Module 4

Market Entry and Development

Strategies

International Business Division

School of International Business and Marketing
UEH University
Learning objectives

1. Examine the role foreign distributors play in a firm’s international

growth process
2. Examine the meaning of strategic alliances and their main risks and
benefits
3. Understand international mergers and acquisitions, and their pitfalls
4. Compare and contrast different market entry and development
strategies
1. Market entry strategies

• Equity vs Non-equity strategies: Equity entry strategies involve an

equity investment and ownership stake
1. Exporting

• The strategy of producing products or services in one country (often the producer’s home
country), and selling and distributing them to customers located in other countries.
• Pros
- Increases sales volume, market share, profit margins
- Increases economies of scale
- Diversifies customer base
- Stablizes fluctuations in sales associated with economic cycles or seasonality of demand
- Minimizes the cost of foreign market entry, tests new market before engaging in other
market entry strategies
- Minimizes risk and maximizes flexibility compared to other strategies
- Leverages the capabilities of foreign distributors and other business partners located abroad
1. Exporting

• The strategy of producing products or services in one country (often the

producer’s home country), and selling and distributing them to customers located
in other countries.
• Cons:
- Fewer opportunities to learn about customers
- Competitors and other unique aspects of the foreign market
- Must acquire and dedicate capabilities to conduct complex transactions
- Need to be proficient in international sales contracts and transactions, financing
methods, logistics and documentation
- Exposes the firm to tariffs and other trade barriers as well as fluctuations in
exchange rates
1. Exporting and The role of foreign distributors

• Intermediaries based in the foreign market:

• Provide insights to the local market, knowledge of local regulations and
business practices, existing major customers at low cost, and the ability to
hire appropriate staff and develop relationships with potiential new
customers.
• Usually handle market research and arranging local transporation and
complying with customes requirements
• MNEs establish relationships with local distributors to reduce costs and
minimise risks
1. Exporting and The role of foreign distributors

• Intermediaries based in the foreign market:

• A foreign distributor works under contract in a foreign market for an
exporter, distributes and assumes title to the exporter’s products or
services in a particular territory, and is often responsible for
marketing activities
• An agent (broker) acts for either a buyer or seller. An agent does not
asumme title or ownership of the goods.
• A sales representative a contracted intermediary that represents an
exporter and sells its goods in a specified territory
1. Exporting and The role of foreign distributors

• Intermediaries based in the home market:

• A trading company a firm that engages in the import and export of a
variety of commodities, products or services and assumes the
international marketing fuction on behalf of producers, especially
those with limited international business experience
• An export management company a firm that acts as an export agent
on behalf of producers in return for a commission
1. Exporting and The role of foreign distributors

• Online intermediaries
• An online intermediary enables buyers and sellers to conduct
ecommerce.
• Amazone, eBay, Alibaba’s Tmall
• Social networking sites: Google, Facebook (most popular in South-
East Asia), Baidu, Tencent’s WeChat and Weibo
• US and China were top two market in term of Global Retail
Ecommerce Index
1. Exporting and The role of foreign distributors

• Online intermediaries
1. Exporting and The role of foreign distributors

• Online intermediaries
1. Exporting and The role of foreign distributors

• Common online categories in different market

1. Exporting and The role of foreign distributors

• Companies need to consider differences in distubtion systems to build

their distribution strategy
1. Retail concentration – concentrated or fragmented
 concentrated retail system has a few retailers who supply most of the
market
 common in developed countries
 fragmented retail system has many retailers, none of which has a major
share of the market
 common in developing countries
1. Exporting and The role of foreign distributors

• 2021 Top Retail Development Markets

1. Exporting and The role of foreign distributors

• Companies need to consider differences in distubtion systems to build

their distribution strategy
2. Channel length - the number of intermediaries between the
producer and the consumer
 short channel - when the producer sells directly to the
consumer
 common with concentrated systems
 long channel - when the producer sells through an import agent, a
wholesaler, and a retailer
 common with fragmented retail systems
1. Exporting and The role of foreign distributors

• Companies need to consider differences in distubtion systems to build

their distribution strategy
3. Channel exclusivity – how difficult it is for outsiders to access
the channel
 Japan's system is a very exclusive system
4. Channel quality - the expertise, competencies, and skills of established
retailers in a nation and their ability to sell and support the products
of international businesses
 good quality in most developed countries, but variable in emerging
markets and elsewhere
 firms may have to devote considerable resources to upgrading channel quality
1. Exporting and The role of foreign distributors

Evolving role of local distributors in practices

• MNEs often use an unplanned or reactive ‘beachhead’ strategy with
minimal, low-risk, low-investment when establishing a relationship with
a foreign distributor
• MNEs reactively respond to unsolicited proposals from local distributors
• MNEs invest little in marketing and business development
• MNEs assumes the distributor will take care of marketing activities and cede
control of strategic marketing decisions to the local partner
• Neither party invests sufficiently in strategic marketing or in aggressive
business development due to the temporary perception of the
distribution agreement.
1. Exporting and The role of foreign distributors

Evolving role of local distributors in practices

• When sales decline
• MNEs often questions the effectiveness of the local partner, its ability to make
good on performance commitments and expectations.
• MNEs start to take control of local operations by buying out the distributors
or by reacquiring the distribution rights
• Each side starts blaming the other for the disappointing results
• MNEs: the partner did not know how to grow the market, not ambitious enough
• Local distributor: insufficient support to match overly high expectation
1. Exporting and The role of foreign distributors

MNEs - Strategies to manage distribution relationship

1. Proactively select locations and suitable distributors
2. Focus on distributors’ market development capabilities
• Strategy, culture, willingness to invest and train staff
3. Manage distributors as long-term partners
• Use incentives to encourage partner to invest more into strategic marketing
and long-term development.
• Using distributors for short-term market penetration purposes only, and
making this clear through distribution rights buy-back clauses in the contract,
takes away the incentive for distributor investment in market development
1. Exporting and The role of foreign distributors

MNEs - Strategies to manage distribution relationship

4. Provide resources (managerial, financial, and knowledge-based) to
support distributors for market development purposes
5. Do not delegate marketing strategy to distributors
• MNEs should provide clear leadership in terms of the choice of products to be
marketed, the positioning of these products and the size and use of marketing
budgets
6. Secure shared access to the distributors’ critical market and financial
intelligence.
7. Link national distributors with each other to encourage knowledge
sharing of best practices and build an internal monitoring mechanism to
simulate more consistent strategy implementation through the region.
1. Exporting and The role of foreign distributors

Local distributors – Characteristics of successful distributors

• Did not distribute competing product lines from rivals
• Shared market information with the MNE
• Initiated new projects
• Collaborated with other distributors in adjacent markets
• Invested in areas such as training, ICT, and promotion to grow the
business
2. Intenational strategic alliances

• Strategic alliances: voluntary cooperative agreements between two or

more organisations.
2. Intenational strategic alliances

• Strategic alliances: voluntary cooperative agreements between two or

more organisations.
• Equity-based alliance: a strategic partnership that involves the use of equity
• Greenfield joint-ventures
• Minority-acquisition joint ventures
• Cross-shareholdings
• Non-equity-based alliance: a strategic partnership that does not involve the
sharing of ownership, commonly taking the firm of project-based
collaboration
• Cooperation agreements, co-marketing, co-production
• R&D contracts and consortia
• Turnkey projects, strategic supplier relationships, strategic distributors
2. Intenational strategic alliances
2. Intenational strategic alliances
2. Intenational strategic alliances

• Different ways to measure the performance of an alliance

• Performance measurement of an alliance and parent firms should be
distinguished
2. Intenational strategic alliances

• Main risks of strategic alliances

• Dependence
• Exploitation
• Abuse
• Principles that successful companies adhere to when forming strategic
alliences
1. Collaboration is competition in a different form
2. Harmony is not the most important measure of success
3. Cooperation has limits. Companies must defend against competitive
compromise
4. Learning from partners is paramount
2. Intenational strategic alliances

• Asian MNEs have successfully learned from strategic alliances due to

1. Asian MNEs tended to intrinsically more receptive and more willing to put effort
into learning from their partners
2. Asian MNEs viewed alliances as an apportunity to develop new FSAs, and not
primarily as a tool to reduce investment costs and risks on technology
development and manufacturing
3. Asian MNEs usually defined clear learning objectives regarding what they wanted
to achieve from a partnership, and focused their efforts on acquiring new
knowledge and observing their partners’ practices to support such learning
4. Asian MNEs’ contribution to alliance often involved complex, tacit process
knowledge that is not easily imitated or transferable, where the Western partners’
contribution often involved easily transferable, codified product and marketing
knowledge
2. Intenational strategic alliances

• LI CE NSING : Arrangement by which the owner of intellectual

property grants a firm the right to use that property for a specific
time period in exchange for royalties or other compensation.
• Royalties: A fee paid periodically to compensate a licensor for the temporary
use of its intellectual property, often based on a percentage of gross sales
generated from the use of the licensed asset.
2. Intenational strategic alliances

• LI CE NSING : Arrangement by which the owner of intellectual

property grants a firm the right to use that property for a specific
time period in exchange for royalties or other compensation.
2. Intenational strategic alliances

• Franchising: Arrangement by which the firm allows another the right

to use an entire business system in exchange for fees, royalties, or
other forms of compensation.
2. Intenational strategic alliances

• Franchising: Arrangement by which the firm allows another the right

to use an entire business system in exchange for fees, royalties, or
other forms of compensation.
3. International M&As

Merger: a new legal entity that results from the combination of two
firms to form a new, ‘merged’ firm
Acquisition: a purchase or transfer of control of one company
M&As are quickest ways to enter foreign markets and particularly
popular with Chinese companies
3. International M&As
3. International M&As
3. International M&As
3. International M&As
4. Wholly owned greenfield

• Wholly owned subsidiary is an FDI in which the investor assumes 100

percent ownership of the business and secures complete managerial
control over its operations.
1. A greenfield strategy - build a subsidiary from the ground
up
 a greenfield venture may be better when the firm needs to
transfer organizationally embedded competencies, skills,
routines, and culture
 A Classification of Foreign Market Entry Strategies Based on Levels of Control, Resource Commitment, Flexibility, and Risk

Low-control strategies Moderate-control strategies High-control strategies

Licensing,
Project-based (non- Minority-owned Majority-owned Wholly owned
Exporting and franchising, and
Global sourcing
Global sourcing equity) collaborative equity joint venture equity joint venture subsidiary (FDI)
countertrade other contractual
ventures
strategies

Minimum Control available to the focal firm over foreign operations Maximum

Resource commitment
Limited Substantial

Maximum Flexibility
Minimum

Low Risk High

Source: Cavusgil, S.T., Knight, G. and Riesenberger, J., 2017. International Business: The New Realities, Global Edition. London: Pearson
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