INTERNATIONAL MARKETING (M 607

)

STRATEGIES FOR ENTERING GLOBAL MARKET:
How does an organization enter an overseas market?
The strategies or approaches adopted by a firm for entering and penetrating individual markets are often an important consideration in building global strategy and warrant more attention at this point. The firm has a choice of alternative approaches for penetrating new markets and for establishing new sources of supply. These alternatives imply different levels of commitment for the resources of the firm. They also have a time dimension and can operate as a building block or an obstacle to the achievement of long term goals. Moving from a minimum to a maximum commitment of company resources, entry strategies can be grouped into five basic categories, such as ‐ Exporting, Licensing, Strategic Alliances, Joint Vent res and !irect in"est#ent$O%ners&ip.

STRATEGIES FOR ENTERING GLOBAL MARKET
High Risk/Return

Licensing

Str te gic A!!i nc es

"#int $entu re

%irect In&est'ent

E()#rt

L#* Risk/Return E'(ORTING

Ti'e +#''it'ent
Return

This is the first stage of addressing market opportunities outside the home country. The exporter targets markets outside the home country and relies upon home‐ country production to supply product for these markets. Exporting is the most traditional and well‐established form of operating internationally. In export, the company produces or arranges good in the home country and sells it to the buyer of a foreign country. There are )irect and in)irect approaches to exporting to other nations. irect exporting is straightforward. Essentially the organi!ation makes a commitment to market overseas on its own behalf. This gives it greater control over its brand and operations overseas, over an above indirect exporting. a. Direct Export

" company may engage in direct exporting, that is, sales between the company and the second‐country distributor or customer that functions as the importer. In this mode, companies undertake handling their own exports. The investment and risk are somewhat greater, but so is the potential return. The company can carry on
Afsar Uddin Ahmed, Director Commercial, Beximco Pharmaceuticals Ltd., E-mail : afs@b l.net

"fter sometimes. Afsar Uddin Ahmed.net . Beximco Pharmaceuticals Ltd. it might evolve into a self container export department. E-mail : afs@b l. These are# ? Domestic Base Export Department of Division: "n export sales manager carries on the actual selling and draws on market assistance as needed.INTERNATIONAL MARKETING (M 607) direct exporting in several ways. Director Commercial..

$ompanies typically start with indirect exporting and work through independent middlemen. the company exports from time to time on its own or in response to unsolicited orders. providing branding. patent. ? $oreign Based Distri utors or %gent : %oreign based distributors would buy and own the good& foreign based agent should sell the goods on behalf of the company. it involves less risk. ? Domestic)Based Export *erchant( This middleman buys the manufacturer(s product and sells it abroad on its own account. ? "raveling Export Sales #epresentatives: The $ompany can send home based sales representatives abroad to find business. concepts. &ndirect Export " company engages in indirect exporting sells through an intermediary located in the home country. " company with technology. Such as – $ranchising involves the organi!ation +franchiser. LI*ENSING *icensing is an alternative entry and expansion strategy with considerable appeal. "ctive exporting takes place when the company makes a commitment to expand exports. . trademark. or a strong brand image can use licensing agreements to supplement its bottom‐ line profitability with no investment and very limited expenses. )econdly. Indirect export has two advantages. expertise. Occasional Exporting and %ctive Exporting. %irstly. ? Export *anagement( This middleman agrees to manage a company(s export activities for a fee. Indirect export is found in two forms. These are# ? 'igg! acking( 'hereby the company uses the existing distribution and logistics of another business for its new products. ? Domestic)Based Export %gent( This agent seeks and negotiates foreign purchase and is paid a commission. and infact most facets that are needed to operate in an overseas market. to the franchisee. Example# *oca+*ola.? Overseas Sales Branch or Su sidiar!: "n overseas sales branch allows the manufacturer to achieve greater presence and program control in the foreign market. offering the right to use a manufacturing process. The company can carry on indirect exporting in several ways. trade secret. or other item of value for a free or royalty. know‐how. ? +ooperative Organization( a cooperative organi!ation carries on exporting activities on behalf of several producers and is partly under their administrative control. In occasional exporting. it involves less investment. The licensor enters an agreement with a licensee in the foreign market. It represents a simple way for a manufacturer to become involved in international marketing. Management tends to be controlled by the franchiser. . Companies can enter foreign markets on other bases.

In fact. *o//ee Rep 0lic an) Mc!olan)1s resta rants. 1ou would not own the plant once it is handed over. They often include the training and development of key employees where skills are sparse ‐ for example. Examples include RMG /or 3al+Mart. "urnke! contracts are ma0or strategies to build large plants. *anagement +ontract ‐ " company can sell a management contract in which it offers to manage a hotel. 2ilton. -ur . T r6e4. a hospital or other organi!ation in return for a fee. an airport. and Apollo 2ospitals. Examples include (ac (aci/ic. the service provider company brings together a package of skills that provides an integrated service to the client without incurring the risk and benefit of ownership. To4ota5s car plant in A)apa-ari. . +ontract manufacturing ‐ " contractual agreement where a firm engages local manufacturers to produce products in a specific geographic area. (ro) cts /or NIKE etc.M/ sector is an example of contract manufacturing.Examples include !o#inos (i--a.

i4hone was initially marketed by -6 in the 7nited 8ingdom. Toyota "yago is also marketed as a $itroen and a 4eugeot.g. and opportunity costs. .A)"antages o/ licensing ? $apital investment or knowledge or marketing strength is not re2uired.< of =eacham were co‐ promoted in 9. !isa)"antages o/ licensing ? *icensor gets limited expertise. ? .-pera< went in to a co‐marketing alliance with /4 in =angladesh. know‐how. especially if the licensor(s resources permit full‐scale involvement only in selected markets. ? . and guarantees. ? Researc& an) !e"elop#ent 7R9!8 arrange#ents . to capitali!e on older technology.3 failures. The web brouser developer . 4ylory +4eptic ulcer deseas. Exzubera by 4fi!er 3 )anofi. There are many examples including# ? S&are) #an /act ring e. ? -ngoing licensing cooperation and support enables the licensee to benefit from new developments..educes the exposure to both government intervention and terrorism. the cost of designing around the licensor(s patents. ? "llows a firm to test a foreign market without ma0or investment of capital or management time. or show‐how to be included. companies . Aerospace ? !istri0 tion alliances e. ? Increases protection of intellectual property rights. ? *icensor creates its own competitor. . )ometimes the relationships are between competitors.educes the risk of . SA can range from loose networking relationships to very tight contractual relationships such as $o‐ developments.e.S%.< of "bott and "ugmentin +"moxycillin. ? "llows multinational corporations +M5$s.e.oyalty income provides additional return on research and development investments already incurred. ? 4reempts a market for competition. In India.3 .is a term that describes a whole series of different relationships between companies that market internationally. )trategic "lliances are non‐e2uity based agreements i. +6. ? Mar6eting agree#ents e. or the fear of patent infringement litigation.$laracid +$lathromycin. Essentially. 8imburley $lark distributes 9uggies 4ampers by using 9industan 7nilever(s distribution network since they have a common competition like 43/.g. treatment.. (rincipal iss es in negotiating licensing agree#ents: ? The scope of the rights conveyed ‐ Involves specifying the technology. STRATEGI* ALLIAN*ES 7SA8 Strategic alliance .g. ? $ompensation ‐ $overing transfer.g. the format. ? . +:.

.remain independent and separate. In 0oint ventures. JOINT VENT:RE 7JV8 " more extensive form of participation in foreign markets than either exporting or licensing is a 0oint venture with a local partner. foreign investors 0oin with local investors to create a new company in which they share 0oint ownership and control. %orming a 0ointly owned venture might be necessary or desirable for economic or political reasons.

There are many reasons why companies set up ?oint @entures to assist them to enter a new international market# ? "ccess to technology. manufacturing and . a company would directly construct a fixedDnon‐ current asset within a foreign country. with the aim of assembling or manufacturing a product within the overseas market. !IRE*T INVESTMENT $ O3NERS2I( The ultimate form of foreign involvement is direct ownership of foreign based assembly or manufacturing facilities.. %or example. "s with any capital . The foreign company can buy part or full interest in a local company or build its own facilities. ? To gain entry to a foreign market. The ?@ between )u!uki and Maruti for manufacturing small cars. etc.. +6. irect investment has the most control and the most risk attached. /47. it attains parts from other firms. 9onda>s relationship with . Manufacturing concerns the actual forging of a product from scratch. a new company is set up with parties owning a proportion of the new business. =y comparison with exporting. "ssembly denotes the literal assembly of completed parts.3 are most common forms of ?oint @enture." 0oint venture is a combined effort between two or more business entities. wireless card.. $ross‐cultural differences in managerial attitudes and behavior can present formidable challenges as well. within its factories. Joint Ventures tend to be e2uity‐based i. ell possesses plants in countries external to the 7nited )tates of "merica& however it assembles personal computers and does not manufacture them from scratch.over in the :ABC>s. with the aim of mutual benefit from a given economic activity. Example# +:. . In this mode of engagement. "n example of this is the ell $orporation. )ome countries often mandate that all foreign investment within it should be via 0oint ventures +such as India and the 4eople>s ."M. ?oint ownership has certain draw backs. The advantage of this strategy includes the sharing of risk and the ability to combine different value chain strengths. $ar manufacturers often construct all parts within their plants. The partners might disagree over investment marketing or other policies. In other words.e. core competences or management skills. sound card. modem. to build a completed product. The main disadvantage of this form of global expansion is the very significant costs of control and coordination associated with working with a partner.. The ?@ between )ony‐Ericsons in developing advanced microchips. ? "ccess to distribution channels. for example international marketing capability and manufacturing. %or example. any business wishing to enter $hina needs to source local $hinese partners. and assembles a personal computer>s constituent parts +such as a motherboard.epublic of $hina. more control is exerted& however the level of risk is also increased. monitor.

. 5et 4resent @alue. Internal . right savings and so on. the firm will gain a better image in the host country because of creates 0obs. )econd. the firm develops a deeper adapt it s products better to the local suppliers and distributors. The main disadvantage is that the firm exposes its large investment to risks such as blocked or devalued currencies.ate of . %ourth. Third. has to be ascertained. worsening markets. in addition to appreciating any related sunk costs with the capital expenditure. the firm could secure cost economies in the form of cheaper labor or raw materials foreign government investment incentives. %oreign production facilities offer distinct advantages. the return on investment +defined by the payback period. .eturn.expenditure. the firm retains full control over the investment and therefore can develop manufacturing and marketing policies that serve its long term international ob0ectives. enabling it to adapt its products better to the local marketing environment. or expropriation. etc. %irst.

%or example. %or the metal fabricator. this would involve moving forward from the manufacturer of steel to the fabrication of steel products. medium priced sled to three. d. b. 7nilever has invested in =angladesh since :AGC(s which is now known as 7nilever =angladesh *td. Telenor 5orway has established its own mobile communication services in :F countries. a sled manufacturer might introduce a low‐ priced utility model and a high priced luxury model. b. restrictions to import certain goods )ome governments demand investment with market entry e. +6. @ertical integration 9ori!ontal expansion 4roduct diversification ). what are the variables that determine the best choice for a companyE %or a market seeker. or vice versa. c. (ro) ct )i"ersi/ication ‐ involves moving into an entirely new product technology area via ac2uisition. Vertical integration ‐ involves moving from a finished product to basic materials. 9ein! H=ritish(E /overnment contracts prefer firms contributing to the local economy Improved local market information %aster response and ?ust‐in‐time delivery GRO3T2 E'(ANSION IN GLOBAL MARKET " company committed to growth has four basic expansion alternatives‐ a. 2ori-ontal expansion ‐ involves moving to configurations and adaptation in the product that are variations on the company(s basic line. $hina $ustomers sometimes prefer local manufacture e. Most of the decision variables apply also to the entry decision for supply pro0ects. Example# +:. Operational reasons /or setting+ p o"erseas #an /act re ? ? ? ? ? ? ? ? .g. c.educed costs of transportation . the decision variable will be both external and internal to the firm. thus expanding the line from one basic.educed barriersD 2uota handicap "void /ovt. vertical integration would involve moving back to the manufacturer of steel. Geograp&ical )i"ersi/ication " company committed to growth has I basic expansion alternatives# a..g. Geograp&ical )i"ersi/ication or t&e extension of existing products to new geographic markets./iven these many alternative entry strategies. %or a steel manufacturer. .