Global Marketing Management

1
Global Marketing Management
Chapter 8 Entry and Expansion Strategies
Marketing and Sourcing

• Warren J. Keegan

2
Overview

• Decision Criteria for IB
• Entry Expansion Decision Model
• Exporting
• Additional Expansion Alternatives
• Market Strategy
• Summary

3
Learning Objectives

• 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

4
Decision Criteria for IB

• Political risk
• Market access
• Factor cost conditions
• Shipping consideration
• Country infrastructure
• Foreign Exchange

5
Selecting Foreign Markets

• ... 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

6
Market Selection Criteria

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

7
Critical Questions for a Product-Market Profile
The 9 Ws

• 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?

8
A Multi-Stage Selection Process
Source adapted from D.J.G. Schneider, and R.U.
Müller, Datenbankgestützte Marktselektion Eine
methodische Basis für Internationalisierungs-strat
egien, Stuttgart, 1989
9
Visiting the Potential Market

• ... 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

10
Production Abroad
Ownership and Control
11

• COUNTRY-OF-ORIGIN EFFECT DEALS 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 BIAS CUSTOMERS TEND TO
  OVERSTATE THE POSITIVE AND NEGATIVES OF PRODUCT
  ATTRIBUTES AND THIS CAN CAUSE A BIAS TOWARDS
  PRODUCTS FROM A GIVEN COUNTRY.

12
Direct Exporting

• Direct market representation
• via wholesalers or retailers or directly to the
  consumers
• Independent representation
• independent distributor
• Piggyback marketing
• distribution through another distributors channel

13
Exporting A Developmental Process

• 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.

14
Export Selling vs. Export Marketing

• 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

15
Requirements for Export Marketing

• 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

16
Government programs that support Exports

• Tax incentives
• Subsidies
• Governmental assistance

17
Governmental Actions to Discourage Imports and
Block Market Access

• Tariffs
• Import controls
• Nontariff barriers
• Quotas
• Discriminatory procurement policies
• Restrictive customs procedures
• Arbitrary monetary policies
• Restrictive regulations

18
Export-Related Problems

• Logistics
• Legal procedure
• Servicing exports
• Sales promotion
• Foreign market intelligence

19
Sourcing Decision Factors

1. Factor costs conditions
2. Logistics
3. Country infrastructure
4. Political risk
5. Market access
6. Exchange rate, availability convertibility of
   local money

20
Non-exporting modes of entry

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

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
Licensing

• 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

23
Licensing

• LICENSING refers to offering a firms 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.

24
Licensing

• 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-Packards
  laser printers
• Samsung sells unbranded television sets ,
  microwaves, and VCRs to resellers such as Sears,
  Amana, and Emerson in the U.S.

25
Franchising

• 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 franchisors 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).

26
Franchising

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

27
Franchising Pros and Cons

• 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.

28
Strategic Alliances

• 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

29
Equity and Non-Equity SAs
Equity Strategic Alliances
Joint Ventures
Non-equity Strategic Alliances
Distribution Alliances Manufacturing
Alliances Research and Development Alliances
30
Equity Alliances Joint Ventures

• 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.

31
Joint Ventures

• 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

32
Distribution Alliances

• 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

33
Pros and Cons of Distribution Alliances

• 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

34
Manufacturing Alliances

• 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

35
RD Alliances

• RD 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.

36
Wholly-owned Subsidiaries/Acquisition

• 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

37
Manufacturing Subsidiaries

• 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

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
FDI Acquisitions

• Instead of a greenfield investment, the company
  can enter by acquiring an existing local company.
• Advantages
• Speed of penetration
• Quick market penetration of the companys
  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

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
Market Expansion Strategies

• Narrow focus concentrated markets/concentrated
  countries
• Country focus diverse markets/concentrated
  countries
• Country diversification concentrated
  markets/diverse countries
• Global diversification diverse markets/diverse
  countries

42
Summary

• 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.