Market Entry Strategies
Clarke Ricks
School of Business, Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
April 11, 2021
Market Entry Strategies
Details on the sourcing element have already been covered in the chapter on
competitive analysis and strategy. Concerning investment and control, the question really is
how far the company wishes to control its own fate. The degree of risk involved, attitudes
and the ability to achieve objectives in the target markets are important facets in the
decision on whether to license, joint venture or get involved in direct investment.
Cunningham1 (1986) identified five strategies used by firms for entry into new foreign
markets:
i) Technical innovation strategy - perceived and demonstrable superior products
ii) Product adaptation strategy - modifications to existing products
iii) Availability and security strategy - overcome transport risks by countering perceived risks
iv) Low price strategy - penetration price and,
v) Total adaptation and conformity strategy - foreign producer gives a straight copy.
In marketing products from less developed countries to developed countries point iii)
poses major problems. Buyers in the interested foreign country are usually very careful as
they perceive transport, currency, quality and quantity problems. This is true, say, in the
export of cotton and other commodities.
Because, in most agricultural commodities, production and marketing are interlinked,
the infrastructure, information and other resources required for building market entry can
be enormous. Sometimes this is way beyond the scope of private organisations, so
Government may get involved. It may get involved not just to support a specific commodity,
but also to help the "public good". Whilst the building of a new road may assist the speedy
and expeditious transport of vegetables, for example, and thus aid in their marketing, the
road can be put to other uses, in the drive for public good utilities. Moreover, entry
strategies are often marked by "lumpy investments".
Huge investments may have to be undertaken, with the investor paying a high risk
price, long before the full utilisation of the investment comes. Good examples of this include
the building of port facilities or food processing or freezing facilities. Moreover, the
equipment may not be able to be used for other processes, so the asset specific equipment,
locked into a specific use, may make the owner very vulnerable to the bargaining power of
raw material suppliers and product buyers who process alternative production or trading
options. Zimfreeze, Zimbabwe is experiencing such problems. It built a large freezing plant
for vegetables but found itself without a contract. It has been forced, at the moment, to
accept sub optional volume product materials just in order to keep the plant ticking over.
In building a market entry strategy, time is a crucial factor. The building of an
intelligence system and creating an image through promotion takes time, effort and money.
Brand names do not appear overnight. Large investments in promotion campaigns are
needed. Transaction costs also are a critical factor in building up a market entry strategy and
can become a high barrier to international trade. Costs include search and bargaining costs.
Physical distance, language barriers, logistics costs and risk limit the direct monitoring of
trade partners. Enforcement of contracts may be costly and weak legal integration between
countries makes things difficult. Also, these factors are important when considering a
market entry strategy. In fact these factors may be so costly and risky that Governments,
rather than private individuals, often get involved in commodity systems.
This can be seen in the case of the Citrus Marketing Board of Israel. With a monopoly
export marketing board, the entire system can behave like a single firm, regulating the mix
and quality of products going to different markets and negotiating with transporters and
buyers. Whilst these Boards can experience economies of scale and absorb many of the risks
listed above, they can shield producers from information about, and from. buyers. They can
also become the "fiefdoms" of vested interests and become political in nature. They then
result in giving reduced production incentives and cease to be demand or market
orientated, which is detrimental to producers.
Normal ways of expanding the markets are by expansion of product line, geographical
development or both. It is important to note that the more the product line and/or the
geographic area is expanded the greater will be the managerial complexity. New market
opportunities may be made available by expansion but the risks may outweigh the
advantages, in fact it may be better to concentrate on a few geographic areas and do things
well. This is typical of the horticultural industry of Kenya and Zimbabwe. Traditionally these
have concentrated on European markets where the markets are well known. Ways to
concentrate include concentrating on geographic areas, reducing operational variety (more
standard products) or making the organisational form more appropriate. In the latter the
attempt is made to "globalise" the offering and the organisation to match it. This is true of
organisations like Coca Cola and MacDonald's. Global strategies include "country centred"
strategies (highly decentralised and limited international coordination), "local market
approaches" (the marketing mix developed with the specific local (foreign) market in mind)
or the "lead market approach" (develop a market which will be a best predictor of other
markets). Global approaches give economies of scale and the sharing of costs and risks
between markets.
Entry strategies
There are a variety of ways in which organisations can enter foreign markets. The three
main ways are by direct or indirect export or production in a foreign country (see figure 7.2).
Exporting
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; however, this
does not negate the need for a detailed marketing strategy.
Figure 7.2 Methods of foreign market entry
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.
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. For example, in the exporting
of African horticultural products, the agents and Dutch flower auctions are in a position to
dictate to producers.
A distinction has to be drawn between passive and aggressive exporting. A passive
exporter awaits orders or comes across them by chance; an aggressive exporter develops
marketing strategies which provide a broad and clear picture of what the firm intends to do
in the foreign market. Pavord and Bogart2 (1975) found significant differences with regard to
the severity of exporting problems in motivating pressures between seekers and non-
seekers of export opportunities. They distinguished between firms whose marketing efforts
were characterized by no activity, minor activity and aggressive activity.
Those firms who are aggressive have clearly defined plans and strategy, including
product, price, promotion, distribution and research elements. Passiveness versus
aggressiveness depends on the motivation to export. In countries like Tanzania and Zambia,
which have embarked on structural adjustment programmes, organisations 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 programmes.
The type of export response is dependent on how the pressures are perceived by the
decision maker. Piercy (1982)3 highlights the fact that the degree of involvement in foreign
operations depends on "endogenous versus exogenous" motivating factors, that is, whether
the motivations were as a result of active or aggressive behaviour based on the firm's
internal situation (endogenous) or as a result of reactive environmental changes
(exogenous).
If the firm achieves initial success at exporting quickly all to the good, but the risks of
failure in the early stages are high. The "learning effect" in exporting is usually very quick.
The key is to learn how to minimise risks associated with the initial stages of market entry
and commitment - this process of incremental involvement is called "creeping commitment"
(see figure 7.3).
Figure 7.3 Aggressive and passive export paths
Exporting methods include direct or indirect export. In direct exporting the organisation
may use an agent, distributor, or overseas subsidiary, or act via a Government agency. In
effect, the Grain Marketing Board in Zimbabwe, being commercialised but still having
Government control, is a Government agency. The Government, via the Board, are the only
permitted maize exporters. Bodies like the Horticultural Crops Development Authority
(HCDA) in Kenya may be merely a promotional body, dealing with advertising, information
flows and so on, or it may be active in exporting itself, particularly giving approval (like
HCDA does) to all export documents.
In direct exporting the major problem is that of market information. The exporter's task
is to choose a market, find a representative or agent, set up the physical distribution and
documentation, promote and price the product. Control, or the lack of it, is a major problem
which often results in decisions on pricing, certification and promotion being in the hands of
others. Certainly, the phytosanitary requirements in Europe for horticultural produce
sourced in Africa are getting very demanding. Similarly, exporters are price takers as
produce is sourced also from the Caribbean and Eastern countries. In the months June to
September, Europe is "on season" because it can grow its own produce, so prices are low.
As such, producers are better supplying to local food processors. In the European winter
prices are much better, but product competition remains
