Global Marketing Management Market Entry Strategies

Global Marketing ManagementMarket Entry Strategies MKTG 3231-001 Fall 2013 Mrs. Tamara L. Cohen Class #14

Let’s look ahead…Case #2: Nestlédue Oct.17 Requirements for each Case Write-up: • 4 - 6 pages, typed & double-spaced • Review on web site: “How to write a great case study” • Pay attention to grading sheet • Use headings NEW partners this time Visit the Writing Center in Atkins / Fretwell / on line

Readings for this class: Course Pack #6 & #7 Homework: Visit the IKEA store near campus: What is unique about IKEA? How does it differ from most American furniture/ warehouse stores? What is IKEA’s usual market entry strategy? Market Entry Strategies

KEY TERMS • Direct export • Indirect export • Contractual agreement • Licensing • Franchising • Joint venture (JV) • Strategic International Alliance

KEY CONCEPTS 4 ways to enter foreign markets: • Export (incl. Internet sales) • Contractual agreements • Strategic alliances (incl. JVs) • Foreign Direct Investments (=FDI) • All modes can have equity requirements. • Can use a variety of methods simultaneously.

Market Entry Considerations 1. Market characteristics ? • potential sales • competition • strategic importance • strengths of local resources • cultural differences • country restrictions & regulations 2. Company capabilities & characteristics ? • near-market knowledge • marketing involvement • management commitment

Market Entry Strategies

1. Exporting Exporting accounts for +- 10% of global economic activity. • Direct exporting = company sells to a customer in another country; most common initial approach • Indirect exporting = company sells to a buyer (importer or distributor) in home country, who in turn exports the product • Internet marketing initially focused on domestic sales. International internet marketing developed from companies receiving orders from customers overseas. • Direct sales especially for high tech & big ticket industrial products

2. Contractual Agreement = long-term,non-equity association between one company and another company in a foreign market - usually involves transfer of knowledge/ processes / trademarks / skills rather than equity - take the form of Licensing or Franchising

Licensing = means of establishing a foothold in foreign markets without large capital outlays • common strategy for small & mid-sized companies • good way to capitalize on intellectual property in foreign mkt • usually supplement exporting or manufacturing • licenses for: production processes, use of trade name, distribution of imported products ADVANTAGES DISADVANTAGES when capital scarce quality & production problems import restrictions payment problems sensitivity to foreign ownership contract enforcement (jurisdiction) patents/trademarks need protection loss of marketing control least risk least profitable way to enter market

Franchising Franchiser Franchisee provides market knowledge, capital & personal involvement in management operational decentralization(local knowledge & entrepreneurial spirit of franchisee) flexibility dealing with local market conditions(franchisee) • provides standard package of products, systems & management services • skill centralization(knowledge of franchiser) • degree of control • foreign regulators welcome franchising because it fosters local ownership, operations & employment • company can expand quickly with low capital investment • fastest-growing foreign market-entry strategy • > 30,000 franchises of US firms in overseas countries

Franchising&Licensing Franchising Licensing Company has less control over sale of product in foreign market Primary use in manufacturing Usually involves one-time transfer of property • Company has greater control over sale of product in foreign market • Primary use in service sector • Ongoing assistance required from franchiser

Franchises in the Global Marketplace

3. Strategic International Alliances = synergistic business relationship established by ≥ 2 companies to achieve common goal with mutual benefit Why seek Strategic International Alliances? • strengthen weaknesses & increase competitive advantages • opportunities for rapid expansion into new markets • access to new technology • more efficient production & innovation • reduced marketing costs • strategic competitive moves • access to additional sources of products & capital • attractive profits

Are SIAs a good idea? Disadvantages • partner conflict if objectives change, cooperation & trust fade • control may be unpredictable if local government involved in JV Advantages • reduce risk by sharing investment • penetrate markets usually reserved for locals • access to local partner’s distribution channels

Strategic Alliances in the Global Marketplace + + =

Kinds of Strategic International Alliances • International JOINT VENTURE (IJV)=partnership of ≥ 2 companies that have joined forces internationally to create a separate legal entity . • CONSORTIAtypically involve numerous participants and operate in countries where none of participants is currently active.

International JVs 4 characteristics define joint ventures: • JVs are established, separate, legal entities • acknowledged intent by partners to share in management of JV • partnerships between legally incorporated entities, i.e. companies, chartered organizations, or governments, and not between individuals • equity positions held by all partners Challenges: • selection of partners & maintenance of relationships • sharing of control • relations with parents • legal environments • extent of knowledge-sharing > 50,000 JVs established in China in last 30 years

Consortia Consortia are developed to pool financial and managerial resources, and to lessen risks. e.g. large construction projects Airbus Industrie is most prominent international consortium: 4 major European aerospace companies agreed to work together to build commercial airlines in competition with Boeing. In 2000 consortium transformed into global company to compete better. Challenges: • coordination • ability to be team player

4. Foreign Direct Investment Why invest directly? • take advantage of low cost labor • avoid high import taxes • reduce high transportation costs • access raw materials or technology Factors that influence structure & performance of direct investments: • timing - 1st movers have advantage but are more risky • growing complexity & contingencies of contracts • transaction cost structures • technology transfer • degree of product differentiation • previous experiences & cultural diversity of acquired firms • advertising & reputation barriers {

F D I = purchase of physical assets or a significant ownership share of company overseas, 10% in order to control management • FDI usually involves management participation, joint venture, transfer of technology or expertise, or any combination • FDI focuses on productive assets: factories, land, organizations • FDIINFLOW(=INWARD FDI) when investments made in home country by overseas investors • FDIOUTFLOWS(=OUTWARDFDI) when home country investors make investments overseas • FDIs can be made by individuals, private or public companies, governments, or any combination

CARS in INDIA: Examples of different Entry Modes • Maruti Suzuki India is a wholly owned subsidiary of Japan's Suzuki Motor, and is the biggest automobile manufacturer in India (i.e. this is a FDI) • General Motors India Private Limited is a joint venture (50:50 partnership) between GM & SAIC. Maruti Swift • BMW exports some cars to India despite 105% import tax. • Tata Motors & Fiat established a strategic alliance in 2005, which grew into a JV shortly afterwards. BMW Chevy Beat FIAT

Selecting Partnersfor any kind of Entry Mode Commitment Trustworthiness Cultural openness Evaluation criteria

Keys to Success in Market Entry Strategies • Global perspective - keep abreast of competition & maintain viable position for increasingly competitive markets • Collaborative relationships, strategic international alliances, strategic planning & market-entry strategies are critical elements in global marketing management.

Next class: Multinational Strategic Alliances Preparation: NO reading Homework: NONE Relax?

Global Marketing Management Market Entry Strategies