Professional Documents
Culture Documents
Foreign Market Entry Strategies
Foreign Market Entry Strategies
GEETA SHIROMANI
ASSOCIATE PROFESSOR
Basic foreign expansion entry
decisions
• A firm contemplating foreign expansion must
make three decisions
– Which markets to enter??
– When to enter these markets??
– What is the scale of entry??
– Which is the best mode of entry??
Basic Market Entry Decision
- Which Market??
200 nation-states
• Different long-run profit potential for firms
– Size of market
– Purchasing power (present wealth)
– Future wealth
• Benefits cost & risks trade off– rank markets
– Future economic growth rates
– Free market system & country’s capacity for growth
– Stable and developing
markets without upsurge in inflation
rates or private-sector debt
Basic Market Entry Decision
- Which Market??
• Value an international business can create in
a market
– Suitability of product for market
– Nature of indigenous competition
– Not widely available & satisfies an unmet need
– Greater value translates into an ability to charge
higher prices & build sales volume more rapidly
Basic Market Entry Decision
- Which Market??Process of country
evaluation & selection
• The commercial
activity of selling and
shipping goods to a
foreign country
Advantages:
• Allows firm to participate where there are
barriers to investment (Fuji-Xerox)
• Franchising is a specialized
form of licensing in which
the franchisor not only sells
intangible property to the
franchisee, but also insists
that the franchisee agree
to abide by strict rules as to
how it does business
• Longer-term commitments
Franchising..
Advantages:
• Important way of gaining foreign returns on
certain kinds of customer-service and trade name
assets
Disadvantages:
• Firm has no long term interest in the country –
can take minority equity interest in company
• Firm may inadvertently create a competitor
(middle east oil refineries)
• If firm’s process technology is a source of
competitive advantage, then selling technology
is also selling competitive advantage to
potential competitors
Contract manufacturing
• Contract
manufacturing is a
process that establish
a working agreement
between two
companies.
• As part of the
agreement, one
company will custom
produce parts or
other materials on
behalf of their client.
Contract manufacturing
Advantages:
• The client does not have to maintain
manufacturing facilities, purchase raw
materials, or hire labor in order to produce
the finished goods so less capital investment is
required
• Helps to achieve benefits of economies of
scale
• Helps to achieve location economies
Contract manufacturing
Disadvantages:
• Less management control
• Potential security or confidentiality issues
• Complexity
• Potential quality issues
Management contracting
• A management contract
is an arrangement under
which operational
control of an enterprise
is vested by contract in a
separate enterprise
which performs the
necessary managerial
functions in return for a
fee.
Management contracting
• Management contracts involve not just selling
a method of doing things (as with franchising
or licensing) but involves actually doing them.
• A management contract can involve a wide
range of functions, such as technical operation
of a production facility, management of
personnel, accounting, marketing services and
training.
Management contracting
Advantages:
• Management contracts are often formed
where there is a lack of local skills to run a
project.
• It is an alternative to foreign direct investment
as it does not involve as high risk and can yield
higher returns for the company when foreign
government actions restrict other entry
methods.
Management contracting
Disadvantages:
• Loss of control
• Time delays
• Loss of flexibility
• Loss of quality
• Compliance
STRATEGIC ALLIANCE
• Cooperative agreements between potential or
actual competitors
• A strategic international alliance (SIA) is a
business relationship established by two or more
companies to cooperate out of mutual need and
to share risk in achieving a common objective
• SIAs are sought as a way to shore up weaknesses
and increase competitive strengths.
• Licensing, Joint venture, consortia etc
Strategic alliances
• Firms enter SIAs for several reasons:
– Opportunities for rapid expansion into new
markets
– Access to new technology
– More efficient production and innovation
– Reduced marketing costs
– Strategic competitive moves
– Access to additional sources of products and
capital
Strategic alliances- JOINT VENTURES
• A JV entails
establishing a firm that
is jointly owned by two
or more otherwise
independent firms.
JOINT VENTURE
• Four Characteristics define joint ventures:
– JVs are established, separate, legal entities
– The acknowledged intent by the partners to share
in the management of the JV
– There are partnerships between legally
incorporated entities such as companies,
chartered organizations, or governments, and not
between individuals
– Equity positions are held by each of the partners
Strategic alliances- Consortia
• Consortia are similar to joint ventures and could be
classified as such except for two unique
characteristics:
– They typically involve a large number of participants
– They frequently operate in a country or market in which
none of the participants is currently active.
• Consortia are developed
to pool financial and
managerial resources and
to lessen risks.
Joint ventures..
Advantages:
• Smaller investment
• Local marketing and production/ procurement
of expertise from local partner
• Better understanding of the host country
• Typically 50/50 with contributed team of
managers to share operating control
Joint ventures..
Advantages:
• Firm benefits from local partner’s knowledge
of competitive conditions, culture, language,
political system & business system