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How to enter International Market

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How to enter International Market

  1. 1. 1 How to enter International Markets Identifying Potential Market
  2. 2. 2 Learning Objectives This reading is basically on how to develop successful marketing strategy based on free resources available in the Internet and a good Library. Step 1: Identify key products Step 2 : Potential Markets
  3. 3. Identifying Potential Markets 3 How can I sell my product in the international market ? How to find potential markets ? Will my product sell there ? Are there specific standards my product must meet in order to be sold ? What distribution channels should I consider ?
  4. 4. Strategic lookout for entering into International Market 4
  5. 5. Foreign Trade Statistics for Market Identification. Product selection. Analysis of Foreign trade statistics. • Example : – Analysis of spice export data for last few years. – Increased rice export due to floods. Identify seasonal bias or seasonal demand. 5 How to identify international market
  6. 6. How to Find Foreign Trade Statistics United Nations publishes comparative trade statistics for most countries in the world. In India there are 2 sources 1.DGCIS Macro Level data analysis. 2. Customs Shipment records from seaport and airports 6
  7. 7. Different approaches for market selection Reactive Foreign Market Selection: When a firm enters a foreign market mostly based on ‘reacting’ to opportunities presented to the firm or following competitors rather than proactively seeking the best opportunity for the firm Proactive Foreign Market Selection: Involves a planned approach of establishing a list of potential markets, a time frame for entering the markets, and incorporating those decisions into the international marketing plan 7
  8. 8. 8 1.0 PRODUCTION IN THE HOME COUNTRY Firms can export using two methods: Indirect involvement means that the firm participates in international business through an intermediary and does not deal with foreign customers or markets. Direct involvement means that the firm works with foreign customers or markets with the opportunity to develop a relationship.
  9. 9. Advantage of using an Export House/Merchant Exporter   The Manufacturer avoids the problems of direct exporting. Saving in unit cost. In case the export house works on commission basis, expand sales. Reduction in unit freight. Export house is selling complementary products, sales might increase. 9
  10. 10. Disadvantage of using Export House / Merchant Exporter Producer gets neither the expertise nor the attention he is looking for. Manufacturer continually depending on the export house and not developing export expertise himself. lacking personal involvement in the export business. Foreign customers may not associate the product with the manufacturer at all. 10
  11. 11. 2.0 FOREIGN MANUFACTURING Reasons :- High cost of shipping of product to the export market; Tariffs and non-tariff restrictions in the importing country; Nationalist feelings in the country concerned not favouring import products; Large size of the country, particularly regional groupings justifying establishment of manufacturing facilities in that country/region; Greater scope to be in constant touch with the changing requirements of the foreign customer which is particularly true of fashion goods; Lower production costs due to availability of cheaper/plentiful factor(s) of productions. Advantages of acquiring an existing foreign product with all his facilities .  11
  12. 12. INTERNATIONAL MARKET ENTRY METHOD 12
  13. 13. Foreign manufacturing can take one or more of the following forms:   Assembly Contract manufacture Licensing Joint Venture Wholly-owned foreign production (100% ownership)   13
  14. 14. 2.1 Assembly Domestically produced. Finished products are assembled abroad. All exports are on Completely Knocked Down condition (CKD) are examples of assembly. A company may go for this sort of arrangement either to avoid high transportation cost of the final product or to take advantage of the cheap labor available in the export market or to get over the high tariff and non-tariff restriction. 14
  15. 15. 2.2 Contract Manufacture   In this method of market entry, manufacturer permits the production of his product abroad by a local party under contract with him but he reserves to himself the right of marketing that product in that market. Normally firms with comparative advantage in marketing and service, rather than production, resort to contract manufacturing. This method is advisable particularly in politically unstable countries where one would always like to pull out at short notice in case of trouble 15
  16. 16. 2.2 Contract Manufacture   Disadvantages : - The parent company has to forego the manufacturing profit to the local firm; It is not always easy to locate a local party with the necessary capabilities to manufacture the product upto the requirements of the parent firm; The possibility of the local party gaining experience in marketing in the course of time and posing a threat to the parent party; The difficulties faced in maintaining the quality of the product upto the standard required of the parent firm. 16
  17. 17. 17 2.3 Licensing Under a licensing agreement, one firm permits another to use its intellectual property for compensation designated as royalty. The property licensed may include: Patents Trademarks Copyrights Technical Know-how
  18. 18. Advantages of Licensing Arrangement Licensing arrangement does not involve any capital outlay on the part of the licenser; This is a very quick and easy way to enter the foreign market; By this method, the licenser gains easy access to knowledge about the local market; Licensing normally gains local government approval more quickly than foreign manufacturing because of inflow of technology with very little cost and strings; Licensing also has other advantages such as savings in shipping freight,avoidance of tariff and non-tariff barriers, etc.   18
  19. 19. Disadvantages of Licensing Arrangement As in the case of contract manufacturing, there is a possibility that the licensee might become competitor to the licenser in the long run; The return normally in licensing is limited as compared to other forms of investment; It is difficult to exercise much control on the licensee. 19
  20. 20. 2.4 Joint Ventures In Joint Ventures the international firm normally have equity participation and management voice in Local Firms. ADVANTAGES:  Potentially greater returns from equity participation as opposed to royalties  Greater control over production and marketing;  Better market feedback; and  More experience in international marketing. Disadvantage is it involves greater risks and greater investment of capital and management resources 20
  21. 21. 2.4 Wholly owned Foreign Production Greatest commitment to foreign market. Complete control over all activities of the firm. Operation can be done in 2 ways 2.5.1 Acquisition: Acquiring an existing foreign production unit. Acquisition means getting qualified management personnel and labor, gaining instant local knowledge and contract with the local market and government and, most of all, removing a potential competitor from the scene. 2.5.2 Establishment of a New Facility: A firm normally builds up its own facilities from scratch where (a) it does not find a national producer willing to sell out or the national government does not allow it and (b) there are no local firms having the requisite standard of facilities. 21
  22. 22. Wholly owned Foreign Production Advantages of wholly owned operations are: 100% ownership means 100% profit Greater experience in international operations; No scope for conflict of interest with any local party; and Complete control leading to better integration of various national organisations into a synergistic international system. Disadvantages of wholly owned operations are: They are costly in terms of capital and management resources; They may result in negative public relations; There always is the possibility of expropriation by the host government; and Lack of involvement of a national partner who might act as a bridge between the international firm and the country concerned. 22
  23. 23. Ways of entering into Foreign Market No best way to enter foreign market Proper analysis of foreign market needs to be done. Strength and weaknesses to be analyzed before deciding upon way of entering Opportunities and conditions in each market must be analyzed Whatever policy is adopted it must be flexible to change with environment 23
  24. 24. 2.6 OFFSHORE SOURCING, SUB-CONTRACTING AND MANUFACTURING Although imports have always been important in some sectors, companies in more and more industries find offshore sources of components and finished products a means of increasing their profitability. As offshore sourcing has spread across industries, it has also spread to countries in Asia, South America and other developing areas. The motivations for offshore sourcing are usually to obtain lower-cost products.   24
  25. 25. Selecting the form of Offshore Sourcing Offshore Purchase This is a relationship between independent buyers and sellers in which goods are exchanged for money. Offshore sub- contracting This term covers many different relationships between independent companies in which the buyer is more involved with the source than in a simple buyer-seller relationship. The buyer may provide detailed product specifications, technical assistance, raw materials or needed components or even some financing to the foreign manufacturers. 25
  26. 26. Joint Venture Offshore Manufacturing   This relationship involves the joint ownership with a foreign company of an offshore manufacturing enterprise.   Controlled Offshore Manufacturing This relationship is that of a parent and wholly-owned foreign operation, generally a subsidiary corporation that supplies the parent’s needs for a product.   Selection Criteria Four important selection considerations are: Company capabilities and resources Availability and capabilities of suppliers or partners Projected sourcing volumes and variability Degree of integration of offshore sourcing with other operations.   26
  27. 27. The Selection of an International Market Entry Mode: An SME needs to critically examine several factors while selecting the most appropriate entry mode for international markets. The major factors which need to be examined are as under:   Market size Market growth Regulatory framework Structure of competition Level of risks. However, an in-depth detail analysis is required for the firm before a final decision is taken on an international market entry mode. 27
  28. 28. How to enter International Markets How to enter International Markets 28

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