Module 3

Entry decision-making

Domestically or international
A market entry strategy is the method a company uses to plan, distribute and deliver goods or
services to other markets.

A first point of consideration is whether the organization is expanding domestically or

internationally

Expansion within the same market will have different requirements than expansion into the
global market.

What to consider? Type of industry, type of product, culture, cost associated with entering a
new market, and laws of importation and exportation.

Definition and purposes of entry strategies

Definition: entry strategies refer to the methods businesses use to enter foreign markets.
Purpose:
-​ Expand revenue streams by accessing international markets
-​ Gain access to new customer bases, increasing global reach
-​ Leverage cost advantages such as cheaper labor and raw materials
-​ Enhance brand presence and competitiveness in global markets

Key considerations in Entry Strategy Selection

-​ Market Size & Demand: Companies must access consumer purchasing power and
market trends.
-​ Competitive landscape: Identifying industry players and potential barriers to entry.
-​ Risk Implications: Evaluating political, economic, and financial stability.
-​ Regulatory Environment: Ensuring compliance with foreign trade and investment
laws.

Classification of Entry Strategies

Exporting:
-​ Direct: Selling products directly to foreign customers
-​ Indirect: Using intermediaries like distributors or agents.
-​ Licensing: Granting foreign firms rights to use patents, trademarks, or technology.
-​ Franchising: Expanding a business by allowing foreign entities to operate under its
brand.
-​ Strategic Alliances & Joint Ventures: Partnering with local firms to share knowledge
and resources.
-​ Wholly Owned Subsidiaries: Establishing full control by direct investment in a
foreign market.
Distribution
Involves partnering with existing local distributors to distribute the company’s products or
services in the foreign market.
Advantages:
-​ Requires minimal investment and risk, as the company does not have to set up a new
operation in the foreign market.
-​ It leverages existing local knowledge, relationships, and networks, which can help the
company navigate the market more effectively.
-​ It allows the company to test the waters before making a larger investment.

Disadvantages:
-​ It can limit the company’s control over operations and distribution, which can impact
the quality of products and customer experience.
-​ The company may be limited in its ability to customize products or services to meet
local market needs.
-​ It may be challenging to establish brand recognition and maintain customer
relationships from a distance.

Exporting
The simplest and most common entry strategy for businesses to enter foreign markets.
Exporting involves selling products or services to foreign customer from the business’s
domestic location.
Advantages:
-​ Low initial investment and reduced risks associated with entering a new market.
-​ Opportunity to test the waters in a new market before making a larger investment.
-​ Minimal disruption to existing operations, as products or services are exported from
the home country.

Disadvantages:
-​ Limited ability to customize products or services to meet local market needs.
-​ Potential for high shipping and distribution costs, as well as import/export restrictions
and regulations.
-​ Lack of local market knowledge and potential challenges associated with establishing
brand recognition and maintaining customer relationships from a distance.

Joint Ventures
Involve two or more companies working together to establish a new business entity in a
foreign market. Joint ventures are an attractive option for businesses that want to share risks
and resources and tap into local expertise.
Advantages:
-​ Reduced risk through shared investment, expertise, and resources.
-​ Access to local market knowledge and expertise.
-​ Opportunity to share costs and risks associated with expanding into a new market.
Disadvantages:
-​ Potential for conflict and disagreements over decision-making, profit sharing, and
other issues.
-​ Limited control over the joint venture and potential loss of property technology or
intellectual property.
-​ Complexity and challenges associated with managing and coordinating between
different organizational cultures and systems.

Licensing
Involves a contractual agreement between a licensor (the business that owns the intellectual
property rights) and a licensee (the business that pays for the right to use the intellectual
property). The licensee is granted the right to use the licensor’s intellectual property, such as
trademarks, patents, and copyrights, in exchange for a fee or royalty.
Advantages:
-​ Gain local cost or production advantages.
-​ Local partners provide political influence and knowledge of local tastes.
-​ Low transit costs/tariffs

Disadvantages:
-​ Reduced profit potential
-​ Firm-specific assets may be hard to transfer
-​ May lose control over product quality.
-​ Customization potential may be limited.
-​ Divergent goals may exist or arise between partners.
-​ Host-country partner may acquire capabilities and compete.

Acquisition:
Involves merging with or acquiring an existing company in the foreign market.
Advantages:
-​ Instant access to the foreign market’s customer base, distribution channels, and local
knowledge, which allows the company to avoid the lengthy setup process.
-​ It creates synergy by integrating the strengths of both companies and generating new
opportunities and cost savings in the foreign market.
-​ Eliminates a competitor, and the company can quickly gain a foothold in the foreign
market by leveraging the existing infrastructure of the acquired company.

Disadvantages:
-​ High cost and potential risks associated with merging with or acquiring an existing
company.
-​ Cultural differences and dashes between the acquiring and acquired companies.
-​ Integration challenges, including the need to reconcile different organizational
structures and systems.

Greenfield:
Involves building new facilities and establishing a new operation from scratch in the foreign
market.
Advantages:
-​ Complete control over the design and construction of facilities, equipment, and
technology.
-​ Opportunities to customize products or services to meet local market needs.
-​ Potential for long-term cost savings through operational efficiencies and economies of
scale.

Disadvantages:
-​ High initial investment costs and long lead times to establish operations.
-​ Lack of established customer base and brand recognition.
-​ Greater risk associated with navigating local regulations, cultural differences, and
supply chain challenges.

Global Integration
Global integration refers to the process by which various countries, economies, and societies
become interconnected and interdependent on a global scale. It involves the exchange of
goods, services, ideas, information, technologies, and people across borders.
1.​ Increased efficiency and productivity.
2.​ Improved decision-making
3.​ Enhanced customer experience
4.​ Flexibility and scalability
5.​ Collaboration and Knowledge sharing
6.​ Improved accountability
7.​ Simplified workflows

Pressures & internationalization strategies

The extent to which production of goods and services for the entire globe are more
effectively and efficiently performed in only one or a few places

(+) Global strategy Transnational

-Centrilized strategy
functions, shares -Wide sharing of
infrastructure, and expertise
services -Flexibility to adapt
-Undifferentiated in to local needs.
local markets

Pressure for local (-) International Multi-domestic

integration strategy strategy
Some centralized Decentralized; loose
operations and central control
knowledge transfer Focus on local
 Some localized markets
adaptation

(-) (+)

Pressure for local

responsiveness
The extend to which products, services & businesses functions require substantial adaptation
to local conditions.

(tabla pressures and internationalization strategies estudiar de fotos)

Introduction to exporting
Exporting: The process of selling goods or services to a foreign market.
Role in Global Business: Helps businesses expand beyond domestic borders.

Types of exporting:
-​ Direct exporting: Selling directly to foreign buyers.
-​ Indirect Exporting: Using intermediaries to access foreign markets.

Direct Exporting
Businesses sell directly to foreign consumers or distributors.
Greater control over pricing, marketing, and branding.
Requires more resources and market knowledge.

Indirect Exporting
Companies use intermediaries like agents, trading companies, or export management firms.
Lower risk and resource commitment but limited market control.
Useful for companies new to international trade.

The roles of intermediaries in Indirect Exporting

Agents: Act on behalf of exporters to find buyers.

Distributors: Purchase goods and resell them in foreign markets.

Export Management Companies: Handle export operations for firms lacking expertise.

Export Trading Companies: Specialize in finding overseas buyers and handling trade
logistics.

Advantages and challenges of Exporting

Advantages:
 -​ Low initial investment compared to foreign direct investment.
-​ Opportunity to expand market reach and increase sales.
-​ Access to new revenue streams and reduced dependence on domestic markets.

Challenges:
-​ Tariff Non
-​ Tariff Barriers: Import duties, quotas, and compliance with regulations.
-​ Logistical Complexities: Managing shipping, warehousing, and customs procedures.
-​ Limited Market Control: Dependance on intermediaries for distribution and sales.

Overcoming exporting challenges

Leveraging Technology:
-​ Digital tools for efficient supply chain and logistics management.
-​ E-commerce platforms for reaching international consumers.

Building Partnerships:
-​ Collaborating with reliable local distributors and agents.
-​ Establishing long-term relationships with intermediaries for market success.

Compliance & Market Knowledge

-​ Understanding trade regulations and adapting to foreign legal frameworks.
-​ Conducting thorough market research before exporting.

Success factors in Exporting

COMFORT

Effective Market Research

-​ Identifying demand, competition, and regulatory environment in target markets.

Transparent Communication:
-​ Clear coordination with foreign partners and customers.
-​ Setting clear expectations with intermediaries.

Innovation & Adaptability:

-​ Adjusting pricing, branding, and distribution strategies based on market feedback.
-​ Using digital marketing to enhance brand visibility and customer engagement.

Overview of Licensing & Franchising

Licensing
A legal agreement where a company (licensor) grants another entity (licensee) the rights to
use its intellectual property (IP), such as patents, trademarks, or technology.
It allows companies to expand into foreign markets without direct investment.
Franchising:
A business model where a company (franchisor) grants a foreign party (franchisee) the right
to operate a business under its established brand and system.
It provides ongoing support, training, and brand identity replication.

Successful stories: Coca-Cola, McDonalds

Advantages of Licensing & Franchising:

Licensing Advantages:
-Rapid Market entry with minimal financial investment.
-Leverages local expertise of the licensee for market penetration.
Example: Nike licenses its brand for apparel production in international markets.

Franchising Advantages:
Example: Subway’s franchise-driven global expansion

Challenges of Licensing & Franchising

Licensing Challenges:
-Risks of Intellectual property misuse by the licensee
-Limited control over product quality and brand representation
Example: Software companies facing unauthorized copying of their licensed products.

Franchising Challenges:
-Ensuring consistent brand standards across diverse locations.
-Managing franchisee relationships and ensuring compliance.
Example: Starbucks’ challenges in maintaining quality across franchise locations.

Comparing Licensing & Franchising

Industry Suitability:
-​ Licensing: Best for industries driven by intellectual property (example: technology,
entertainment).
-​ Example: Disney licensing its characters for merchandise production.
-​ Franchising: Ideal for industries requiring operational consistency (example: food &
beverage, retail).
-​ Example: Domino’s Pizza franchising its restaurant model globally.

Market considerations:
-​ Licensing is suitable for markets with strong IP protection laws.
-​ Franchising is effective in regions with high demand for established brands and
business models.
Introduction to Strategic Alliances & Joint Ventures.
Strategic Alliances:
A cooperative agreement between two or more firms to share resources for mutual benefit.
Used to enhance market access, technology exchange, and cost efficiency.
Example: Starbucks and PepsiCo’s alliance for bottled coffee distribution.

Joint Ventures:
A formal partnership where two companies create a new entity with shared ownership.
Requires deeper integration, financial commitment, and shared decision-making.
Example: Sony Ericsson, a joint venture between Sony and Ericsson in the mobile phone
industry.

Key Difference: Strategic alliances are less binding and flexible, while joint ventures involve
legal and financial commitments.

Advantages of Strategic Alliances & Joint Ventures

Resource Sharing
-​ Companies combine capital, technology, or expertise to enhance competitiveness.
Example: Boeing and Rolls-Royce’s collaboration on aircraft engines.

Access to local knowledge:

-​ Leverages a partner’s understanding of cultural, legal, or market dynamics.
Example: McDonald’s partnering with local suppliers to adapt its menu to local tastes.

Risk Mitigation:
-​ Financial risks and responsibilities are shared, reducing exposure.
Example: Joint ventures in oil and gas industries help companies share high exploration costs.

Challenges of Strategic Alliances & Joint Ventures

Conflict resolution:
-​ Disputes may arise over resource allocation, profit sharing, or decision-making
authority.
Example: Daimler-Chrysler’s failed joint venture due to management conflicts.

Cultural and Operational Differences:

-​ Misalignment in corporate cultures, leadership styles, or business practices can create
inefficiencies.
Example: Walmart’s struggle in Germany due to cultural differences in management
approaches.

Dependency Risks:
-​ Overreliance on a partner’s resources or market position can limit flexibility.
Example: Small companies becoming too dependent on a larger partner for growth.

Discussion:
Strategic alliances and joint ventures offer opportunities for global expansion,
resource-sharing, and risk reduction.
However, challenges such as conflicts, cultural differences, and dependency risks must be
managed effectively.

How can companies mitigate the risks of dependency on a partner?

Diversifying their partners.

Recap of Major Risks in Int’I Business

-​ Political Risks: Changes in government policies, trade restrictions, instability.
-​ Economic Risks: Currency fluctuations, inflation, recession, unstable demand.
-​ Legal & Regulatory Risks: Compliance with foreign laws, trade restrictions, IP rights.
-​ Cultural Risks: Differences in consumer behavior, business practices, ethics.
-​ Geographic Risks: Logistics, infrastructure, climate impact on supply chains.

Role of Entry Modes in Risk Mitigation

-​ Exporting: Reduces exposure to political instability and high capital investment.
-​ Licensing & Franchising: Avoids regulatory challenges, relies on local expertise.
-​ Joint Ventures: Shares financial and operational risks in high-risk markets.
-​ Wholly Owned Subsidiaries: Ideal for stable environments requiring full control.

Identifying Risks and Aligning Entry Strategies

Identifying Risks:
-​ Assess political, economic, legal, cultural, and geographic risks.
Example: Venezuela has high political instability, EU has strict environmental regulations.

Aligning Entry Strategies:

-​ High instability: Exporting or licensing to reduce exposure.
-​ Regulatory risks: Franchising to work with local expertise.
-​ Financial risks: Strategic alliances for cost-sharing.
-​ Infrastructure challenges: Joint ventures for supply chain access.

Political, Economic, and Legal Risk Strategies

Political Risks:
-​ Strategy: Exporting or licensing to limit direct exposure
Example: Companies exporting to markets with unstable governments.

Economic Risks:
-​ Strategy: Strategic alliances to share financial risks.
Example: Automakers forming alliances to manage volatile demand.
Legal and Cultural Risks:
-​ Strategy: Franchising to rely on local expertise.
Example: McDonald’s franchises in culturally distinct regions.

Geographic Risks and Joint Ventures

Geographic Risks:
-​ Infrastructure, logistics, environmental impact.
Example: Companies partnering with local firms for distribution.

Joint Ventures:
-​ Enhance supply chain and infrastructure access.
Example: Mining companies forming joint ventures in remote areas.
Example: Auto manufacturers partnering with local firms in China.