing profitability • Discounted cash flow analysis

27. FDI nowadays • Developing economies absorbed close to half of global FDI inflows • Development of South-South cooperation 15% below pre-crisis level • FDI to developed countries continued to decline • Poorest regions continued to see declines in FDI • FDI to service industries fell: business services, finance, transport and communications, utilities • 50% of global FDI – TNC’s market-seeking projects

28. Associated Entry Modes • Newest, most recent forms of international business • Transfer of technology or know-how between two firms • Shared risks • Only option in countries where the government requires foreign firms to use local capital • Better access to local market knowledge

29. Types of Associated Entry Modes • Joint venture: foreign and local investors share ownership and control of local operations • Licensing: licensor licenses a foreign company to use a manufacturing process, trademark, patent, trade secret or other item of value for a fee • Management contracts: firm exports management services instead of a product, separation between ownership and management • International Franchising: contractual association between a franchisor (manufacturer, wholesaler or service organization) and franchisees (independent business people who buy the right to own and operate units in the franchise system). Franchising is based on some unique product, service or method of doing business. • Industrial franchising • Distribution franchising • Service franchising

30. NEM cooperation • $2 trillion in sales 2010 • NEMs include contract manufacturing, services, outsourcing, contract farming, franchising, licensing, management contracts • $1.2 trillion – outsourcing, $340 – franchising, $340 - licensing, $100 – management contracts • TNCs make choice between FDI and NEM based on its strategy, the relative costs and benefits, the associated risks, feasibility of available options

31. Example of International Franchising Entry Modes • Direct modes • Direct franchising (16%) • Subsidiary (19%) • Area development agreements (14%) • Indirect modes • Joint venture (16%) • Master franchising (34%) In the Direct system the franchisor is controlling and coordinating the activities of the franchisees directly. In the indirect system a master franchisee (subfranchisor) is appointer to establish and service its own Subsystem of franchisees within its territory

32. International franchising comparative matrix Strong Master franchising Direct franchising Distance / Adaptation  Joint venture  FDI  Area development agreement Direct franchising   Weak Commitment / Control Weak Strong

33. Foreign Market Entry Modes MIN MIN MAX MIN MIN MIN MAX MAX MIN MAX MAX MAX VC - Variable (direct) costs FC – Fixed (overhead) costs

34. Entry Mode Choice Summary • Entry modes vary in terms of resource or equity commitment to foreign markets • Low-commitment modes can allow firm to reduce risk in high-risk countries, culturally diverse countries or limited potential markets • Desired degree of control over international operations influences choice of entry mode • Loss of control yields limited returns • No market entry strategy is appropriate in all circumstances • Most firms will have a vast portfolio of entry modes, depending on each specific market situation

35. Comparing Different Entry Mode Options High Franchising FDI Licensing Wholly owned subsidiary (M&A) Management contract Branch office Contribution of know-how AD / Concessionaire Agent EMC Minority shareholding through partial acquisition Piggy back ITC / distributor Majority JV investment (local partner know-how) Foreign buying department Low Low Level of ownership High

36. Choosing the Right Entry Mode All entry modes Internal factors Rejected entry modes External factors All feasible entry modes Comparative profit contribution analysis Comparative risk analysis Comparative analysis for nonprofit objectives Ranking by overall comparative assessment Target market The right entry mode Marketing channels within markets

37. Class 2.Practical work

38. Task 2. Choosing proper country to enter • Compare BRICS countries, create the chart and find the closest country to Russia

39. Global shift • Transformation of world economy to geo-economy • Globalization: geographically and organizational tendencies • TNCs play significant role Interactions between state and TNC • Surge economy: the only thing is certain - changes

40. New tendencies • Internet commerce • High competition • Networking • Innovations • Intangible assets • Information, knowledge driven economy Growing power of developing and BRICS countries • No geographical barriers