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INTERNATIONAL MARKETS’ ENTRY STRATEGIES

INTERNATIONAL MARKETS’ ENTRY STRATEGIES. By Elisante Ole Gabriel (Tanzania) Chartered Marketer egabriel@edenconsult.net , www.olegabriel.com +255-784-455-499. Introduction. The need for a solid market entry decision is an integral part of a global market entry strategy.

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INTERNATIONAL MARKETS’ ENTRY STRATEGIES

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  1. INTERNATIONAL MARKETS’ENTRY STRATEGIES By Elisante Ole Gabriel (Tanzania) Chartered Marketer egabriel@edenconsult.net, www.olegabriel.com +255-784-455-499 egabriel@mzumbe.ac.tz , +255-754-434412

  2. Introduction • The need for a solid market entry decision is an integral part of a global market entry strategy. • Entry decisions will heavily influence the firm’s other marketing-mix decisions. • There are two major entry Modes: PRODUCTION IN HOME COUNTRY & PRODUCTION IN FOREIGN COUNTRY. egabriel@mzumbe.ac.tz , +255-754-434412

  3. Introduction Cont… • International Marketers (you) have to make a multitude of decisions regarding the entry mode which may include: • the target product/market • the goals of the target markets • the mode of entry • the time of entry • a marketing-mix plan • a control system to check the performance in the entered markets egabriel@mzumbe.ac.tz , +255-754-434412

  4. Target Market Selection • A crucial step in developing a global expansion strategy is the selection of potential target markets. • A four-step procedure for the initial screening process: 1. Select indicators and collect data 2. Determine importance of country indicators 3. Rate the countries on each indicator 4. Compute overall score for each country egabriel@mzumbe.ac.tz , +255-754-434412

  5. Choosing the Mode of Entry • Decision Criteria for Mode of Entry • Market Size and Growth • Risk • Government Regulations • Competitive Environment • Local Infrastructure • Company Objectives • Need for Control • Internal Resources, Assets and Capabilities • Flexibility egabriel@mzumbe.ac.tz , +255-754-434412

  6. Mode of Entry Cont … • Mode of Entry Choice: A Transaction Cost Explanation • Regarding entry modes, companies normally face a tradeoff between the benefits of increased control and the costs of resource commitment and risk. • Transaction Cost Analysis (TCA) perspective • Transaction-Specific Assets (assets valuable for a very narrow range of applications) egabriel@mzumbe.ac.tz , +255-754-434412

  7. Exporting • Indirect Exporting • Export management companies • Cooperative Exporting • Piggyback Exporting • Direct Exporting • Firms set up their own exporting departments egabriel@mzumbe.ac.tz , +255-754-434412

  8. Licensing • Licensor and the licensee • Benefits: • Appealing to small companies that lack resources • Faster access to the market • Rapid penetration of the global markets egabriel@mzumbe.ac.tz , +255-754-434412

  9. Licensing Cont.. • Caveats (Alerts/warning signals): • Other entry mode choices may be affected • Licensee may not be committed • Lack of enthusiasm on the part of a licensee • Biggest danger is the risk of opportunism • Licensee may become a future competitor egabriel@mzumbe.ac.tz , +255-754-434412

  10. Licensing Cont … • How to seek a good licensing agreement: • Seek patent or trademark protection • Thorough profitability analysis • Careful selection of prospective licensees • Contract parameter (technology package, use conditions, compensation, and provisions for the settlement of disputes) egabriel@mzumbe.ac.tz , +255-754-434412

  11. Franchising • Franchisor and the Franchisee (e.g IIFT & IFM) • Benefits: • Overseas expansion with a minimum investment • Franchisees’ profits tied to their efforts • Availability of local franchisees’ knowledge egabriel@mzumbe.ac.tz , +255-754-434412

  12. Franchising Cont … • Caveats (Warnings): • Revenues may not be adequate • Availability of a master franchisee • Limited franchising opportunities overseas • Lack of control over the franchisees’ operations • Problem in performance standards • Cultural problems • Physical proximity egabriel@mzumbe.ac.tz , +255-754-434412

  13. Contract Manufacturing (e.g Microsoft) • Benefits: • Labor cost advantages • Savings via taxation, lower energy costs, raw materials, and overheads • Lower political and economic risk • Quicker access to markets egabriel@mzumbe.ac.tz , +255-754-434412

  14. Contract Manufacturing Cont … • Caveats: • Contract manufacturer may become a future competitor • Lower productivity standards • Backlash from the company’s home-market employees regarding HR and labor issues • Issues of quality and production standards egabriel@mzumbe.ac.tz , +255-754-434412

  15. Joint Ventures • Cooperative joint venture • Equity joint venture • Benefits: • Higher rate of return and more control over the operations • Creation of synergy • Sharing of resources • Access to distribution network • Contact with local suppliers and government officials egabriel@mzumbe.ac.tz , +255-754-434412

  16. Joint Ventures Cont … • Caveats: • Lack of control • Lack of trust • Conflicts arising over matters such as strategies, resource allocation, transfer pricing, ownership of critical assets like technologies and brand names egabriel@mzumbe.ac.tz , +255-754-434412

  17. Joint Ventures Cont … • Drivers Behind Successful International Joint Ventures : • Pick the right partner • Establish clear objectives from the beginning • Bridge cultural gaps • Gain top managerial commitment and respect • Use incremental approach egabriel@mzumbe.ac.tz , +255-754-434412

  18. Wholly Owned Subsidiaries • Acquisitions • Greenfield Operations • Benefits: • Greater control and higher profits • Strong commitment to the local market on the part of companies • Allows the investor to manage and control marketing, production, and sourcing decisions egabriel@mzumbe.ac.tz , +255-754-434412

  19. Wholly Owned Subsidiaries Cont … • Caveats: • Risks of full ownership • Developing a foreign presence without the support of a third part • Risk of nationalization • Issues of cultural and economic sovereignty of the host country • Acquisitions and Mergers • Quick access to the local market • Good way to get access to the local brands egabriel@mzumbe.ac.tz , +255-754-434412

  20. Strategic Alliances • Types of Strategic Alliances • Simple licensing agreements between two partners • Market-based alliances • Operations and logistics alliances • Operations-based alliances egabriel@mzumbe.ac.tz , +255-754-434412

  21. Strategic Alliances Cont … • The Logic Behind Strategic Alliances • Defend • Catch-Up • Remain • Restructure egabriel@mzumbe.ac.tz , +255-754-434412

  22. Strategic Alliances Cont … Cross-Border Alliances that Succeed: • Alliances between strong and weak partners seldom work. • Autonomy and flexibility • Equal ownership • However, according to Prof. Michael Porter, 90% of SA are destined to fail (A case of BP-AMOCO, 1999) egabriel@mzumbe.ac.tz , +255-754-434412

  23. Strategic Alliances Cont … • Other success factors: • Commitment and support of the top of the partners’ organizations • Strong alliance managers are the key • Alliances between partners that are related in terms of products, technologies, and markets • Similar cultures, assets sizes and venturing experience • A shared vision on goals and mutual benefits egabriel@mzumbe.ac.tz , +255-754-434412

  24. Timing of Entry • International market entry decisions should also cover the following timing-of-entry issues: • When should the firm enter a foreign market? • Other important factors include: level of international experience, firm size • Mode of entry issues, market knowledge, various economic attractiveness variables, etc. egabriel@mzumbe.ac.tz , +255-754-434412

  25. Exiting a Market • Reasons for exit: • Sustained losses • Volatility • Premature entry • Ethical reasons • Intense competition • Resource reallocation egabriel@mzumbe.ac.tz , +255-754-434412

  26. Exit Strategies • Assess the Risks of exit: • Fixed costs of exit • Disposition of assets • Signal to other markets • Long-term opportunities • Guidelines: • Contemplate and assess all options to salvage the foreign business • Incremental exit • Migrate customers egabriel@mzumbe.ac.tz , +255-754-434412

  27. Finally STANDARDIZATION Vs. ADAPTATION/DIF’ENTIATION • Standardization means a product is manufactured just for the global market with any degree of responsiveness. The major objective is to take the advantage of economies of scale through cost integration. • On the other hand, adaptation is an approach whereby a product gets some modification to suit individual domestic markets egabriel@mzumbe.ac.tz , +255-754-434412

  28. THE END!!! • ‘Avoid the exit costs by making a strategic choice of the entry strategies’ • There is always a dilemma whether to standardize or adapt. International marketers need to resolve this dilemma continuously. Gabriel E., (2005) in his article ‘Export Marketing Strategies’ gave a discussion on how to handle the dilemma. AND.. • Think Global act Local = GLOCALIZATION egabriel@mzumbe.ac.tz , +255-754-434412

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