Market Selection and Market Entry PDF

05.12.2024 International Marketing @Universität Tübingen Market selection and market entry Prof. Dr. Kristina Klein International Market Selection (IMS) – potential determinants of a company‘s choice of foreign marke...

05.12.2024 International Marketing @Universität Tübingen Market selection and market entry Prof. Dr. Kristina Klein International Market Selection (IMS) – potential determinants of a company‘s choice of foreign markets focus of the lecture The firm The environment Degree of internationalization and International industry structure overseas experience Degree of internationalization of the market Size/amount of resources Host country Type of industry/ nature of business Market potential Internationalization goals Competition Existing networks of relationships Psychic/ geographic distance not only dependant on external factors Market similarity International market segmentation International market selection (IMS) Hollensen, S. (2011): Global Marketing, p. 262. 2 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Priorization of country markets Criteria for selection/prioritization of country markets how attractive is the market? is there sth that prohibits the marke entry? Criteria of market Market entry barriers attractiveness Consumer- Competition- Consumer- Competition- Institutional Institutional related related related related criteria criteria criteria criteria criteria criteria US elections; legislations: export/import might diminish your products consumers' needs/wants Political stability Number of Intensity of Customs/ Consumer Economies of unsure how Local customers competition import quota behavior scale of well developed the country is infrastructure interested in Competitive Minimum/ Language established Access to enough company’s people will buy advantages maximum prices Loyalty of competitors resources (e.g., products your products if not, reduced attractiveness Norms and customers Positive image labor costs) stagnating/still growing? Population growth standards towards of competitors Purchase parity EU: Legal restriction competitors in the market standards for how wealthy (per capita)is the country electronics, (e.g., minimum Switching Market volume food / shein: percentage of costs for doesn't meet Market growth the standardslocal production consumers car industry: they enter high switching costs, those markets, that = local content consumers won't buy can afford their cars requirement) your products Homburg, C./Krohmer, H. (2003), Marketingmanagement, p. 1111 3 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Agenda 2.1 The economic environment 2.2 The political/legal environment 2.3 Market entry strategies 2.4 Choice of entry modes The world economy An overview global markets In the early 20th century, economic integration was at 10 %; today it is 50 % certain regulations at a European level one of the oldest regulations Particularly integrated: The European Union (EU) and NAFTA (North American Free Trade Agreement) A lot of global companies have displaced or absorbed local competitors The new realities Capital movements have replaced trade as driving force of world economy Production has become “uncoupled” from employment globalization is driven by changes in technology, communication World economy as dominating factor, individual country economies play a subordinate role Struggle between capitalism and socialism has almost ended E-commerce diminishes importance of national barriers and forces companies to re-evaluate business models Keegan, W./Green, M.C. (2013), Global Marketing, p. 36 5 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de  GNI (gross national income) as a base Stages of market development (World Bank) how wealthy a country might be, how much income there is and how can it be spent highly developed countries Low-Income Countries Lower-Middle-Income Countries Upper-Middle-Income Countries High-Income Countries Rapidly expanding consumer Rapidly industrializing, less Sustained economic growth through Limited industrialization markets agricultural employment disciplined innovation High percentage of population in Service sector is more than 50% of Cheap labor Increasing urbanization farming consequences for skilled labor GNI Mature, standardized, labor- Importance of information High birth rates intensive industries like textiles and Rising wages processing, exchange, and toys interpersonal relationships Ascendancy of knowledge over problems in communication High literacy rates and advanced capital, intellectual over machine Low literacy rates education technology, scientists/professionals over semiskilled workers Lower wage costs than in advanced Heavy reliance on foreign aid Future oriented countries Also called newly industrializing Political instability and unrest economies (NIEs) Examples 2021: Examples 2021: Examples 2021: Examples 2021: Togo, Burundi, Afghanistan, Mali, India, Iraq, Vietnam, Pakistan, Peru, Brazil, China, Russia, Australia, Germany, USA, Uganda Ukraine, Morocco Thailand, Albania Bahamas, Puerto Rico how attractive is a country according to the classification of the World Bank Keegan, W./Green, M.C. (2013), Global Marketing, pp. 45-52; https://data.worldbank.org/income-level 6 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Economic differences between countries Market potential quarterly or yearly Gross domestic product (GDP): total and per capita GDP growth which products are affordable or not Distribution of income inequality of income (rich vs poor gap) Infrastructure important for logistics (road structure) Economic stability future development of a country Inflation rate example: Nestlé --> according to the world Bank, 25% of the world's population lives on less than 2$ per day. Exchange rates as people cannot afford big products, they adapted their product environment [Political stability] Keegan, W.J./ Schlegelmilch, B.B. (2001), Global Marketing Management: A European Perspective, chapter 2. 7 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de BigMac because the product doesn't change and is available everywhere The “BigMac Index” (I) how weak or strong are currencies compared to each other Based on the theory of purchasing-power parity (PPP) problems of the index: demand, cost of labor change the price of BigMac Exchange rates should be adjusted to equal the price of a basket of goods and services in different countries Base: US-$ how do you deal with countries like Iran & Iraq? (discussion in guest lecture) politics example: Bella Hadid adidas shoe '72 olympics, KFC boykott in Arab countries, Avatar not being shown in some countries https://www.economist.com/big-mac-index 8 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de The “BigMac Index” (II) Base: US (average price US-$ 5.69) Here, Swiss franc would be overvalued by 41,8 % (exchange rate that would equalize both prices should be 1.25/1 US-$, but actually is 0.88;) Exchange rates affect demand for a company’s products in the global marketplace Local currency under (-)/ over (+) valuation against the dollar, % https://www.economist.com/big-mac-index 9 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Agenda 2.1 The economic environment The political/legal 2.2 environment 2.3 Market entry strategies 2.4 Choice of entry modes Law and politics it's not a one time thing, you need to monitor your regulations frequently Social culture will drive the political and legal landscape Political ideology on which the society is based will impact the decision to market in the country Example: The United Kingdom has a largely market-driven, democratic society with laws based upon precedent legislation, whilst Iran has a political and legal system based upon the teachings and principles of the Islam and Sharia tradition. The political environment Governmental institutions, political parties, and organizations are used to wield power Global marketers must comply with each nation’s laws and regulations with respect to cross-border movement of services, people, money, and know-how Issues for foreign investors include the governing party’s view on sovereignty, political risk, taxes, etc.  Be aware of laws and regulations that change frequently or are ambiguous and can hamper a company’s activities Keegan, W.J./Schlegelmilch, B.B. (2001), Global Marketing Management: A European Perspective, chapter 2. Terpstra, V./Sarathy, R. (2000), International Marketing, p. 119-145; Keegan, W./Green, M.C, Global Marketing (2011), p. 171-172. 11 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Example of protectionism policies USA: protecting local economies, which means for international economies there will be regulations, trade barriers --> lower the potential for import elections Italy https://qz.com/962973/donald-trump-launched-his-buy-american-hire-american-initiative-at-snap-on-tools-which-buys-and-hires-abroad/; https://www.thewisemagazine.it/2018/08/25/prima-gli-italiani-incoerenza-programmatica/ 12 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Political risk Risk of change in political environment or government policy that would adversely affect a company’s ability to operate effectively and profitably When perceived political risk is high, a country will have a difficult time attracting foreign direct investments (FDI). Evaluation of political risk is crucial in internationalization decisions Example: Riots in Great Britain, August 2011 Examples Taxpayers could face a £ 100m bill for the riots War About 157 Tesco stores in the UK were closed Social unrest overnight or shortened their opening hours while 26 Politically-motivated violence stores “suffered varying degrees of damage”. Transparency or fairness Social conditions (population density and wealth distribution) Corruption, nepotism, crime Labor costs Tax discrimination Keegan, W.J./Schlegelmilch, B.B. (2001), Global Marketing Management: A European Perspective, chapter 2. Terpstra, V./Sarathy, R. (2000), International Marketing, pp. 119-145; Keegan, W./Green, M.C (2011), Global Marketing, pp. 172.-175; http://www.guardian.co.uk/uk/2011/aug/09/uk-riots-cost-taxpayer-100-million; http://www.bbc.co.uk/news/business-144601111 13 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de A more (recent) example https://www.faz.net/aktuell/wirtschaft/brexit-die-briten-wissen-nicht-was-sie-wollen-16016253.html 14 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Trump announced that he will lift tariffs on a bundle of Chinese goods https://edition.cnn.com/2019/05/05/politics/trump-china-additional-tariffs/index.html 15 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de The World Championship 2022 in Qatar https://www.nytimes.com/2022/12/11/sports/world-cup/budweiser-world-cup.html 16 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de  The world trade environment – key actors 17 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de The political environment at a global level (1/2) World Trade Agreements allow free trade among countries GATT / WTO provide the regulatory framework of world trade GATT (General Agreement of Tariffs and Trade (1948)) Reduction of customs and trade barriers (expect for agricultural products and textiles due to bilateral agreements) WTO (World Trade Organization (1995)) Main function: “ensure that trade flows as smoothly, predictably and freely as possible” Most-favored nation treatment ‘Treatment as a national‘ of foreign investors Reciprocity Inclusion of textiles, agricultural trade (goods) as well as services and intellectual property Dispute settlement mechanism Kotabe, M./Helsen, K. (2011), Global Marketing Management, pp. 45-51 18 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de The World Trade Organization Forum for trade-related negotiations among 164 members Based in Geneva Serves as dispute mediator through DSB (Dispute Settlement Body) Has enforcement power and can impose sanctions https://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm, 2022 19 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Exemplary WTO cases Countries involved in Nature of dispute and outcome dispute United States, European In 2006, the complainants asked the DSB to consider Chinese Union, and Canada versus tariffs on imported auto parts. The complainants argued that China their auto manufacturers were at a disadvantage because Bejing required them to buy components locally or pay high tariffs. In 2008, the WTO ruled that China had violated trade rules. United States versus Brazil In 2003, Brazil filed a complaint against the United States charging that cotton subsidies depressed prices and disadvantaged producers in emerging markets. In 2004, the DSB, in its first-ever ruling on agricultural subsidies agreed that cotton subsidies violate international trade rules. Keegan/Green (2011), p. 92 20 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Trade agreements Preferential Trade Agreements (PTA) Many countries seek to lower barriers to trade within their regions bilateral or agreements with certain countries PTAs give partners special treatment and may discriminate against others Over 300 PTAs notified to the WTO Free Trade Area Two or more countries agree to abolish tariffs and other barriers to trade amongst themselves (e.g., NAFTA) Countries continue independent trade policies with countries outside agreement Rules of origin requirements restrict transshipment of goods from the country with the lowest tariff to another 21 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de The political environment at a global level (2/2) Integration of economic regions NAFTA (since 1994): USA, Canada, Mexico Free exchange of goods, services and capital (not employees) Step-wise reduction of all customs and tariffs within 15 years Maquiladoras: direct investments in Mexico with exploitation of lower wage levels to supply the North-American market Mercosur: South-American counterpart under the lead of Brazil ASEAN: Association of Southeast Asian Nations European Union (EU): single market Political integration European Union (EU) with 27 member states Schengen Area: free movement of people, goods, services and capital Monetary Union (Euro) with 19 member states (2015) Keegan, W.J./Schlegelmilch, B.B. (2001), Global Marketing Management: A European Perspective, pp. 60-71 Kotabe, M./Helsen, K. (2004), Global Marketing Management, pp. 54-58; https://www.heise.de/tp/features/USA-NAFTA-Einigung-mit-Mexiko- 4147210.html 22 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Regional Comprehensive Economic Partnership (RCEP), the largest free trade area in the world The signing of RCEP will create the world’s largest free trade area, involving the ten ASEAN countries, China, Japan, South Korea, as well as Australia and New Zealand. Started on January 1st, 2022 https://www.ft.com/content/2dff91bd-ceeb-4567-9f9f-c50b7876adce 23 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Custom Unions and Common Markets Custom Unions Evolution of Free Trade Area Includes the elimination of internal barriers to trade (as in FTA) AND establishes common external barriers (CETs) to trade Examples: The EU and Turkey, the Andean Community, Mercosur, CARICOM, Central American Integration System (SICA) Common Markets Includes the elimination of internal barriers to trade (as in free trade area) AND establishes common external barriers to trade (as in customs union) AND allows for the free movement of factors of production, such as labor, capital, and information (Kahoot game) CET = Common External Tariffs 24 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Forms of regional economic integration Harmonization and Elimination of Common External Elimination of Unification of Tariffs and Quotas Tariff (CET) and Restrictions on Economic and Among Members Quota System Factor Movements Social Policies and Institutions Free Trade Area Yes No No No Customs Union Yes Yes No No Common Market Yes Yes Yes No Economic Union Yes Yes Yes Yes relevant for the exam --> possible question: is the elimination of restrictions on factor movements part of the free trade area? no. 25 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de  How economic policies influence internationalization decisions 26 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Differences in economic policies that influence internationalization decisions Economic freedom Trade and fiscal policy (taxes) Monetary policy, regulation (particularly banking sector) (Intellectual) Property rights Controls of price and wages Openness vs. protectionism State subsidies State procurement policy Tariffs Non-tariff import restrictions, e.g., import contingents, import licenses, safety restrictions (environment, consumerism) Keegan, W.J./Schlegelmilch, B.B. (2001), Global Marketing Management: A European Perspective, chapter 2. 27 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Index of Economic Freedom – ranking 2024 “Free” (Singapore, Switzerland, Ireland, Taiwan) “Mostly Free” (e.g., Luxembourg, Denmark, Australia, Canada, Chile, US, Germany, South Korea) “Moderately Free” (e.g., Uruguay, Slovakia, Spain, France, Italy, Mexico, UK) “Mostly Unfree” (e.g., Colombia, Russia, India, Ecuador) “Repressed” (e.g., Iran, Venezuela, North Korea, Cuba) Index Annual guide published by The Wall Street Journal and The Heritage Foundation Covers 12 freedoms in 184 countries (assigning grade for each freedom from 0 to 100, where 100 represents maximum freedom) 4 broad categories ((1) property rights/government integrity/judicial effectiveness, (2) government spending/tax burden/fiscal health, (3) business/labor/monetary freedom, (4) trade/investment/financial freedom) Heritage Foundation (https://www.heritage.org/index/ranking), 2024 28 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Index of Economic Freedom – The World Heat Map (not available for 2024) Heritage Foundation (https://www.heritage.org/index/heatmap, 2023) 29 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Differences in economic policies that influence internationalization decisions Economic freedom Trade and fiscal policy (taxes) Monetary policy, regulation (particularly banking sector) (Intellectual) Property rights Controls of price and wages Openness vs. protectionism State subsidies State procurement policy Tariffs Non-tariff import restrictions, e.g., import contingents, import licenses, safety restrictions (environment, consumerism) Keegan, W.J./Schlegelmilch, B.B. (2001), Global Marketing Management: A European Perspective, chapter 2. 30 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de  explains why prices are different Countries ranked by different Value Added Tax (VAT) different tax systems influences prices important for consumer decision Hungary, Croatia and Denmark have the highest rates of VAT Switzerland, U.A.E and Canada have the lowest rates of VAT Countries ranked by different Value Added Tax (VAT) 0% 5% 10% 15% 20% 25% 30% Hungary Croatia Denmark Finland Portugal Italy U.K. France Russia Germany Singapore Canada U.A.E Switzerland https://www.worldwide-tax.com (2024) 31 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Taxes Different ‘target groups’ Government taxation policies: high taxation can lead to black market growth and cross-border shopping Corporate taxation: companies attempt to limit tax liability by shifting location of income Example: In Pakistan the evasion of duties and taxes by illegal cigarette manufacturers has cost the national exchequer Rs 55 billion (= 431 million €) from 2004-2011 (Rs 10 billion in the financial year 2010-11). Keegan, W./Green, M.C (2011), Global Marketing ,pp. 175-176; Pakistan Today [12th August 2011] 32 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de The global cost of tax avoidance 2017 if companies would pay their taxes in the places that they produce their products this would be the results example: Apple --> 5.3$ billion paid in taxes, could have paid 20$ billion in taxes https://www.statista.com/chart/8668/the-global-cost-of-tax-avoidance/ 33 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Differences in economic policies that influence internationalization decisions Economic freedom Trade and fiscal policy (taxes) Monetary policy, regulation (particularly banking sector) (Intellectual) Property rights Controls of price and wages Openness vs. protectionism State subsidies State procurement policy Tariffs Non-tariff import restrictions, e.g., import contingents, import licenses, safety restrictions (environment, consumerism) Keegan, W.J./Schlegelmilch, B.B. (2001), Global Marketing Management: A European Perspective, chapter 2. 34 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Intellectual property Intellectual property must be registered in each country where business is conducted Patent: gives an inventor exclusive right to make, use and sell an invention for a specified period of time Example: The plate of the Martin ejector seat of a military aircraft, stating that the design is covered by multiple patents in UK, South Africa, Canada and “others”. Trademark: distinctive brand/mark, motto, device, or emblem used to distinguish a product from competing products for an unregistered trademark, that is, a mark used to promote or brand goods for an unregistered service mark, that is, a mark used to promote or brand services for a registered trademark Copyright: establishes ownership of a written, recorded, performed, or filmed creative work Copyright for a DVD Keegan, W./Green, M.C (2011), Global Marketing , pp. 182-187 35 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Protecting intellectual property – Registering intellectual property Patents USA: Federal Patent Office Europe: European Patent Office or country-by-country Trademarks (brands) National level: “Markengesetz” (Germany) EU-Level: Community trade mark regulation (CTMR) Consistent trade mark law in the EU Consistent protection in the whole EU Time and cost savings compared to individual registrations in every country Registration at the Office for Harmonization in Alicante International level: World Intellectual Property Organization (WIPO) Madrid System for the International Registration of Marks (IR marks) Allows trademark owners to seek protection in 74 countries with single application and fee Keegan, W./Green, M.C (2011), Global Marketing , pp. 184-185; http://www.epo.org/; http://oami.europa.eu/ows/rw/pages/index.en.do; http://www.wipo.int/madrid/en/ 36 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Protecting intellectual property is important “There are two ways to fight piracy in China. The first is the Coca Cola- method. You make your product so well and you distribute it so cheaply that there is no money left for the counterfeiters. The second is the Budweiser approach: Budweiser beer cans in China have fluted edges that are difficult to manufacture. Chinese companies can brew beer and call it Budweiser, but they can’t yet put it in a can that looks real. If you don’t have an intellectual property rights plan as part of your business plan, you’re in trouble” [Thomas Boam, commercial attaché, United States Embassy, Beijing] Keegan, W./Green, M.C (2011), Global Marketing , pp. 183-186 37 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Differences in economic policies that influence internationalization decisions Economic freedom Trade and fiscal policy (taxes) Monetary policy, regulation (particularly banking sector) (Intellectual) Property rights Controls of price and wages Openness vs. protectionism State subsidies State procurement policy Tariffs Non-tariff import restrictions, e.g., import contingents, import licenses, safety restrictions (environment, consumerism) Keegan, W.J./Schlegelmilch, B.B. (2001), Global Marketing Management: A European Perspective, chapter 2. 38 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Taxes: Tariff barriers Direct taxes and charges imposed on imports Goal: protection of local companies from outside competition Most common forms Specific: charges (in local currency) imposed on particular products (by either weight or volume) ad valorem: straight percentage of the value of the goods Discriminatory: tariff is charged against goods coming from a particular country (due to trade imbalance or political reasons) Barrier to trade but known beforehand  can be accounted for by companies in the development of their marketing strategies Non-tariff barriers (e.g., quotas) less predictable Hollensen, S. (2011): Global Marketing, p. 209 39 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Do trade barriers always help? Tariffs of 10% beginning Sep 2018, but would rise to 25% in March 2019 Trump argues that barriers will help create manufacturing jobs and ensure competition According to CBO The levies -- imposed on items including steel, aluminum, etc. -- will cut real GDP by about 0.1% on average through 2019 and fuel “uncertainty among investors, which may further reduce U.S. output” New tariffs will increase inflation, adding 0.1% to consumption expenditures price gauge by 2022 and boosting prices for private investment by 0.5%. “Like other price increases that result from taxes, those higher prices will reduce consumer spending by diminishing the purchasing power of consumer income and will reduce investment by making capital goods more expensive” Ende Lecture 05.12.2024 rest of slides later https://www.bnnbloomberg.ca/u-s-trade-barriers-will-hurt-the-economy-cbo-says-contradicting-trump-1.1205133 (Accessed 17.04.19) 40 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Metrics to assess (economic and political) country risk 41 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Evaluating country risk Concepts for evaluating country risks qualitative quantitative objective subjective Multidimensional Statistical Data Econometric scoring models or Ratios Models GTAI FDI Debt-to-GDP US-EXIM BERI Information Report ratio Bank Model System (not Political Risk Debt service updated Letter quota anymore) PwC/AGEFI Net demand Trade Country Monthly for credit Risk Atlas Barometer International Country Risk Guide Adapted from Backhaus, K./ Büschken, J. /Voeth, M. (2003), Internationales Marketing, p. 139; https://www.gtai.de/en/invest/business- location-germany/foreign-directinvestment; https://www.pwc.lu/en/market-research-centre/news/barometer-sept2024.html; https://www.allianz- trade.com/en_global/news-insights/news/allianz-tradecountry-risk-atlas.html 42 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Evaluating Country Risk – Scoring Models Country risk is divided in sub-components Expert panels evaluate sub-components on a country-by-country basis (method, e.g. Delphi method) Weighting of individual evaluations Problems: Choice and weighting of criteria, aggregation rule as well as proposition of independence between criteria (linear-additive model) Example: BERI (Business Environment Risk Index) Operation Risk Index Political Risk Index R-Factor (Remittance & Repatriation) In each case composite score between 0 [prohibit risk] and 100 [low risk] Backhaus, K./ Büschken, J. /Voeth, M. (2003), Internationales Marketing, pp. 140 ff.; www.beri.com; http://www.beri.com/Publications/BRS.aspx 43 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de  Evaluation of market attractiveness Based on (economic and political) conditions 44 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de 17.01.2025 Market attractiveness versus competitive strength matrix Determinants of market attractiveness Market size Market growth Purchase power Seasons Average industry margin Competitive condition Determinants of competitive strength Market regulation (barriers, import restrictions, controls) Market share Infrastructure Product fit to market demands Economical and political stability Contribution margin Psychic distance Technology positioning 4Ps (price, distribution system…) Brand equity Financial resources Psychic distance 45 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de International market segmentation for Bosch Security System 46 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de The Bosch example – scorecard 47 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de The Bosch example – scorecard 48 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Agenda 2.1 The economic environment 2.2 The political/legal environment 2.3 Market entry strategies 2.4 Choice of entry modes Timing market entry: Two generic strategies “Waterfall strategy” “Sprinkler strategy” Principle of concentration Principle of diversification Extensive market research Activity in as many markets as possible in a relatively short time Customization of marketing activities High standardization of marketing activities Very often: selection of the geographically closest market from the Failure and withdrawal from some markets home country accepted --> transaction cost theory, uppsala model Homburg, C./Kuester, S./Krohmer, H. (2009). Marketing Management: A Contemporary Perspective, p. 432. 50 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Waterfall vs. sprinkler: Advantages and disadvantages “Waterfall strategy“ “Sprinkler strategy“ Time for building up financial and personnel resources Market entry barriers against followers (e.g., image (economical resource usage) advantage, switching costs) Time to learn from “teething problems” Distribution of risks (regionally) Distribution of risk (regarding time); less risky Volume for products/capacity utilization (economies of Smoothing of sales (product life cycles) scale) Coordination of interdependencies between country Making full use of competitive edge markets Making use of short product life cycles for second generation products and high development costs Competitors can enter other markets (product imitations) Need of many financial and personnel resources (short- Order-of-entry disadvantages term) Too early abortion after failure High risk --> suitable for digital products Coordination of interdependencies between country markets --> suitable for high technology products Backhaus, K./ Büschken, J. /Voeth, M. (2003), Internationales Marketing, pp. 164 ff. 51 e.g. Playstation © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Waterfall vs. sprinkler: Examples L’Oréal and MANGO “Waterfall strategy” “Sprinkler strategy” For most companies preferred strategy because of risk distribution Example Example L’Oréal went abroad step by step To some extent MANGO expanded at the same time in different countries The company was established 1909 in France In 2004 market entry in countries like Azerbaijan, 1910 it expanded to Italy Estonia, El Salvador, Macao and Vietnam 1912 to Austria 1913 to the Netherlands Later to USA, Canada, UK and Brazil 52 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Combining the two strategies usually it's a mix of both strategies, never the one or the other gy Market entry Country A Country B Country C Country D Country E time Lead country Lag countries Homburg, C./Kuester, S./Krohmer, H. (2009). Marketing Management: A Contemporary Perspective, p. 432. 53 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Situational factors favoring waterfall strategy – longer product life cycles Country A ‘Home Market‘ Country B Product life cycles on different markets Country C assumption: it only works in markets without exchanges between multiple countries, you have to wait until it is available to your country Backhaus, K./ Büschken, J. /Voeth, M. (2003), Internationales Marketing, p. 167. 54 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Waterfall vs. sprinkler: a comparison of sales underlying problem for higher sales: you need production capacity --> problem for waterfall strategy Backhaus, K./ Büschken, J. /Voeth, M. (2003), Internationales Marketing, p. 167. 55 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Waterfall vs. sprinkler: price differences in the long term, the prices fall Backhaus, K./ Büschken, J. /Voeth, M. (2003), Internationales Marketing, p. 169. 56 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de  in the exam, there will be asked no definitions important to know the relationships (+/-) for the exam, explain the logic Waterfall vs. sprinkler: a decision between risk and revenue Economics Culture Controls same arguments: new products have higher prices Uncertainty avoidance (-/+) Brown (+)/white goods Economic wealth (+) Masculinity (+) Lagged market penetration (-) Income inequality (-) Religion (Protestantism) (+) Lag of introduction (+) lack of introduction (the later I introduce, the more I grow) has a positive impact on Growth rate how products sell --> logic: the later you enter a market, the lower the price will be and more people will be interested to buy products introduced in countries with higher masculinity grow faster (+) --> Database is built from various data sources logic: new products symbolize power, innovation, achievement, higher status and in countries where these 10 consumer durables attributes are important (high masculinity), products are sold faster 16 European countries (114 country- category pairs) Annual data from 1950-2000 Stremersch, S., & Tellis, G. J. (2004). Understanding and managing international growth of new products. International Journal of Research in Marketing, 21(4), 421–438 57 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Waterfall vs. sprinkler: a decision between risk and revenue Trade-off between waterfall and sprinkler is trade-off between revenue maximization and risk minimization Waterfall minimizes risk, sprinkler maximizes revenue Stremersch, S., & Tellis, G. J. (2004). Understanding and managing international growth of new products. International Journal of Research in Marketing, 21(4), pp. 421–438. 58 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Agenda 2.1 The economic environment 2.2 The political/legal environment 2.3 Market entry strategies 2.4 Choice of entry modes What is the right market entry strategy? It depends on… Vision Attitude Available Desired level towards risk capital of control 60 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Types of entry modes Foreign Market Entry Modes Export modes Intermediate Modes Indirect Export Contract Manufacturing Direct Export Licensing Cooperative Export Franchising Green Venture Joint Venture/ Strategic Alliances Increasing level of ownership and risk Hollensen (2011), pp. 356, 376 https://www.semanticscholar.org/paper/Millak-Foreign-Direct-Investment-in-Turkey-Factors-Millak- Hellstr%C3%B6m/e06098e9d159dea82aaa6198ac5bb87d53e72da4/figure/0 61 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Trade-Off: Costs & involvement of market entry strategies Degree of Involvement Strategic partnership Investment Joint Venture Licensing Equity Stake Exporting Contract Manufacturing Franchising Costs 62 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Exporting Definition: The commercial activity of selling and shipping goods to a foreign country Export marketing tailors the marketing mix to international customers This requires: 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 Keegan, W./Green, M.C (2011), Global Marketing, pp. 271-275; http://www.wto.org/english/res_e/statis_e/its2012_e/its12_highlights2_e.pdf 63 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Exporting: Leading exporters and importers in world merchandise trade (2023, in bn US-$) The largest exporting countries worldwide in 2023 The largest importing countries worldwide in 2023 China 3.380,02 USA 3.172,51 USA 2.019,54 China 2.556,80 Germany 1.688,42 Germany 1.462,60 Netherlands 934,57 Netherlands 842,05 Japan 798,25 United Kingdom 791,3 Italy 717,32 France 785,88 France 676,96 Japan 785,62 South Korea 648,48 India 672,67 Mexico 593,01 Hong Kong 653,7 Hong Kong 573,87 South Korea 642,57 Statista (2023) 64 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de The gas crisis: A story about exporting and importing https://www.spiegel.de/wirtschaft/unternehmen/gas-300-produkte-verschlingen-90-prozent-des-gas-verbrauchs-a-c62bd2b4-56a1-446a-9dc2- a36d1e593e6b?sara_ecid=soci_upd_wbMbjhOSvViISjc8RPU89NcCvtlFcJ 65 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Licensing Definition: A contractual agreement whereby one company (the licensor) makes an asset available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation Example: Asset Compensation The licensed asset may be Patents, Trade Secrets, e.g., in pharma e.g., special Brand name, and technical e.g., apparel Product software, special industries designers formulation technique Keegan, W./Green, M.C (2011), Global Marketing, pp. 299-301 66 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Licensing – example Walt Disney Disney Consumer Products, for example, is repeatedly ranked as the world’s largest licensor and reported a total of $40.9 billion in retail sales (licensed merchandise) in 2013, including Marvel and Lucas. http://www.disneystudiolicensing.com; http://www.licensemag.com/license-global/top-150-global-licensors-0 (April 23, 2018). 67 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Licensing – Advantages and disadvantages for licensor Advantages Disadvantages Provides additional profitability - Limited participation attractive ROI Lack of market control: Returns may Provides method of circumventing be lost tariffs, quotas, and other export Licensee may become competitor barriers (compared to other market Licensee may exploit company entry modes) resources Low costs to implement (signing the agreement and policing the implementation) Keegan, W./Green, M.C (2011), Global Marketing, pp. 299-301. 68 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Risks of licensing Risks associated with excessive licensing are an overexposure of the brand and a loss of control over the expected quality of the branded products which could damage the brand’s image. Keller (2013), p. 278; http://www.lobshots.com/2011/10/05/just-your-average-buzz-lightyear-sippy-cup-no-big-whoop/ (accessed April 23, 2018). 69 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Licensing – Special licensing agreement: Contract Manufacturing Company provides technical specifications to subcontractor or local manufacturer; subcontractor oversees production Allows licensing company to specialize in product design and marketing while contractors accept responsibility for manufacturing facilities Example: Lays is contracting local farmers to produce potatoes for them Keegan, W./Green, M.C (2011), Global Marketing, pp. 301-302. 70 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Licensing – Special licensing agreement: Franchising Contract between a parent-company franchiser and a franchisee that allows the franchisee to operate a business developed by the franchisor in return for a fee and adherence to franchise-wide policies Example: Questions: Will local consumers buy your product? How tough is local competition? Does the government respect trademark and franchiser rights? Can your profits be easily repatriated? Can you buy all the supplies you need locally? Is commercial space available and are rents affordable? Are your local partners financially sound and do they understand the basics of franchising? Keegan, W./Green, M.C (2011), Global Marketing, pp. 301-302. 71 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Investment Foreign Direct Investment (FDI) = partial or full ownership of operations outside of home country Forms: Joint ventures, minority or majority equity stakes, outright acquisitions Total FDI: 2020: USD 929 billion 2021: USD 1.647 trillion 2022: 2.13 trillion Top Foreign Direct Investment Targets 2023 1. USA 2. Canada 3. Japan 4. Germany Keegan, W./Green, M.C (2013), Global Marketing, p. 259; https://www.kearney.com/service/global-business-policy-council/foreign-direct- investment-confidence-index/2023-full-report 72 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Investment: Joint Ventures Joint Venture = entry strategy for a single target country in which the partners share ownership of a newly-created business entity Builds upon each partners strengths Keegan and Green (2011), pp. 303-304. 73 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Investment: Joint Ventures Joint Venture = entry strategy for a single target country in which the partners share ownership of a newly-created business entity Builds upon each partners strengths Advantages Disadvantages Allows for risk sharing (financial and Requires more investment than a political) licensing agreement Provides opportunities to learn in a Must share rewards as well as risks new environment Requires strong coordination Provides opportunity to achieve Potential for conflict among synergy by combining strengths of partners partners Partner may become a competitor Maybe only way to enter market given barriers to entry Keegan and Green (2011), pp. 303-304. 74 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Investment: Equity stakes Equity stake = when a company or organization owns share in a company Minority stake = Investor owns fewer than 50 % of the shares Majority stake = Investor owns more than 50 % of the shares Full ownership = Investor has 100 % control, e.g., through merger & acquisition of an existing company Examples: In 1991, Volkswagen made its first investment in the Czech auto industry by purchasing a 31% share in Skoda. By 1995, VW had increased its equity stake to 70%. GM favors minority stakes in non-U.S. automakers. The company invested in 1999 $1.4 billion (20% of stakes) in Fuji Heavy Industries (Japan). Moreover, GM invested in Saab Automobiles AB (Sweden). In 1990 GM held 50% of the stakes ($500 million). After the bankruptcy in 2009 GM sold Saab to a Swedish consortium. Proton, a Malaysian automobile manufacturer, holds 80% of the stakes of the British company Lotus Cars. Keegan, W./Green, M.C (2011), Global Marketing, pp. 308-311. 75 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Preferred entry modes of Top 250 global retailers Deloitte 76 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Drivers of success for market entry into China and India: The role of entry mode Johnson,J./Tellis,G.J. (2008), Drivers of Success for Market Entry into China and India, Journal of Marketing, 72 (May), pp. 1-13. 77 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Drivers of success for market entry in China and India Descriptive Statistics Variable Number Percentage 1. Mode of Entry a. Exports and branch subsidiaries 7 4 Success factors b. Licenses 12 7 c. Franchises and agreements 10 5 Higher control d. Joint Ventures 75 41 Early entry (vs. later entry) – only in India e. Equity Joint Ventures 18 10 f. Wholly owned subsidiaries 61 33 Smaller firms 2. Country of Origin of Firms Economic similarity – weaker in India a. North America 108 56 b. Europe 43 23 (Cultural closeness) c. Southeast Asia, Australia and New Zealand 41 21 Fewer risk 3. Type of Industry a. Consumer nondurable 54 28 Lower openness b. Consumer durable 86 46 c. Service 29 15 d. Industrial 23 11 Johnson,J./Tellis,G.J. (2008), Drivers of Success for Market Entry into China and India, Journal of Marketing, 72 (May), pp. 1-13. 78 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de The effect of entry mode Entry mode control = six-point ordinal scale ranging : exports (1), alliances (2), franchise (3), joint ventures (4), equity joint ventures (4.5), and wholly owned subsidiaries (5). Success is greater for firms that use a mode of entry with greater control. Johnson,J./Tellis,G.J. (2008), Drivers of Success for Market Entry into China and India, Journal of Marketing, 72 (May), pp. 1-13. 79 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Entry strategy of retail firms into transition economies Intraretailer Information Interretailer Information Control Variables Relevance of prior experience Home (+) vs. foreign (-) players Firm characteristics Near-market cultural Same-format (+) vs. different- Private-label share (-) knowledge (+) format (+) players Firm size (+/-) Near-market economic First (+) vs. later entrants Host-market attractiveness knowledge (+) Distance from home Extent of international market experience (Cultural (-), Economic (-), Regional (+) Geographic (-) ) Worldwide (+) Extent of liberalization (+) Strength of local players Entry Decisions (-) Speed of entry Size of Entry also related to the uppsala model Gielens, K./Dekimpe, M.G. (2007), The Entry Strategy of Retail Firms into Transition Economies, Journal of Marketing, 71 (April), pp. 196-212. 80 © Univ.-Prof. Dr. Kristina Klein, markstones Institute of Marketing, Branding & Technology, www.markstones.de Universität Bremen Prof. Dr. Kristina Klein Max-von-Laue-Straße 1 Gebäude WiWi 2 F3210 [email protected] 0421 218-66970