Global Marketing Management

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

• Warren J. Keegan

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Overview

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

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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

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Decision Criteria for IB

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

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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

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Market Selection Criteria

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

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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?

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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
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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

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Production Abroad
Ownership and Control
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• 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.

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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

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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.

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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

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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

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Government programs that support Exports

• Tax incentives
• Subsidies
• Governmental assistance

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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

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Export-Related Problems

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

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Sourcing Decision Factors

• Factor costs conditions
• Logistics
• Country infrastructure
• Political risk
• Market access
• Exchange rate, availability convertibility of
  local money

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Non-exporting modes of entry

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

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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
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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

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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.

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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.

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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).

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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.

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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.

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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

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

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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

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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

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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

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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

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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.

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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

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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

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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.

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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

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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

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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

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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.