Global Marketing Management

1. Global Marketing Management Chapter 8 Entry and Expansion Strategies: Marketing and Sourcing Warren J. Keegan

2. Decision Criteria for IB Entry & Expansion Decision Model Exporting Additional Expansion Alternatives Market Strategy Summary Overview

3. To identify criteria for selection of foreign markets. To appreciate which market entry alternatives are available to companies. To recognise export activities as a process developing over time. To understand different entry startegies: sourcing, licensing,investment & ownership Learning Objectives

4. Political risk Market access Factor cost & conditions Shipping consideration Country infrastructure Foreign Exchange Decision Criteria for IB

5. ... should be based on a number of criteria: market-related characteristics cost-related aspects the regulatory framework tariffs, duties & non-tariff trade barriers the importance of these selection criteria depends upon the industry & the markets taken into account Selecting Foreign Markets

6. 1. Market Potential 2. Market Access 3. Shipping Cost & Time 4. Appraising Level & Quality of Competition 5. Service 6. Product Fit Market Selection Criteria

7. 1.Who buys our product? 2.Who does not buy our product? 3.What need or function does our product serve? 4.What problem does our product solve? 5.What are customers currently buying to satisfy the need and/or solve the problem for which our product is targeted? 6.What price are they paying for the products they are currently buying? 7.When is our product purchased? 8.Where is our product purchased? 9.Why is our product purchased? Critical Questions for a Product-Market Profile: The 9 W´s

8. A Multi-Stage Selection Process Source: adapted from D.J.G. Schneider, and R.U. Müller, Datenbankgestützte Marktselektion: Eine methodische Basis für Internationalisierungs-strategien, Stuttgart, 1989

9. ... is essential after assessment & selection of potential market(s) goals: to confirm (or contradict) assumptions regarding market potential to gather additional (primary) data to develop a marketing plan in co-operation with the local agent or distributor Visiting the Potential Market

10. Production Abroad Ownership and Control

11. COUNTRY-OF-ORIGIN EFFECTDEALS WITH QUALITY PERCEPTIONS OF PRODUCTS. THIS EFFECT DIFFERS BY PRODUCT CATEGORY. ALSO, THE QUALITY LEVEL AT WHICH A COUNTRY PRODUCES IS FACTORED IN. COUNTRY-OF-ORIGIN BIASCUSTOMERS TEND TO OVERSTATE THE POSITIVE AND NEGATIVES OF PRODUCT ATTRIBUTES AND THIS CAN CAUSE A BIAS TOWARDS PRODUCTS FROM A GIVEN COUNTRY.

12. Direct market representation via wholesalers or retailers or directly to the consumers Independent representation independent distributor Piggyback marketing distribution through another distributor´s channel Direct Exporting

13. Stages of the firm 1. ... is unwilling to export. 2. ... fills unsolicited export orders (export seller). 3. ... explores the feasibility of exporting (may bypass stage 2). 4. ... exports to one or more markets on a trial basis. 5. ... is an experienced exporter to one or more markets. 6. ... pursues country or region focused marketing. 7. ... evaluates the global market potential. All markets, domestic & international, are regarded as equally worthy of consideration. Exporting: A Developmental Process

14. Export selling involves selling the same product, at the same price, with the same promotional tools in a different place Export marketing tailors the marketing mix to international customers Export Selling vs. Export Marketing

15. An understanding of the target market environment The use of market research and identification of market potential Decisions concerning product design, pricing, distribution and channels, advertising, and communications Requirements for Export Marketing

16. Tax incentives Subsidies Governmental assistance Government programs that support Exports

17. Tariffs Import controls Nontariff barriers Quotas Discriminatory procurement policies Restrictive customs procedures Arbitrary monetary policies Restrictive regulations Governmental Actions to Discourage Imports and Block Market Access

18. Logistics Legal procedure Servicing exports Sales promotion Foreign market intelligence Export-Related Problems

19. Factor costs & conditions Logistics Country infrastructure Political risk Market access Exchange rate, availability & convertibility of local money Sourcing Decision Factors

20. Three main non-exporting modes of entry Licensing (including franchising) Strategic Alliances Wholly owned manufacturing subsidiaries Non-exporting modes of entry

21. Three modes of entry LICENSING Host Country Blueprint : “how to do it” Home country Host Country Host County WHOLLY-OWNED SUBSIDIARY STRATEGIC ALLIANCE (J.V.) A replica of home A “joint effort”

22. “contractual arrangement whereby one company (licensor) makes an asset available to another company (licensee) in exchange for royalties, license fees or other form of compensation” Licensing

23. LICENSING refers to offering a firm’s know-how or other intangible asset to a foreign company for a fee, royalty, and/or other type of payment Advantages for the new exporter The need for local market research is reduced The licensee may support the product strongly in the new market Disadvantages Can lose control over the core competitive advantage of the firm. The licensee can become a new competitor to the firm. Licensing

24. Original Equipment Manufacturing (OEM) A company enters a foreign market by selling its unbranded product or component to another company in the market country Examples: Canon provides cartridges for Hewlett-Packard’s laser printers Samsung sells unbranded television sets , microwaves, and VCRs to resellers such as Sears, Amana, and Emerson in the U.S. Licensing

25. A form of licensing where the franchisee in a local market pays a royalty on revenues - and sometimes an initial fee - to the franchisor who controls the business and owns the brand. The local franchisee typically invests money in the local operation and has the right to operate under the franchisor’s brand name. The franchisee gets help setting up the operation, usually according to a well-developed blueprint. The business is typically very standardized (fast food operations is a case in point). Franchising

26. A form of licensing “a company permits its name, logo, cultural design and operations to be used in establishing a new firm or store.” Franchising

27. Advantages The basic “product” sold is a well-recognized brand name. The franchisor provides various market support services to the franchisee The local franchisee raises the necessary capital and manages the franchise A disadvantage Careful and continuous quality control is necessary to maintain the integrity of the brand name. Franchising Pros and Cons

28. Strategic Alliances (SAs) Typically a collaborative arrangement between firms, sometimes competitors, across borders Based on sharing of vital information, assets, and technology between the partners Have the effect of weakening the tie between potential ownership advantages and company control Strategic Alliances

29. Equity and Non-Equity SAs Equity Strategic Alliances – Joint Ventures Non-equity Strategic Alliances: – Distribution Alliances – Manufacturing Alliances – Research and Development Alliances

30. Joint Ventures Involve the transfer of capital, manpower, and usually some technology from the foreign partner to an existing local firm. Examples include Rank-Xerox, 3M-Sumitomo, several China entries where a government-controlled company is the partner. This was the typical arrangement in past alliances – the equity investment allowed both partners to share both risks and rewards. Today non-equity alliances are common. Equity Alliances: Joint Ventures

31. Company run by two or more partner firms Risk is shared and different value chain strengths are combined Influence depends on degree of ownership Good opportunity to build on local know-how JV finds greater acceptance by local authorities Joint Ventures

32. Also called “piggybacking”, “consortium marketing” Examples SAS, KLM, Austrian Air, and Swiss Air STAR Alliance (United Airlines, Lufthansa, Air Canada, SAS, Thai Airways, and Varig Brazilian Airlines) Chrysler and Mitsubishi Motors Distribution Alliances

33. Advantages Improved capacity load Wider product line Inexpensive access to a market Quick access to a market Assets are complimentary Each partner can concentrate on what they do best Disadvantages Time arrangement can limit growth for the partners Can hinder learning more about the market, creating obstacles to further inroads Pros and Cons of Distribution Alliances

34. Shared manufacturing examples Volvo and Renault share body parts and components Saab engines made by GM Europe Advantages Convenient Money saving Disadvantages The organization must deal with two principals in charge of production, harder to communicate customer feedback Can put constraints on future growth Manufacturing Alliances

35. R&D Alliances Provide favorable economics, speed of access, and managerial resources and are intended to solve critical survival questions for the firm Used to be seen as particularly risky, since technological know-how is often the key competitive advantage of a global firm The risk of dissipation has become less of a concern, however, as technology diffusion is growing ever faster anyway. R&D Alliances

36. Represents the most extensive engagement abroad Subsidiary is either established through the creation of a new facility or the acquisition of an existing firm Company has complete decision power & control Investor achieves greater flexibility In many countries majority or 100% ownership by foreign companies is forbidden Wholly-owned Subsidiaries/Acquisition

37. Wholly Owned Manufacturing Subsidiaries Undertaken by the international firm for several reasons To acquire raw materials To operate at lower manufacturing costs To avoid tariff barriers To satisfy local content requirements Manufacturing Subsidiaries

38. Manufacturing Subsidiaries ADVANTAGES DISADVANTAGES • Local production lessens transport/import-related costs, taxes & fees • Availability of goods can be guaranteed, delays may be eliminated • More uniform quality of product or service • Local production says that the firm is willing to adapt products & services to the local customer requirements • Higher risk exposure • Heavier pre-decision information gathering & research evaluation • Political risk • “Country-of-origin” effects can be lost by manufacturing elsewhere.

39. Instead of a “greenfield” investment, the company can enter by acquiring an existing local company. Advantages Speed of penetration Quick market penetration of the company’s products Disadvantages Existing product line and new products to be introduced might not be compatible Can be looked at unfavorably by the government, employees, or others Necessary re-education of the sales force and distribution channels FDI: Acquisitions

40. Entry Modes and Local Marketing Control • The local marketing can be controlled to varying degrees, quite independent of the entry mode chosen. The typical global firm maintains a sales subsidiary to manage the local marketing. Examples:

41. Narrow focus: concentrated markets/concentrated countries Country focus: diverse markets/concentrated countries Country diversification: concentrated markets/diverse countries Global diversification: diverse markets/diverse countries Market Expansion Strategies

42. The choice of potential foreign markets must be based on a thorough evaluation of criteria which influence the potential success abroad; eg market potential, market access, or product fit. Once the potential foreign target market(s) is selected, a company has to decide how to enter this market. Summary