Foreign Market Entry Strategies

• Market entry strategy is influenced by a firm's characteristics, product characteristics, and domestic and international market traits

Foreign Market Entry and Operations Strategies

• Exporting
• Contractual Agreement
• Production facility in foreign market
• Mergers and Acquisitions

Exporting

Direct Exporting

• Firms directly engage in marketing products in foreign markets
• The firm itself performs the export task
• Requires representation in foreign markets
• Achieved by sending international sales representatives into the foreign market
• Select local representatives to prospect the market
• Use independent local distributors to resell the products in the local market
• Create a wholly owned commercial subsidiary for greater control over foreign operations

Indirect Exporting

• It offers the lowest level of risk and market control, where products are carried abroad by others
• The firm does not actively engage in international marketing
• Sales are handled as domestic sales
• Foreign sales are managed through the domestic sales organization
• International trading companies with local offices are used
• Export management company is in the same country as the producing firm, acting as an export department
• Mumbai-based American Dry Fruits (ADF) began selling packaged foods like chutneys and spices, eventually moving to other countries with large Indian populations

Contractual Agreement

Licensing and Franchising

• Licensing enables market entry with limited risk, allowing a firm in one country to use its intellectual property in another
• Franchising involves many different owners sharing a single brand. A parent company enables entrepreneurs to use its strategies and trademarks
• Franchisees pay an initial fee and royalties based on revenues
• The parent company supports the franchisee through advertising and training
• Licensing is similar to franchising, but the franchising organization is more involved in marketing development and control
• A major drawback of licensing is controlling the licensee, as there is an absence of direct commitment from the international firm granting the license
• If the know-how is transferred, the foreign firm may act independently and the international firm may lose market share
• ITC Hotels and ITT Sheraton had an agreement where ITC Hotel's Welcom group franchised two hotels in Bangkok and Hong Kong to ITT Sheraton in exchange for the Sheraton franchise in India
• The partners set up a joint venture with Sheraton having a major stake to manage new ITC hotel projects in India

Strategic Alliance

• It is an arrangement where companies share resources for a specific, mutually beneficial project
• Strategic alliances are less involved and less permanent than joint ventures
• Companies maintain autonomy while gaining new opportunity
• Strategic alliances help develop more effective processes, expand markets, or gain a competitive advantage
• An oil and natural gas company might ally with a research laboratory
• A clothing retailer might ally with a clothing manufacturer to ensure consistent sizing
• A website could ally with an analytics company to improve marketing

Contract Manufacturing

• A firm's product is produced in a foreign market by a local producer under contract
• Marketing is handled by a sales subsidiary
• Contract manufacturing obviates plant investment, transportation costs, and tariffs
• There is an advantage of advertising products as locally made
• Enables firms to avoid labor and other issues arising from unfamiliarity with the local economy and culture
• Balsara's private label manufacturing for toothpaste formulations has increased business from North American and European markets

Production facility in foreign market

Assembly Operations

• It is a compromise between exporting and foreign manufacturing
• The firm produces most components domestically and ships them for assembly in foreign markets
• Shipping CKD (completely knocked down) saves on transportation and tariffs
• Tariffs are generally lower on unassembled equipment
• Facilitates use of local employment which helps integrate in the foreign market
• Automobile and farm examples are the automobile and farm equipment industries
• Coca-Cola ships its syrup to foreign markets where it gets bottled by local plants

Wholly Owned Manufacturing Facility

• Companies with long-term and substantial interest in the foreign market establish wholly owned manufacturing facilities
• Factors are trade barriers, production differences, and other costs

Joint Venture

• International firm has an equity position and management voice in the foreign firm
• A partnership formed between host- and home-country firms which results in a third firm

Mergers and Acquisitions

• A LEGAL POINT OF VIEW
• A merger is a legal consolidation, where two companies into one entity
• Acquisition occurs when a company takes over another and establishes itself as the new owner
• Google purchased Motorola Mobility for $9,800,000,000 in 2011
• Microsoft Corporation purchased Skype for $8,500,000,000 in 2011
• Berkshire Hathaway purchased Lubrizol for $9,220,000,000 in 2011
• Deutsche Telekom purchased MetroPCS for $29,000,000,000 in 2012
• Softbank purchased Sprint Corporation for $21,600,000,000 in 2013
• Berkshire Hathaway purchased H. J. Heinz Company for $28,000,000,000 in 2013
• Microsoft Corporation purchased Nokia Handset & Services Business for $7,200,000,000 in 2013
• Facebook purchased WhatsApp for $19,000,000,000 in 2014
• Comcast purchased Time Warner Cable for $45,200,000,000 in 2014
• AT&T purchased DirecTV for $67,100,000,000 in 2014

Explore market entry strategies: exporting, contractual agreements, production facilities and M&A. Direct exporting involves firms marketing products directly, requiring representation. Indirect exporting offers the lowest risk, with sales handled by others.