Global Entry Strategies by Cleopas Chiyangwa

Global Entry Strategies
By Cleopas Chiyangwa
MBA Global Business and Sustainability, Universita Cattolica Del Sacro Cuore, Italy.

Objectives
• Choice of market to enter.
• Definition of entry scale.
• Strategic alliances
• Choice of entry mode
Global Entry Strategies by
Cleopas Chiyangwa 2013

Favourable factors for foreign markets selection.
• Political stability.
• Type of economic system-i.e. free market system.
• Benefit cost risk trade off.
• Inflation-less dramatic inflation upsurges.
• Availability of raw materials
• Cheap labour.

Unfavourable factors for foreign markets selection
• Political instability, i.e. wars.
• Speculative financial bubbles.
• Mixed or command economy.
• Effectiveness of rule of law.
• Appropriation of assets, i.e. empowerment policies.

Timing
• Early Mover (Pioneer)
• Demand capturing.
• Establishment of market share.
• Strategic advantages over late movers.
• More pre-emptive opportunities.
• Demerits for an early mover (pioneer) in a market
• Government policy and regulations.
• Entrance cost-market and distribution channel design.
• Operational risks.
• Poor infrastructure systems.

Early mover advantages

Scale of entry
Entry Scale
Market
Company exposure
Resources
Small Large
Less time to
learn about
the market
More time to
learn about
the market.
Limited Easier to
attract
customers
More resource
distribution
Fewer
resources to
commit
elsewhere.

Mode of entry
• Exporting.
• Turnkey Projects.
• Licensing.
• Franchising.
• Joint Ventures.
• Wholly Owned Subsidies.

Exporting
Advantages
• Avoids the often substantial
cost of establishing
manufacturing.
• May help firm achieve
experience curve.
• Location economies
Firm may manufacture in
centralized location & export to
other national markets.
Disadvantages
• Not appropriate if lower cost
manufacturing locations.
• High transport costs can make
exporting uneconomical
especially bulk products.
• Tariff barriers can make
exporting uneconomical.
• Can set up wholly owned
subsidiaries to handle local
marketing & sales.

Turnkey Project
• Means of exporting process
technology.
• Know-how to assemble & run
technologically complex process
is valuable asset –earn
economic benefit from asset.
• Strategy useful where
governments restrict FDI -less
risky than conventional
• Firm has no long term interest
in the country – can take
minority equity interest in
company.
• Firm may inadvertently create a
competitor (middle east oil
refineries). If firm’s process
technology is a source of
competitive advantage, then
selling technology is also selling
competitive advantage.
Advantages Disadvantages

Licensing
• Primarily used by
manufacturing firms.
• Allows firm to participate
where there are barriers to
investment.
• Licensee puts up most of the
capital to get the operations
going.
• Receive royalties for granting
the rights to intangible property
to licensee for specified period
(patents, inventions, formulas,
processes, designs, copy rights,
trademarks).
• Firms can lose control over the
competitive advantage of their
technological know-how.
• Does not allow firm to
coordinate strategic moves
across countries by using
profits earned in one country
for competitive attacks in
another.
• Does not give firm tight control
over manufacturing, marketing &
strategy to realize experience
curve & location economies.
Advantages AdvantagesDisadvantages

Franchising
• Involves longer term
commitment than licensing.
Primarily used by service firms
(KFC).
• Firm relieved of many costs &
risks of opening new market.
• Royalty payments that are some
percentage of franchisee’s
revenues
• No manufacturing so no
location economies &
experience curve.
• Risk of worldwide reputation if
no quality control.
• May inhibit the ability to take
profits out of one country to
support competitive attacks in
another

Joint Venture
• Firm benefits from local
partner’s knowledge of
competitive conditions, culture,
language, political system &
business system.
• In some countries, political
considerations make JVs the
only feasible entry mode.
• Sharing market development
costs & risks with local partner.
• Risk of giving away your
technology to a business partner.
• Shared ownership can lead to
conflicts & battles for control if
goals/objectives change or they
take different views on strategy.
• Does not give firm control over
subsidiaries that it might need to
realize experience curve or
location economies.

Wholly Owned Subsidies.
• Wholly-owned subsidiary
reduces risk over losing control
when there is technological
competence.
• Give firm tight control over
operations in country -> engage
in strategic coordination with
profits.
• Can realize location &
experience curve economies –
centrally determined decisions.
• Most costly method of market
Entry.
• Risk associated with learning to
do business in a new culture.

Entry mode risk continuum
Fig1. EM risk continuum
The level of involvement, risk,
and financial reward increases
as a company moves from
market entry strategies such as
licensing to joint ventures and
ultimately, various forms of
investment.

Which strategy should be used?
It depends on:
• Vision.
• Attitude toward risk.
• How much investment capital is available.
• How much control is desired.


THANK YOU
MAZVIITA!!!

Global Entry Strategies by Cleopas Chiyangwa

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