CHAPTER 4

MARKET ENTRY
STRATEGIES

VTHN
ngocvth@uel.edu.vn
1. Entry as a channel decision

2. Importance of the
entry decision

3. Importance of the
entry decision

4. Factors influencing
choice of entry mode

5. Selecting the entry mode

 “An international market entry mode is an
institutional arrangement necessary for the entry of
the company’s products, technology, and human and
financial capital into a foreign country/market.”
(Albaum, Duerr & Strandskov, International marketing and Export
Management, 2011)

• Key strategic issue

• First stage of channel decision
• Channels between nations
• Initial or continuing entry
• Determines degree of control over mix
1.1 CHANNEL STRUCTURE
A company’s international marketing channel is the path in the structure of distribution
through which the products of the company reach the final consumer or user (marketing
channels in foreign countries)

The structure of distribution for reaching any foreign market includes: intermediary
marketing agencies or institutions
2 IMPORTANCE OF THE ENTRY DECISION
- Critical decision - Inappropriate entry mode = failure

- Help minimise risk - Influences final price

- Creates barrier to entry for competitors

Factors impact on market entry mode choices

1. Market attractiveness (market size and market growth).

2. Uncertainty in the host country (country risk, including the economic environment).

3. The legal environment in the host country (legal restrictions).

4. The culture of the home country , assessed by power distance (Hofstede, 2001)
acceptance.
2.1 THE WHOLE CHANNEL CONCEPT

1. the headquarters’ organization developed by the manufacturer to implement its

international marketing operations

2. the methods used or channels through which the products are sent to foreign markets
– the channels between nations

3. the means by which these products reach the target, final user or consumer in the
foreign markets, assuming that the importers are not the final users or consumers – the
channels within nations
3.1 THE ELEMENTS OF ENTRY STRATEGY

● the objectives and goals in the target market;

● needed policies and resource allocations;

● the choice of entry modes to penetrate the market;

● the control system to monitor performance in the market;

● a time schedule.
3.2 ALTERNATIVE MARKET ENTRY MODES

Outline of
alternative
basic
international
marketing
channels
3.2 ALTERNATIVE MARKET ENTRY MODES
Channel between nations
Contractual
Licensing/Franchising

Foreign contract
Export manufacturing
Indirect Export (via agents, Joint venture Wholly - owned
trading co.) subsidiaries
Cooperative Export Acquisition
(Piggybacking)
Organic Growth
Direct Export (Overseas
distributor/agent, overseas
sales subsidiary/staff)
 EXPORT

Lowest level of Manufacture in one

commitment country, sold in
another
Different Often first mode of
exporting options entry used
Many multinationals
Renault plants in still export
France, Turkey,
Romania, India, Brazil
3.2 ALTERNATIVE
MARKET ENTRY
MODES
Channel between nations

A model of antecedents and drivers

of export marketing strategy
Indirect & Direct export consumer goods

“Toyota invests £7m for new hybrid

engine at Deeside plant”
Direct & Indirect
exporting
3.2 ALTERNATIVE MARKET ENTRY MODES
Channel between nations EXPORT
3.2 ALTERNATIVE MARKET ENTRY MODES
Licensing
● Arrangement where licensor allows
licensee to use patent rights, trademarks,
copyrights or know-how on products or
processes
● Payment as licensing fee and/or royalties
● Greater role than contract manufacturer
● May supply components
● Examples: Red Bull, Canon
Franchising
● Different types e.g. business format
(retailers), manufacturer–wholesaler
(Coca Cola)
● Franchisee fee + royalties
● Supply components or products
● Independent franchisee
3.2 ALTERNATIVE MARKET ENTRY MODES
Contract manufacturing

● Manufacturing by proxy

● Firm’s product manufactured in the foreign market by another producer

● Only covers manufacturing not marketing

● May supply components/parts/raw materials

● Examples – pharmaceuticals, electronics, cigarettes, clothing

3.2 ALTERNATIVE MARKET ENTRY MODES
3.2 ALTERNATIVE MARKET ENTRY MODES
Joint Venture
• Two or more companies forming a separate company in which all partners have
equity and management voice
• Variable equity share
• Not all partners provide finance, could be factory, labour etc.
• Many governments insist on JVs for entry into market
• Examples: McDonald’s, Club Med, Nokia, Wal-Mart

“Regional joint ventures have proven to be an effective way to combine Nokia's global
technology leadership with strong local partners to accomplish faster and higher
market penetration in new and emerging markets” Nokia
3.2 ALTERNATIVE MARKET ENTRY MODES

“I learned a lot, I hope they learned a lot too, about how important it is for a local
partner to take the lead in the marketing area.”
President, True (TelecomAsia mobile brand following split with Orange)
3.2 ALTERNATIVE MARKET ENTRY MODES
Wholly - Owned Subsidiaries
Acquisition
• Acquisition of a going concern
• Part-share or 100%
• May be regulated e.g. Competition Commission
• High cost option
• Examples: Wal-mart, Tesco, DHL

“DHL acquired too much and was unable to digest the business cultures properly.”
(International Freight Weekly, 2007)
3.2 ALTERNATIVE MARKET ENTRY MODES
Wholly - Owned Subsidiaries
Organic Growth
Build company without help of partner 100% ownership, high cost
High level of commitment Level of experience important
Maybe equity regulations Examples Hyundai, Tesco
3.2 ALTERNATIVE MARKET ENTRY MODES

“We asked ourselves should

we keep the emphasis on
organic growth or take the
risk of doing a large
acquisition with all the
problems and challenges of
integration”
Carrefour, Chief Executive
Officer, Jose Luis Duran,
Retail Bulletin 2006
3.2 ALTERNATIVE MARKET ENTRY MODES
Other An emerging type of alliance is the outsourcing of service work
e.g India, China, and the Philippines

India is being used by US companies for creating call centers.

India offers better-educated (college educated) workers than its US

counterparts (high-school educated).

China is rising fast as a services and manufacturing outsourcing hub.

In 2004, China’s role was largely focused on providing back-office support for
financial service, telecom, software, and retailing companies in neighboring
Asian countries (Einhorn and Kripalani, 2003).
3.2 ALTERNATIVE MARKET ENTRY MODES

Some alternative channels

within a nation
4 FACTORS INFLUENCING CHOICE OF ENTRY MODE

INTERNAL
● Market objectives Speed of entry, level
of control, involvement
● Experience & expertise More
experience, less risk (NB perception of
risk)
EXTERNAL
● Market size and potential Existing
and future
● Market access Barriers to entry,
legal barriers, availability of partner

● Resources Financial and human ● Level of risk Political, economic

and cultural
● Product
● Cost of entry
● Payback

● Learning
Model of a global retailer’s
entry mode choice
 5. SELECTING THE ENTRY MODE
Strategy rule
Pragmatic rule All alternatives
Workable mode of entry for systematically compared &
Naïve rule
each market evaluated (Root, 1994)
Same entry mode for all Change when not feasible /
markets profitable
Ignores heterogeneity of
markets
SUMMARY • Important, but complex decision
• Each mode has its own advantages
• Decision will depend on company and market
conditions
• Choice is a net result of conflicting forces
• Complex process with numerous trade-offs
• There is no ideal mode of entry
• Mode of entry can be changed when experience
acquired or market conditions change
Select an industrially developed country (perhaps Japan or a
European country) and a relatively less developed country
(perhaps a Latin American or African country). Contrast the
?
relative importance of the factors that should be taken into
consideration by a foreign-based manufacturer of a low-unit priced
packaged good selling in both markets, when determining policy
on selecting appropriate channels of distribution in those markets.
In which case is the managerial decision easier to make? Discuss.