Title: INTERNATIONAL MARKET SELECTION AND ENTRY
1Lecture 9
- INTERNATIONAL MARKET SELECTION AND ENTRY
2International MarketSelection and Entry
- Learning Objectives
- Identify the different problems faced in
selecting an overseas market, as between firms
inexperienced and experienced in international
business - Assess the countrys attractiveness in terms of
the potential, membership of trading blocs,
competitive intensity and entry barriers - Recognise the different available modes for
entering an overseas market and the advantages
and disadvantages of each and
3Introduction
- Two of the most critical questions we need to
ask when a firm is considering going off shore - Which of the vast range of overseas markets
should the firm enter? - What mode should the involvement in the selected
market take?
4THE INTERNATIONAL MARKETING DECISION
Do we want to market overseas ?
Which countries?
How involved should we become?
Which mode of entry?
How do we configure the marketing mix?
How do we plan?
How do we organise?
How do we control?
5Alternative Approaches to Market Selection
- Selecting an overseas market can impact on the
other activities of the firm. This is because
the outcome may influence the profitability of
the firm, in its domestic as well as its
overseas markets and its global reputation - SO, WHICH MARKET TO ENTER?
6Alternative Approaches to Market Selection
- There are various approaches to market selection
and these have different implications for small
and medium sized firms, as opposed to large
firms. Approaches a firm might consider include - Whether to enter overseas markets on an
incremental basis, or to enter a number of
overseas markets simultaneously. - Whether to adopt a concentrated, focused
approach, or if a diversified approach should be
adopted.
7Strategic Decision
- The decision which market to enter should form
part of a companies overall strategy - AND, should be
- Linked to resources and organisatioal competence
and its relationship with its competitors - ONE METHOD
- is to isolate those markets with the greatest
potential
8Screening for Market Selection
- WHY DO WE SCREEN?
- To enable the firm to arrive at a portfolio of
attractiveness of the various overseas markets - A screening approach
9Analysing the Attractiveness of Individual Markets
- The purpose of screening is to enable the firm
to arrive at a portfolio of attractive overseas
markets. - Two grids developed by the Australian Trade
Commission compare the attractiveness of the
overseas market with the competitiveness of the
Australian firm in order to decide the merit of
entering the specific overseas market. - (refer p. 225 of text)
10Screening Example
Page 225
11A Screening Approach
- The grid approach, which involves analysis of
each country is time consuming and may be beyond
the management resources of many small and medium
sized firms. - An alternative approach might involve
considering all markets in the world and then
screening markets in relation to a succession of
criteria. Unsuitable markets are progressively
eliminated from consideration.
12Market Selection in the New Millennium
- In the new millennium, it is increasingly likely
that for the novice international firm and the
experienced one, international market selection
will be influenced by strategic objectives, such
as - Establishing a competitive position
- Transferring risk
- Rating market investment against profitability
13Market Selection in the New Millennium
(continued)
- Walton and Ashill (2001) argued that there my be
a need for change in the traditional patterns of
international marketing selection to cater for a
world that values.. - CHOICE, SPEED, INFORMATION,
COLLABORATION, INCREASED CONSUMER
VALUE DESIRE TO CAPITALISE ON
E-COMMERCE - They suggest that future international market
selection will be influenced by the desire to
select the right partner and the need to
transfer risk to other markets in order to even
out the exposure to risk between countries
14Modes of Entering Foreign Markets
- Export based entry
- Manufacturing based entry
- Relationship based entry
15MODES OF ENTRY INTO OVERSEAS MARKETS
- The modes of entry affects a firms entire
marketing mix. - Indirect exports sales to intermediary
organisations at home which resell the product to
overseas customers. - Direct exports sales to customers overseas.
Customers may be overseas intermediaries or
end-users. - Overseas manufacture own production operation
overseas or a joint venture with a local
producer.
16- Decision to enter overseas markets made
- but which mode of entry?
- Exporting Overseas production
- Indirect Direct Licensing Contract
Joint Wholly - manufacture venture
owned - production
- Overseas to final user
- export agent
- via company branch offices
- Home based Buying Piggy-backing
- export managers offices
17CRITERIA FOR SELECTING A MODE OF ENTRY
- 1. Firms marketing objectives
- production volume
- time scale - long/short term
- coverage of market segments
- 2. Firms size
- 3. Government encouragement or restrictions
- 4. Product quality requirements
- 5. Human resources requirements
- 6. Market information feedback
- 7. Learning curve requirements
- 8. Risks political or economic
- 9. Control needs
18Export Based Entry
- Includes the following
- Indirect exporting
- Direct exporting
- Establishing a sales office in the overseas
market - Licensing
- Franchising
19Export based entry (cont..)
- In-direct exporting
- Refers to the use of agencies in the home
country to get the product into the foreign
market. Uses. - 1. export agents who take commission for
exporting goods - export merchants buy the goods from the
manufacturer and export them - 2. piggy backing the inexperienced
exporter uses the facilities of an experienced
one to enter an overseas market. - Direct exporting
- The firm contacts the buyers overseas
themselves. They establish their own export/
sales organisation which does all the the
marketing and identifies potential markets and
completes its own documentation, shipping and
planning. - Involves a lot of commitment to resources BUT
greater control over conditions of how, when sold -
20Export based entry (cont..)
- Establishing a sales office in the overseas
- The firm has greater control over what happens
to the product in the market place. Control over
selling and promotional work. - Licensing
- A firm earns overseas income from its technical
innovations, brand and corporate image overseas.
Disadvantages limited return especially where
the company does not fully develop the potential
the market has to offer. - Franchising
- The franchisor gives the franchisee the right to
undertake business in a specified manner under
the franchisors name in return for a royalty
payment. - Disadvantages the cost of renting sites, must
be well managed, the franchisor can lay down
guidelines with respect to how the service is run
21Manufacturing Based Entry
- Often referred to as DFI Direct Foreign
Investment. Includes - Joint venture
- Acquisition
- Greenfield Operation
22Joint Venture
- The most common form of DFI in Australian firms.
Asian companies mandate that they should be
involved and have a say in what goes on in their
country. - Example Cook Islands
- Advantages The local partner can ease access
problems i.e. customs, reduce capital and
resource commitment - Disadvantages communication, management
differences. May have a limited lifespan unless
come to an agreed corporate mission
23Acquisition
- Enter an overseas market and acquire an existing
company. This method is adopted by multi-national
firms that are cash rich - Provides rapid entry and makes use of established
distribution channels and the existing customer
database - Used in highly competitive industries where there
may be barriers SO eliminate the barriers by
buying the company
24Greenfield Operation
- Where a firm decides to build its own
manufacturing plant in an overseas country using
its own funds. - This is attractive if if there are NO suitable
firms to acquire or the firm needs its own plant
due to technical concerns - Select most attractive sites in terms of labour
costs, local taxes, land prices and transport
25Relationship Based Entry
- Contract manufacturing
- Strategic alliances
- Counter trade
26Contract manufacturing
- The firm contracts to a local manufacturer but
retains control of the marketing of the product. - WHY USED?
- Building ones own manufacturing facility is not
an option - Barriers to imports exist
- Low investment
- Quick way to access an
overseas market - No quality control
necessary the product is
already established
27Strategic alliances
- Collaborations between firms in various
countries to exchange or share some value
creating activities - Collaboration used when considered necessary to
enter a market amongst those who would normally
be considered your competitors - Example Aviation industry. Star Alliance between
United airlines, Air New Zealand etc involves
providing information on routes, frequent flyer
programmes etc - Cooperation and Collaboration
28Counter trade
- Linking if an import and an export transaction in
a conditional manner which includes barter
29Evaluation of Entry Modes
- When considering the modes of market entry, it
is important to recognise that they involve a
trade-off between - 1.degree of control on the one hand and
- 2. commitment of resources on the other.
- This trade-off exists between forms of
exporting. - Indirect exporting resource commitment is
minimal and control non-existent - Direct exporting resource hungry, more control
over how product is represented
30RISKS AND CONTROL IN MARKET ENTRY
Control
Manufacturing Own subsidiary Acquisitions Assembly
Co-operation Strategies Joint
Ventures Strategic Alliances
Direct Exporting Distributors Agents Direct
Marketing (mail order) E-commerce Franchising /
Licensing Management Contracts
Indirect Exporting Piggy-backing Trading
companies Export Management companies
Risk
31Theories of market entryDunnings Eclectic
Paradigm
- Research has been conducted on which factors
cause firms to manufacture in an overseas country
rather than export to it - different countries have different factor
endowments that could be mobile or immobile
across national boundaries - Dunnings Eclectic Paradigm- facts that
influence entry modes there are 3 - Ownership
- Location
- Internalisation
32Theories of market entry Williamsons
Transaction Cost Approach
- Argues that..the market entry selected should
be that which maximises long-run efficiency
measured in terms of the risk adjusted rate of
return on investment. - Williamsons transaction cost approach considers
that the extent to which the chosen entry mode
should provide control is a function of - Transaction specific assets
- External uncertainty
- Internal uncertainty
- Free-riding potential
33Information for Market Entry and Expansion
- Factors internal to the firm
- Factors external to the firm
34Factors Internal to the Firm
- Management characteristics
- Firms characteristics
- Problems of competing in the domestic market
- Willingness to commit resources
- Nature of domestic market
- Ability to make the necessary resources available
- Extent to which products are high-tech
- Size of the firm
35Factors External to the Firm
- Nature and attractiveness of the product category
- Potential of overseas market
- Government regulations and trade barriers
- Assistance from Government and other bodies
36Approaches to Internationalisation
- Stages approaches
- Learning approaches
- Contingency approaches
- Network approaches
37Stages Approaches
- The earliest group of theories to explain this
process were the so called stages approaches
firms started with the mode of entry which
required the least commitments of resources, and
with experience gradually increased their
commitment of resources to international
activities.
38Stages Approach
- - The earliset group of theories stages
appraoches - - Firms started with the mode of entry which
required the least commitment of resources to
int. activities - Studies listed page 242. argued that firms
moved from - awareness to intention to trial
- to evaluation to acceptance
-
- in terms of their
relationship to exporting.
39Learning Approaches
- The Learning Approaches theories recognize that
internationalisation is a dynamic process. They
focus more on evolutionary, sequential build up
of foreign commitments over time and recognise
the role that psychic distance can play in the
process.
40Learning Approaches
- Internationalisation is a dynamic process
- Focuses on an evolutionary, sequential process
over time - Recognised the importance of psychic distance
(remember from my last lecture on culture!) - Example firms start their overseas involvement
in nearby markets they are familiar with as they
learn about the export market.
41Contingency Approaches
- Theories of internationalisation are based on
contingency theory, whereby the firm evaluates
and responds to an opportunity as it occurs,
regardless of whether the market is close in
psychic distance terms or whether an advanced
mode of entry is required.
42Network approaches
- Emphasised the role of linkages and
relationships in the internationalisation process - Firms become involved in international
activities by establishing linkages with networks
in other countries - Description of the modes of entry in
terms of the position established in overseas
networks as - International expansion entering a network
overseas that is new to a firm - International penetration building upon an
already established position in an overseas
network - International integration coordinating the
positions already occupied in networks in
different countries
43A holistic view of Internationalisation
- Fletcher looked at market entry modes in a
broader way in an endeavour to consider what
actually happens to firms when entering markets
overseas as opposed to theories built around what
firms should do.
44A holistic view of Internationalisation
OUTWARD FORMS Export intermediary Export
agent Export direct Sales office
overseas Licensor overseas Franchisor
overseas FDI to supply
INWARD FORMS Import intermediary Buying
agent Import direct Buying office
overseas Licensee in Australia Franchisee in
Australia FDI to source
LINKED FORMS Strategic alliance Co-operative
Manufacturing Countertrade
45SEE CHAPTERS 7 12 for more information
46- Any Questions
- Please see me outside this lecture theatre
- CHEERS!
?