emerging market entry strategies, How to enter in a different country

1. EMERGING MARKET ENTRY
STRATEGIES

2. Overview
2
1. Target Market Selection
2. Choosing the Mode of Entry
3. Exporting
4. Licensing
5. Franchising
6. Contract Manufacturing
7. Joint Ventures
8. Wholly Owned Subsidiaries
9. Strategic Alliances
10. Timing of Entry
11. Exit Strategies

3. Introduction
3
 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.
 Global marketers have to make a multitude of decisions
regarding the entry mode which may include:
 (1) the target product/market
 (2) the goals of the target markets
 (3) the mode of entry
 (4) The time of entry
 (5) A marketing-mix plan
 (6) A control system to check the performance in the entered
markets

4. 1. Selecting the Target Market
4
 A crucial step in developing a global
expansion strategy is the selection of potential
target markets (see Exhibit 9-1 for the entry
decision process).
 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 in the pool on each
indicator
4. Compute overall score for each country

5. 1. Selecting the Target Market
Chapter 9Copyright (c) 2007 John Wiley & Sons, Inc.5

6. 2. Choosing the Mode of Entry
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 Decision Criteria for Mode of Entry:
 Market Size and Growth
 Risk
 Government Regulations
 Competitive Environment/Cultural Distance
 Local Infrastructure

7. 2. Choosing the Mode of Entry
7

8. 2. Choosing the Mode of Entry
8

9. 2. Choosing the Mode of Entry
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 Classification of Markets:
 Platform Countries (Singapore & Hong
Kong)
 Emerging Countries (Vietnam & the
Philippines)
 Growth Countries (China & India)
 Maturing and established countries
(examples: South Korea, Taiwan & Japan)
 Company Objectives
 Need for Control
 Internal Resources, Assets and Capabilities
 Flexibility

10. 2. Choosing the Mode of Entry
10
 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)

11. 3. Exporting
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 Indirect Exporting
 Export merchants
 Export agents
 Export management companies (EMC)
 Cooperative Exporting
 Piggyback Exporting (Piggyback is a form of distribution
in foreign markets in which a SME company (the “rider”),
deals with a larger company (the “carrier”) which already
operates in certain foreign markets and is willing to act
on behalf of the rider that whishes to export to those
markets.)
 Direct Exporting
 Firms set up their own exporting departments

12. 4. Licensing
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 Licensor and the licensee
 Benefits:
 Appealing to small companies that lack resources
 Faster access to the market
 Rapid penetration of the global markets
 Caveats:
 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

13. 5. Franchising
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 Franchisor and the
franchisee
 Master franchising
 Benefits:
 Overseas expansion with
a minimum investment
 Franchisees’ profits tied
to their efforts
 Availability of local
franchisees’ knowledge
Caveats:
– 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

14. 6. Contract Manufacturing (Outsourcing)
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 Benefits:
 Labor cost advantages
 Savings via taxation, lower energy costs, raw materials,
and overheads
 Lower political and economic risk
 Quicker access to markets
 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

15. 6. Contract Manufacturing (Outsourcing)
15
Qualities of an ideal subcontractor:
 Flexible/geared toward just-in-time delivery
 Able to meet quality standards
 Solid financial footings
 Able to integrate with company’s business
 Must have contingency plans

16. 7. Expanding through Joint Ventures
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 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

17. 7. Expanding through Joint Ventures
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 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

18. 7. Expanding through Joint Ventures
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 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
 Create a launch team during the launch phase:
 (1) Build and maintain strategic alignment
 (2) Create a governance system
 (3) Manage the economic interdependencies
 (4) Build the organization for the joint venture

19. 8. Entering New Markets through Wholly
Owned Subsidiaries
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 Acquisitions
 Greenfield Operations (A green field
investment is a form of foreign direct
investment where a parent company starts a
new venture in a foreign country by
constructing new operational facilities from the
ground up. Eg. Coca-cola, Starbucks)
 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

20. 8. Entering New Markets through Wholly
Owned Subsidiaries
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 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

21. 8. Entering New Markets through Wholly
Owned Subsidiaries
.21
 Acquisitions and Mergers
 Quick access to the local market
 Good way to get access to the local brands
 Greenfield Operations
 Offer the company more flexibility than acquisitions
in the areas of human resources, suppliers,
logistics, plant layout, and manufacturing
technology.

22. 9. Creating Strategic Alliances
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 Types of Strategic Alliances
 Simple licensing agreements between two partners
 Market-based alliances
 Operations and logistics alliances
 Operations-based alliances

23. 9. Creating Strategic Alliances
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 The Logic Behind Strategic Alliances
 Defend
 Catch-Up
 Remain
 Restructure

24. 9. Creating Strategic Alliances
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25. 9. Creating Strategic Alliances
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 Cross-Border Alliances that Succeed:
 Alliances between strong and weak partners
seldom work.
 Autonomy and flexibility
 Equal ownership

26. 10. Timing of Entry
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 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
 Also, the broader the scope of products and
services
 Mode of entry issues, market knowledge, various
economic attractiveness variables, etc.

27. 10. Timing of Entry
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 Reasons for exit:
 Sustained losses
 Volatility
 Premature entry
 Ethical reasons
 Intense competition
 Resource reallocation

28. 11. Exit Strategies
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 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