Chapter 3 International Expansion Strategies International development phases

Chapter 3 International Expansion Strategies

International development phases • Phase 1: Initial market entry • Phase 2: Local market expansion • Phase 3: Globalization

Choosing which markets to enter Opportunities and threats are assessed at two different levels: • General business climate of a country • Specific product market

Country/Market Choice • Market information • Competitor information • Internal information

Market information • Market potential: measure current demand, forecast future growth, new product launches… • Market access: “openness”, cost and delays, legal and customs obstacles, marketing infrastructure (distribution channels, ad agencies, etc…)… • Market receptiveness: perception of firm, “made in” effect of country of origin… • Market stability: economic, legal, political, cultural risks…

Competitor information • Who are the competitors? – Inventory of competition – Direct/indirect – Local/global How many? – Market share?

Internal Information • Production capacities: product adaptation, quality control, packing, stocking, transport… • Marketing and sales situation: current strategy, distribution channels, brand image, quality advantages, relationships… • General strategic situation: situation in domestic market, new product development, innovation, competitive advantage… • Business goals: short term and long term goals • Financial resources: costs of canvassing, capital budgeting orientation, available cash, export subsidies… • Human resources: staff and management motivation, availability, training required, expatriates… Internal export audit, “diagnostic export”

Criteria for ranking export markets • General attractiveness of the market • Competitive advantage • Risk • Global strategic importance • Possible synergies Market-Portfolio Matrix

Market-Portfolio Matrix High INVEST Country Attractiveness SELECTIVITY DIVEST Low Internal strengths High

Market selection strategies (Ayal and Zif) Choice of target markets is based on two different alternatives: • Market penetration (concentration) vs. market skimming (diversification): a limited number of markets or large number of markets – Market penetration: rather low expansion rate in a few markets for intensive development. The goal is to obtain high market share in each country before expanding into others. – Market skimming: high rate of return while maintaining a low level of resource commitment. The firm selects more easily available market targets while minimizing risk and investment. • Segment penetration (concentration) vs. segment skimming (diversification): similar or dissimilar market segments – Segment penetration: focus on a small number of segments in which the firms seeks a dominant position – Segment skimming: brand product diversity, specific launches for some markets

Timing of entry Simultaneous entry vs. sequential entry • Simultaneous entry: preempt competition be establishing presences in all major markets, limit opportunities for imitation, potential scale economies may lead to lower unit costs • Sequential entry: build on knowledge and experience, generally preferred if substantial financial, managerial or other resources are required