International Entry Strategies

1. International Entry Strategies Mikkeli 2005 Compiled by Rulzion Rattray

2. Market Share Drives Profitability.Profit Impact of Market Strategy (PIMS) Associates ROI % 8 15 24 38 Market Share Percentage Adapted from Gale, B.T., (1987), “The PIMS Principles”, Free Press. pp 97

3. Strategic Factors • Increasing global levels of FDI. • Increasingly competitive world markets • Critical markets Prahalad, & Doz, (1986). • Markets that are profit sanctuaries for competitors • Markets with volume & state of the art customers • Markets with good margins • National Competitive Adv. Porter, M.E., (1990).

4. Globalisation Strategy G. Yip Total Global Strategy 1995 Global Market Share Global market participation Global balance Globally strategic markets 01/10/97 Rulzion Rattray UAD 7

5. Additional Location Determinants: • Infrastructure • Transportation, Communications, Electricity, Wage rate, Cost of land, Construction cost, cost of raw material. • Regulatory/Economic • Cost of bureaucracy • Economic Stability • Tax rate: • statutory rate general tax burden • effective rate; rate adjusted for all other factors including subsidies and investment incentives. • Profit repatriation • Social & Political: • Political stability, culture & language barriers, government efficiency, corruption, crime levels, cost of pollution control. • Characteristics of local labour; Education, availability, work ethic.

6. Timing of Market Entry Economic Effects of Being an Early Mover High Possible Returns(Advantage) High Uncertainty/Cost(Disadvantage) • Uncertainty: • Undeveloped regulations • Low government experience • New industry • Operational Risks: • Lack of supply inputs • Lack of support infrastructure • Unstable market structure • Extra Cost: • Learning Curve • Training cost • Anti-immitation costs • Market Power: • Barriers to followers • Technical leadership • Product positioning • Pre-emptive opportunities: • Marketing • Early access to resources • Brand Recognition • Strategic Opportunities: • Location selection • Low competition Adapted from Shenkar, O. and Luo, Y.(2004), “International Business”, John Wiley and Sons, Inc. pp 273.

7. Trade related Entry: • Exporting directly or using intermediaries • Terms of payment: FOB, (Free on Board), FOR (Free on rail), FAS (Free along side), CIF (Cost, Insurance & Freight). • Key documentation: L/C (Letter of Credit) an irrevocable L/C usually required. See Shenkar, O. and Luo, Y.(2004), Chap 14 for detailed explanation. • Subcontracting; • e.g. Nike in China • Countertrade • a form of barter e.g. McDonalds paid for some franchises in Vodka.

8. Transfer Related Entry • Here there is some transfer of ownership involved, user buys some rights in product. • Widely used in products with high level of intellectual property rights. • International Leasing, e.g. capital intensive products, earth moving/ mining equipment. • International Licensing; licence in return for royalty • International Franchising; eg. McDonalds • Build Operate Transfer: typically large capital and technology based projects, e.g power station

9. FDI Entry • Foreign Direct Entry involves greater levels of commitment and risk. • Branch Office; exists as an extension of the parent and has legal liability. Firms often limit liability by use of offshore subsidiaries. • Joint Ventures; cooperative with specified contract. Equity based joint ventures. • Wholly Owned Subsidiary; either by acquiring a fimr or starting a firm from scratch.

10. Continuum of Entry Modes Risk &Return • FDI Related • Joint Ventures, Subsidiaries • Transfer Related • Leasing, Licensing, Franchising, BOT Adapted from Shenkar, O. and Luo, Y.(2004), “International Business”, John Wiley and Sons, Inc. pp 284. • Trade Related • Export, Subcontracting, counter trade Organisational control and resource commitment Continuum of Cooperation

11. Collaborate with your competitors -and win Garry Hamel, Yves Doz & CK Prahalad • Horizontal co-operation a window on each others capabilities: • Opportunity to acquire other’s skills and technologies • Strategic Alliances: • Competition in another form • Limited life span • Learning from partners of paramount importance • Mutual Gain is Possible • Where strategic goals converge but competitive goals diverge • Size & market power of both is modest compared with industry leaders • each partner believes it can learn from the others whilst protecting its own skills • Only enter partnership if you can learn!

12. References • Contractor F. & Lorange P. , 1988, “Cooperative Strategies In International Business”, Lexington Books. Cited in de Wit, B & Meyer, R, Eds. (1994), “Strategy Process, Content & Context, an International Perspective” Pp PP321-331. • de Wit, B & Meyer, R, (1998), “Strategy Process, Content & Context, an International Perspective” 2nd Ed. • Gale, B.T., (1987), “The PIMS Principles”, Free Press. • Hamel, G. Prahalad, C.K., (1993), Strategy as Stretch & Leverage, Harvard Business Review, vol. 71 no. 2. • Hamel G., Doz Y. & Prahalad C .K. , 1989, “Collaborate With Your Competitors and Win”, Harvard Business Review Jan Feb. 1989. See De Wit & Meyer PP336-343. • Özsomer, A., & . Cavusgil, T.S., (1999),“A dynamic analysis of market entry rates in a global industry: a community ecology perspective ”, European Journal of Marketing, Vol 33 No 11 pp 1038 – 1063. • Porter, M.E., (1990), “The Competitive Advantage of Nations”, Free Press, See de Wit, B & Meyer, R, (1998), Pp 773-785. • Prahalad, C.K., & Doz, Y., (1986), “The dynamics of Global Competition”, Free Press. See de Wit, B & Meyer, R, Eds. (1998), pp 753-772. • Shenkar, O. and Luo, Y.(2004), “International Business”, John Wiley and Sons, Inc. (Available Library) • Yip, G., (1995), “Total Global Strategy”, Prentice Hall.