Module 6 Market Entry Strategies

Indirect Exporting

• Indirect exporting involves using an intermediary located in the exporter's home country.
• Intermediaries include Export Management Companies (EMCs) and Export Agents.
• EMCs manage all aspects of export operations (4Ps) and can act as merchants or agents.
• Export Agents assist manufacturers in exporting goods, providing limited services, and focusing on one country or part of the world.

Direct Exporting

• Direct exporting involves selling directly to customers or through intermediaries located in the foreign market.
• Advantages: greater control over distribution channels and marketing, leveraging home government support, knowledge of foreign market conditions, and readily available expertise.
• Disadvantages: requires dealing with a large number of individual contacts, significant financial resources and management time, and loss of direct control.

Foreign Production as an Entry Strategy

• Reasons for foreign production include saving costs, eliminating import tariffs, reducing currency fluctuation risks, and communicating commitment to the local market.
• Forms of foreign production include licensing, franchising, and local manufacturing (contract manufacturing, assembly, and full-scale integrated production).

Licensing

• Licensing involves assigning the right to a copyright or patent and/or trademark to another company for a fee or royalty.
• Advantages: low investment way to enter a new market, licenses are time-bound, and complete dependence on local licensee to produce revenue/royalties.
• Disadvantages: revenue is dependent on marketing skills of the local company, uncertainty of product quality, and management time to train licensees.

Franchising

• Franchising is a special type of licensing where the company makes a total marketing plan available, including brand name, logo, products, and methods of operation.
• Examples include "master franchises" - rights to market within a city, country, or region of the world.

Local Manufacturing

• Contract manufacturing involves an international company arranging to have its products manufactured by an independent local company on a contractual basis.
• Assembly involves an international company locating a portion of manufacturing in a foreign company, typically the last stage of the manufacturing process.
• Full-scale integrated production involves a fully integrated local production unit, requiring significant capital investment.

Ownership Strategies

• Wholly Owned Subsidiaries: operations in the host country are fully owned by a foreign parent firm, involving marketing, assembly, or full-scale integrated production operations.
• Advantages: foreign parent firms establish the strategy, keeping all profits, and easier integration into a global network.
• Disadvantages: oversight, management, and training are required to ensure strategy is executed, and not allowed in all markets/countries.

Joint Ventures

• Joint ventures involve an outside partner sharing stock ownership in the "new unit", often from the host country.
• Advantages: alternative in markets/countries where subsidiaries are not permitted, allows for quick, lower investment entry into market(s), and shared political risks.
• Disadvantages: may be difficult to find willing partners, higher failure rate, and potential for JV divorce.

Strategic Alliances

• Strategic alliances involve relationships between firms that exceed a simple sales transaction but stop short of a full-scale merger.
• Examples include technology-based, production-based, and distribution-based alliances.

Mergers and Acquisitions

• Mergers and acquisitions involve the purchase of an established business that continues to run independently or becomes an integrated part of the purchasing origination.
• Advantages: immediate market share/presence, no need to build manufacturing and distribution from scratch, and overcome government challenges.
• Disadvantages: businesses for sale often have problems, and local competition could purchase first to block international companies.

Global Market Entry Strategies

• There is a trade-off between the degree of ownership and control (low to high) and the extent of investment and risk required (low to high) for each entry mode.
• Companies trade off risk and return when choosing among these market entry strategies, often beginning with a form of exporting and progressing to a more involved market entry strategy.