Entrepreneurship Chapter 9. International Market Entry. See table 3.1 pg 424 for overview on different market entry strategies.

Transcription

1 Entrepreneurship Chapter 9 Internatinal Market Entry See table 3.1 pg 424 fr verview n different market entry strategies. Elements t cnsider T select the best strategy, cmpanies must cnsider the markets they have selected, the prducts r services they wish t sell and their verall aims fr internatinal trade. See table 3.2 page 425 fr market entry cnsideratins Market entry strategies 1. Exprting: It is the traditinal methd fr trading internatinally and invlves gds prduced by a cmpany in ne cuntry being delivered t anther cuntry and marketed there. Direct exprting: Invlves a cmpany selling gds directly t a custmer in an internatinal market. a. Mst imprtant types f custmers fr direct exprting are: i. Imprters perate by imprting gds int their cuntry. Useful because they have researched the lcal market and are cnfident they can sell gds they imprt. i Whlesalers cmpanies that purchase gds in bulk and distribute them t retailers r ther custmers in the lcal market. Useful because they have an established custmer base. Distributrs Whlesalers that nly carry nn-cmpeting lines f gds. Retailers Cmpanies that sell t end cnsumers v. Gvernment prcurement departments lcal gvernment departments that seek ut prviders f gds and services that are required fr servicing the public. vi. Cnsumers custmers that can be reached directly using sales methds such as televisin prmtins, e-cmmerce, dr-t-dr selling. Finding Custmers b. If a cmpany wants t exprt, they shuld cntact its cuntry s embassy in freign markets, which will prvide them with valuable infrmatin and imprtant business cntacts.

2 c. Once a distributr, retailer r whlesaler is fund, the fllwing questins shuld be asked: i. Des the business have a slid financial backing? i Des the business have a reputatin fr paying invices n time? Des the business have a wide cverage f the target market? Hw much stck will the business hld? d. Make sure the business yu deal with trades in ethical ways!! Gvernment Prcurement Business Mdels e. Gvernment departments are excellent custmers as they accunt fr 20% f a cuntry s GDP. f. Cmpany s als have prestige when they are able t be knwn as gvernment suppliers. g. See page 429 fr list f questins t answer befre dealing with gvernments. h. A wide range f business mdels t accmplish this can be used: i. Having en exprt department within the cmpany i Establish a sales ffice in the target market Emply verseas sales persnnel Selling t an intermediary r by cntracting an agent cmpanies new t direct exprting shuld start with this. v. Agent: Represents the cmpany n a cmmissin basis and can engage in prmtinal wrk r help establish deals. i. See table 3.3 fr advantages/disadvantages f using agents vs. distributrs. Advantages/Disadvantages f Direct Exprting j. Advantages f direct exprting: i. Cmpany cntrls its manufacturing prcess, and the prcess is based in the cmpany s facilities.

3 i Less risky since it is less susceptible t plitical instability in freign markets. Cmpany can withdraw frm the market relatively cheaply and easily. Cmpanies can btain in-depth infrmatin abut trade in the target market. k. Disadvantages f direct exprting: i. Cmpanies need t invest significantly in researching market infrmatin and preparing marketing strategies. i Cmpanies withut exprting skills and experience can make expensive errrs. Target markets in trade blcs are very difficult t break int. Intermediaries will be representing ther cmpanies and cannt be relied n t perate in the best interest f the exprting cmpany. v. Exprting will be mre difficult when the dmestic currency is very strng in cmparisn t the target market s currency. When is Direct Exprting a Suitable Strategy? l. Simple entry strategy suitable fr cmpanies that want t expand their market share r maximize their prfit m. Useful if the rganizatin has the necessary skills, knwledge and finances. n. Successful if the market selected is readily accessible and has similar regulatins and custms t the cmpany s cuntry.. If the market selected is t far, the transprtatin csts can make the prduct t expensive fr cnsumers. p. Cmpanies must be cmfrtable with a substantial amunt f risk. q. Main advantage = prvides the exprter with a lt n cntrl ver the prcess f hw the prduct is psitined and sld. *** See table 3.4 page fr cnditins fr direct exprting*** Indirect exprting: A cmpany sells t an intermediary in their wn cuntry, which then sells the gds t the internatinal market and takes n the varius respnsibilities that g alng with selling and marketing abrad.

4 a. Can sell t the fllwing intermediary custmers: i. Exprt huses: Whlesalers that purchase gds and sell them t internatinal markets. i Cnfirming huses: Cmpanies that represent freign businesses that d nt have a well-established reputatin and cannt btain credit t purchase gds frm ther cuntries. Freign cmpanies based in the cmpany s cuntry: Large cmpanies that establish ffices verseas and purchase lcally prduce prducts. Piggybacking b. This is when cmpanies (termed riders ) use the skills, experience, r resurces f a cmpany that is mre experienced in exprting (termed carrier ). c. T use piggybacking, the fllwing factrs must be present: i. The prduct r service that the rider wants t sell is cmplementary t the prduct line r functin prvided by the carrier. i The prduct r service is suitable fr the carrier s distributin and marketing chain. The prduct r service has a markup substantial enugh t justify effrts by the carrier The prduct r service has sufficient demand in the target market t predict substantial sales Cuntertrade d. Methd mst used fr indirect exprting and is estimated t cmprise 30% f internatinal trade. e. In this methd, payments fr gds and services are made by deliveries f ther gds and services as well as, r in place f, financial payments. f. One frm f cuntertrade is called buyback which is when a buyer agrees t purchase a set quantity f gds n cnditin that the seller purchases the buyer s prduct in return. Advantages/Disadvantages f Indirect Exprting g. Advantages:

5 i. Cheapest entry strategy available. i Flexible and exprting activities can cease whenever needed. N exprting experience r skills are required. Intermediary cmpany takes n all the risk. h. Disadvantages: i. Cntrl f activities verseas is lst t the intermediary cmpany. i Will nt gain valuable knwledge n hw target market functins. Impssible fr cmpany t establish after-sales service r additinal valueadded activities. When is Indirect Exprting a Suitable Strategy? i. Shuld be cnsidered by a cmpany wanting t enhance its cash flw r increase its prfits. j. Nt useful fr a service. k. Nt useful fr cmpanies lking t develp lng-term market share. l. Often chsen by smaller and newer cmpanies. m. Gd fr cmpanies that cannt deal with cnsiderable amunts f risk. n. Cmpany has n cntrl ver the market its prducts are sld t, hw they are sld, hw they are marketed r the price btained fr them. *** See table 3.5 page fr cnditins fr indirect exprting.*** 2. Licensing: A transfer-related market entry strategy that invlves a cmpany granting permissin t a cmpany in anther cuntry t use its intellectual prperty fr a defined time perid. Advantages/Disadvantages f Licensing a. Advantages: i. Gd methd if a cmpany has valuable intellectual prperty. Requires little initial csts.

6 i Enables a cmpany t enter a market that has restrictins n freign cmpanies. Licensr benefits frm the licensee cmpany s lcal market knwledge. v. Licensr gains a market strnghld very rapidly. vi. v Licensr s capital is nt tied up in freign peratins. Licensr has the ptin t expand int the market further by investing in the licensee at a later date. b. Disadvantages: i. Entry int market is limited i Terms f the license must be mnitred ver the lifetime f the agreement, and enfrcement might becme necessary. Licensee might use the intellectual prperty prvided t becme a cmpetitr. Intensive research and planning is required t identify the best licensee and develp a beneficial licensing agreement. When is Licensing a Suitable Strategy? c. Cmpanies wh want t increase their market share and have a prprietary prduct that can be easily manufactured at a freign lcatin shuld use this. d. Best strategy fr cmpanies lking t expand int ne r mre markets with minimal risk. e. Nt gd fr cmpanies that cannt cpe with the risk that its intellectual prperty culd be lst r that there might be increasing levels f cmpetitin. *** See table 3.6 pages fr cnditins fr licensing. *** 3. Franchising: Similar t licensing, but cmpany grants permissin t use its name r trademarked gds. a. Tw frms f franchising: i. First-generatin: Cmpany purchasing the franchise btains permissin t use a name r prduce gds.

7 Secnd-generatin: Cmpany purchasing the franchise receives a cmplete business package including instructins and directins n hw it must perate, staff training and advice. Advantages/Disadvantages f Franchising b. Advantages: i. Enables cmpanies t establish internatinal presence rapidly withut having t invest significantly in the target market. i Parent cmpany benefits frm the knwledge f the lcal market and their ties t the business cmmunity and gvernment. Secnd generatin franchise allw fr mre cntrl in freign markets, which enable the parent cmpany t prtect its reputatin. c. Disadvantages: i. Prduct r service prvided must be standardized acrss all cuntries. If ne franchise fails, cnsumers will perceive the failure t be cmpanywide. When is franchising a suitable strategy? d. Only suitable if cmpanies have a name r trademark that they knw will be seen as attractive in a target market. e. Strategic bjective shuld be t gain market cverage rapidly. f. Shuld be prepared t devte time t researching laws and lcal custms as well as make trips t supprt franchises. g. Shuld als be able t cpe with ptential lss f sales t their franchisees. *** See table 3.7 pages fr cnditins t franchising. *** 4. Subcntracting: Anther transfer-related market entry strategy that invlves a cmpany prviding a freign manufacturer with raw materials, semi-finished prducts, cmpnents, a design r the technlgy t prduce gds. a. In many cases, the freign manufacturer is simply sued as a prcessr r assembly agent.

8 b. Different levels f subcntracting include: i. Original equipment manufacturer (OEM): A cmpany in a freign market prduces gds t a required design and specificatin prvided by the subcntracting party. Own design and manufacture (ODM): A cmpany in a freign market designs and manufactures a prduct fr a cmpany. Advantages/Disadvantages f Subcntracting c. Advantages: i. Enables a cmpany t prduce gds at a lwer cst than dmestic prductin. i N real cst t establish the manufacturing prcess in the target market. The relatinship with the target market is relatively easy t terminate The cmpany des nt have t btain a business license t cnduct peratins. v. The cmpany is free t fcus n ther cre cmpetencies vi. v vi ix. The prducts can be prduced in the target market, remving the need fr transprtatin ver lng distances and payment f imprt duties and taxes. Prducts prduced by subcntractrs are sld under the cntracting cmpany s brand name. Many gvernments welcme subcntracting agreements The cmpany can benefit frm the knwledge and experience f lcal manufacturers. d. Disadvantages: i. Distributin, marketing and sales must be rganized i Finding suitable subcntractrs can be difficult and time cnsuming Subcntractrs must be vetted carefully and mnitred cntinuusly There is the ptential fr a cmpany s reputatin being damaged if a subcntractr is fund t be perating in an unethical manner. When is subcntracting a suitable strategy?

9 e. Cmpanies with a strategic gal f reducing csts shuld cnsider subcntracting if they have a prduct that can be manufactured easily at a freign lcatin. f. Can als allw a cmpany access t cmplementary resurces and diversify. g. Beneficial when cmpanies d nt have substantial funds t invest in verseas expansin. h. Cheap way t enter an verseas market. i. Enables flexibility as prductin can cease nce agreement is ver. j. Cmpany needs t be able t cpe with the risk that intellectual prperty can be lst r that it might increase levels f cmpetitin in the future. *** See page 446 fr cnditins fr subcntracting. *** 5. Strategic Alliances: A frm f partnership with a lcal cmpany in the target market in which businesses agree t share knwledge, skills and resurces and, agree t share all prfits and lsses. a. See figure 3.9 page 447 fr ways t cnduct strategic alliances. Advantages/Disadvantages f Strategic Alliances b. Advantages: i. Cmpanies can benefits frm marketing knwledge and business skills that a lcal firm has develped. i Allws cmpany t sell gds at a cmpetitive price as it avids the additinal expenses f duties, imprt taxes and transprtatin csts. Cmpanies can develp a lcal presence withut having t invest in the market. Prblems with cultural and language differences can be avided. v. Requirements fr lcal prfessinal accreditatin t cnduct business activities are met by the partner cmpany. vi. v Partnerships ften receive tax benefits frm the lcal gvernment. Cmpanies can bid fr cntracts in the lcal market. c. Disadvantages: i. Reputatin f lcal partner will have impact n the cmpany.

10 i Requires substantial cmmitment, s must chse partners carefully. Cntract must be carefully drawn ut and a prcess fr dispute settlement established. 6. Branch Offices: Setting up a representative ffice in the freign market. a. Is a freign direct investment entry strategy. b. Often used as a first step t enter a market. c. Gd way t get slid infrmatin abut market dynamics, custmer preferences and prduct suitability. d. Any type f business can benefit frm this. e. Retail Outlet: Creating a netwrk f retail utlets n behalf f the parent cmpany. i. Can be whlly wned by parent cmpany, r wned by peratrs with an exclusive relatinship t the parent. i Gives the parent cmpany direct cntrl ver the whle distributin chain. Puts the cmpany in direct cntact with its custmers. Advantages/Disadvantages f Branch Offices f. Advantages: i. Relatively simply way t establish a presence, gather useful intelligence, netwrk, perfrm prduct testing r even d marketing befre making a mre serius cmmitment t resurces. i Overcmes mst market barriers. Gives cmpany cmplete cntrl ver hw everything is dne. Gives the cmpany direct cntact with end-users. g. Disadvantage: i. Very expensive and time cnsuming. When is pening a branch ffice a suitable strategy?

11 h. When cmpany want t establish r expand their presence in a target cuntry relatively easily. i. When they can devte the managerial time required t emply persnnel, find and manage ffices, and maintain peratins. j. When they can deal with the legal aspects f being liable fr civil actin taken against the ffice. 7. Jint Venture: Tightly cupled frm f strategic alliance and is als a frm f freign direct investment in which tw r mre cmpanies frm a strategic relatinship with the aim f cnducting business in a freign market. a. Partnership frms a separate business entity in the market fr a limited duratin. b. Each participant must invest prperly, finances r skills, and receive an interest in the assets and prfits f the venture. c. There are frms f jint ventures: i. Research and develpment: Aim t share technical skills and knwledge t speed up the develpment f a new prcess r technlgy. i Prductin: Invlve ne cmpany prviding prductin facilities t manufacture the gds f anther cmpany. Marketing and distributin: Invlve a partnership between a cmpany with gds r services and a cmpany with marketing and distributin experience in a target market. Hybrid: Invlve ne r mre f the functins in the ther three types. Advantages/Disadvantages f Jint Ventures: d. Advantages: i. Prvide cmpany with higher sales vlumes, greater market penetratin and greater prfit ptential than any ther entry strategy. i Since everything is shared, it reduces the amunt invested by the cmpany and reduces its risk. Can help reduce feelings f animsity shwn t freign cmpanies by custmers and gvernments.

12 e. Disadvantages: i. Each partner must relinquish sme cntrl ver the peratins and management decisins must be shared. i If ne partner wants t pull ut, it can be difficult t regain any f the funds invested in the venture. Sharing prfits can be difficult if ne perceives their investment as mre imprtant than the ther. When is a jint venture a suitable strategy? f. When the cmpany s bjectives are t maximize prfits, rapidly expand market share r diversify their cmpany s activities. g. When they can cmmit t a lng-term investment. h. When they are cmfrtable with a mderate amunt f risk. *** See table 3.10 pages fr cnditins fr jint-venture. *** 8. Greenfield Investment: Ultimate market entry strategy in which a cmpany builds a whlly wned subsidiary in the target market. a. Invlves cmpanies building everything they need in the freign market frm the grund up. Advantages/Disadvantages f Greenfield Investment b. Advantages: i. Prvides an pprtunity fr cmpanies with substantial resurces t invest t break int a new market while maintaining a high level f cntrl ver peratins. i It has the use f cheaper prductin facilities It btains access t new prcesses, skills and persnnel It can psitin itself as a lcal cmpany v. It can expand int new areas f trade and repsitin itself. vi. It can gain access t in-depth lcal marketing skills and knwledge. c. Disadvantages:

13 i. Mst expensive and riskiest strategy f all. i Must t cmmitment t lng-term assciatin with the cuntry they are entering, because lsses f pulling ut are substantial. N guarantee a large investment will be successful. Freign investment culd be substantially limited by the freign market. v. Careful planning must be made in rder t establish the best frm f investment. When is Greenfield investment a suitable strategy? d. Used mst ften by large, multinatinal crpratins. e. Gd strategy when cmpanies are facing trade barriers and might nt be able t exprt t a market r when gvernments in a target market favr lcal psitins. f. T be successful, cmpanies shuld be willing t invest lng-term int their chsen market. g. Shuld als be able t handle high levels f risk. h. Market shuld be ne that supprts freign investment. *** See table 3.11 pages fr cnditins fr Greenfield investment. *** 9. Mergers and Acquisitins: A frms f direct investment. a. Mergers: The ultimate frm f partnership, because tw cmpanies are jined tgether. b. Mergers can smetimes be cnsidered a frm f strategic alliance. c. Acquisitin: One cmpany takes ver anther. d. Acquisitins are usually faster transactins and purchasing cmpany retains all business cntrl rather than sharing it. e. Mergers d nt require cash and can ften be accmplished withut having t pay taxes. Market Entry Strategies fr Services Reasns fr difference in strategies:

14 Services are intangible Services are ften prduced in the lcatin at which the custmers will cnsumer it. Service prvisin relies n human interactin mre than selling f gds. Selling cnsultancy services: It invlves a service cmpany prviding a service t a custmer in a freign market. Cmmnly used by business and tax advisrs, website designers, architects, engineers and accuntants. Benefits include: Can withdraw frm the market relatively cheaply and easily if they need t. Can btain in-depth infrmatin abut trade in the target market. D nt have t share prfits with partner cmpanies. Disadvantages include: Need t invest significantly in researching market infrmatin and preparing marketing strategies. Freign markets are very difficult t break int. Obtaining payments fr services delivered verseas can be prblematic. Custmers in the freign market will have a tendency t select a dmestic service prvider. Licensing Cmpanies wh prvide technical services can sell a license t ther service prviders in the target market. Cmmn fr internet service prviders, IT applicatin service prviders, r IT infrastructure service prviders. Franchising Operates in the same way prduct franchising des.

15 Ppular fr tax service prviders, interir design services, curier services and cmputer maintenance services. Branch Offices Large service cmpanies are mre likely t use this Imprtant because service relies n human interactin. Jint Ventures Imprtant fr service cmpanies lking t target markets where freign service prvisin is prhibited r in which gvernment regulatin dictates that a certain percentage f service cmpanies must be wned by lcal businesspeple. Hiring a Sales Representative Similar t agents fr prduct cmpanies. Can identify lcal pprtunities and market the service prvider in the freign market. Gd when cmpanies are uncertain abut hw t market its service in the freign market r when there are language and culture barriers. Nt used frequently by cmpanies as a means t enter internatinal markets. Gathering Cmpetitive Intelligence Key mistake cmpanies make = ignre cmpetitive envirnment. Cmpetitive Landscape Map (CLM): A simple chart that indicates what is imprtant t cnsumers in the chsen market. Shuld develp CLMs that: One that justifies price and quality One that justifies prduct and service qualities One that justifies sales strategy One that justifies key prduct differences. On each chart, cmpany shuld indicate psitin f its cmpetitrs.

16 Need t use cmpetitive intelligence in rder t btain infrmatin abut cmpetitrs thrugh publicly available surces. Research fr Cmpetitive Intelligence Cmpany prfiles Shuld use directries t find infrmatin abut cmpetitrs Infrmatin prvided includes industry analysis and cmpany infrmatin rganized by cuntry. Can als lk at cmpany websites. News Stries Shuld read newspaper articles frm target market t gain an understanding f majr industry initiatives. Emplyee advertisements are als anther useful tl f infrmatin as number f peple being hired and psitins advertised will give indicatins f future activities. Industry activities and surces Cmpanies can attend trade shws, cnferences and seminars t get infrmatin. Can als cntact their cuntry s embassy in the target markets and btain infrmatin frm the trade cmmissiner there.