Foreign Market-Entry Strategies

When
When aa company
company makes
makes the
the commitment
commitment to
to go
go international,
international, itit
must
must choose
choose an
an entry
entry strategy
strategy

The
The choice
choice of
of entry
entry strategy
strategy depends
depends on:
on:

• market characteristics (such as potential

sales, strategic importance, cultural
differences, and country restrictions)
• company capabilities and characteristics,
including the degree of near-market
knowledge, marketing involvement, and
• commitment that management is prepared
to make
 Alternative Market-Entry Strategies
•• Import
Import regulations
regulations maymay be
be imposed
imposed to
to protect
protect health,
health, conserve
conserve
foreign
foreign exchange,
exchange, protect
protect home
home industry,
industry, or
or provide
provide revenue
revenue in
in
the
the form
form of
of tariffs
tariffs

•• A
A company
company has
has four
four different
different modes
modes of
of foreign
foreign market
market entry
entry
from
from which
which to
to select:
select:

• exporting
• contractual agreements
• strategic alliances, and
• direct foreign investment
 Exporting
• Exporting can be either direct or
indirect
• In direct exporting the company sells
to a customer in another country
• In contrast, indirect exporting usually
means that the company sells to a
buyer (importer or distributor) in the
home country who in turn exports the
product
• The Internet is becoming increasingly
important as a foreign market entry
method
 Contractual Agreements
Contractual
Contractual agreements
agreements are
are long-term,
long-term, non-equity
non-equity
associations
associations between
between aa company
company andand another
another in
in aa foreign
foreign
market
market
• Contractual agreements generally involve the transfer of
technology, processes, trademarks, or human skills
• Contractual forms of market entry include:
(1) Licensing: A means of establishing a foothold in foreign markets
without large capital outlays wherein patent rights, trademark rights and
the rights to use technological processes are granted.
(2) Franchising: A contract in which franchisor provides a standard
package of products, systems and management systems and franchisee
provides market knowledge, capital and personal involvement.
 Strategic International Alliances
•• Strategic
Strategic alliances
alliances have
have grown
grown in in importance
importance overover the
the last
last few
few
decades
decades asas aa competitive
competitive strategy
strategy inin global
global marketing
marketing
management
management
•• A
A strategic
strategic international
international alliance
alliance (SIA)
(SIA) isis aa business
business
relationship
relationship established
established by
by two
two or
or more
more companies
companies to to
cooperate
cooperate out
out of
of mutual
mutual need
need and
and toto share
share risk
risk in
in achieving
achieving aa
common
common objective
objective
• SIAs are sought as a way to shore up weaknesses and increase
competitive strengths
• SIAs offer opportunities for rapid expansion into new markets,
access to new technology, more efficient production and marketing
costs
• An example of SIAs in the airlines industry is that of the alliance
partners made up of American Airlines, Cathay Pacific, British
Airways, Canadian Airlines.
 International Joint Ventures
• International joint ventures (IJVs) have been
increasingly used since 1970s
• a means of lessening political and economic risks by
the amount of the partner’s contribution to the venture
• a less risky way to enter markets
• A joint venture is different from strategic alliances or
collaborative relationships in that a joint venture is a
partnership of two or more participating companies
that have joined forces to create a separate legal entity
 International Joint Ventures (contd.)
•• Four
Four factors
factors are
are associated
associated with
with joint
joint ventures:
ventures:

1. JVs are established, separate, legal

entities;
2. they acknowledge intent by the partners
to share in the management of the JV;
3. they are partnerships between legally
incorporated entities such as
companies, chartered organizations, or
governments, and not between
individuals;
4. equity positions are held by each of the
partners
 Consortia
•• Consortia
Consortia are
are similar
similar to
to joint
joint ventures
ventures and
and could
could be
be classified
classified as
as
such
such except
except for
for two
two unique
unique characteristics:
characteristics:

(1) They typically involve a large

number of participants, and
(2) They frequently operate in a
country or market in which
none of the participants is
currently active

•• Consortia
Consortia are
are developed
developed to to pool
pool financial
financial and
and managerial
managerial
resources
resources and
and toto lessen
lessen risks.
risks.
 Direct Foreign Investment

•• A
A fourth
fourth means
means of
of foreign
foreign market
market development
development and
and entry
entry is
is
direct
direct foreign
foreign investment
investment

• Companies may manufacture locally to capitalize on low-cost

labor, to avoid high import taxes, to reduce the high costs of
transportation to market, to gain access to raw materials, or as
a means of gaining market entry.
• Firms may either invest in or buy local companies or establish
new operations facilities