1. Global Marketing Management, 5e Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 1 Chapter 9 Global Market Entry Strategies

2. Chapter Overview 1. Target Market Selection 2. Choosing the Mode of Entry 3. Exporting 4. Licensing 5. Franchising 6. Contract Manufacturing (Outsourcing) 7. Expanding through Joint Ventures 8. Wholly Owned Subsidiaries 9. Strategic Alliances 10. Timing of Entry 11. Exit Strategies Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 2

3. Introduction The need for a solid market entry decision is an integral part of a global market entry strategy. Entry decisions will heavily influence the firm’s other marketing-mix decisions. Global marketers have to make a multitude of decisions regarding the entry mode which may include: (1) the target product/market (2) the goals of the target markets (3) the mode of entry (4) The time of entry (5) A marketing-mix plan (6) A control system to check the performance in the entered markets Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 3

4. 1. Target Market Selection A crucial step in developing a global expansion strategy is the selection of potential target markets (Exhibit 9-1). A four-step procedure for the initial screening process: 1. Select indicators and collect data 2. Determine importance of country indicators 3. Rate the countries in the pool on each indicator 4. Compute overall score for each country Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 4

5. Exhibit 9-1: Logical Flowchart of the Entry Decision Process Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 5

6. 2. Choosing the Mode of Entry Decision Criteria for Mode of Entry: Market Size and Growth Risk Government Regulations Competitive Environment/Cultural Distance Local Infrastructure (See Exhibits 9-2 and 9-3.) Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 6

7. Chapter 9 Copyright (c) 2007 John Wiley & Sons, Inc. 7 Exhibit 9-2: Method for Prescreening Market Opportunities

8. Exhibit 9-3: Opportunity Matrix for Henkel in Asia Pacific Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 8

9. 2. Choosing the Mode of Entry Classification of Markets: Platform Countries (Singapore & Hong Kong) Emerging Countries (Vietnam & the Philippines) Growth Countries (China & India) Maturing and established countries (examples: South Korea, Taiwan & Japan) Company Objectives Need for Control Internal Resources, Assets and Capabilities Flexibility (See Exhibit 9-4.) Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 9

10. Exhibit 9-4: Entry Modes and Market Development Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 10

11. 2. Choosing the Mode of Entry Mode of Entry Choice: A Transaction Cost Explanation Regarding entry modes, companies normally face a tradeoff between the benefits of increased control and the costs of resource commitment and risk. Transaction Cost Analysis (TCA) perspective Transaction-Specific Assets (assets valuable for a very narrow range of applications) Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 11

12. 3. Exporting Indirect Exporting Export merchants Export agents Export management companies (EMC) Cooperative Exporting Piggyback Exporting Direct Exporting Firms set up their own exporting departments Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 12

13. 4. Licensing Licensor and the licensee Benefits: Appealing to small companies that lack resources Faster access to the market Rapid penetration of the global markets Caveats: Other entry mode choices may be affected Licensee may not be committed Lack of enthusiasm on the part of a licensee Biggest danger is the risk of opportunism Licensee may become a future competitor Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 13

14. 4. Licensing How to seek a good licensing agreement: Seek patent or trademark protection Thorough profitability analysis Careful selection of prospective licensees Contract parameter (technology package, use conditions, compensation, and provisions for the settlement of disputes) Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 14

16. Revenues may not be adequate

17. Availability of a master franchisee

18. Limited franchising opportunities overseas

19. Lack of control over the franchisees’ operations

20. Problem in performance standards

21. Cultural problems

23. Chapter 9 Copyright (c) 2007 John Wiley & Sons, Inc. 17 Exhibit 9-6: International Franchising with Papa John’s

24. 6. Contract Manufacturing (Outsourcing) Benefits: Labor cost advantages Savings via taxation, lower energy costs, raw materials, and overheads Lower political and economic risk Quicker access to markets Caveats: Contract manufacturer may become a future competitor Lower productivity standards Backlash from the company’s home-market employees regarding HR and labor issues Issues of quality and production standards Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 18

25. 6. Contract Manufacturing (Outsourcing) Qualities of An Ideal Subcontractor: Flexible/geared toward just-in-time delivery Able to meet quality standards Solid financial footings Able to integrate with company’s business Must have contingency plans Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 19

26. 7. Joint Ventures Cooperative joint venture Equity joint venture Benefits: Higher rate of return and more control over the operations Creation of synergy Sharing of resources Access to distribution network Contact with local suppliers and government officials Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 20

27. 7. Joint Ventures Caveats: Lack of control Lack of trust Conflicts arising over matters such as strategies, resource allocation, transfer pricing, ownership of critical assets like technologies and brand names (Exhibit 9-7) Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 21

28. Chapter 9 Copyright (c) 2007 John Wiley & Sons, Inc. 22 Exhibit 9-7: Conflicting Objective in Chinese Joint Ventures

29. 7. Joint Ventures Drivers Behind Successful International Joint Ventures Pick the right partner Establish clear objectives from the beginning Bridge cultural gaps Gain top managerial commitment and respect Use incremental approach Create a launch team during the launch phase: (1) Build and maintain strategic alignment (2) Create a governance system (3) Manage the economic interdependencies (4) Build the organization for the joint venture Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 23

30. Chapter 9 Copyright (c) 2007 John Wiley & Sons, Inc. 24 Exhibit 9-8: Starbuck’s Coffee’s Criteria in Selecting Partners

31. 8. Wholly Owned Subsidiaries Acquisitions and Mergers Quick access to the local market Good way to get access to the local brands Greenfield Operations Offer the company more flexibility than acquisitions in the areas of human resources, suppliers, logistics, plant layout, and manufacturing technology. Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 25

32. Chapter 9 Copyright (c) 2007 John Wiley & Sons, Inc. 26 8. Wholly Owned Subsidiaries Benefits: Greater control and higher profits Strong commitment to the local market on the part of companies Allows the investor to manage and control marketing, production, and sourcing decisions

33. 8. Wholly Owned Subsidiaries Caveats: Risks of full ownership Developing a foreign presence without the support of a third part Risk of nationalization Issues of cultural and economic sovereignty of the host country Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 27

34. 9. Strategic Alliances Types of Strategic Alliances Simple licensing agreements between two partners Market-based alliances Operations and logistics alliances Operations-based alliances Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 28

35. 9. Strategic Alliances The Logic Behind Strategic Alliances Defend Catch-Up Remain Restructure Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 29

36. Exhibit 9-9: Generic Motives for Strategic Alliances Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 30

37. 9. Strategic Alliances Cross-Border Alliances that Succeed: Alliances between strong and weak partners seldom work. Autonomy and flexibility Equal ownership Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 31

38. 9. Strategic Alliances Other factors: Commitment and support of the top of the partners’ organizations Strong alliance managers are the key Alliances between partners that are related in terms of products, technologies, and markets Have similar cultures, asset sizes and venturing experience Tend to start on a narrow basis and broaden over time A shared vision on goals and mutual benefits Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 32

39. 10. Timing of Entry International market entry decisions should also cover the following timing-of-entry issues: When should the firm enter a foreign market? Other important factors include: level of international experience, firm size, and breadth of product & service offerings. Mode of entry issues, market knowledge, various economic attractiveness variables, etc. Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 33

40. Chapter 9 Copyright (c) 2007 John Wiley & Sons, Inc. 34 Exhibit 9-10: Timeline of Wal-Mart’s International Expansion

41. 11. Exit Strategies Reasons for Exit: Sustained losses Volatility Premature entry Ethical reasons Intense competition Resource reallocation Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 35

42. 11. Exit Strategies Risks of Exit: Fixed costs of exit Disposition of assets Signal to other markets Long-term opportunities Guidelines: Contemplate and assess all options to salvage the foreign business Incremental exit Migrate customers Chapter 9 Copyright (c) 2009 John Wiley & Sons, Inc. 36

43. Chapter 9 Copyright (c) 2007 John Wiley & Sons, Inc. 37 Exhibit 9-11: Advantages and Disadvantages of Different Modes of Entry