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Global Marketing – Foreign Market Entry Strategies

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1.0 INTRODUCTION...................................................................................................1
2.0 RESEARCH METHODOLOGY............................................................................2
3.0 LIMITATIONS.......................................................................................................2
FACTORS AFFECTING MARKET ENTRY..............................................................2
4.1 Market Related Characteristics........................................................................3
4.2 Cost-Related Aspects..........................................................................................3
4.3 Political/Legal Factors.......................................................................................3
4.4 Tariff and Non-Tariff Barriers.........................................................................3
MARKET ENTRY MODES..........................................................................................4
5.0 EXPORTING...........................................................................................................4
5.1 Indirect Exporting..............................................................................................5
5.1.1 Export Management Company (EMC) or Export Houses............................6
5.2.1 Agents and Distributors.................................................................................8
6.0 CONTRACTUAL AGREEMENTS......................................................................10
6.2 Franchising........................................................................................................11
7.1 Joint Ventures...................................................................................................13
7.2 Strategic Alliances............................................................................................15
8.0 Establishing Wholly Owned Subsidiaries............................................................17
8.1 Greenfield Operations......................................................................................17
8.2 Acquisitions.......................................................................................................17
The Emerging Electronic Marketing Mode...............................................................18
9.1 Pre-Market-Entry Activities ..........................................................................19
9.2 Market-Entry Strategies..................................................................................20
9.2.1 Product Strategy..........................................................................................20
9.2.2 Pricing Strategy...........................................................................................21
9.2.3 Distribution Strategy...................................................................................21
9.2.4 Promotion Strategy......................................................................................21
11.0 CONCLUSION....................................................................................................23

1.0 INTRODUCTION

According to Malhotra, Agarwal & Ulgado, (2003) the choice of foreign market entry
strategies is a crucial part of the internationalisation process for firms. The entry

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mode a firm chooses for a foreign market has major influences on the extent to which
the firm capitalises on market potential and on the strategic control it has over market
development. These entry modes include exporting, the use of agents and
distributors, contractual arrangements such as licensing and franchising, joint
ventures, strategic alliances, and wholly owned foreign direct investment (FDI),
including greenfield investments and mergers and acquisitions. This paper will
attempt to assess each of these entry modes, analysing the advantages and
disadvantages of each.

2.0 RESEARCH METHODOLOGY

For the purpose of this paper secondary research was undertaken. International
marketing and global marketing textbooks were the main source used. A small
number of relevant Journal articles were reviewed. These articles were accessed
through the data the electronic database Business Source Premier.

3.0 LIMITATIONS

Due to time constraints and the overall nature of this paper no primary research or
empirical research was conducted. The paper is based solely on previous literature on
the topic. The group have also been constrained by a maximum page limit for the
paper. Some topics and entry modes could be discussed in far greater detail.

FACTORS AFFECTING MARKET ENTRY

Before assessing each market entry modes the group believe it is necessary to give a
brief overview of the market selection process. Certain criteria must be examined to

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assess the attractiveness of the market. When assessing potential markets for entry,
firms should consider all of the following factors – market-related characteristics,
cost-related aspects, the legal and political environments, and tariff and non-tariff
barriers. (Johansson, 1997; Jeannet & Hennessey, 2004; Keegan & Schlegelmilch,
2001; Hollensen, 1998; Kotabe & Helsen, 2001)

4.1 Market Related Characteristics


These characteristics relate to areas such as market size and potential, market growth,
product-fit to market demands, buying power of customers, market seasons and
fluctuations, and the level and quality of competition (Hollensen, 1998). Companies
should evaluate these factors when deciding on which foreign markets to enter. These
factors help establish the attractiveness of the market and the extent to which the
company’s products or services are suited to that market.

4.2 Cost-Related Aspects


Jeannet & Hennessey (2004) state transportation costs, freight, and logistics are some
cost-related aspects that should be considered when assessing markets. Any company
wishing to enter a foreign market should consider these, as such costs are likely to
vary from country to country, thus each market must be evaluated individually in
order to weigh up the costs that may be incurred upon entry.

4.3 Political/Legal Factors


Johansson, (1997) argues that political risk is one of the first considerations firms take
in to account when deciding on what foreign markets to enter. Jeannet & Hennessey,
(2004 p.212) propose that political risk may result from “in anything from limitations
on the number of foreign company officials and on the amount of profits paid to the
parent company, to refusal to issue a business licence”. The possibility of changes in
government policy is another factor that may have an impact on profitability (Keegan
& Schlegelmilch, 2001).

4.4 Tariff and Non-Tariff Barriers


Tariffs and duties are significant factors of the regulatory environment of foreign
countries and should be evaluated by companies when assessing potential foreign
markets. Non-tariff barriers include licensing regulations, packaging and labelling
requirements, weight requirements, quotas, and trade control (Keegan &

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Schlegelmilch, 2001). The authors outline that not all of these barriers are
discriminatory in that some are put in place to ensure public health and safety,
however “the line between social well-being and protection is a fine one” (Gillespie,
Jeannet and Hennessey, 2004, p.34). These together with the above mentioned tariff
barriers are important factors in the evaluation of foreign markets.

The factors mentioned above represents a brief overview of the main factors that a
company should consider when evaluating what markets to enter. These factors may
also be useful in assessing which market entry modes to use, as for example a
regulation that requires local management may encourage a firm to use franchising or
joint ventures.

MARKET ENTRY MODES

5.0 EXPORTING

Exporting can take two forms, indirect and direct exporting. Indirect exporting is best
suited to small firms with limited resources who have only a passing interest in

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exporting, while direct exporting is a strategy used by a firm that wants to establish a
greater presence in foreign markets. The characteristics, merits and limitations of each
are outlined below..

5.1 Indirect Exporting


Terpstra & Sarathy, (1997) state “The firm is an indirect exporter when its products
are sold in foreign markets but no special activity for this purpose is carried on
within the firm” (1997, p. 514). This method of foreign market entry involves the
exporting manufacturer hiring an independent organisation, which becomes, in effect,
the export department for the producer. Indirect exporting is often said to be like a
domestic sale (Terpstra & Sarathy, 1997); (Hollensen, 1998). The producer
completes a domestic sale that, in turn, results in an export sale by someone else
(Walvoord, 1982). Simply put, indirect exporting involves selling to others who
export. Thus the firm is not engaging meaningfully in global marketing as the firm’s
products are being carried abroad by others.

This market entry mode is more likely to be exercised by a firm who primarily view
international markets as a means of disposing excess production, or a firm with
limited resources available for international expansion (Hollensen, 1998). Indirect
exporting often becomes the natural first step for newcomers to the international
scene, as it requires minimal financial and management commitment, when compared
to direct exporting.

The main advantage of indirect exporting is that it offers access to foreign markets
without the complexities and risks of direct exporting. For companies with little or no
experience in selling abroad the use of a domestic intermediary provides the firm with
readily available expertise (Jeannet & Hennessey, 2004). Also these types of
distribution channels are inherently less expensive than their direct exporting
counterparts (Walvoord, 1982) as operations such as transportation are handled by the
independent organisation.

There are a number of disadvantages with this entry mode. It offers least control over
how, when, where and by whom the products are sold (Doole & Lowe, 2001). As a
result the exporting firm loses control of the 4 P’s, which may lead to products being

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sold through unsuitable channels, with poor supporting services and little promotion,
while being inappropriately priced. This loss of control may damage the firm and its
products image and reputation abroad. The only protection in this situation is for the
firm to do a thorough background search to make sure that the domestic
intermediary’s reputation will not hinder the firm’s reputation (Walvoord, 1982).
There is also the disadvantage that the skills and know-how developed through direct
exporting experiences are accumulated outside the firm and not in it (Johansson,
1997).

Authors differ on what they consider to be the most important methods of indirect
exporting. Doole & Lowe (2001) offer domestic purchasing, piggyback operations,
and Export Management Company (EMC) or Export Houses and trading companies
to be the main methods. Hollensen (1998) agrees with the previous methods while
adding brokers as another important method of indirect exporting. Johansson (1997)
focuses on trading companies and EMC’s as the important methods. After
examination of the literature EMC’s are most commonly highlighted. Consequently
this method of indirect exporting will now be discussed.

5.1.1 Export Management Company (EMC) or Export Houses


EMC’s or Export houses are specialist companies established to act as the export
department for an array of companies (Hollensen, 1998; Doole & Lowe, 2001). The
EMC carries out business in the name of each firm it represents. EMC’s take care of
the necessary exporting documentation. Their knowledge of local buying behaviour
and government regulations are specifically useful in hard to penetrate markets
(Hollensen, 1998). EMC’s are particularly advantageous in helping small to medium
sized firms with little international market experience as they allow individual firm’s
to gain far wider exposure of their products in foreign markets at much lower costs
than they could achieve on their own. By carrying a large range of products, EMC’s
can spread their selling and administration costs over more companies as well as
reducing transportation costs due to the economies gained from large shipments.

Authors (Hollensen, 1998; Doole & Lowe, 2001) have identified similar
disadvantages of EMC’s, which include:

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• Selection of markets may be made on the basis of what is best for the EMC
rather than what is best for the producer. The EMC may specialise, for
instance, by geographical region, the market chosen, however, may not
correspond to the producer’s objectives.
• Sometimes EMC’s are tempted to carry too many product ranges as a result
some products may not be given the required attention from salespeople.
• Competing product lines may be carried by the EMC. Some product lines
may be given preferential treatment, again to the detriment of another firm.
• EMC’s are paid on commission therefore products which may require a
sustained marketing effort to achieve success in the longer term may be
overshadowed by products with immediate sales potential.

Therefore much time should be devoted to carefully selecting a suitable EMC and the
firm must be prepared to dedicate resources to managing the relationship and
monitoring their performance (Doole & Lowe, 2001).

5.2 Direct Exporting


According to Hollensen “direct exporting occurs when a manufacturer or exporter
sells directly to an importer or buyer located in a foreign market” (1998, p.225).
The difference between indirect and direct exporting is that in the latter, the
manufacturer performs the export task rather than delegating it to others. The
exporting firm handles every aspect of the exporting process from market research
and handling documentation to foreign distribution and collections of payments.

As indirect exporters grow more confident they may venture to undertake their own
exporting operations (Hollensen, 1998). These operations include building up
overseas contacts; undertaking market research, handling documentation and
transportation and designing and implementing marketing mix strategies.
A company may engage in direct exporting if they wish to establish a more permanent
role in international markets.

Direct exporting has a number of advantages over indirect exporting. Firstly, there is
greater potential profit. Direct exporting is a more proactive approach to foreign
markets than indirect exporting. The exporting firm has “greater control over the

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selection of markets, greater control over the elements of the marketing mix,
improved feedback about the performance of individual products, changing situations
in individual markets and competitor activity, and the opportunity to build up
expertise in international marketing” (Doole & Lowe, 2001) pg. 255). A closer
relationship is established with buyers and more knowledge is gained on the
marketplace. Another advantage of direct exporting is that the firm’s foreign partner
will have a vast knowledge of the local marketplace such as local customs. Thus the
foreign partner becomes a prime source of invaluable market research (Walvoord,
1982). Due to its day-to-day operations of a foreign market the firm will generate
much in-house knowledge.

There are a number of drawbacks associated with direct exporting. The company
needs to devote more time, personnel, and corporate resources than indirect exporting
requires. The level of commitment required to engage in direct exporting is substantial
and takes the form of investment in the international operation through allocating time
and resources to a number of supporting activities (Doole & Lowe, 2001). The firm
must also bear the distribution, administrative and marketing costs of their
international operations. This increased level of commitment leads to an increase in
the level of responsibility and risk faced by the firm. In particular the firm has to
endure risk of collecting payments in international markets. Hollensen (1998)
identifies the two main modes of direct exporting to be agents and distributors. These
will now be discussed.

5.2.1 Agents and Distributors


The use of agents is the most frequently used method to initially penetrate a foreign
market. An agent is an individual or a company that represents a foreign organisation
in the target market. Products are sold into the target market through this third party.
The agent is usually from the foreign market, however this is not essential. Agents
usually work on a commission basis and within a clearly defined geographical area.
Agents usually represent a number of firms and are not exclusively promoting the
firm’s products.

A high degree of control on fixed payment (commission basis) related to the level of
sales turnover. Many of the costs of doing business abroad are avoided. It does not

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involve the capital commitment of direct investment, nor does it put the firms know
how at risk as licensing may do. For companies with little or no experience in selling
abroad the use of a domestic intermediary provides the firm with readily available
expertise (Jeannet & Hennessey, 2004).

Agents offer very little control to the firm on operations in foreign markets. Agents
are not employees of the firm thus operate for their own interests. Some agents
represent a large number of firms and neglect the ones that bring in the lowest returns
(Hibbert, 1989). Firms do not gain valuable export experience as this is accumulated
outside the company. Depending on the agreement collection of payments may not be
handled by the agent and may be the responsibility of the firm.

Distributors are different from agents in that they generally purchase the exporter’s
products with a view to reselling them in the foreign market. The distributor is
responsible for the marketing, promotion and distribution of the firm’s product in the
target market. A commission is not paid to the exporter because the exporter has
already received payment for the goods. As distributors are established in the market
they generally good market knowledge, contacts and an established distribution
network. They often require guarantees from the exporter with regards to product
quality, and after sales service. The exporter on the other hand may have demands in
relation to how the product is to be marketed or how it is priced. Similar to with an
agent, the exporter can limit the geographical area or the industry sector in which the
distributor can work (Hibbert, 1989).

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6.0 CONTRACTUAL AGREEMENTS

Contractual agreements take the form of licensing and franchising. Licensing as a


form of market entry is beat suited to a firm that wishes to participate in
international marketing but do not have the resources or know-how to do so.
Franchising, is a form of licensing that offers a company a chance to develop
a presence in a foreign market while retaining a significant amount of control
over their operation. Licensing and franchising will now be discussed in
greater detail below.

6.1 Licensing
According to Johansson (1997, p.154) licensing involves “offering a foreign company
the rights to use the firm’s proprietary technology and other know-how, usually in
return for a fee plus a royalty on revenues”. The licensor may give the licensee the
right to use the firm’s patent on a particular product or a process, manufacturing
know-how, technical advice and assistance, marketing advice, or the use of a
trademark or the company’s name (Hollensen, 1998). The time periods for licences
may vary, as noted by Jeannet & Hennessey (2004), depending on the level of
investment required by the licensee to enter the market. As it is usually the licensee
who makes all the necessary capital investments with regard to equipment, marketing
expenditure etc., this party may insist on a lengthy agreement in to recover the cost of
investment.

Hollensen (1998) describes licensing as a two-way process where both parties bring
substantial benefits to the relationship. The licensor, while allowing the licensee to
gain access to their manufacturing capabilities, technology, trade marks etc., also
benefits from access to the capabilities of the licensee, which may be in areas such as
technology or manufacturing capabilities. In this way, a two-way process is created
between licensor and licensee that benefits both parties as information is exchanged
which may aid in improving the operations of both parties.

Hollensen (1998) outlines the various licensor-licensee arrangements. When a


licensing agreement involves a product or service, the licensee is usually responsible
for the production, delivery and marketing of the product/service in an agreed area.

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The licensee bears all the risk associated with investment in the venture. Royalties or
fees are the licensor’s main source of income resulting for the licensing agreement
and may involve a combination of an initial lump sum paid at the start of the contract
and an on-running loyalty based on licensee sales.

According to Jeannet & Hennessey, (2004) licensing is beneficial, if a company


wishes to engage in international marketing but does not have the capability or the
time to do so. In this case the company can still realise the benefits of foreign markets
by using a licensee who may bring experience of the potential market and marketing
know-how, enabling the licensor to engage in international marketing. Licensing is
also a relatively inexpensive way of achieving foreign market entry.

The main disadvantage of licensing is the limited form of participation by the licensor
in a foreign market. As the manufacturing and technological know-how is licensed out
to the licensee, the licensor loses control and can be adversely affected if the licensee
does not exploit all the potential returns of the agreement. Jeannet & Hennessey
(2004) propose another significant disadvantage in terms of the licensors dependence
on the licensee to create sales thus producing royalties for the licensor.

6.2 Franchising
Doole & Lowe (2001) state franchising is a means by which a company can market its
goods and services by granting the franchisee the legal rights to use their business
format. According to (Keegan & Schlegelmilch, 2000) it differs from licensing, in
that there is an entire business concept transferred between parties and a greater
degree of control over operations is maintained.

There are two major types of franchising outlined by (Hollensen, 1998). Firstly there
is product and trade name franchising. This type of franchising involves a distribution
system where suppliers agree contracts with dealers to buy or sell products or product
lines. The dealer uses the trade name and trademark of the company. The second type
outlined by Hollensen (1998) is the business format ‘package’ franchising.
International business format franchising “is a market entry mode that involves a
relationship between the entrant (the franchisor) and a host country entity, in which

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the former transfers, under contract, a business package (or format), which it has
developed and owns, to the latter” Hollensen (1998, p.242).

The main advantage of franchising is it represents a quick way for a company to enter
a foreign market, and similar to the case of licensing, this option represents a
relatively inexpensive mode of entry (Keegan & Schlegelmilch, 2000). However,
unlike licensing, franchising involves a greater element of control. In franchising there
are contractual agreements in place that provides the franchisor with a great degree of
control over the franchisee’s operations, thus enabling the brand image to be upheld
and protected internationally. The franchisee’s profits are tied to their efforts and
performance. For this reason the franchisee will be motivated to do all they can to
ensure the business works and to ensure the venture is profitable. Thus, as the
franchisee grows the business, the franchisor will receive a fee tied to the franchisee’s
profits.

Doole and Lowe (2001) identify differences in culture exist in different foreign
markets as a potential disadvantage of franchising. While there is a contractual
agreement in place between the franchisor and franchisee as to how the franchise
operations should be carried out, the risk still remains of problems in relation to
performance standards. If a franchise is not operated to the standards set out by the
parent company, this may have a damaging affect on the brand (Kotabe & Helsen,
2001).

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7.0 COOPERATIVE AGREEMENTS

Joint ventures and strategic alliances are two forms of cooperative agreements that
may be undertaken between firms to develop a presence in a foreign market. Joint
ventures are best suited to two companies with complementary products or services,
thus enabling a good strategic fit. Strategic alliances may be used by a firm that have a
desire to enter foreign markets but lack the ability or confidence to do it alone, thus
seeking the assistance of a player in the foreign market. These will now be discussed
in greater detail.

7.1 Joint Ventures


“ A joint venture is any kind of cooperative arrangement between two or more
independent companies which leads to the establishment of a third entity
organisationally separate from the “parent” companies.” (Buchel et al., 1998, pg. 6).
A joint venture with a local partner represents a more extensive form of participation
in foreign markets than either exporting or licensing. A joint venture is differentiated
from other forms of strategic alliances and collaborative agreements as the partners
create a separate legal entity. (Cateora & Graham, 2002) highlight four factors
associated with joint ventures:

1. “JVs are established, separate, legal entities.”


2. “They acknowledge intent by partners to share in management of the
JV.”
3. “They are partnerships between legally incorporated entities such as
companies, chartered organisations, or governments, and not between individuals.”
4. “Equity positions are held by each partner.”

A joint venture may be the only way to enter a country or region if government
contract negotiation practices routinely favour local companies or if laws prohibit
foreign control but permit joint ventures. Besides operating to reduce political and
economic risk, joint ventures provide a less risky way to enter markets with regards to
legal and cultural issues than would be the case in an acquisition of an existing

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company (Keegan & Schlegelmilch, 2000). In joint ventures the costs and risk of
going global are reduced, safeguarding resources that cannot be obtained via the
market. Firms have improved access to financial resources, benefit of economies of
scale and advantage of size. They also may have access to new technology and
managerial practices. The strategic goals of a joint venture are focused on the
creation and exploitation of synergies as well as the transfer of technologies and
skills. The equity share of the international company can range between 10% and 90%
but is generally 25-75% (Terpstra & Sarathy, 1997). There are six types of joint
ventures available to organisation and these are outlined below.

Complementary technology ventures: The partners combine their technologies to


diversify their existing product/mkt portfolios.
Market technology joint ventures: Combination of Mkt knowledge of 1 partner with
the production or product know how of the other
Sales joint venture: The producer and a local partner cooperate in an
arrangement, which is a mixture of independent
representation and own branch.
Concentration joint ventures: Competing partners cooperate to form larger and
more economical units.
Research &Development joint ventures: Create synergy by making joint use of research
facilities, exploiting opportunities to specialise
and standardise, combining know how and
sharing risks.
Supply joint ventures: Competitors with similar input needs cooperate to
safeguard supplies, reduce procurement costs or
prevent the entry of new competitors.
Adapted from (Buchel et al., 1998)

According to Buchel et al., (1998) the reasons to form a joint venture can be spread
out over internal reasons, competitive goals and strategic goals. Internal reasons
would be to spread the cost and risk of going global, safeguarding resources which
cannot be obtained via the market, improving access to financial resources, benefits of
economies of scale and advantage of size, access to new technology, managerial
practices and to encourage entrepreneurial employees. In the area of competitive
goals joint ventures would influence the structural evolution in the specific industry,
the pre-empting of competitors, the defending of the company as globalisation makes
boundaries retract, and the creation of a stronger competitive unit. The strategic goals

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focus on the creation and exploitation of synergies, the transfer of technologies and
skills and the diversification.

The main disadvantage of this global expansion strategy is that a company incurs very
significant costs associated with control and coordination issues that arise when
working with a partner. Conflict may arise between the two management teams and
the relationship might deteriorate especially if they are competitors. This scenario can
occur when joint ventures are formed as a source of supply for third country markets.
This must be carefully thought out in advance. One of the main reasons for joint
venture “divorce” is disagreement about third country markets in which partners face
each other as actual or potential competitors (Buchel et al., 1998).

Internationality also poses problems between partners with regards to cultural barriers,
different negotiating styles, ideas, pay systems, business practices and human
resources. Cross-cultural differences in managerial attitudes and behaviour can
present formidable challenges for joint ventures (Keegan & Schlegelmilch, 2000).
Terpstra & Sarathy, (1997) identify the problem of conflicting interests between
partners as well as the difficulty firms face integrating join ventures into their
operations. Disagreements also arise on the issue of the position in the value chain
like the compatibility of products with the partners. Buchel et al., (1998) also
proposes that property relation is a huge bone of contention as it encompasses the
agreements on profit sharing, which firm has the authority to make what decisions and
control, the layout and structure of contracts and the dominance of one of the partners.

Other problems that management must deal with are problems of harmony: the
insufficient agreement between the partners.
♦ Problems of translation: from the strategic principles to a joint venture action plan
♦ Problems of coherence: differing demands on the joint venture.
♦ Problems of adjustment: changes in the environmental circumstances of the joint
venture over time. (Buchel et al., 1998)

7.2 Strategic Alliances


Cateora & Graham (2002) define a strategic alliance as “a business relationship
established by two or more companies to cooperate out of mutual need and to share

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risk in achieving a common objective.” Alliances differ from joint ventures because in
an alliance both firms pool their resources directly in a collaboration that goes beyond
the bounds of a joint venture (Jeannet & Hennessey, 2004). The use of strategic
alliances as an international market entry mode has increased as firms increasingly
recognise the necessity to internationalise and feel the need for foreign help. Jeannet
& Hennessey (2004) outline three different types of strategic alliances:

• Technology-Based Alliances: As the name suggests firms share technology


capabilities in these alliances. The most common reasons for firms entering
these alliances include access to markets, access to complementary
technologies, and a decrease in time taken for new innovations.
• Production-Based Alliances: Production facilities and capabilities are shared
between companies with component linkages to reduce costs. This form of an
alliance is most commonly used when the production requirements are very
expensive to acquire.
• Distribution-Based Alliances: Firms sometimes form alliances with an
emphasis on distribution. A number of drinks companies have formed
strategic alliances with the sole emphasis on distribution of the products.

The main advantage of strategic alliances is the opportunities for rapid expansion into
new markets and access to new technology. They also offer more efficient production
and marketing costs and access to additional sources of capital.

The drawbacks of strategic alliances are similar to those of joint ventures. The parties
involved must be able to work together successfully despite any cultural differences
that may occur between them. Differences of managerial styles may cause a problem,
and also could disagreements may occur on the perceived level of importance of each
party involved.

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8.0 Establishing Wholly Owned Subsidiaries

Companies, wanting to enter foreign markets while retaining ultimate control and
avoiding the related costs of other entry strategies, may pursue a wholly owned
subsidiary approach. Greenfield operations is one such approach where the company
establishes a completely new operation in the foreign market, while strategic
acquirements may be used to establish a position in a foreign market by purchasing an
existing business.

8.1 Greenfield Operations


Greenfield investments are when a firm attempts to establish operations in a foreign
country from scratch. The main reasons for a Greenfield operation is to acquire raw
materials, to operate at lower manufacturing costs, to avoid tariff barriers, to satisfy
local demand, or to penetrate local markets (Hollensen, 1998). It is particularly
affective for market penetration for a number of reasons. There is the elimination
price escalation caused by transport costs, custom duty fees, and local turnover taxes.
Also, a supply of goods can usually be guaranteed to resellers, minimizing potential
channel conflicts. There is also a greater willingness for a foreign manufacturing
facility to adapt products and services to local customer requirements (Johansson,
1997).

The major disadvantage of Greenfield operations is a firm has to establish suppliers,


buyers, establish distribution channels etc. from scratch. A huge resource commitment
is required which leads to massive risks. FDI generally means the company becomes a
full-fledged member of the economic and social scene and therefore is exposed to
country specific threats. The brand image can be affected if a company sets up
manufacturing facilities to avail of lower cheaper labour, as products must carry a
country of origin label (Johansson, 1997).

8.2 Acquisitions
Rather than establishing a wholly owned subsidiary from scratch the company can
consider an acquisition of an existing company. Acquisitions offer swift entry into a
market and often provide access to distribution channels, an existing customer base,
and, sometimes an established brand name (Hollensen, 1998). An existing company
will already have a product line to be exploited, much of the distribution network and

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dealers needed, and a company can simply get on with marketing its new products in
conjunction with the existing line (Johansson, 1997).

A number of disadvantages exist with acquisitions. The cost of acquiring an existing


company is generally high. It is often difficult to find a suitable company to acquire,
whos existing product range are compatible with the new products to be introduced.
Rationalisation of operations is sometimes required, especially if certain functions are
to be centralised. As a result employees may need to be laid off in some of these
functional areas, which could lead to bad publicity. Sometimes employees of the
acquired company look on an acquisition of a their company unfavourably

The Emerging Electronic Marketing Mode

Gronroos (1999) identified the growing importance of the electronic marketing mode
in international markets. “Electronic marketing as an internationalising strategy means
that the service firm extends its accessibility through the use of advanced electronic
technology” (Gronroos, 1999, p.295). Electronic strategies change the logistics of
services more so than for goods. The reason for this is that at some point a physical
object has to travel from the maker to the consumer but services however, do not
necessarily require a physical presence. Hence the use of technology has reduced the
need to have local physical presence in many downstream and support activities. It
allows networks to concentrate and pool knowledge and resources from separate
locations.

The use of hardware, software and network technologies have brought about this new
market entry strategy. For example, “the Internet can be used as a form of market
entry as it is a way of communicating its offerings and putting them up for sale, and a
way of collecting data about the buying habits and patterns of its customers and using
network partners to arrange delivery and payment” ( Gronroos, 1999, p.295).
The research in this area is limited at the moment as it is a new and emerging area
and further empirical research is needed.

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9.0 THE ALTERNATIVE APPROACH

Kotler, Fahey & Jatusripitak, (1985) outline an alternative approach to market entry
not discussed in the majority marketing textbooks. This approach proved immensely
successful for Japanese firms and contributed in a large way to the extraordinary
growth of the Japanese Economy in the 1970s and 1980s. They developed a high
degree of proficiency in formulating entry strategies to penetrate every market
selected as a target. The Japanese did not originally formulate the market entry
strategies but they do display the Japanese ability for meticulous implementation of
classic marketing techniques displayed elsewhere. Japanese entry strategies can be
discussed in two stages (i) Pre-market entry strategies and, (ii) Market entry
strategies. This alternative approach for market entry will now be discussed.

9.1 Pre-Market-Entry Activities


The Japanese do not merely export products made for their domestic market to new
markets. They spend large amounts of time analysing market opportunities and
attempt to gain a deep understanding of how customers and markets work in the target
markets they are considering. Market feasibility studies and marketing research are
considered the two most important pre-entry market activities undertaken by the
Japanese.

The pre-market-entry strategy usually follows a number of steps:


• Study teams are sent to the country. These teams spend several months
conducting a feasibility study before making their recommendations.
• Sales subsidiaries and personnel are stationed in various companies.
• Japanese trading companies and the government body JETRO conduct market
research on many markets and provide numerous valuable insights and market
information to Japanese companies.
• Graduate students are sent to these countries to conduct market research.

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• All these different sources of market information will be channelled to the


company. The collective information will be analysed and market
opportunities will be identified before any market is entered.

9.2 Market-Entry Strategies


Once an opportunity has been identified the Japanese will produce a strategic market
entry plan that incorporates the 4Ps.

9.2.1 Product Strategy


The Japanese had three product categories for foreign market entry. The first category
is lower-cost products. While American companies were concentrated on creating
sophisticated products carrying high prices, the Japanese were content to manufacture
small, simple, more standardized products. This strategy was aimed at building
market share, while at the same time drive down costs. A famous example of this was
Honda’s entry into the motorcycle market where they introduces a smaller, less
powerful, easier-to-operate machine that was different from anything else on the
market.

The second category is products with innovative features. Some Japanese


companies entered foreign markets by offering products with more functions and
features than existing products on the market. This strategy was used for technical
products with short lifecycles. The aim of this strategy is to speed up and shorten the
product lifecycle in order to deter competitors introducing a similar product to the
market.

The third category involves products with high quality and service. If products are
unreliable and if service cannot be guaranteed it is unlikely a company will succeed in
a market. Reliability was of key importance to Japanese firms. These firms often
stressed their superior quality as a distinguishing factor of theirs. Service was also
focused on and the firms would go out of their way to deal with customers who had
problems.

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9.2.2 Pricing Strategy


Every market the Japanese entered they used a similar pricing entry strategy. Products
were introduced at deliberately low price to build up market share and to gain a long
run dominant position in the market. These firms were willing to sacrifice profits and
in some cases incur losses, which are seen as an investment in their long-term
development in the market. Often Japanese companies used an entry strategy that
linked low quality, high quality and superior service in the same offering. Sometimes
market leadership positions were gained in each of these three attributes.

9.2.3 Distribution Strategy


Product distribution was a major challenge for Japanese companies as they initially
had a poor quality reputation. To overcome this they chose to focus on specific market
segments and entry points. Many companies chose to focus on the Californian market
initially before expanding across America. Japanese firms also focused on selective
distribution channels and dealers by seeking out distribution channels that would
maximise market coverage.

Another distribution strategy used by Japanese firms was to have US firms distribute
their goods under US brand names. This was used to overcome the barriers to
distribution in American markets. They also established their own overseas sales
subsidiaries in order to better understand the market and to be better able to manage
marketing in these markets. Middlemen responsible for selling their products were
usually offered higher commission for selling Japanese products than those of their
competitors in order to create product push from these sources.

9.2.4 Promotion Strategy


These firm’s promotional strategies reflected their long-term intentions in the foreign
market. To support the push strategy created through distribution channels they spend
heavily on advertising and promotion. Firms that were selling under their own
corporate brand name particularly spent heavily on advertising. These firms pushed
their own name and tried to develop their own image and reputation.

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10.0 SUMMARY

To summarize this paper the group have devised a model outlining the advantages and
disadvantage of each foreign market entry strategy discussed. The firms most likely to
use each entry strategy are also highlighted.

Advantages Disadvantages Best Suited To


Indirect • Less complexities than • Loss of control over 4P’s Firms getting rid of
Exporting direct exporting • Poor Supporting Services excess capacity.
• Less Risk Involved • Little Promotion Small firms with
• Readily Available • Minimal experience limited resources.
Expertise gained within the firm.
• Less Profit Potential
Direct • Greater Profit Potential • High risk Firms that wish to
Exporting • Greater control over • More time, personnel establish a more
marketing mix. and corporate resources permanent role in
• Closer to marketplace committed. international markets.
• Closer relationship with • Substantial Investment
buyers. • Distribution,
• In-house experience administrative and
and knowledge gained marketing costs faced by
the firm
Licensing • Inexpensive way of • Limited participation in Companies that wish to
achieving foreign international markets. participate in
market entry • Licensor passes international markets
• Licensor takes minimal technology know how on but do not have the
risks to other party. time or capabilities to
• Dependent on Licensee do so.
to exploit products
potential.
• Lack of control over
operations.
Franchising • Quick way for company • Brand image at Firms with strong a
to enter foreign market threat from poor brand or processes.
• Relatively Inexpensive performance from Effective method of
• Reasonable level of franchisee. internationalisation for
control. • Minimal skill and services firms.
• Profits dependent for experience gained within
both parties on the firm.
performance of

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franchise
Joint • May be only way of • Significant costs Companies with
Ventures gaining access to • JV vulnerable as it is complementary
markets reliant on relationship products and
• Improved access to between two parties. capabilities.
financial resources • Cultural differences Companies with a good
• Economies of scale prominent “fit”.
• Access to new • JV partner may become
technologies and dynamic competitor.
management practices.
Strategic • Can rapidly expand into • Not a separate legal Firms that recognise
Alliances new markets entity. the necessity to
• May offer efficient • Reliant on positive internationalise but feel
marketing and relationship between the need for foreign
production parties involved. help.
• Access to additional
sources of capital
Acquisitions • Swift access into • Very high costs Large, heavily
market. • Difficult to find suitable resourced firms that
• Access to distribution company for acquisition can identify a suitable
channels • Compatibility problems firm for acquisition.
• Existing customer base with companies’
• High control products.
Greenfield • Access to Raw • Have to establish Large heavily
Operations materials operations from scratch resourced firms.
• Lowers manufacturing • Must set up distribution Firms who wish to
costs channels, source reduce costs,
• Avoids tariffs suppliers & distributors particularly labour
• Market penetration etc. costs.
• Total control • Huge resource
commitment

11.0 CONCLUSION

The selection of a market entry strategy is critical to the success of a firm’s foreign
operations. Each firm planning on internationalising has a differing set of
circumstances. These circumstances can be either internal or external to the firm.
Internal circumstances include availability of resources, experience of staff and spirit
of entrepreneurship. External circumstances include size of home market,
attractiveness of foreign markets, and political conditions in foreign markets to name
but a few. These circumstances determine the suitability of the different market entry
strategies.

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Due to advances in telecommunications and increases in trade agreements the world is


truly becoming a global village. The trend of globalisation has led to fierce
competition where internationalisation is no longer an option but a necessity in many
industries. Foreign market entry is no longer restricted to large multinationals and is
now a matter of concern for all businesses regardless of size.

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Buchel, B., Prange, C., Probst, G., Ruling, C.; (1998) International Joint Venture
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Cateora, P. & Graham, J. (2002) International Marketing. NY, McGraw-Hill.

Doole, I. & Lowe, R. (2001) International Marketing Strategy. London, Thomson.

Hollensen, S. (1998) Global marketing : A Market-Responsive Approach. London,


Prentice Hall.

Jeannet, J.-P. & Hennessey, D. (2004) Global Marketing Strategies. Boston,


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Johansson, J. (1997) Global marketing : Foreign Entry, Local Marketing, and Global
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Keegan, W. & Schlegelmilch, B. (2001) Global Marketing Management - A


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Kotabe, M. & Helsen, K. (2001) Global marketing Management. NY, John Wiley and
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Kotler, P., Fahey, L. & Jatusripitak, S. (1985) The New Copetition - What Theory Z
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Malhotra, N. K., Agarwal, J. & Ulgado, F. M. (2003) Internationalization and entry


modes: A multitheoretical framework and research propositions. Journal of
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Terpstra, V. & Sarathy, R. (1997) International Marketing. Florida, The Dryden


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Walvoord, W. (1982) Foreign market entry strategies. S.A.M. Advanced Management


Journal, 48(2) Spring, pp. 14-27.

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