Essentials of strategy formulation in international business
INTERNATIONAL MARKET ENTRY
PROCESS OF INTERNATIONALISATION
BOARD MEETING ACTIVITY
BASIC FOREIGN EXPANSION
International Market Entry
Which markets to enter
When to enter these markets
What is the scale of entry
WHICH FOREIGN MARKETS
Politically stable developed and developing
Free market systems
No dramatic upsurge in inflation or private-sector
Politically unstable developing nations with a
mixed or command economy or where
speculative financial bubbles have led to excess
EARLY MARKET ENTRY
Build sales volume.
Move down experience curve and achieve cost
Create high switching costs.
First mover disadvantage - pioneering costs.
Changes in government policy.
MARKET ENTRY SCALE
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.
May lead to indigenous competitive response.
Small scale entry
Time to learn about market.
Reduces exposure risk.
Avoids cost of establishing manufacturing
May help achieve experience curve and location
May compete with low-cost location
Possible high transportation costs
Possible lack of control over marketing reps
Distribution of products is through utilising the
international distribution network of other
Effective entry strategy into developed countries
Economies of Scale
Often poor channels of marketing communication
Locked into non strategic unsatisfactory arrangement.
Contractor agrees to handle every detail of
project for foreign client
Can earn a return on knowledge asset
Less risky than conventional FDI
No long-term interest in the foreign country
May create a competitor
Selling process technology may be selling
competitive advantage as well
Agreement where licensor grants rights to
intangible property to another entity for a
specified period of time in return for royalties
Reduces development costs and risks of establishing
Lack capital for venture.
Unfamiliar or politically volatile market.
Overcomes restrictive investment barriers.
Others can develop business applications of intangible property.
Franchiser sells intangible property and
insists on rules for operating business.
Reduces costs and risk of establishing enterprise
May prohibit movement of profits from one
country to support operations in another country
Range of assets possessed by Partner Range of assets possessed by
A in home country Partner B in international market
Market access / distribution Product-market knowledge
Franchising Market access/distribution
Raw materials Licensing Process know-how
Product-market knowledge Product-market know-how
Market access / distribution Product process know – how
Manufacturing competence Joint Product-market knowledge
Raw materials ventures Raw materials
A foreign company invites an outside
partner to share stock ownership in the new
unit. The ownership could vary for
companies accepting minority or majority
position in the Joint Venture.
(Jeanet & Hennesey, 2004:300)
Access to new markets and distribution
Benefit from local partner’s knowledge.
Shared costs/risks with partner.
Reduced political risk.
Partners have different objectives for the joint venture
Imbalance of Expertise
Poor integration due to different management styles and
cultures brought in.
Early stages are difficult.
WHOLLY OWNED SUBSIDIARY
Subsidiaries could be Greenfield investments or
No risk of losing technical competence to a competitor
Tight control of operations.
Realize learning curve and location economies.
Bear full cost and risk
Cooperative agreements between potential or actual
Facilitate entry into market
Share fixed costs
Bring together skills and assets that neither company has
or can develop
Establish industry technology standards
Competitors get low cost route to technology and markets
Why Strategic Alliances
High cost of technology development
Reduction of Psychic Difference
Good way to secure access to foreign markets
Host country may require some local ownership
Firms join to attain world leadership
Each partner has significant strength to bring to the
A true global vision
Relationship is horizontal not vertical
When competing in markets not part of alliance, they
retain their own identity
Get as much information as possible on the
Collect data from informed third parties
Get to know the potential partner before
Characteristics of Strategic Alliances
Managing the alliance
Learning from partners
Diffusion of knowledge
Wholly Owned Subsidiary
L installation of foreign
E Stage 3
L Franchising establishment of
foreign sales affiliates Joint Venture
C export by independent Export
R Stage 1
O no regular export Indirect Export
Amount of Resources Committed - Foreign Market
Approaches to Foreign Market Entry - Uppsala model (Bartlett, Ghoshal & Beamish, 2008:9)
Ohmae's (1990) 5-stage globalisation model
1. Export orientated company (develop strong product base in home
2. Establish overseas branches
3. Relocating production base to key markets
4. 'Insiderisation': transferring corporate functions from parent firm
HQ to new local environment
5. Complete global company: establishing global branding
(Ohmae, K. 1990, The Borderless World, Harper Business, New York.)
RISK & CONTROL IN MNE
(Doole & Lowe, 2004:220)
Strategies Direct Invest’
Joint ventures Own subsidiary
Strategic alliances Acquisition
Export management companies
PRESSURE OF GLOBAL
• Importance of Multinational Transnational Strategy
• Presence of Multinational
• Investment Intensity Oriented
• Technology Intensity
• Pressure for Cost Reduction Area
• Universal Needs Emphasis
• Access to Raw Materials &
PRESSURE OF LOCAL RESPONSIVENESS:
• Difference in Consumer Needs
• Difference in Distribution Channels
• Availability of Substitutes
• Market Structure
• Host Government Demands
(Prahalad and Doz see Dicken, 2003:Figure 7.12;220)
Bradley, F., 2005. International Marketing
Strategy. 5th ed. England: Pearson Education Ltd.
Bartlett, C., Ghoshal, S. & Beamish, P., 2008.
Transnatonal Management. 5th ed. New York:
Hill, C., 2005. International Business. 5th ed. New
Dicken, P., 2003. Global Shift. 4th ed. London:
SAGE Publications Ltd.
Jeanet, J. P., Hennessey, H. D., 2004. Global
Marketing Strategies. 6th ed. USA: Houghton
Partneringalliances, 2008. Deliver the Value Your
Strategic Alliance Partner Needs. Available via:
uk.youtube.com Available at
[Accessed : 28 November 2008]
Doole, I., Lowe, R., 2004. International Marketing
Strategy. 4th ed. London: Thomson Learning
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