Foreign market entry strategies

2. • When an organization has made a decision to enter an overseas
market, there are a variety of options open to it.
• These options vary with cost, risk & the degree of control which can be
exercised over them.
• One of the most important strategic decisions in international business
is the mode of entering the foreign market.

3. • A market entry strategy is the planned
method of delivering goods or services to
a target market and distributing them
there.
When importing or exporting services, it
refers to establishing and managing
contracts in a foreign country.’’

4. An organization willing to “go
international” faces 3 major issues.
• Marketing – which countries, which
segments, how to manage, how to
enter, with what information.
• Sourcing – whether to obtain
products, make or buy.
• Investment & Control – Joint
Venture, global partner, acquisition.

5. MARKET ENTRY STRATAGIES
• EXPORTING
• LICENSING
• FRANCHISING
• JOINT VENTURING
• CONTRACT MANUFACTURING
• MERGERS & ACQUISITIONS
• FULLY OWNED
MANUFACTURING FACILITIES
• COUNTER TRADE
• TURNKEY CONTRACTS
• THIRD COUNTRY LOCATION

6. • Exporting is the most traditional and well
established form of operating in foreign markets.
• Exporting can be defined as the marketing of
goods produced in one country into another.
• Whilst no direct manufacturing is required in an
overseas country, significant investments in
marketing are required.
• The tendency may be not to obtain as much
detailed marketing information as compared to
manufacturing in marketing country.

7. • Those firms who are aggressive have clearly defined plans and
strategy, including product, price, promotion, distribution and
research elements.
• In countries like Tanzania and Zambia, which have embarked on
structural adjustment programs, organizations are being
encouraged to export, motivated by foreign exchange earnings
potential, saturated domestic markets, growth and expansion
objectives, and the need to repay debts incurred by the borrowings
to finance the programs.
• The type of export response is dependent on how the pressures are
perceived by the decision maker.

8. The advantages of exporting are :
• Manufacturing is home based thus,
it is less risky than overseas based
• Gives an opportunity to "learn"
overseas markets before investing
in bricks and mortar
• Reduces the potential risks of
operating overseas.

9. • The disadvantage is
mainly that one can be
at the "mercy" of
overseas agents and so
the lack of control has to
be weighed against the
advantages.

10. • Players : Franchisor & Franchisee.
• In terms of distribution, the franchisor is
a supplier who allows an operator, or a
franchisee, to use the supplier's
trademark and distribute the supplier's
goods.
• In return, the operator pays the supplier
a fee.
• Thirty three countries, including the
United States, and Australia, have laws
that regulate franchising.
• Franchising is the practice of using
another firm's successful business
model.

11. • For the franchisor, the franchise is an alternative
to building ‘Chain Stores’ to distribute goods that
avoids the investments and liability of a chain.
• The franchisor's success depends on the
success of the franchisees.
• The franchisee is said to have a greater incentive
than a direct employee because he or she has a
direct stake in the business.

12. Examples

13. ADVANTAGES
• Freedom of Employment
• Proven products & Services
• Proven Trade Mark
• Reduced Risk of Failure

14. • Licensing is defined as
"the method of foreign
operation whereby a firm in
one country agrees to
permit a company in
another country to use the
manufacturing, processing,
trademark, know-how or
some other skill provided by
the licensor".

15. • Licensing involves little expense and involvement.
• The only cost is signing the agreement and policing
its implementation.
• It is quite similar to the "franchise" operation.
• Coca Cola is an excellent example of licensing.
• In Zimbabwe, United Bottlers have the license to
make Coke.

16. • Good way to start in foreign
operations and open the door
to low risk manufacturing
relationships
• Linkage of parent and
receiving partner interests
means both get most out of
marketing effort
• Capital not tied up in foreign
operation and
• Options to buy into partner
exist or provision to take
royalties in stock

17. • Limited form of participation - to length of
agreement, specific product, process or
trademark.
• Potential returns from marketing and
manufacturing may be lost.
• Partner develops know-how and so license is
short.
• Licensees become competitors - overcome
by having cross technology transfer deals
and
• Requires considerable fact finding, planning,
investigation and interpretation.

18. • Joint ventures can be defined
as
"an enterprise in which
two or more investors share
ownership and control over
property rights and operation."
• It is a very common strategy
of entering the foreign
market.

19. • Any form of association which implies collaboration
for more than a transitory period is a joint venture.
• A joint venture may be brought about by a foreign
investor showing an interest in local company,
• A local firm acquiring an interest in an existing foreign
firm or
• By both the foreign and local entrepreneurs jointly
forming a new enterprise.

20. • Sharing of RISK.
• Joint financial strength.
• May be only means of entry
in some countries.
• Partners do not have full
control of management.
• May be impossible to recover
capital if need be.
• Partners may have different
views on expected benefits.

21. Examples

22. • Largest indirect method of exporting
is countertrade.
• Competitive intensity means more
and more investment in marketing.
• In this situation the organization may
expand operations by operating in
markets where competition is less
intense but currency based
exchange is not possible.

23. • Also, countries may wish to trade in spite of the degree of
competition, but currency again is a problem.
• Countertrade can also be used to stimulate home industries or
where raw materials are in short supply.
• It can, also, give a basis for reciprocal trade.
• Estimates vary, but countertrade accounts for about 20-30%
of world trade, involving some 90 nations and between US
$100-150 billion in value.

24. • ADVANTAGES:
Its main attraction is that it can give a firm a way to finance
export when other means are not available.
• DISADVANTAGES:
o Variety is low so marketing is limited
o Difficult to set prices and service quality
o Inconsistency of delivery and specification,
o Difficult to revert to currency trading - so quality may decline
further and therefore product is harder to market.

25. • Turnkey contracts are common
in international business in the
supply, erection &
commissioning of plants, as in
the case oil refineries, steel
mills, cement & fertilizer plants
etc.. Construction projects &
franchising agreements.

26. • A turnkey operation is an agreement by the seller to supply a
buyer with a facility fully equipped & ready to be operated by
the buyer, who will be trained by the seller.
• The term is used in fast food franchising when a franchiser
agrees to select a store site, build the store, equip it, train the
franchisee & employee.
• Many turnkey contracts involve government/public sector as
buyer.
• A turnkey contractor may subcontract different phases/parts of
the project.

27. • A company doing international
marketing contracts with firms in
foreign countries to manufacture or
assemble the products while
retaining the responsibility of
marketing the product.
• This is a common practice in
international business.
• Many multinationals employ this in
India example: Park Davis
Hindustan Lever, Ponds.

28. • It frees the company from risks
of investing in foreign countries.
• It does not have to commit
resource for setting up
production facilities.
• There can be a loss on
manufacturing.
• Less control over
manufacturing process.
• Risk of developing potential
competitors.

29. • This is sometimes used as an
entry strategy.
• When there is no commercial
transaction between 2 nations
because of political reasons,
• or when direct transactions
between 2 nations are difficult
&
• if one nation wants to enter
other nation,
• then the nation will have to
operate from the third country
base.

30. • It may be helpful to take advantage of the friendly
trade relations between the third party & the
foreign market concerned.
• Sometimes commercial reasons encourage third
country location.
• Example: Rank Xerox found it convenient to enter
USSR through its Indian joint venture Modi Xerox.

31. • This strategy is also known as an
expansion strategy.
• M&As have been imp & powerful
driver of globalization.
• Between 1980 – 2000 the value of
cross border grew at an average
annual rate of 40%.
• A large no. of foreign firms have
entered India through acquisition.
• Example: Automobiles, Pharmacy,
banking, telecom etc.

32. • Increasing the market
power.
• Acquisition of
Technology.
• Optimum utilization of
Resources.
• Minimization of Risks.
• Tax Benefits

33. • Some of the units acquired
would have problems such
as old plant, obsolete
technology, surplus, or
demoralized labor.
• The firm may not have the
experience & expertise to
manage the unit taken over
if it is an entirely new field.