INTERNATIONAL BUSINESS MANAGEMENT TEST [6 HOURS DURATION]
Eirwan
WEEK8SLIDESENTERINGFOREIGNMARKETS2.pptmENTERING FOREIGN MARKETS 2
1
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Learning Objectives
The learning objectives for this chapter are to:
To further understand other alternative entry mode choices
Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter, when to enter those markets, and on what scale.
2
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Multimedia Lecture Support Package to Accompany Basic Marketing
Lecture Script 6-2
Exporting
Exporting is often the first method firms use to enter foreign market
Advantages:
It is relatively low cost
Firms may achieve experience curve economies
Disadvantages:
Lower-cost manufacturing locations exist
Transport costs can be high
Tariff barriers can make it uneconomical
Foreign agents fail to act in the exporter’s best interest
3
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Multimedia Lecture Support Package to Accompany Basic Marketing
Lecture Script 6-3
Internet Extra: Developing an export plan is a first step for any company that is preparing to expand internationally via exports. The Business Link offers a great site where companies can get started on the process. Go to the site {http://sbinfocanada.about.com/od/canadaexport/a/10exportsteps.htm}, and click on 10 Steps to Successful Exporting. One of the key elements in a successful strategy is the export plan.
Click on Export Plan, and download the file Writing an Export Plan. To better understand the process for companies, go through the plan and sketch out your own business plan.
Licensing
Licensing: an arrangement whereby a licensor grants the rights to intangible property to another entity for a specified time period, and in return, receives a royalty fee
Intellectual property includes patents, inventions, formulas, processes, designs, copyrights, and trademarks
Advantages:
The firm does not have to bear the development costs and risks associated with opening a foreign market
The firm avoids barriers to investment
It allows a firm with intangible property that might have business applications, but which doesn’t want to develop those applications itself, to capitalize on market opportunities
4
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Licensing
Disadvantages:
The firm doesn’t have the tight control over manufacturing, marketing, and strategy necessary to realize experience curve and location economies
The firm’s ability to coordinate strategic moves across countries by using profits earned in one country to support competitive attacks in another is compromised
There is the potential for loss of proprietary (or intangible) technology or property
To reduce this risk, firms can use cross-licensing agreements or link the agreement with the decision to form a joint venture
5
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Franchising
Franchising: a form of licensing in which the franchisor sells intangible property and requires the franchisee agree to abide by strict rules as to how it does business
Advantages:
It can avoid costs and risks of opening up a foreign market
Disadvantages:
It may inhibit the firm's ability to take profits out of one country to support competitive attacks in another
The geographic distance of the firm from its foreign franchisees can make poor quality difficult for the franchisor to detect
6
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Turnkey Projects
Turnkey projects involve a contractor that agrees to handle every detail of the project for a foreign client, including the training of operating personnel
At completion of the contract, the foreign client is handed the "key" to a plant that is ready for full operation
7
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Turnkey Projects
Advantages:
They allow firms to earn great economic returns from the know-how required to assemble and run a technologically complex process
They are less risky in countries where the political and economic environment is such that a longer-term investment might expose the firm to unacceptable political and/or economic risk
Disadvantages:
The firm has no long-term interest in the country
The firm can create a competitor
The firm's process technology is a source of competitive advantage
8
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Basic Entry Decisions
Question: What are the basic entry decisions for firms expanding internationally?
Answer:
A firm expanding internationally must decide:
Which markets to enter
When to enter them
Scale of entry
9
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Which Foreign Markets?
Firms need to assess the long run profit potential of each market
The most favorable markets are politically stable developed and developing nations with free market systems, low inflation, and low private sector debt
The less desirable markets are politically unstable developing nations with mixed or command economies, or developing nations where speculative financial bubbles have led to excess borrowing
10
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Multimedia Lecture Support Package to Accompany Basic Marketing
Lecture Script 6-10
Management Focus: Tesco’s International Growth Strategy
Summary
This feature describes Tesco’s international expansion strategy. Tesco, the British grocer, has established operations in a number of foreign countries. Typically, the company seeks underdeveloped markets in developing nations where it can avoid the head-to-head competition that goes on in more crowded markets, and then enters those markets via joint ventures where the local partner provides knowledge of the market while Tesco provides retailing expertise. Discussion of the feature can revolve around the following questions:
Suggested Discussion Questions
1. Reflect on Tesco’s decision to expand internationally primarily through establishing operations in developing countries. What makes these countries attractive to Tesco?
Discussion Points: When companies make the decision to expand into new markets, they must balance the benefits, costs, and risks of doing business in each market. In Tesco’s case, developing markets were attractive not only because of their size, but also because of the likely future wealth of customers. To increase its chances for success, Tesco has focused on those markets where there are few capable indigenous competitors. Today, Tesco has more than 800 stores outside its home country of the United Kingdom, which generate £7.6 in annually revenues.
2. Why does Tesco believe it is important to transfer its core capabilities to new ventures? How have the company’s partners helped it find success in foreign locations?
Discussion Points: Tesco’s success in international markets is remarkable. In 2005, every one of the company’s foreign ventures was profitable. The company attributes its success to the transfer of its core competencies to each location. At the same time, the company believes that local management is important, and so it hires locally, but provides oversight from the United Kingdom. Tesco also feels that its partners in Asia, and their deep knowledge of the local market have played a significant role in its success in the region.
Teaching Tip: To learn more about Tesco’s international operations, go to {http://www.tescocorporate.com/}.
Lecture Note: Tesco’s questionable accounting practices have recently resulted in the resignation of its CEO. To learn more, consider {http://www.businessweek.com/ap/2014-10-29/uk-launches-criminal-investigation-in-tesco-case} and {http://www.businessweek.com/ap/2014-10-23/tesco-chair-resigns-after-accounting-scandal}.
Which Foreign Markets?
EXAMPLE
Tesco, the British grocer, has established operations in a number of foreign countries.
Typically, the company seeks underdeveloped markets in developing nations where it can avoid the head-to-head competition that goes on in more crowded markets, and then enters those markets via joint ventures where the local partner provides knowledge of the market while Tesco provides retailing expertise.
11
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Multimedia Lecture Support Package to Accompany Basic Marketing
Lecture Script 6-11
Management Focus: Tesco’s International Growth Strategy
Summary
This feature describes Tesco’s international expansion strategy. Tesco, the British grocer, has established operations in a number of foreign countries. Typically, the company seeks underdeveloped markets in developing nations where it can avoid the head-to-head competition that goes on in more crowded markets, and then enters those markets via joint ventures where the local partner provides knowledge of the market while Tesco provides retailing expertise. Discussion of the feature can revolve around the following questions:
Suggested Discussion Questions
1. Reflect on Tesco’s decision to expand internationally primarily through establishing operations in developing countries. What makes these countries attractive to Tesco?
Discussion Points: When companies make the decision to expand into new markets, they must balance the benefits, costs, and risks of doing business in each market. In Tesco’s case, developing markets were attractive not only because of their size, but also because of the likely future wealth of customers. To increase its chances for success, Tesco has focused on those markets where there are few capable indigenous competitors. Today, Tesco has more than 800 stores outside its home country of the United Kingdom, which generate £7.6 in annually revenues.
2. Why does Tesco believe it is important to transfer its core capabilities to new ventures? How have the company’s partners helped it find success in foreign locations?
Discussion Points: Tesco’s success in international markets is remarkable. In 2005, every one of the company’s foreign ventures was profitable. The company attributes its success to the transfer of its core competencies to each location. At the same time, the company believes that local management is important, and so it hires locally, but provides oversight from the United Kingdom. Tesco also feels that its partners in Asia, and their deep knowledge of the local market have played a significant role in its success in the region.
Teaching Tip: To learn more about Tesco’s international operations, go to {http://www.tescocorporate.com/}.
Lecture Note: Tesco’s questionable accounting practices have recently resulted in the resignation of its CEO. To learn more, consider {http://www.businessweek.com/ap/2014-10-29/uk-launches-criminal-investigation-in-tesco-case} and {http://www.businessweek.com/ap/2014-10-23/tesco-chair-resigns-after-accounting-scandal}.
Timing of Entry
After a firm identifies which market to enter, it must determine the timing of entry
Entry is early when a firm enters a foreign market before other foreign firms.
Entry is late when a firm enters after other firms have already established themselves in the market.
12
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Multimedia Lecture Support Package to Accompany Basic Marketing
Lecture Script 6-12
Timing of Entry (continued from Slide 13-7)
Firms entering a market early can gain first mover advantages including:
The ability to pre-empt rivals and capture demand by establishing a strong brand name
The ability to build up sales volume in that country and ride down the experience curve ahead of rivals and gain a cost advantage over later entrants
The ability to create switching costs that tie customers into their products or services making it difficult for later entrants to win business
13
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Multimedia Lecture Support Package to Accompany Basic Marketing
Lecture Script 6-13
Timing of Entry (continued from Slide 13-8)
First mover disadvantages: the disadvantages associated with entering a foreign market before other international businesses
These may result in pioneering costs (costs that an early entrant has to bear that a later entrant can avoid) such as:
The costs of business failure if the firm, due to its ignorance of the foreign environment, makes some major mistakes
The costs of promoting and establishing a product offering, including the cost of educating the customers
14
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Multimedia Lecture Support Package to Accompany Basic Marketing
Lecture Script 6-14
FIRST MOVER ADVANTAGE
LATE MOVER ADVANTAGE
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
15
First-mover and Late-mover Advantages
Pre-emption of scarce resources: locking up certain resources that your competitors need
FM locked into given set of fixed assets
- Stuck with existing product lines
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
16
Scale of Entry
Firms that enter foreign markets on a significant scale make a major strategic commitment that changes the competitive playing field
Involves decisions that have a long-term impact and are difficult to reverse
Small-scale entry can be attractive because it allows the firm to learn about a foreign market, but at the same time it limits the firm’s exposure to that market
17
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Multimedia Lecture Support Package to Accompany Basic Marketing
Lecture Script 6-17
Market Entry Summary
There are no “right” decisions with foreign market entry, just decisions that are associated with different levels of risk and reward
Firms in developing countries can learn from the experiences of firms in developed countries
18
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Multimedia Lecture Support Package to Accompany Basic Marketing
Lecture Script 6-18
Management Focus: The Jollibee Phenomenon—A Philippine Multinational
Summary
This feature describes the remarkable success story of Jollibee. Jollibee, a fast food chain from the Philippines, not only stood its ground when McDonald’s invaded its market in 1981, but also managed to find the weaknesses in the larger company’s global strategy and capitalize on them. Jollibee, unlike McDonald’s, tailored its menu to the local market. The company was able to build on this localization strategy as it expanded into neighboring Asian countries and the Middle East. Today, Jollibee has even managed to find success in the United States where it is being hailed as a strong niche player. Discussion of the feature can begin with the following questions:
Suggested Discussion Questions
1. How would Christopher Bartlett and Sumantra Ghoshal view Jollibee’s performance to date?
Discussion Points: Many students will probably suggest that Bartlett and Ghoshal would have a positive view of Jollibee’s performance so far. Jollibee has managed to survive McDonald’s push into the Philippines, learn from the company, and even capitalize on gaps in McDonald’s strategy of having an essentially standardized marketing approach. Now, Jollibee has successfully entered McDonald’s home market, and become a niche player in the fast food industry, and is making plans to expand into India.
2. A key difference between McDonald’s global strategy and that of Jollibee is that McDonald’s sees its path to success as offering a fairly standardized menu everywhere whereas Jollibee views localization as its ticket to success. In your opinion, would Jollibee have achieved its current position in the market if the company had standardized its menu like McDonald’s?
Discussion Points: Most students will probably argue that Jollibee’s competitive advantage is that it offers fast food tailored to local tastes, and that if the company pursued a standardized approach it would have failed. Students might note that McDonald’s global success with this strategy is due in part to the fact that it is a symbol of America, and as such offers an American experience in other markets. Because Jollibee does not have this type of global reputation, it must look for alternative ways to compete.
Teaching Tip: It is worth visiting Jollibee’s web page to see the American influence on the company. Go to {http://www.jollibee.com.ph/} and click on “International” to explore some of the company’s foreign locations.
Lecture Note: To extend this discussion consider {http://www.businessweek.com/news/2014-08-17/faster-food-at-philippine-minimarts-tests-mcdonald-s}.
Market Entry Summary
EXAMPLE
Jollibee, a fast food chain from the Philippines, not only stood its ground when McDonald’s invaded its market in 1981, but also managed to find the weaknesses in the larger company’s global strategy and capitalize on them. Jollibee, unlike McDonald’s, tailored its menu to the local market.
The company was able to build on this localization strategy as it expanded into neighboring Asian countries and the Middle East.
Today, Jollibee has even managed to find success in the United States where it is being hailed as a strong niche player.
19
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Multimedia Lecture Support Package to Accompany Basic Marketing
Lecture Script 6-19
Management Focus: The Jollibee Phenomenon—A Philippine Multinational
Summary
This feature describes the remarkable success story of Jollibee. Jollibee, a fast food chain from the Philippines, not only stood its ground when McDonald’s invaded its market in 1981, but also managed to find the weaknesses in the larger company’s global strategy and capitalize on them. Jollibee, unlike McDonald’s, tailored its menu to the local market. The company was able to build on this localization strategy as it expanded into neighboring Asian countries and the Middle East. Today, Jollibee has even managed to find success in the United States where it is being hailed as a strong niche player. Discussion of the feature can begin with the following questions:
Suggested Discussion Questions
1. How would Christopher Bartlett and Sumantra Ghoshal view Jollibee’s performance to date?
Discussion Points: Many students will probably suggest that Bartlett and Ghoshal would have a positive view of Jollibee’s performance so far. Jollibee has managed to survive McDonald’s push into the Philippines, learn from the company, and even capitalize on gaps in McDonald’s strategy of having an essentially standardized marketing approach. Now, Jollibee has successfully entered McDonald’s home market, and become a niche player in the fast food industry, and is making plans to expand into India.
2. A key difference between McDonald’s global strategy and that of Jollibee is that McDonald’s sees its path to success as offering a fairly standardized menu everywhere whereas Jollibee views localization as its ticket to success. In your opinion, would Jollibee have achieved its current position in the market if the company had standardized its menu like McDonald’s?
Discussion Points: Most students will probably argue that Jollibee’s competitive advantage is that it offers fast food tailored to local tastes, and that if the company pursued a standardized approach it would have failed. Students might note that McDonald’s global success with this strategy is due in part to the fact that it is a symbol of America, and as such offers an American experience in other markets. Because Jollibee does not have this type of global reputation, it must look for alternative ways to compete.
Teaching Tip: It is worth visiting Jollibee’s web page to see the American influence on the company. Go to {http://www.jollibee.com.ph/} and click on “International” to explore some of the company’s foreign locations.
Lecture Note: To extend this discussion consider {http://www.businessweek.com/news/2014-08-17/faster-food-at-philippine-minimarts-tests-mcdonald-s}.
Selecting an Entry Mode
20
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
