International business assessment (case study)
Cindy Yu
week-5_marketing_entry_strategies.pptxMarketing Entry Strategies and Internationalisation
Dr Bhabani Shankar Nayak
Senior Lecturer in International Business
Salford Business School
University of Salford, UK
Market
Market as a process brings producers and consumers together.
Market as an institution separates consumers from producers.
Market as an Institution and as a Process
What goods and services should be produced?
How should the goods and services be produced?
Who should get the goods and services?
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Traditional
Command System
Market System
2 Key Components:
Private property
Voluntary exchange
Market Structures
Factors influence market structure
Pricing
Supply
Barriers to Entry
Efficiency
Competition
Imperfect or Monopolistic Competition
Many buyers and sellers
Products differentiated
Relatively free entry and exit
Each firm may have a tiny ‘monopoly’ because of the differentiation of their product
Firm has some control over price
Lacks market information
Examples – restaurants, professions – solicitors, etc., building firms – plasterers, plumbers, etc.
Advantages and disadvantages of monopoly:
Advantages:
May be appropriate if natural monopoly
Encourages R&D
Encourages innovation
Development of some products not likely without some guarantee of monopoly in production
Economies of scale can be gained – consumer may benefit
Disadvantages:
Exploitation of consumer – higher prices
Potential for supply to be limited - less choice
Potential for inefficiency –
What is a Pure Monopoly?
A pure monopoly exists when a single firm is the sole producer of a product for which there are no close substitutes.
Examples: local telephone company, local gas and electric company, small town gas station
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Characteristics of Pure Monopoly
Single supplier – the firm and the industry are synonymous.
No close substitutes – the product is unique and unlike any others.
Price maker – the firm has considerable control over price since it controls the total quantity supplied.
Blocked entry – barriers to entry exist because there is no immediate competition.
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Barriers to Entry
Barriers to entry are factors that prohibit firms from entering an industry. They include:
Economies of scale
Legal and economic barriers to entry
Ownership or control of essential resources
Pricing and other strategic barriers to entry
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Oligopoly – Competition amongst the few
Industry dominated by small number of large firms
Many firms may make up the industry
High barriers to entry
Products could be highly differentiated – branding or homogenous
Non–price competition
Price stability within the market - kinked demand curve?
Potential for collusion?
Abnormal profits
High degree of interdependence between firms
Examples of oligopolistic structures:
Supermarkets
Banking industry
Chemicals
Oil
Medicinal drugs
Broadcasting
Duopoly:
Industry dominated by two large firms
Possibility of price leader emerging – rival will follow price leaders pricing decisions
High barriers to entry
Abnormal profits likely
Fig. 1.Reasons firms/market internationalise
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Fig 2.Internationalisation methods
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Fig.3 Types of Collaborative Arrangements
Collaborative Strategy and Complexity of Control
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
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This Figure shows that as a company increases the number of partners and decreases the amount of equity it owns in a foreign operation, its ability to control that operation decreases.
Export-based internationalisation (1)
Indirect exporting: firm operates through intermediaries
Export house
Confirming house
Buying house
‘piggybacking’; benefits to ‘rider’ and ‘carrier’
Advantages: less costly, quicker
Disadvantages: information/experience is ‘second hand’.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Export Processing Zones (EPZs)
Provide incentives for direct exporting activities: e.g. Lower or zero taxes on profits and/or imported components, government subsidies, better infrastructures, less restrictive regulations, etc.
Widely used by countries to encourage inward fdi specifically targeted towards increasing direct exports.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Non-equity based internationalisation
Licensing
Patents
Franchising
Management contracting, etc.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Common Market Entry Modes
Joint Venture Company
Licensing
Acquisition
Joint Venturing
Local Firm
New Subsidiary Company
“Green Field” Entry
HOME COUNTRY
HOST COUNTRY
Export
MNE
Int’l Sourcing
HOME COUNTRY
HOST COUNTRY
MNE
Local Firm
Design, spec and/or technology
OEM goods
Payment
Applicable to manufacturing of mature products (e.g., shoes)
Access to location economies
Competition among OEM producers lowers costs.
Compensation Trade
HOME COUNTRY
HOST COUNTRY
MNE
Local Firm
Equipment and technology
Output
Common reason: Local firm’s lack money to buy equipment
Economic benefits
Enhanced incentives for MNE to make sure that equipment works
MNE’s skills in marketing the products in its home country
Management Contract
Management Fees
Local Firm
Technological Inputs
HOME COUNTRY
HOST COUNTRY
Profit
MNE
Wholly-Owned Subsidiary
Managerial Service
Management Contract
Advantages
Access to local management skills
Avoids buying unwanted assets
Retains strategic control
Disadvantages
Potential incentive problem
Potential adverse selection problem
How do you know the competencies of the manager?
Joint Venture
Joint Venture Company
Inputs
MNE
Local Firm
HOME COUNTRY
HOST COUNTRY
Inputs
Share of Profit
Share of Profit
Joint Venture
Advantages
Access to partner’s local knowledge
Reduction of concern about overpayment
Both parties have some performance incentives
Significant control over operation
Disadvantages
Potential loss of proprietary knowledge
Potential conflicts between partners
Neither partner has full performance incentive
Neither partner has full control
Licensing
Permission granted by the proprietary owner to a foreign concern (the licensee) in the form of a contract that would otherwise be legally forbidden (e.g. Under patent protection).
Licensors benefit by access to overseas markets (via licensees) with little or no investment or ‘local knowledge’.
Licensees benefit by access to technologies or products (brands) otherwise unavailable.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Franchising
Franchisee purchases the right to undertake business activity using the franchiser’s name or trademark rather than any patented technology.
First-generation franchising: franchiser grants considerable autonomy to franchisee.
Second-generation franchising: franchiser grants little or no autonomy to franchisee.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Franchiser: advantages/disadvantages
Advantages for the franchiser: overseas expansion can be much less expensive and any local adaptations can (with agreement) be made by those well acquainted with cultural issues in that country.
Disadvantages for the franchiser : possible conflict with the franchisee for not following regulations and agreements as well as a threat that the franchisee may opt to ‘go it alone’ in the future and thus become a direct competitor.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Franchisee: advantages/disadvantages
Advantages for the franchisee
Buy into an existing brand and receive support from the franchiser in terms of marketing, training and starting up.
When customers walk into a McDonald’s restaurant, they know exactly what to expect.
Disadvantages for the franchisee
Restrictions on what they can and can’t do. E.g. McDonald’s have very strict regulations concerning marketing, pricing, training etc.
A franchisee cannot simply change the staff uniform, alter prices or vary opening hours as the company operates a standardised approach to doing business.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Alliances
Collaborative relationship which is much less structured than a joint venture or acquisition.
Four ‘I’s’ determine whether to have an alliance rather than a joint venture or acquisition
Infeasibility
Information asymmetry
Investment in options
Indigestibility.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Fig. 4 Alliances - The four ‘Is’ of collaboration
Source: Based on Reuer (1999)
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Consortia
These involve the bringing together of different companies to pool resources into an integrative organisational design.
Some overlap with ‘alliances’ but consortia usually occur across many firms and sectors.
Keiretsu: Japanese consortia where 20/25 different companies integrate through interlocking directorates, common bank holdings, close personal ties, etc.
Chaebols: South Korean consortia and have similarities with Japanese keiretsu.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Foreign direct investment (fdi)
International investment in ‘real’ items, e.g. land, buildings, equipment, organisation
Can take various forms:
‘Greenfield investment’, whereby an entirely new foreign operation is established
Merger with, or acquisition of an existing organisation
Advantages/disadvantages of mergers acquisitions – explored further in Ch. 7.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Why invest abroad?
Supply factors
Production costs
Distribution costs
Availability of natural resources
Access to key technology
Incentive schemes to reduce costs.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Barriers to internationalisation
| Rank | Classification of barrier | Description of barrier |
| 1 | Capabilities | Inadequate quantity of and/or untrained personnel for internationalisation |
| 2 | Finance | Shortage of working capital to finance exports |
| 3 | Access | Limited information to locate/analyse markets |
| 4 | Access | Identifying foreign business opportunities |
| 5 | Capabilities | Lack of managerial time to deal with internationalisation |
| 6 | Capabilities | Inability to contact potential overseas customers |
| 7 | Capabilities | Developing new products for foreign markets |
| 8 | Business environment | Unfamiliar foreign business practices |
| 9 | Capabilities | Meeting export product quality/standards/specification |
| 10 | Access | Unfamiliar exporting procedures/paperwork |
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Eclectic theory
John Dunning (1993) concluded that companies will only become involved in overseas investment and production (fdi) when the following conditions are all satisfied:
Companies possess an ‘ownership-specific’ advantage over firms in the host country
It must be more profitable for the multinational to exploit its ownership-specific advantages in an overseas market than in its domestic market. In other words, there must additionally exist ‘location-specific’ factors which favour overseas production
These advantages are best exploited by the firm itself, rather than by selling them to foreign firms.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Sequential theory (1)
Sometimes called the ‘Uppsala model’ as Johanson and Widersheim-Paul examined the internationalisation of Swedish firms.
They found a regular process of gradual change involving the firm moving sequentially through four discrete stages:
Intermittent exports
Exports via agents
Overseas sales via knowledge agreements with local firms, for example by licensing or franchising
Foreign direct investment in the overseas market.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Sequential theory (2)
This particular sequence is sometimes called the establishment chain, the argument being that each of these stages marks a progressive increase in the resource commitment by the firm to the overseas markets involved.
There is also a suggestion that as firms move through these sequential stages, the knowledge and information base expands and the ‘psychic distance’ between themselves and the overseas markets involved contracts, making progression to the next stage that much easier.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Simultaneous theory
Suggests that customers’ tastes around the world are becoming progressively homogeneous, e.g. the success of such global products as Coca-Cola or Sony Walkman.
The economies of scale and scope available for standardised products in such global markets are so substantial that a gradual, sequential approach to internationalisation is no longer practicable.
Proponents point to studies which suggest that the global awareness of brands has fallen dramatically over time, with less than two years now needed for making consumers worldwide aware of high profile brand images.
Critics, however, suggest that sophisticated customers demand greater customisation.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Network theory (1)
Internationalisation builds on existing relationships or creates new relationships, with the focus shifting from the organisational or economic to the social.
It is people who make the decisions and take the actions.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
Network theory (2)
Networks can be considered at three levels.
Macro – external environment is seen as a set of diverse interests, powers and characteristics. To enter new markets a firm may have to break old relationships or add new ones.
Inter-organisational – firms may well be competitors in one market, collaborators in another.
Intra-organisational – relationships within the organisation may well influence the decision-making process; e.g. decisions may be taken in overseas subsidiaries that influence the international involvement of the parent MNE.
Slides adapted from Wall, Minocha and Ress (2010) International Business , 3rd ed. Pearson Education Limited.;and Daniels(2013) International Business, 14th ed. Pearson Education Limited
The Market
Free Market and Marxian Theory of Alienation
Result is that workers became alienated:
From their products: workers lost control of the products of their labor
From their own work: workers lost control of how they did their jobs
From themselves: workers were taught false views of their needs and desires
From each other: workers were kept fighting amongst themselves (divide and conquer)
Market and Economic Crisis
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Contrary to neoclassical economics & Marxist economic determinism, Karl Polanyi (1944) proposed that economies are embedded within and influenced by macro-level social, political, cultural, institutional contexts.
“Our thesis is that the idea of a self-adjusting market implies a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wilderness.”
Mark Granovetter (1985) revived Polanyi’s thesis, launching a “new economic sociology” emphasizing social construction of markets & embeddedness of economic actors in social networks and institutions.
Though sharing NET ideas, social embeddedness lacks formal rigor in application to large-scale socioeconomic systems, whose analysts must identify specific historical and spatial mechanisms of structural relations.
Social Embeddedness of Economic Institutions
