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Chapter 3 International Expansion Strategies

Chapter 3 International Expansion Strategies. International development phases. Phase 1: Initial market entry Phase 2: Local market expansion Phase 3: Globalization. Choosing which markets to enter. Opportunities and threats are assessed at two different levels:

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Chapter 3 International Expansion Strategies

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  1. Chapter 3International Expansion Strategies

  2. International development phases • Phase 1: Initial market entry • Phase 2: Local market expansion • Phase 3: Globalization

  3. Choosing which markets to enter Opportunities and threats are assessed at two different levels: • General business climate of a country • Specific product market

  4. Country/Market Choice • Market information • Competitor information • Internal information

  5. Market information • Market potential: measure current demand, forecast future growth, new product launches… • Market access: “openness”, cost and delays, legal and customs obstacles, marketing infrastructure (distribution channels, ad agencies, etc…)… • Market receptiveness: perception of firm, “made in” effect of country of origin… • Market stability: economic, legal, political, cultural risks…

  6. Competitor information • Who are the competitors? • Inventory of competition • Direct/indirect • Local/global How many? • Market share?

  7. Internal Information • Production capacities: product adaptation, quality control, packing, stocking, transport… • Marketing and sales situation: current strategy, distribution channels, brand image, quality advantages, relationships… • General strategic situation: situation in domestic market, new product development, innovation, competitive advantage… • Business goals: short term and long term goals • Financial resources: costs of canvassing, capital budgeting orientation, available cash, export subsidies… • Human resources: staff and management motivation, availability, training required, expatriates… Internal export audit, “diagnostic export”

  8. Criteria for ranking export markets • General attractiveness of the market • Competitive advantage • Risk • Global strategic importance • Possible synergies Market-Portfolio Matrix

  9. Market-Portfolio Matrix High INVEST Country Attractiveness SELECTIVITY DIVEST Low Low High Internal strengths

  10. Market selection strategies (Ayal and Zif) Choice of target markets is based on two different alternatives: • Market penetration (concentration) vs. market skimming (diversification): a limited number of markets or large number of markets • Market penetration: rather low expansion rate in a few markets for intensive development. The goal is to obtain high market share in each country before expanding into others. • Market skimming: high rate of return while maintaining a low level of resource commitment. The firm selects more easily available market targets while minimizing risk and investment. • Segment penetration (concentration) vs. segment skimming (diversification): similar or dissimilar market segments • Segment penetration: focus on a small number of segments in which the firms seeks a dominant position • Segment skimming: brand and product diversity, specific launches for some markets

  11. Timing of entry Simultaneous entry vs. sequential entry • Simultaneous entry: preempt competition be establishing presences in all major markets, limit opportunities for imitation, potential scale economies may lead to lower unit costs • Sequential entry: build on knowledge and experience, generally preferred if substantial financial, managerial or other resources are required

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