Entry Strategies for

International Marketing

By
Abha Rishi
International Marketing Entry
Decisions

 1. Exporting
 2. Licensing

 3. Franchising

 4. Contract Manufacturing/

Outsourcing/ Assembly
International Marketing Entry
Decisions…..

 5. Strategic Alliance
 6. Joint Venture

 7. Mergers and Acquisitions

 8. Greenfield/ Brownfield
Manufacturing
Exporting
 A. Indirect Exporting
 Selling through/to a Merchant
Exporter or Export House
 Selling to Visiting/Resident

Buyers (almost equivalent to

domestic sales)
Indirect Exporting…
 Advantages of Indirect Exporting
 Merchant Exporter takes care of all
botheration involved and assumes all risks
 Capital is not tied up
 No money is spent on market research and
setting branches abroad
 Sales opportunities formed in out of the
way markets and non-conventional
products
Indirect Exporting….
 Disadvantages
 Co. remains ignorant of export market
operations
 No publicity and goodwill formed in the
end user market
 Inappropriate for highly specialized or
custom built products
 No control over prices
 Merchants will be interested only in paying
mkts.
 B. Direct Exporting
 Built in export department
 Self-contained export department

 Separate export company

 Combination Export Managers( works

for several principals)

 Joint Marketing Groups (Consortium

Approach)
Direct exporting….
 Advantages:
 Better knowledge of market and buyers-
can change acc. to change in trends
 Complete control over prices charged
(leading to more profits)
 Distribution Chain is shortened
 Builds up name, brand and goodwill
 Greater expertise in international
marketing –helps in exploring other
markets
 Availability of export incentives
Direct exporting
 Disadvantages
 Capital is tied up if transaction is on credit
basis
 More risks involved
 Entry costs are high
2. Licensing

 A company assigns the right to

undertake production locally, using its
patent, to a local company for a fee or
royalty
 A manufacturer should consider
licensing only when
 1. Capital is scarce
 2. Import restrictions discourage direct
entry
 3. Host country is sensitive to foreign
ownership
 Licensing
 Licensing agreements are subject to negotiation
and tend to vary from industry to industry
 A license contract normally includes

 Product and territorial coverage

 Length of contract
 Quality control
 Royalty rate and structure
 Choice of currency
 Choice of law
Licensing…..

 Advantages
 Quick & easy way to enter the markets as
not much knowledge or time is required
 Very little cost involved
 Market potential might be too small
 Avoids political and economic risk
Licensing……
 Disadvantages
 Substantial dependence on the local
licensee to generate revenues and pay
royalties
 Local firm may not be able to produce
products of quality standards for which the
parent company is known
 Licensee might damage the product image
if quality standards are not followed
 Licensee might become a prospective
competitor
Franchising
 It is a special form of licensing in which
a parent company ( the franchiser)
grants another independent company (
the franchisee) the right to do business
in a prescribed manner.
 The franchiser makes a total marketing
programme ( including the brand name,
logo and the method of operation)
available to the franchisee.
Franchising….
 Franchising has all the
advantages and disadvantages
of licensing.
 The one added advantage being

better control over product and

the franchisee.
Contract Manufacturing/
Outsourcing
 Under CM, a company arranges to have its
products manufactured by an independent
local company on a contractual basis.
 A co. doing Int’l Mktg enters into a contract
with the local firm in the foreign country to
manufacture the product.
 The local manufacturer produces and
supplies the product while the int’l co. takes
responsibility for sales, promotion and
distribution
Contract Manufacturing/
Outsourcing
 Advantages
 The co. does not have to commit resources for
setting up production facilities abroad
 Frees the company from the risks of investing in
foreign countries
 Cost of contract production is less than in-house
manufacturing
 Less risky- if the market does not pick up the
contract can be dropped
 If idle production capacity is there, immediate
production and marketing can start
Contract Manufacturing/
Outsourcing
 Disadvantages
 Not easy to locate local party with requisite
capability for prod.
 Local party gains experience and might
form competition in the future
 Quality maintenance may not be up to the
mark
Assembly
 Assembly is the last stage in
manufacturing and depends on the
ready supply of components to be
shipped to another country
 Most of the components or ingredients
are produced domestically and then
finished product is assembled in the
foreign country
Assembly
 Assembly is used when
 Economies of scale is there in manufacture
of components
 Assembly operations are labour intensive
and labour is cheap in the foreign country
 Unit and SKD tariffs are more than CKD
 Secrecy is to be maintained regarding
ingredients…..Coke, Heinz sauces
Assembly
 Advantages
 Cost advantage
 Local content –demand satisfied
 Less investment
 Less economic and commercial risks
 Price can be controlled
 Favourable ‘local’ image
Strategic Alliance
 Two firms pool their resources directly
in a collaboration for mutual benefit
 Normally, SA involves either distribution
access or tech. transfers or production
technology
 Seeks a long term competitive advantage
by forming an alliance with competitors
 Goals are to leverage critical capabilities,
increase flow of innovation, etc
Strategic Alliance
 Three types of SA
 Technology based—AT&T and Intel
 Production based- British Rover and Honda
 Distribution based- P&G and Dabur ( for
rural markets)
Joint Venture
 An enterprise formed by the
international business company sharing
ownership and control with a local
company

 Normally used in countries where fully

owned foreign cos. are not allowed
 Terms of participation may vary
Joint Venture
Before signing a Joint Venture Agreement the following must
be properly addressed:

 Dispute resolution agreements Applicable law.

 Force Majeure Holding shares
 Transfer of shares Board of Directors
 General meeting. CEO/MD
 Management Committee Dividend
policy/Funding
 Access Change of control
 Non-Compete Confidentiality
 Termination.

The Joint Venture agreement should be subject to obtaining all

necessary governmental approvals and licenses within specified
period.
 JV….
 Advantages
 Potentially greater returns from equity
participation as opposed to royalties
 Greater control over prodn. and mktg.

 Better mkt. feedback

 More experience in international mktg.

 Risk is shared between local and foreign

partner
 Local partner brings in local contacts

 Accessibility to local mktg. network

JV….
 Disadvantages
 Involve greater investment of capital and
management resources
 Possibility of conflict of interest
 Expectations may not be fulfilled and both
partners may feel cheated
M&A
 Merger- International firm and the local
firm meld together to form a new entity

 Acquisition- International business firm

takes over the management of an
existing company abroad
 Some Major Acquisitions
 Tata Tea- Tetley Tea
 Essel Packaging- Propack ( Switzerland)
 Tata Motors- Daewoo factories in South Korea
 Ranbaxy- RPG Aventis ( French wing of Aventis)
 Wockhardt- CP Pharmaceuticals of UK
 Tata- Corus
 Tata- British Rover ( Jaguar)
 Hindalco- Novelis
Greenfield Manufacturing
 Company builds from scratch all
the production facilities.
 Also known as greenfield
investment
 Brownfield investment
 Brownfields are abandoned, idle, or
under-used industrial and commercial
facilities where expansion or
redevelopment is complicated by real or
perceived environmental contamination
 A piece of industrial or commercial
property that is abandoned or underused
and often environmentally contaminated,
especially one considered as a potential
site for redevelopment.
Entry Strategy Analysis
 1. Expected Sales
 2. Costs
 3. Level of assets to be created
(Investment)
 4. Profitability
 5. Risk factors
 6. No. of markets covered