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Modes of entry

  1. 1. Group Members • MANDARY Tejusvi Maheshee • BUROTY Priya Soohashenee • ARIA NAICK Keshav • BUNDHOO Tinadevi • JAGUESSUR Yasthanandsingh
  2. 2. Examples in the Business Context Mode of Entry ? ?
  3. 3. Entering a new market is always a risky business, with a big risk of failure. Mode of Entry
  4. 4. Mode of entry (cont..)  When a firm is going to explore a foreign market, the choice of the best mode of entry will arise in the firm’s expansion strategy.  The choice of mode for entering a foreign market is thus a major issue.
  5. 5. 3 Main Categories of Mode of Entry Export • Direct Export • Indirect Export Contractual • Turnkey Projects • Licensing • Franchising Investment • Joint Venture • Wholly owned subsidiary
  6. 6. Exporting  Frequently employed mode of internationalization.  One of the simplest and most common approaches adopted by firms in their endeavour to enter foreign markets.
  7. 7. Exporting (cont...)  A simple definition of exporting : ‘An action by a firm to send produced goods and services from the home country to other countries.’  According to Kotler (2000:374) the normal way to get involved into a foreign market is through export.
  8. 8. Generally firms export for two reasons: 1. Firms need experiential knowledge Exporting has the potential to provide firms with international experience without their taking high risk or strong commitment. 2. To expand their sales in order to achieve economies of scale.
  9. 9. Two types of Export • Producer sells directly to the importer • Very little or no knowledge about the foreign market is needed Direct Export • A firm in the domestic country is used to do the exporting for the manufacturer • The sale of a firm’s products in foreign markets through an export agent Indirect Export
  10. 10. Direct Export  This mode gives the company a greater degree of control over its distribution channels.
  11. 11. Indirect Exporting This mode is seen as a good way of gaining knowledge about a potentially interesting market.
  12. 12. Floreal Knitwear Ltd  Leading knitwear manufacturer in the African Sub-Saharan Region  Second largest woolmark knitwear supplier in the world.  Produces men's, ladies, and kids wear styles over various knitting gauges.
  13. 13. The knitwear is exported to renowned European and US retail organizations. Major European retailers such as: - Marks & Spencer - Next - George - Burton - Celio - Hema - La Redoute - Carrefour
  14. 14. Advantage No high resource commitment in the targeted country Inexpensive way to gain experiential knowledge in foreign markets
  15. 15. Disadvantage ※Export, although rewarding, is generally an expensive activity which require additional financial resources.
  16. 16.  Toyota (Australia)  One of Australia's leading automotive companies.  A leading manufacturer, distributor and exporter of vehicles  Market share of 18 % in 2011
  17. 17.  Evidence: 2011 export figure of 59,949 units worth $1.004 billion http://www.toyota.com.au/t Established as a truly global company  Now tackling the challenge of increasing their export figures to even greater and unprecedented heights.
  18. 18. The recipe for their sustainable export success is ‘the ability to understand, meet and exceed the varied expectations of our overseas customers’  Export to 13 destinations worldwide in Middle East, New Zealand and the Pacific Islands.
  19. 19. Advantage Low-cost strategy to expand sales in order to achieve economies of scale
  20. 20. Disadvantages ※Hard to control operations abroad ※Provides very small experiential knowledge in foreign markets
  21. 21. 2nd Type of Mode of Entry Contractual •Turnkey Project • Licensing • Franchising
  22. 22. Turnkey Projects  A method for a foreign company to export its process and technology to other countries by building a plant in that country. The company hires a contractor in the desired country that they want to create an operation.
  23. 23. Turnkey Projects  The turnkey contractor is responsible for the –Design –Construction –Installation of a new plant –Maintenance of the plant ( in some cases)
  24. 24. At the completion of the contract, the foreign company gives the “key” to the project and it is ready for operation.
  25. 25.  Turnkey projects are most typical in companies that specialize in expensive, complex production technologies, such as the - Chemical industry - Pharmaceutical industry - Petroleum refining industry - Metal refining industry
  26. 26. Larsen and Toubro Ltd Source: http://www.ibef.org/download/Larsen_%26_Toubro.pdf
  27. 27.  L&T’s engineering and construction track record consists of successful implementation of turnkey projects in major core and infrastructure sectors of the Indian industry. http://www.larsentoubro.com/
  28. 28. L&T projects in Mauritius Construction of: a turnkey 10.8 mn litre-per-day water treatment plant at Mont Blanc; 70 m-high, 12-storey Cyber Tower, utility buildings and site development works for Business Parks of Mauritius Limited; The Swami Vivekananda International Convention Centre.
  29. 29. Advantages Seek the economic gains without the political complications Earn profits in a foreign country Possibility to establish a plant
  30. 30. Disadvantages Risk of revealing companies secrets to rivals Takeover of their plant by the host country Does not often have any long-term interest in the country May create a competitor
  31. 31. Licensing  A key mode of entry for firms targeting international expansion.  Defined as ‘ a contractual mode of entry, whereby a company (the licensor) grants a foreign firm (the licensee) the rights to use some or all of its intangible properties (patents, trademarks, copyrights, etc.).’ Osland; Taylor; Zou (2001)
  32. 32. It is to be noted that, a royalty fee is given to the licensor.
  33. 33. Oracle Corporation An American multinational computer technology corporation  Specializes in developing and marketing hardware systems and enterprise software products.
  34. 34.  Their goal is: ‘ to help organisations optimize their software investment by enhancing their understanding of Oracle's licensing practices’.  They offer their leadership for corporate best practices by making licensing information publicly available.
  35. 35.  In Mauritius, Oracle’s Licensing partners are:  Anglo African LTD  VESL Technologies Ltd  De Chazal Du Mee Consulting  STATE INFORMATICS LIMITED  SOFTPRO N&P  HAREL MALLAC COMPUTERS LTD
  36. 36.  Has licensed its famous trademark to clothing manufacturers, which have incorporated the design into their clothing. Coca-Cola
  37. 37. Advantages Speedy entry to foreign market Marketing of the brand Can be used as a step towards a more committed mode of entry
  38. 38. Disadvantages • Hard to monitor partners in foreign markets • Hard to enforce agreements
  39. 39. Franchising A method of business expansion over the last thirty years (Eroglu 1992)  It involves ‘a franchisor firm that undertakes to transfer a business concept that it has developed, with corresponding operational guidelines, to non-domestic parties for a fee’.
  40. 40.  Franchisors are responsible for  improving the product/service mix,  policing outlet quality,  promoting the brand in the host country.  High level of trust is needed
  41. 41. Examples • Examples of companies that use franchising as a mode of entry are – McDonalds, – Kentucky Fried Chicken, – Hilton hotels (Johnson/Beaton (1998), p. 107; Hill/Jones (1998), p. 263).
  42. 42. Pizza Hut  World's largest Pizza Restaurant Company – more than 12,000 restaurants –in over 80 countries –30 years of experience in building great franchise partnerships.
  43. 43.  The management of Pizza Hut believes that that each franchise brings  Unique insights  Skills  Experiences from diverse backgrounds. Source: http://www.pizzahutfranchise.com/
  44. 44. Pizza Hut in Mauritius • Over the past 20 years, the Happy World Group is the master franchisee in Mauritius for 'Pizza Hut' in the Casual Dining market segment. • Their network of 12 outlets covers all the towns in Mauritius.
  45. 45. Advantages Speedy entry to foreign market Requires a moderate resource commitment in the targeted country
  46. 46. Disadvantages Could damage the firm’s reputation and image In this respect, Pizza Hut takes franchisee recruitment very seriously. They want a network of successful partners; seek individuals who have:
  47. 47. Source: http://www.pizzahutfranchise.com
  48. 48. BATA  One of the world's leading footwear retailers and manufacturers Source: http://www.bata.com/
  49. 49. To enter the new foreign markets and expand on an international level the Bata brand. Combine opportunity and local markets knowledge with reliable partners who have a long term vision. Share with the new partner our know-how in the shoe business. Give the maximum attention to the different local needs (fashion trends, climate, seasonal trends, specific needs, usages and customs). Source: http://www.batafranchise.com/
  50. 50. Advantages Speedy entry to foreign market Moderate-cost strategy to expand sales in order to achieve economies of scale
  51. 51. Disadvantages Does not provide experiential knowledge in foreign markets High potential for opportunism High monitoring costs
  52. 52. 3rd Type of Mode of Entry Investment •Joint Venture • Wholly Owned Subsidiary
  53. 53. Joint Venture  Became an important element of many firms’ international strategies.  Defined as ‘an enterprise, corporation or partnership, formed by two or more companies, individuals, or organizations, at least one of which is an operating entity which wishes to broaden its activities, for the purpose of conducting a new, profit-motivated business of permanent duration.’
  54. 54.  Commonly used by firms to as a means of Competing multi-domestic or Global competitive arenas (Porter & Fuller 1986; Harrigan 1988). Motives for Joint Venture
  55. 55. New Markets Take existing products to foreign markets To diversify into new business Existing Markets To strengthen the existing business To bring foreign products to local market Existing Products New Products
  56. 56.  Joint venture is associated with providing access to : resource and market, technology transfer, reduce political risk and help to improve the firms competitive position. (Bradley 2005:249)
  57. 57. Apollo Hospitals Group  The largest healthcare group in Asia  With more than 7,500 beds in 43 hospitals  16 million patients from 55 countries
  58. 58. The hospital is – equipped with the latest technology and high end medical equipments. – poised to deliver advanced tertiary care of international standards to Mauritian people as well as tourists
  59. 59. Advantages Technology sharing and joint product development Reduce political and economic risks as a result of the involvement of the native partner
  60. 60. Disadvantages Mistrust over proprietary knowledge Performance ambiguity - how to split the pie
  61. 61. Toyota Mauritius Toyota Tsusho Corporation Beechand Company Toyota Mauritius
  62. 62.  Continuously worked to contribute to the sustainable development of society HOW?  Through provision of innovative and high- quality products and services that lead the times.
  63. 63. Advantages Partners are able to learn from one another while limiting access to their own proprietary skills ‘Toyota Mauritius now combines its experience in the local market and the know-how of a global network to reinforce its position in the local market.’ Source: http://www.toyotamauritius.com
  64. 64. Disadvantages Lack of parent firm support Performance ambiguity - how to split the pie
  65. 65. Wholly Owned Subsidiary  The firm owns 100 % of the stock Keegan and Schlegelmilch (2001)  The most expensive method form of market entry  Requires the greatest commitment in terms of management and resources
  66. 66. Two options Wholly Owned Subsidiary Greenfield Investment Acquisition
  67. 67. Greenfield Investment  Building an entirely new subsidiary in a foreign country from scratch to enable foreign sales and/or production. The parent firm has decided to clone its strategy and structure in the foreign plant
  68. 68. HOW?  By transferring its technology, supply chain organizational structure, and Corporate culture. (Hennart and Park 1993)
  69. 69. Acquisition  Combining two companies from different countries to establish a new legal entity.  Acquisition of a local firm’s assets by a foreign company.  Both local and foreign firms may continue to exist.
  70. 70. Acquisitions v/s Greenfield Investment  Firms with weak competitive advantage tend to use acquisitions while  Those with strong competitive advantages prefer Greenfield investments to transfer their advantages to foreign markets . Hennart and Park (1993)
  71. 71. Indian Oil Corporation  India's flagship national oil company  Set up subsidiaries in Sri Lanka, Mauritius and the United Arab Emirates (UAE)  Scouting for new business opportunities in the energy markets of Asia and Africa
  72. 72. Indian Oil (Mauritius) Ltd (IOML)  A wholly owned subsidiary company of Indian Oil Corporation Ltd  The third largest petroleum company in Mauritius.  Holds an overall market share of 24%  Competes with other multinational companies present in Mauritius for over five decades.
  73. 73. Advantages  Provides high experiential knowledge in foreign markets  Low level of conflict between the subsidiary and the parent firm  Able to control operations abroad  Does not have the problem of integrating different cultures, structures, procedures, and technologies
  74. 74. Disadvantages Could not rely on pre-existing relationships with customers, suppliers, and government officials Potential difficulty in accessing existing managers and employees familiar with local market conditions
  75. 75. Oracle  Enlarged its share of the software market through a number of high- profile acquisitions.  Oracle seeks to:  strengthen its product offerings, accelerate innovation, meet customer demand more rapidly expand partner opportunities.
  76. 76. Oracle Acquisitions Oracle's Mergers and Acquisitions philosophy ‘its consistent commitment to customer service and product support while achieving its financial return objectives and creating value for its shareholders.’ Source: http://www.oracle.com/us/corporate/acquisitions
  77. 77. Advantages Low risks of technology appropriation Access to existing managers and employees familiar with local market conditions Could rely on pre-existing relationships with customers, suppliers, and government officials
  78. 78. Disadvantages Managers of acquired foreign subsidiaries may have a weak attachment to the parent firm
  79. 79. CONCLUSION
  80. 80. The selection of a market entry mode is a critical decision Firms seek to expand geographically due to  Convergence of technology  Emergence of alternative communication structures Increased competitive arena in which they operate
  81. 81.  Be proactive rather than reactive in their approach to internationalisation Findings from our assignment:  no best way to enter a foreign market the mode of entry may differ from one country or region to another
  82. 82. Oracle Licensing Acquisitions Greenfield Investment
  83. 83. Life Insurance Corporation Joint Ventures Greenfield Investment
  84. 84. Toyota Corporation Export Joint Ventures Greenfield Investment
  85. 85. Apollo Group Hospitals Franchising Joint Ventures Greenfield Investment
  86. 86. If You have any question