Implementation of Market Entry Strategies PDF

Implementation of Market Entry
Strategies: Building an
International Business Operation
Market Entry
Strategies
FIGURE A
© 2017 FITT All Rights Reserved

Implementation of Market Entry Strategies:
Building an International Business
Operation
1
Establishing and Managing Direct and Indirect Exporting
Explores the direct and indirect exporting management strategies, including advice on hiring intermediaries
and agents for organizations’ export needs.
2
Establishing and Managing Franchising/Licensing Relationships
Describes the processes that organizations will go through to enter a market using franchising or licensing
agreements.
3 Negotiating Contracts and Partnering Agreements

Explores the steps to take when partnering with international businesses and how to effectively negotiate
contracts with potential business partners.
4 Establishing and Managing Foreign Direct Investments

Examines the different foreign direct investment opportunities an organization can pursue, the risks involved
and the precautionary steps to take in order to succeed.
5 Managing International Business Operations

Explores the strategies to have a successful international business operation, such as implementing an open
communication plan between partners, having a conflict resolution strategy and monitoring performance.
Module Learning Outcomes
Upon successful completion of this module, the individual will be able to:
Determine the best approach to implement a market entry strategy, analyzing the value of
1 potential forms of each strategy.
Implement a direct exporting strategy, whether exporting directly to foreign

2 consumers/businesses or using intermediaries, such as agents.
Implement an indirect exporting strategy by finding and choosing an appropriate domestic

3 intermediary, such as a trading house or confirming house.
Manage direct and indirect exporting through positive working relations using a good financial
4 model.
Create a franchise/licence concept and model, develop legal agreements and provide
5 franchisee/licensee package.
Monitor and manage franchisee/licensee relationships to ensure compliance and maintain a

6 positive working relationship.
Continued…

Module Learning Outcomes
Upon successful completion of this module, the individual will be able to:
Negotiate contracts and partnering agreements for all modes of market entry while ensuring
7 cultural sensitivity.
8 Establish and manage foreign direct investments (FDIs) in the target market.
Monitor international partner performance on a regular basis, including managing ongoing

9 relationships and developing strategies for resolving possible conflicts.

Reflect on Your Experience
Reflect on your past experience and answer the following questions to the best of your ability.
1 When should an organization use an agent for direct exporting?
2 What are three key differences between franchising and licensing?
3 What are the elements of a partnering agreement?
What are four common foreign direct investment vehicles and how do they compare
4 in terms of management control?
What are two qualitative criteria and two quantitative criteria that an organization
5 may use in an ongoing evaluation of a new international venture with a business
partner?

Building an International Business Operation
UNIT 1
Establishing and Managing
Direct and Indirect Exporting
◎ Differences Between Direct and Indirect Exporting
◎ Direct Exporting
◎ Indirect Exporting
◎ A Note on E-Commerce

Why Is This Important?

Trading Entry Strategies
FIGURE 1.1

Differences Between Direct and Indirect Exporting
Direct exporting allows an organization to have direct control of

the distribution of products and services.
Indirect exporting is typically taken on by organizations that are

not ready to go into a foreign market on their own.

Direct Exporting
Direct Exporting to Foreign Consumers and Businesses
o Execute go-to-market strategy
o Identify/develop relationships with government and regulators
o Identify/build relationships with customers
o Develop financial model
o Identify cultural barriers and adapt
o Draft contract template for negotiations

Direct Exporting, Continued
Direct Exporting via Intermediaries
Agents
o When should organizations use an agent?
o Advantages and disadvantages of using agents
o Finding an agent
o Paying agents
See Table 1.1 – Services Offered by Foreign Agents

Services Offered by Foreign Agents
Continued…
TABLE 1.1

© 2017 FITT All Rights Reserved TABLE 1.1
Foreign Distributors/Wholesalers Choosing Agents or Foreign
o Finding foreign distributors Distributors
• What is potential for the product? o Control over marketing and pricing in the
• Who are the target customers? foreign market
• Best pricing strategy? o Need for after-sales service
• Transportation options?
o Financial situation
• Frequency of deliveries?
• Custom documentation needed? o Storage and delivery of goods
• What custom tariffs will apply?

• Warehousing/storage capacity? See Table 1.3 – Agents and Distributors
• How is inventory managed? Compared

Agents and Distributors Compared
Continued… TABLE 1.3

TABLE 1.3
Evaluating Agents and Foreign Distributors
o Assess the suitability of prospective representatives
• Interviews
• Other organizations/associations
• Financial institutions
• Officials

Negotiating with Agents and Foreign Distributors

o The Written Agreement
o Territory
Using Multiple Direct
o Exclusivity
Exporting Strategies
o Commissions
o Status • Some organizations use a combination of
direct exporting strategies.
o Control and Motivation
• Depends on organization’s goals and the
o Training
target market.
o Sales
• Need to have clear delineation between
o Payments role and responsibilities of the
o Service and Liability organization and intermediaries.

Indirect Exporting
Trading Houses
o Provide investment funds
o Act as a foreign buyer for direct exporters
o Become a licensee or franchise
o Become a joint venture partner
Confirming Houses
See Table 1.5 – Indirect Exporting Through Trading Houses

Indirect Exporting, Continued
Finding an Indirect Intermediary Choosing an Indirect Intermediary

o Exporter’s associations
Accessing Financial Assistance
o Chambers of commerce
Ensuring Operational Capacity
o Foreign embassies
o Commercial databases
Indirect Exporting as a First Step
o International expos and tradeshows

A Note on E-Commerce
E-commerce is a type of trading entry strategy, and can be

completed directly or indirectly.
E-commerce may be an organization’s only mode of market entry.

UNIT 2
Franchisee/Licensee Relationships
◎ Franchising
◎ Licensing
◎ Differences Between Franchising and Licensing
◎ Preparing for Franchising/Licensing
◎ Attracting Franchisees/Licensees
◎ Completing Franchisee/Licensee Agreements
◎ Managing Franchisee/Licensee Relationships


Investing Entry Strategies
FIGURE 2.1

Franchising
Involves selling the rights to a complete package of trademarks,

processes, technologies, designs and copyrights in order to
operate a specific business.
Franchising is a growing method of international market entry.

Licensing
Licensing refers to organizations selling the rights to a developed

product or service in exchange for a fee.
Licensing transfers no property rights, only usage rights.
Cross-licensing arrangements = organizations exchange rights to
use each other’s products or services.

Differences Between Franchising and Licensing
TABLE 2.1

Preparing for Franchising/Licensing
The organization selling franchises/licenses should:

o Be successful in the domestic market and have a tested product or service to export.
o Select target markets that are suitable and desirable.
o Be willing and able to support business partners.
o Identify internal gaps, e.g.:

• Service delivery
• Human resources
• Competence in market process and technology
• Availability of raw goods
• Financing

Preparing for Franchising/Licensing, Continued
Analyzing the Target Market Modifying the Franchise/Licensing

o Local languages Product or Service
o Cultural values
o Local tastes and preferences
Accessing Legal Expertise
Establishing Concept and Model
o Fees and royalty percentage
o Defined ‘territory’
o Training programs provided
o Requirements for franchisees/licensees
o Marketing and operational support offered
o Availability of field support

Attracting Franchisees/Licensees
Using Strategies to Locate Appropriate Franchisees/Licensees

Determining and Applying Selection Criteria
o Experience in the business or industry
o Can demonstrate sufficient financial resources
o Ability and willingness to invest Investigating Potential
o Demonstrates ability to commit to long-term strategies Franchisees/Licensees
• Financial situation
Providing a Franchisee/Licensee Package
• Reputation in marketplace
o Branding • Business history
o Delivery system
• Quality of management
o Support and training to be provided

Completing Franchisee/Licensee Agreements
Franchising Licensing
o Exclusivity
o Trademark protection o The scope of the licence
o Protection of intellectual property o The field of use
o Quantity
o Type of franchise offered
o Territory
o Timeline for development o Sublicences
o Exporting
o Sourcing of supplies
o Confidential information
o Trademarks
o Training and technical services
o Quality control
o Monetary payments

Managing Franchisee/Licensee Agreements
Monitoring Compliance
o Ensures franchisees/licensees meet the agreement
Building Relationships
o Ongoing dialogue and assessment for both parties

UNIT 3
Negotiating Contracts and
Partnering Agreements
◎ Reviewing Data
◎ The Negotiation Process
◎ Elements of a Partnering Agreement


Reviewing Data
Defining desired business partner characteristics
Finding business partners
Determining whether organizations are complementary
Analyzing commercial risk

The Negotiation Process
Process will vary depending on formality of relationship.

Negotiations typically proceed in stages
See Figure 3.1 – Steps of the Negotiating Process

Steps of the Negotiating Process
Define Research Objectives for
Business Relationship
Assemble a Negotiating Team
Establish Trust
Establish the Business

Framework
Establish the Legal Framework

FIGURE 3.1

STEP DEFINING OBJECTIVES
1 o Objectives must be clear
See Table 3.1

ASSEMBLE NEGOTIATION TEAM
2
STEP
o Understand social customs o Thoroughly prepare for negotiation
o Be culturally sensitive
o Appreciate all the issues
ESTABLISH TRUST
3
STEP
Warning behaviours: o Does not appear honest/straightforward
o Difficulty agreeing what is proprietary o Awkwardness discussing future intentions
o Pressures for quick commitments and plans
STEP ESTABLISH BUSINESS FRAMEWORK
4 o Involves both teams working towards

an agreement
o Must consider internal politics
o Defines respective contributions
o Protects key interests
See Table 3.2

STEP ESTABLISH LEGAL FRAMEWORK
5 o Contract language that implements

general terms of the business
framework
o Must define scope of cooperation and
procedures involved

Elements of a Partnering Agreement
Partner Roles Proprietary Rights

Organization and Structure Term and Termination
Financing (e.g., currencies used)
Four Major Ways to
Management and Control Define Control of a Partnership
Employees • Dominant partner
Shared management
Marketing •
• Split control
Restrictions on Activities of Members • Independent
Default of Members

Elements of a Partnering Agreement, Continued
Other Considerations
o Which countries laws apply
o Force majeure provisions
o Modification and arbitration
Documentation
o Patent or trademark licence agreements
o Technical assistance agreements
o Leases
o Construction, management, employment contracts

UNIT 4
Foreign Direct Investments
◎ Common Investment Vehicles
◎ Branch Office
◎ Joint Venture
◎ Greenfield and Brownfield Investments
◎ Mergers and Acquisitions


Foreign Direct Investment-Related Entry Strategies
FIGURE 4.1

Common Investment Vehicles
The reasons a company has for investing in a foreign market will

influence the entry vehicle selected.
Investment vehicles are characterized by differences in structure
and approach, and demands made on the investor.
See Table 4.1 – Comparison of Benefits of Different Investment Vehicles
See Table 4.2 – Comparison of Costs for Different Investment Vehicles

Comparison of Benefits
of Different Investment Vehicles
TABLE 4.1

Comparison of Costs
for Different Investment Vehicles
TABLE 4.2

Branch Office
Advantages and Drawbacks of Branch Offices

o Simple way to establish presence
o Incurs costs, time, creates potential tax/legal issues
Establishing a Branch Office

o Certificates of incorporation/articles of incorporation
o Certificates of good standing/certificates of status
o Certificates of amendments

Joint Venture
Common reasons for joint ventures:
o Obtain local expertise
o Gain access to technology and new products
o Obtain reciprocal access to markets
o Fulfil legal requirement for foreign-owned corporations
o Share complementary skills and expertise
Forms of Joint Venture

o Incorporated and unincorporated
See Table 4.3 – Incorporated and Unincorporated Joint Ventures

Incorporated
and
Unincorporated
Joint Ventures
TABLE 4.3
Joint Venture, Continued
Deciding Which Form to Use
o Level of risk
Record Keeping
Policies and procedures to
o Level of privacy include in the agreement:
o Accounting
• Partner’s liability insurance
o Legislation
• Composition, roles and responsibilities of
o Financing board of directors and management
Health and safety guidelines
Joint Venture Considerations •
• Environmental guidelines
o Control
• HR practices
o Valuation
• Public relations and communications
o Autonomy • Conflict resolution & dispute settlement
o Flexibility and Compromise • Confidentiality of proprietary info
o Continuity • Clauses covering competition
o Exit Strategy • Exit provisions
o Record Keeping

Greenfield and Brownfield Investments
Reasons for a Greenfield Investment

o Need to construct a product- or process-specific plant to meet business requirements.
o Need to avoid environmental liability of an existing plant.
o Ability to avoid costly restructuring and retrofitting of existing facility.
o Absence of suitable and available partners.
o Presence of legal impediments to acquiring a suitable, already available plant.

Greenfield and Brownfield Investments, Continued
Reasons for a Brownfield Investment

o Building is already constructed.
o Costs of starting up may be greatly reduced.
o Facility may already meet licensing requirements/approvals.
o Facility may have previously supported similar production processes.
o Proximity of sites to urban cores and transportation.
o Remediation activities involved foster positive publicity.

Advantages and Drawbacks of Greenfield and Brownfield

Investments
ADVANTAGES DRAWBACKS
o Built to meet exact needs o Strategy is complex, expensive and risky
o Can build a corporate culture o Wholly owned subsidiaries are targets
o Company has full control o Takes a long time to establish; and it
o Reduced risk of unknown liabilities cannot leave easily if conditions change
o Company can adjust and adapt its strategy
See Table 4.4 – Considerations for Greenfield and Brownfield Investments

Managing Greenfield and Brownfield Investments

1. Determine the viability of acquiring the site.
2. Secure financing.
3. Develop working relationships with local stakeholders and professionals.
4. Identify if project requires a Greenfield or Brownfield investment.
5. Complete the real estate transaction.
6. Manage reclamation/construction process.

Mergers and Acquisitions
Factors That Influence Mergers and Acquisitions

o Capital o Environmental Risks
o Time o Fact Checking
o Legal Restrictions o Pricing
o Cultural Considerations o Taxation
o Company Background

Mergers and Acquisitions, Continued
Advantages and Drawbacks of Mergers and Acquisitions
ADVANTAGES DRAWBACKS
o Provides quick access to new markets o Often requires government involvement
o Provides access to proven workforce, o May face unknown cultural factors
operations and systems
o Unions may feel threatened
o Enables better use of financial and
management resources o Social risks may not be apparent
o Enables an organization to consolidate its o Financial liability may not be fully disclosed
core position in an industry o Strategy can take a great deal of time and
o Provides access to valuable assets resources

Mergers and Acquisitions, Continued
Managing Mergers and Acquisitions

1. Develop working relationships with local stakeholders and professionals.
2. Compile a target list and/or respond to requests.
3. Analyze targets to determine suitability.
4. Obtain approval from applicable jurisdictions for acquisitions.
5. Contact the targets to discuss their interests.
6. Secure financing.
7. Negotiate merger or acquisition with the target.
8. Finalize or close merger or acquisition.

UNIT 5
Managing International
Business Operations
◎ Monitoring Performance
◎ Communication Between Business Partners
◎ Business Partner Development
◎ Motivation
◎ Conflict Resolution


Monitoring Performance
Measuring Criteria
Determining success requires monitoring and measuring performance.
Quantitative Performance Criteria Qualitative Performance Criteria

o Sales at established intervals o Customer loyalty to a product
o Profits over time o An organization’s strategic position
o Reduction of marketing cycles over time o An organization’s relations with other
o Productivity increases or decreases businesses in a market
o Sales growth over time o The perceived level of product quality
o Percentage market share o Product recognition
o Return on investment
o Levels of capital

Monitoring Performance, Continued
Performance Measurement Systems

o Frequency of evaluation
o Who performs the assessment
o Communicating the assessment results

Communications Between Business Partners
Objectives: What will be achieved?

Other Plans
Messages: What will be communicated? • Documentation plan
• Shared information plan
Audience: Who will receive communications? • Reporting plan
Schedule: When will it be communicated?
Methods: What methods will be used?

Business Partner Development
Staff must: Partner development strategy:
o Understand product/service o Orientation
o Use special equipment o Training
o Use communication technology o Mentoring
o Prepare required documentation o Performance appraisal

Business Partner Development
Partner development strategy
Orientation Training
• Overview of venture’s mission and organization • Number of locations/employees for training
• Details of its operations • Equipment or software for which training is
developed
• Description of responsibilities and how
performance will be evaluated • Available training budget
Mentoring Performance Appraisal

• Experienced mentors assigned to groups of • Formal assessment, e.g. to encourage
partner employees professional development
• Online forums • Seek common criteria

Motivation
Motivational strategies
o Provide health care or build clinics o Invest in the local environment by helping
o Offer increasing shares in return for local charities
success o Provide childcare facilities onsite
o Provide subsidized employee housing o Negotiate flexible working schedules
o Update facilities and equipment at partner o Provide gym facilities for employee use
sites o Deliver free nutritious snacks to employees

Conflict Resolution
Early Recognition of Conflicts
Internal Resolution
Third-Party Dispute Resolution

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Implementation of Market Entry

© 2017 FITT All Rights Reserved

3 Negotiating Contracts and Partnering Agreements

4 Establishing and Managing Foreign Direct Investments

5 Managing International Business Operations

Implement a direct exporting strategy, whether exporting directly to foreign

Implement an indirect exporting strategy by finding and choosing an appropriate domestic

Monitor and manage franchisee/licensee relationships to ensure compliance and maintain a

© 2017 FITT All Rights Reserved

Monitor international partner performance on a regular basis, including managing ongoing

© 2017 FITT All Rights Reserved

1 When should an organization use an agent for direct exporting?

2 What are three key differences between franchising and licensing?

3 What are the elements of a partnering agreement?

© 2017 FITT All Rights Reserved

© 2017 FITT All Rights Reserved

© 2017 FITT All Rights Reserved

© 2017 FITT All Rights Reserved

Direct exporting allows an organization to have direct control of

Indirect exporting is typically taken on by organizations that are

© 2017 FITT All Rights Reserved

o Identify/develop relationships with government and regulators

o Identify/build relationships with customers

o Develop financial model

o Identify cultural barriers and adapt

o Draft contract template for negotiations

© 2017 FITT All Rights Reserved

Direct Exporting via Intermediaries

© 2017 FITT All Rights Reserved

© 2017 FITT All Rights Reserved

• What custom tariffs will apply?

© 2017 FITT All Rights Reserved

Continued… TABLE 1.3

© 2017 FITT All Rights Reserved

Negotiating with Agents and Foreign Distributors

© 2017 FITT All Rights Reserved

o Act as a foreign buyer for direct exporters

o Become a licensee or franchise

o Become a joint venture partner

© 2017 FITT All Rights Reserved

Finding an Indirect Intermediary Choosing an Indirect Intermediary

o International expos and tradeshows

© 2017 FITT All Rights Reserved

E-commerce is a type of trading entry strategy, and can be

© 2017 FITT All Rights Reserved

© 2017 FITT All Rights Reserved

© 2017 FITT All Rights Reserved

© 2017 FITT All Rights Reserved

Involves selling the rights to a complete package of trademarks,

© 2017 FITT All Rights Reserved

Licensing refers to organizations selling the rights to a developed

© 2017 FITT All Rights Reserved

© 2017 FITT All Rights Reserved

The organization selling franchises/licenses should:

o Select target markets that are suitable and desirable.

o Be willing and able to support business partners.

o Identify internal gaps, e.g.:

© 2017 FITT All Rights Reserved

Analyzing the Target Market Modifying the Franchise/Licensing

© 2017 FITT All Rights Reserved

Using Strategies to Locate Appropriate Franchisees/Licensees

© 2017 FITT All Rights Reserved

© 2017 FITT All Rights Reserved