Market Entry Strategy Selection

1. Market Entry Strategy Selection Review Chapter 3b Instructor Shan A. Garib, Winter 2013

2. Making the Choice Franchising • Similar to licensing but instead of IP (idea) the company grants permission to use it’s name or trade marketed goods • Two main forms: • Second generation franchise – company receives a complete business package including instructions on how it must operate, train and advice eg McD’s • Advantages • - enables company to establish an international presence rapidly without investing a lot in target market - company in agreement is local so parent company benefits from knowledge of local market and ties to government

3. Making the Choice Franchising • Advantages • Second generation allows greater level of control so parent can protect reputation • Disadvantages

4. Making the Choice Franchising • When is franchising a suitable strategy? • When name or trademark will be attractive in a target market

5. Making the Choice Franchising

6. Making the Choice Subcontracting • Transfer related • Company providing foreign manufacturer with raw materials, semi-finished, products, components, a design or the technology to produce goods. • The company purchases the goods from subcontractor • Different levels: • – company in foreign market produces goods to spec by parent company then parent company sells and markets eg Ford • ODM – - parent company sells and markets in foreign company

7. Making the Choice Subcontracting • tages • Enables company to produce goods at low cost than domestic production • No real cost to establish mftg process in target market • Parent company does not have to obtain a business license • Parent free to focus on other core competencies • Products produced in target market so no need transportation • No taxes or duties • Many governments welcome these arraignments • Parent can benefit from the knowledge and expertise of the local mftgr

8. Making the Choice Subcontracting • tages • Distribution, marketing, and sales must be organized • Finding suitable subcontractors hard, vetted, and monitored • Can be considered form of business partnership

9. Making the Choice Subcontracting • When is subcontracting a suitable strategy? • Strategic goal of reducing costs • Easily • When parent company doesn’t have the funds to invest in overseas expansion • Cheap way to • When is it NOT suitable? • When can’t cope • Or with increasing levels of completions

10. Making the Choice Strategic Alliances • Defined as a partnership in the • Share knowledge, skills, resources and profits/losses! Advantages • Domestic company benefit from • Sell products at competitive price b/c no taxes/duties • Develop local presence without big investment • No language or cultural • Local accreditation skipped by domestic • Sometimes tax credit given for partnerships • Domestic companies can locally bid on contracts

11. Making the Choice Strategic Alliances • Defined as a partnership in the target market • Share knowledge, skills, resources and profits/losses! Advantages • Domestic company benefit from marketing knowledge and skills from local firm • Sell products at competitive price b/c no taxes/duties • Develop local presence without big investment • No language or cultural • Local accreditation skipped by domestic • Sometimes tax credit given for partnerships • Domestic companies can locally bid on contracts

12. Making the Choice Strategic Alliances Disadvantages • Reputation of local partner impacts domestic company’s reputation

13. Making the Choice Branch Offices • Most often the • Example of a foreign direct investment strategy • Used as first step, to gain foothold, make companies presence known, and collect valuable information on market dynamics, preferences • Retail Outlets • Beyond branch offices • Network of

14. Making the Choice Branch Offices • Retail Outlets • Maybe wholly owned and operated by parent eg. Wal-Mart • Gives parent company control over whole distribution chain – usually for large corporations • Puts company in direct contact with customers so reactions can be monitored • Parent company responsible for hiring and training, inventory and operating the outlets

15. Making the Choice Branch Offices • Retail Outlets tages • Simple way to establish a presence, gather intel., network, product testing • Overcomes • Complete control • Easier to train staff, and deliver after sales service tages • Very expensive and time consuming • Responsible for every link in chain • Legal and tax requirement

16. Making the Choice Branch Offices • When is opening a branch office a suitable strategy? • When goal is to establish or expand presence in target market • Can devote managerial time needed to hire, scout locations, maintain operations • Can deal with Joint Ventures • Tightly • Two+ companies form a strategic relationship to conduct business in a foreign market

17. Making the Choice Joint Ventures • Forms separate • Each has to invest in property, finances, skills and gets interests in profits/losses and assets • Various forms – depend on function for which they are established • R&D JV – share technical skills and knowledge to speed up development of new technology • JV – one company provide production facilities to mfgtr good of another • Marketing & distribution JV – one company has marketing and distribution experience and other has products/service in a target market

18. Making the Choice Joint Ventures • Advantages • Get higher sales volumes, greater market penetration and profit potential than any other strategy • Less invested, limits liabilities and risk • Benefit from government incentives to invest • Disadvantage • If differing viewpoint arise big problem • Hard to regain funds invested if want to pull out

19. Making the Choice Joint Ventures • When is a JV a suitable strategy? • Objectives are to max profits, rapidly expand market share, or diversify activities • Can commit to a LT commitment • Comfortable with moderate amount of risk

20. Making the Choice Greenfield Investment • Build a whole owned subsidiary in target market • Example of • Strategy involves building everything the company needs from the ground up eg factory, distribution networks Disadvantages • Companies must be committed to LT commitment • Losses pulling out are HUGE! • Companies must determine legal and tax structure of target market

21. Making the Choice Greenfield Investment Advantages • Use of cheaper production facilitates • Accesses new processes, skills and personnel • It can position itself as a local company • Gain access to local marketing skills and knowledge • When is Greenfield a suitable strategy? • Expand market share, increase profits, acquire new resources and technology • Great when facing trade barriers or favoritism • Must be able to invest LT and handle high risk