Chapter 4

MARKET ENTRY STRATEGIES

Objec&ves
After completing this chapter, students can:
1. Understand the importance of the entry decision
2. Identify the entry strategies
3. Describe the various factors influencing choice of entry mode
4. Be able to evaluate the rules when selecting entry modes
Content
1. Channel decision and the importance of the entry decision
2. Entry strategies
3. Factors influencing choice of entry mode
4. Selec>ng the entry mode

3
1. CHANNEL DECISION & THE
IMPORTANCE OF THE ENTRY DECISION
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
THE WHOLE CHANNEL CONCEPT
1. The headquarters’ organiza1on developed by the manufacturer to
implement its interna8onal marke8ng opera8ons.

2. The methods used or channels through which the products are sent
to foreign markets – the channels between na1ons.

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 na1ons.
IMPORTANCE OF THE ENTRY DECISION
• Critical decision
• Influences final price
• Inappropriate entry mode = failure
• Creates barrier to entry for competitors
• Help minimize risk
2. ENTRY STRATEGIES
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.
ALTERNATIVE MARKET ENTRY MODES

Figure 4.1: Investment Cost/Level of Involvement of Market-Entry Strategies

EXPORT
• Lowest level of commitment
• Different exporting options
• Manufacture in one country, sold in another
• Often first mode of entry used
• Many multinationals still export

• Piggybacking “when a company sells its products abroad using

another company’s distribution facilities”
Export Selling vs Export Marke3ng
• Export selling involves selling the same product, at the same price,
with the same promotional tools in a different place.
• Export marketing tailors the marketing mix to international
customers.
• An understanding of the target market environment
• The use of market research and identification of market potential
• Decisions concerning product design, pricing, distribution and
channels, advertising, and communications
Potential Export Problems
Logistics
Arranging transportation
Transport rate determination
Handling documentation
Obtaining financial information
Distribution coordination
Packaging
Obtaining insurance
Legal procedures
Government red tape
Product liability
Licensing
Customs/duty
Contract
Agent/distributor agreements
Servicing Exports
Providing parts availability
Providing repair service
Providing technical advice
Providing warehousing
Sales promotion
Advertising
Sales effort
Marketing information
Foreign market intelligence
Locating markets
Trade restrictions
Competition overseas
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Figure 4.2: Direct & Indirect exporting
LICENSING
• A contractual agreement whereby one company (the licensor) makes
an asset available to another company (the licensee) in exchange for
royal;es, license fees, or some other form of compensa;on
• Patent
• Trade secret
• Brand name
• Product formula;ons
• Worldwide sales of licensed goods totaled $263 billion in 2016
Advantages vs Disadvantages to Licensing
Advantages
• Provides additional profitability with
little initial investment
• Provides method of circumventing
tariffs, quotas, and other export
barriers
• Attractive R O I
• Low costs to implement
• Licensees have autonomy to adapt
products to local tastes
Disadvantages
• Limited market control
• Returns may be lost
• The agreement may be short-lived
• Licensee may become competitor
• Licensee may exploit company
resources
Special Licensing Arrangements - Franchising
• Contract between a parent company-franchisor and a franchisee that
allows the franchisee to operate a business developed by the
franchisor in return for a fee and adherence to franchise-wide
policies
• Used by the specialty retailing & fast-food industries
Special Licensing Arrangements - Franchising
• Will local consumers buy your product?
• How tough is the local competition?
• Does the government respect trademark and franchiser rights?
• Can your profits be easily repatriated?
• Can you buy all the supplies you need locally?
• Is commercial space available and are rents affordable?
• Are your local partners financially sound and do they understand the
basics of franchising?
Special Licensing Arrangements - Contract
manufacturing
• Company provides technical specifications to a subcontractor or
local manufacturer
• Allows company to specialize in product design while contractors
accept responsibility for manufacturing facilities
• May open the firm to criticism if manufacturers operate with harsh
working conditions or have low wages
• Only covers manufacturing not marketing
• May supply components/parts/raw materials
Advantages vs Limitations to Franchising &
Contract manufacturing
Franchising Contract manufacturing

Advantages • Limited financial • No investment required

investment • Avoids tariff barriers
• Taps local managerial • Quick mode of entry
talent • Flexible
• Improved managerial • Lower manufacturing costs
motivation

Limitations • May require training • Need for quality control

• Need for financial and • Supply limitations
product quality control
• Legal position
JOINT VENTURES
• Entry strategy for a single target country in which the partners share
ownership of a newly-created business entity
• Builds upon each partner’s strengths
• Not all partners provide finance, could be factory, labor etc.
• Many governments insist on JVs for entry into market
• Examples: G M and Toyota, G M and Daewoo in S. Korea, Ford and
Mazda, Chrysler and B M W
JOINT VENTURES
Advantages
• Allows for risk sharing-financial and
political
• Provides opportunity to learn new
environment
• Provides opportunity to achieve
synergy by combining strengths of
partners
• May be the only way to enter market
given barriers to entry
Disadvantages
• Requires more investment than a
licensing agreement
• Must share rewards as well as risks
• Requires strong coordination
• Potential for conflict among partners
• Partner may become a competitor
Market Entry and Expansion by Joint Venture
(1 of 2)

Companies Involved Purpose of Joint Venture

G M (U S A), Toyota (Japan) N U M MI, a jointly operated plant in Freemont,
California (venture was terminated in 2009).

G M (U S A), Shanghai Automotive A 50-50 joint venture to build an assembly

Industry (China) plant to produce 100,000 mid-sized sedans for
the Chinese market beginning in 1997 (total
investment of $1 billion).

G M (U S A), Hindustan Motors A joint venture to build as many as 20,000

(India) Opel Astras annually (G M’s investment was
$100 million).
 Market Entry and Expansion by Joint Venture
(2 of 2)

Companies Involved Purpose of Joint Venture

G M (U S A), governments of
Russia and Tatarstan
Ford (U S A), Mazda (Japan)
Ford (U S A), Mahindra &
Mahindra Ltd. (India)
A 25-75 joint venture to assemble Blazers from
imported parts and, by 1998, to build a full assembly
line for 45,000 vehicles (total investment of $250
million).
AutoAlliance International 50-50 joint operation of a
plant in Flat Rock, Michigan.
A 50-50 joint venture to build Ford Fiestas in the Indian
state of Tamil Nadu (total investment of $800 million).

Chrysler (U S A), B M W (Germany) A 50-50 joint venture to build a plant in South America
to produce small-displacement, 4-cylinder engines
(total investment of $500 million).
WHOLLY - OWNED SUBSIDIARIES ACQUISITION
• Acquisition of a going concern
• Part-share or 100%
• May be regulated e.g. Competition Commission
• High cost option
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
Advantages vs Limitations to
Acquisition & Organic Growth
Acquisition Organic Growth

Advantages • Rapid entry • State of the art

• Access to distribution channels technology
• Existing management experience • Integrated production
• Established brand names, • Operational efficiency
reputation • 100% of profit
• Reduces competition
Disadvantages • Integration with existing operation • High investment cost
• Communication and coordination • Need to build business
problems • Slow entry
• Fit with existing business
3. FACTORS INFLUENCING CHOICE OF
ENTRY MODE
INTERNAL EXTERNAL
• Market objectives Speed of • Market size and potential
entry, level of control, Existing and future
involvement • Market access Barriers to
• Experience & expertise More entry, legal barriers,
experience, less risk availability of partner
• Resources Financial and human • Level of risk Political,
• Product economic and cultural
• Payback • Cost of entry
• Learning
4. SELECTING THE ENTRY MODE
SELECTING THE ENTRY MODE
Naïve rule Pragmatic rule Strategy rule

- Same entry mode for - Workable mode of - All alternatives

all markets entry for each market systematically
- Ignores heterogeneity - Change when not compared & evaluated
of markets feasible / profitable (Root, 1994)
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