essay writing
International Business and Management
MARK5054
welcome to:
International marketing
LEICESTER BUSINESS SCHOOL
NIELS BROCK
With: Ali Gamaleldin aged@niels.brock.dk
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Session 5:
Market Entry Analysis
Learning Outcomes:
- A. To identify the factors that determines entry mode for new international market.
- B) To evaluate the various modes of market entry in a new target market (new country).
Market! Market!! Market!!!
Last week’s lecture was on selecting the most suitable international market.
This week’s lecture is on selecting the most suitable mode of entering selected international market.
Global Market Entry Methods
Investment Methods (internalise)
High Control
High Risk
Low Flexibility
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Intermediate Modes (Contractual)
Shared Control and Risk
Split Ownership
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Low Control
Low Risk
High Flexibility
Export Methods (Externalise)
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Criteria for Deciding Market Entry Method
Desired Mode of Entry
- How risk adverse is the entering company management?
- How much control do they wish to retain?
- How much flexibility do they wish to retain?
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Risk averse ( down )
High control ( Up )
High Flexibility ( down )
Modes of Market Entry – Key Point
The trade-off between alternative modes of entry is that between “risk and control”.
- If the decision-maker is risk-averse they will prefer export modes (e.g. indirect and direct exporting) or licensing (an intermediate mode) because they typically entail low levels of financial and management resource commitment
- Mode of entry decisions also need to consider the degree of control that management requires over operations in international markets. Wholly owned subsidiaries (hierarchical mode) provide the most control
- Flexibility refer to the firm’s ability to adapt or change strategy when market conditions are changing rapidly
Modes of Market Entry – Key Point
The trade-off between alternative modes of entry is that between “risk and control”.
Low intensity modes of entry “minimise risk”.
High intensity modes of entry “increases risk”.
First Assessment contents
More detail is available at Hollensen, Global Marketing textbook chapter 9.
Criteria for Deciding Market Entry Method
- 1 Internal Factors
- Size of company
- Level of international experience
- Level of product complexity
- Extent of product differentiation
Internal Factors
Company size: Size is an indicator of the firm’s resource availability
International experience:the extent to which a firm has been involved in operating internationally
Product/service: product (high complexity) may require service both before and after sale. In many foreign market areas marketing intermediaries may not be able to handle such work. Instead firms will use one of the hierarchical modes.
Firm size
Size is an indicator of the firm’s resource availability; increasing resource availability provides the basis for increased international involvement over time
International experience
conclude from their survey that practitioners should be aware that not all forms of experience are equal. International experience from similar countries (with low perceived psychic distance) is positively associated with the choice of a highcontrol entry mode (i.e. entry by wholly owned subsidiary)
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Criteria for Deciding Market Entry Method
2 External Factors
- Level of ‘psychic distance’ (how similar or dissimilar culturally)
- Level of political risk
- Market size and growth rate
- What trade barriers
- Intensity of competition.
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External Factors
Level of psychic distance: other things being equal, when the perceived distance between the home and host country is great, firms will favour entry modes that involve relatively low risk and control and high flexibility (export modes)
Level of political risk: other things being equal, when country risk is high, firms will favour entry modes that involve relatively low resource commitments (export modes).
Market size and growth rate: Country size and rate of market growth are key parameters in determining the mode of entry. The larger the country and the size of its market, and the higher the growth rate, the more likely management will be to commit resources to its development, and to consider establishing a wholly owned sales subsidiary or to participate in a majority-owned joint venture
External Factors
Trade barriers: Tariffs or quotas on the import of foreign goods and components favour the establishment of local production or assembly operations
Intensity of competition: other things being equal, the greater the intensity of competition in the host market the more the firm will favour entry modes that involve low ressource commitments (export modes).
Market Entry Approach
- Incremental or simultaneous approach?
Task!
Espresso House
Zalando
Huawei
How would you rate the approaches by those companies? incremental or simultaneous?
Global Market Entry Methods
Investment Methods (internalise)
High Control
High Risk
Low Flexibility
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Intermediate Modes (Contractual)
Shared Control and Risk
Split Ownership
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Low Control
Low Risk
High Flexibility
Export Methods (Externalise)
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Global Market Entry Methods contd/...
Export (externalise)
Indirect Export (via agents and/or distributors)
Direct Export (own sales organisation)
Contractual (intermediate modes)
Licensing - Franchising
Contractual Arrangements (sub-contracting)
Joint Venture
Wholly-Owned Subsidiaries (internalise)
Acquisition
Greenfield (and Brownfield)
So, let’s look at each of those entry methods.........
Indirect Exporting (agents & distributors)
Piggyback operations
Direct Exporting (own sales force)
Licensing
Franchising
Joint Ventures
Greenfield operation
Exporting
More details are available at chapter 10 of Global marketing textbook by Hollesen
Export Selling vs. Export Marketing
- As organizations seek to move operations into other countries they need to make the basic decision regarding their level of involvement in the foreign markets.
- Two broad areas include export selling and export marketing.
- Export selling involves selling the same product, at the same price, with the same promotional tools in a different place
- Export marketing tailors the marketing mix to international customers
Requirements for Export Marketing
- An understanding of the target market environment
- The use of market research and identification of market potential
- Decisions concerning product design, pricing, distribution and channels, advertising, and communications
o The Marketing Mix
Indirect and Direct Export
1) INDIRECT EXPORTING
2) DIRECT EXPORTING (WITH INDEPENDENT DISTRIBUTOR)
3) DIRECT EXPORTING (WITH WHOLLY OWNED SUBSIDIARY)
Agents, /
Wholesalers / Retailers /
National Border
Company
Foreign clients
National Border
Branch or subsidiary
Company
National Border
Company Intermediaries
Foreign clients
Agents, /
Wholesalers / Retailers /
Foreign clients
Agents, /
Wholesalers / Retailers /
Pros and cons of different entry modes
You need to appreciate the strengths and weaknesses of each entry mode.
Brief Task in class – what do you think are the strengths and weaknesses of having a third party export and sell your products on your behalf?
Export/Import Agents & Distributors
- Pro’s
- Offers low financial risk and access to substantial local operating knowledge.
- Particularly good for firms with little international experience
- Cons
- Low level of control
- Agents may represent a number of vendors
- Agents often work by commission, and do not own the goods, so there is a credit and cash flow risk
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Global Market Entry Methods
Investment Methods (internalise)
High Control
High Risk
Low Flexibility
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Intermediate Modes (Contractual)
Shared Control and Risk
Split Ownership
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Low Control
Low Risk
High Flexibility
Export Methods (Externalise)
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Intermediate Entry Modes
More details are available at chapter 11 of Global marketing textbook by Hollesen
Intermediate entry modes (licensing & franchising) are distinguished from export modes because they are primarily vehicles for the transfer of knowledge and skills.
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Licensing
Licensing
The licensor gives a right
to the licensee against payment,
e.g. a right to manufacture a
Certain product based on a
patent against some
agreed royalty.
.
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Licensing
- a patent covering a product or process;
- manufacturing know-how not subject to a patent;
- technical advice and assistance, occasionally including the supply of components,
- materials or plant essential to the manufacturing process;
- marketing advice and assistance;
- the use of a trademark/trade name
- Worldwide sales of licensed goods
totaled $241.5 billion in 2014
Disney is the world’s top licensor.
Licensing : Key Facts, Advantages and Disadvantages
Licensee pays a fee or royalty
Licensee may need to make capital investments & markets the product in the new market
Licensee effectively gets a new product at low cost
Less risky than some other entry strategies, BUT…
Licensor dependent upon licensee for revenues
May nurture a potential competitor
Corporate/brand image may suffer
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Franchising
- Is a more permanent and detailed type of licensing. The “franchisor” provides a standard package of goods, components, ingredients and marketing expertise.
- The “franchisee” pays an initial fee, supplies capital, personal involvement and possibly local knowledge.
Two major types of franchising;
- Product and trade name franchising
- Business format ‘package’ franchising
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Product and Trade Name Franchising
- Typically it is a distribution system in which suppliers make contracts with dealers to buy or sell products.
- Dealers use the trade name, trade mark, and product line - e.g. soft drink bottlers like Pepsi and Coca-Cola, and brands of draught beer in British pubs.
Business Format ‘Package’ Franchising
- A much more extensive business ‘package’ of branded benefits is contracted to the franchisee..
- The package allows the franchisee all that is needed to run the business in a prescribed manner, regulated and controlled by the franchisor. e.g. McDonalds
The franchise package may include access to:
Trademarks/trade name and other ‘brand elements’
Copyright
Designs
Patents
Trade secrets
Business know-how, marketing expertise & support.
Geographic exclusivity
Tied agreement to sell only the franchisor’s products
So, Franchising Pros & Cons…
Pros:
Limited financial investment to expand business
May tap into local managerial talent
Highly motivated local managers acquired
Cons:
Often requires extensive and well-organised training programs for franchisee business managers
Need for on-going rigorous financial and product quality controls by the franchisor
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Managers are running their own businesses
Contract Manufacturing
Manufacturing is outsourced to an external partner, specialized in production and production technology.
- E.g. a construction company gets a contract to put up a bridge, but brings in another specialist company (sub-contracted) to handle the steelwork.
Links with Joint Ventures…
Licensing, franchising and contract manufacturing could be said to be loose forms of joint venture. However, actual ‘joint ventures’ are bound by somewhat different arrangements.
A Joint Venture….
Is an arrangement where
two firms (or more) join forces for manufacturing, financial and marketing
purposes and each has a share
(may or may not be equal) in both the equity and the management of the new enterprise.
- The idea behind the venture is to create a synergy and generate revenue to mutual advantage.
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Joint Ventures - Pros & Cons…
Pros:
Reduces capital and other resources required.
Spreads the risk.
Enables access to each other’s expertise & contracts.
May overcome foreign ownership restrictions.
May increase speed of entry to a new market.
Cons:
Potential problems and conflicts between JV partners.
Possible communications and management issues.
Each has only partial control.
- The main difference between a joint venture and a strategic alliance is that a strategic alliance is typically a non-equity co-operation (remain independent organizations) – i.e. the partners do not set up a new third company together.
Strategic Alliances
Figure 11.5 Joint ventures and strategic alliances
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Global Market Entry Methods
Investment Methods (internalise)
High Control
High Risk
Low Flexibility
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Intermediate Modes (Contractual)
Shared Control and Risk
Split Ownership
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Low Control
Low Risk
High Flexibility
Export Methods (Externalise)
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So, ‘Internalised Methods’….
- Where the firm fully owns and controls the entry method:
Domestic based representatives
Host country based representatives
Foreign sales subsidiary
Sales and production subsidiary
And if Establishing Wholly Owned Subsidiaries…..
More details are available at chapter 12 of Global marketing textbook by Hollesen
Acquisition or Greenfield?
Acquisition
- Buying a company outright in the target market country enables rapid entry, and often provides access to distribution channels, an existing customer base, established brand names, a corporate reputation and experienced management.
Examples of Acquisitions
‘Greenfield’ Sites
Build its own
operations from scratch
There may not be a suitable firm to acquire, or management in the company entering the market may feel that a new plant should incorporate the latest technology.
Task 1
How would you describe the Espresso house Brand using these criteria below?
Internal Analysis
- Size of company
- Level of international experience
- Level of product complexity
- Extent of product differentiation
- Describe these factors below in your home Country?
When analysing each factor, Please use (I) for Internalise Or (E) for Externalise
- Or Internalise indicates that the criteria is pointing towards Investments methods (also known as hierarchal modes of entry, where the firm completely owns and controls the foreign entry mode)
(E) or Externalise indicates that the criteria is pointing towards Export methods (or towards less market commitment)
2. In conjunction with the Internal analysis done in the previous slide, suggest a suitable market entry mode for Espresso House to your Home Country.
2 External Factors
- Level of ‘psychic distance’ (how similar or dissimilar culturally)
- Level of political risk
- Market size and growth rate
- Trade barriers
- Intensity of competition (Porter’s five forces)
Task 2
Level of ‘psychic distance: Hofsted dimensions, https://www.hofstede-insights.com/country-comparison/
Level of political risk: https://info.worldbank.org/governance/wgi/Home/Reports
Market size and growth rate : Marketline website through DMU and Niels Brock library/ www.cia.gov
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