SESSION: Entry Strategy for International Markets Dr Gautam Dutta
Going Global - Decisions Should I Go Abroad? Which Markets Should I Enter? How Should I Enter Them? How Should I Market My Product?
Learning Objectives: To understand the determinants on which entry mode depends. To explain various entry modes for international markets To explain different theories of internationalization. To evaluate selection criteria for entry mode decisions
Different modes of entry possible Export mode Indirect Direct Intermediate mode Contractual Licensing Franchising Strategic Alliances Joint Ventures Investment Acquisition Create new subsidiary Low risk, Low control, High flexibility Shared risk, Shared control, Split Ownership High risk, High control, Low flexibility
The Choice of Entry Modes: A Hierarchical Model Source: Adapted from Y. Pan & D. Tse, 2000, The hierarchical model of market entry modes (p. 538), Journal of International Business Studies, 31: 535 554.
Strategic Decisions On Risk vs. Control
Value Chain :
Contractual Intermediate Modes of Entry
Licensing High Risk Licensing Exporting Low Control High Definition: an agreement in which an organization grants another organization the right to use a trademark, a patented product or a process.
Advantages of Licensing Financing international expansion Reducing expansion risks Minimizing the black market Upgrading production technologies Transportation cost is high
Disadvantages of Licensing Restricting future activities Reducing quality and consistency Hindering marketing efforts Assisting competitors NEED CAREFUL NEGOTIATION
Franchising
Franchising Advantages Low-cost, low-risk mode of entry Rapid expansion Knowledge of local managers Disadvantages Hard to manage a large number of franchises Loss of flexibility in franchising
Strategic Alliances
Strategic Alliances
Value Chain:
Joint Ventures High Risk Licensing Joint Ventures Exporting Low Control High Definition: a business agreement in which two or more organizations share management of an enterprise.
Investment Modes of Entry
Direct Ownership High Direct Ownership Risk Licensing Joint Ventures Exporting Low Control High definition: A mode of entry involving an organization setting new facilities or acquiring a foreign firm in the same line of business.
Wholly Owned Subsidiaries Advantages Disadvantages Complete Managerial Control Expensive to Start and Maintain Compatible with Global Strategies High Risk Exposure
Determinants of International Entry Modes Industry-specific factors Industry s degree of internationalisation Choice of entry mode by key competitors Many Unknown; task is not only to maximize return but also to minimize risk Target Market Factors Government policies Availability of local distributors Local infrastructure Entry Mode Home-country factors Policies on investment abroad Bilateral agreements Domestic market size and competition Firm-Specific factors Firm s degree of internationalisation Marketing objectives Nature of product Availability of resources
Level-1 Level-2 Level 3 Level 4 Corporate/SBU SBU/Product market Transaction/function relationship Growth Market dev diversification Firm specific advantage Resource based advantage Location of production activity Location specific advantage Home as well as host. Structural governance Internalization advantage Transaction cost analysis Operational Managerial Involvement Relationship management resource Experience Property right Brand reputation Process tech Product tech Mgt skill. Markt skill Scale economics Scope economics Experience/distance Resources Input price Transportation cost Market attractiveness Asset specificity Internal uncertainty Partner opportunitism Codifiability Teachability Complexity Control type Cooperation Co ordination Conflict Trust Norms Influence strategies Macro attributes