How to enter a new market

1
How to enter a new market

• Value chain decisions
• Partnership decisions

2
The value chain

• Devised by Porter (1980) to analyse what happens
  inside companies
• Kotler (1996) competition today is not between
  companies but between networks of value-delivery
  systems the winner will be the company that has
  the better network
• Terpstra configuring the value-added chain
• - which activities to do yourself and which to
  pay someone else to do.
• Make or Buy?

3
The Value Added ChainTerpstra and Sarathy
Manufacture Assembly
Retailing
Distribution Marketing
Design
Components

• Where does your expertise lie?
• Where can you add most value to the product?
• Where can the activities be done the cheapest?
• Where can you sell at the highest profit
• Where are the gaps in the market?

4
Partnership Decisions (entry mode)

• Indirect export
• sales in home market to foreign buyers
• export management companies
• Direct export
• foreign distributors
• local sales agents
• marketing subsidiary
• Foreign production
• assembly
• contract manufacturing
• licensing
• joint venture
• acquisition
• new greenfield start-up

5
Licensing

• Any deal to allow exclusive rights to use
  knowledge, image, brand name, expertise
• e.g. recipe for food or drink
• character licensing e.g. Harry Potter

6
Franchise

• Licensing a business format
• an agreed blue-print for the business

Franchisor supplies Brand name Method of
production or service Training Quality standards
Franchisee supplies Capital to buy franchise and
premises Management Ownership
Reduces the risk of foreign operation
Circumvents limits on foreign ownership Risk to
reputation if quality standards not
enforced Could train a future competitor
7
Management Contract

• International firm runs a locally-owned business
• Turn-key project
• International firm builds/sets up business then
  sells/leases it to a local operator

8
Which method to chose? (Kotler)
Indirect Direct Contractual Joint Wholly-owned
Commitment, risk, control, profit potential
Externalised Export modes
Internalised Hierarchical Investment modes
Intermediate Contractural modes

• Hollensen, S Global Marketing 2000

9
Factors affecting choice of entry mode

• Internal factors
• firm size, international experience
• product complexity, advantages
• tacit know-how (transferability of expertise)
• Policy preferences
• reduce risk
• retain control
• flexibility (v commitment)

10
External factors

• Socio-cultural distance
• Country risk factors
• Market size and potential
• Direct and indirect trade barriers
• Intensity of competition
• Availability of intermediaries/partners

11
The Reebok case

• Draw a diagram of the value-added chain for
  trainers
• who performs each activity?
• what type of partnership?
• where is it performed?
• why?
• where is the most value added? Why?
• Apart from the brand-owners and their
  contractors, who are the other stakeholders?

12

• Who is responsible for the poor conditions of the
  workers?
• Who could do something about it? Why dont they?
• What strategies could a Finnish shoe-maker adopt
  to compete with these global chains?

13
The value-added chain in leisure

• Draw a value-chain diagram for
• Disney theme parks
• a tour-operator
• Sony (music/film/software/hardware etc)
• a sports promoter
• What are the stages, how do they add value, who
  owns them?