ENTRY STRATEGIES Additional research issues Methods of entry

ENTRY STRATEGIES • Additional research issues • Methods of entry – Advantages – Disadvantages MKTG 769 ENTRY STRATEGIES Lars Perner, Instructor 1

Competitor Analysis • Strengths and weaknesses – Brand recognition/reputation – Distribution channels and relationships – Knowledge of domestic market – Government Protection – Weaknesses from experience of protection • Signaling MKTG 769 ENTRY STRATEGIES Lars Perner, Instructor 2

Country Evaluation 1. 2. MKTG 769 Country identification Preliminary screening ENTRY STRATEGIES 3. In-Depth Screening 1. Market size 2. Growth rate 3. Competitive intensity 4. Trade barriers 4. Final selection Lars Perner, Instructor 3

Forecasting • Basic—share of overall market • Build-up—share within segments • Analogy to comparable country ahead in the product life cycle • Subjective methods (e. g. , jury, export pooling, Delphi) • Time series and regression (require reliable data!) MKTG 769 ENTRY STRATEGIES Lars Perner, Instructor 4

Competitors and Predicted Market Share • • • MKTG 769 Identification Foreign vs. domestic Existing vs. potential Direct vs. indirect Likely growth of competitors ENTRY STRATEGIES Lars Perner, Instructor 5

EXPORT MANAGEMENT COMPANY The Reality Exportation and Entry HOME COUNTRY OPERATIONS EXPORTS LOCAL MANUFACTURING LOCAL PARTNERS LOCAL ASSEMBLY HOST COUNTRY CUSTOMERS MKTG 769 IMPORTS ENTRY STRATEGIES LOCAL MARKETING LOCAL BUYER Lars Perner, Instructor 6

Entry Strategies FOREIGN MARKET ENTRY MANUFACTURING AT HOME EXPORTING DIRECT INDIRECT “PIGGYBACKING” MKTG 769 MANUFACTURING ABROAD INVESTMENT ENTRY OVERSEAS ASSEMBLY/ MIXING CONTRACTUAL LICENSING/ FRANCHISING TURNKEY PROJECTS ENTRY STRATEGIES CONTRACT MANUF. MGT CONTRACTS ACQUISITION/ SELF-BUILT OTHER DIRECT ENTRY JOINT VENTURES Lars Perner, Instructor 7

Exporting • Direct – Sales to foreign • Distributors • Retailers • End customers – Large – Small (e. g. , through e. Bay) MKTG 769 ENTRY STRATEGIES • Indirect – Sales to export company which handles sales to foreign buyers or distributors • “Piggy-backing” (Complementary Exporting) – Two firms exchange exporting services by distributing the other’s product abroad Lars Perner, Instructor 8

Exporting • Advantages: – Limited investment; low risk MKTG 769 ENTRY STRATEGIES • Disadvantages: – Higher unit cost to consumer – Likely lower market share – Limited learning on country market characteristics Possible preemption by competitors Lars Perner, Instructor 9

Export Tasks • Transportation – Negotiation – Coordination between modes and shippers • Export licenses and permissions • Customs clearing • Warehousing • Financing – Quotes – Point of transfer (FOB) – Credit • Risk assessment/letters of credit – Exchange rate risk • Repatriation/ countertrade MKTG 769 ENTRY STRATEGIES Lars Perner, Instructor 10

Export Problems • Price escalation • Dumping regulations • Finding local distribution – Screening – Negotiation • After sales support • Imitation by importer/failure to learn local market MKTG 769 ENTRY STRATEGIES Lars Perner, Instructor 11

Foreign Entry Sequences 1. 2. 3. 4. 5. MKTG 769 Indirect exporting and licensing Direct exporting via independent distributor Foreign sales subsidiary Local assembly Local manufacturing ENTRY STRATEGIES Lars Perner, Instructor 12

Entry Barriers • • MKTG 769 Cost of entry Tariff vs. non-tariff Government regulations Market structure – Distribution – Established brands ENTRY STRATEGIES Lars Perner, Instructor 13

Licensing and Franchising • Advantages – Low investment – Limited direct exposure – Lower exit costs – Rapid entry – Possible reduction in counterfeiting MKTG 769 ENTRY STRATEGIES • Disadvantages – Limited control (contract = enforceability!) • Quality • Promotion • Image – Difficulty in terminating relationship Lars Perner, Instructor 14

Overseas Turnkey Projects • Firm agrees to set up construction and/or manufacturing project—promised to be in operation form when completed • Helps leverage investment made at home if direct competition in the new market is unlikely • Some risk in being able to “deliver” – Maneuvering local government regulations and local infrastructure MKTG 769 ENTRY STRATEGIES Lars Perner, Instructor 15

Contract Manufacturing • Advantages – Faster start – Reduced investment in manufacturing – Ability to take advantage of established manufacturer’s experience and cost structure (experience curve) MKTG 769 ENTRY STRATEGIES • Disadvantages – “Training” of competitor – Still left with marketing responsibilities need country presence Lars Perner, Instructor 16

Management Contracts • Opportunity for firm to profit on its technology and “know-how” in a market where the firm does not want to enter or face competition from contractee • Minimal transfer of assets • Must be able to operate in local infrastructure, but contractee and/or government usually has a strong interest in the success of the project MKTG 769 ENTRY STRATEGIES Lars Perner, Instructor 17

Direct Entry--acquisitions or “building from scratch” • Advantages – Control – Learning about country market – Leverage (may be disadvantage, though) MKTG 769 ENTRY STRATEGIES • Disadvantages – Large investment; risk – Risk of nationalization/ extortion – May take longer to be successful Lars Perner, Instructor 18

Foreign Assembly/Mixing • Motivations – Lower labor local labor costs – Ease of shipping – Local content requirement – Duties/tariffs – Locus of value addition for tax purposes MKTG 769 ENTRY STRATEGIES Lars Perner, Instructor 19

Strategic Alliances • Distribution • Manufacturing • Research and development • Joint ventures MKTG 769 ENTRY STRATEGIES Lars Perner, Instructor 20