Market Analysis and Foreign Market Entry Strategies Market

Market Analysis and Foreign Market Entry Strategies. • Market Analysis. 1. 2. 3. 4. 5. 6. Market potential. Economic growth. Availability of natural resources. Availability of labor. Political risk. Market access & trade barrier.

7. Factor costs & conditions. o o Labor cost. Land material capital cost. 8. Shipping considerations. 9. Country infrastructure. 10. Foreign exchange.

• 1. 2. 3. 4. 5. 6. 7. 8. 9. Creating a product market profile – 9 W’s. Who buys our product? Who does not buy our product? What need or function does our product serve? What problem does our product solve? What are customer’s currently buying to satisfy the need or solve the problem for which our product is targeted? What price are they paying for the products they are currently buying? When is our product purchased? Where is our product purchased? Why is our product purchased?

• 1. 2. 3. 4. 5. 6. Market selection criteria. Market potential. Market access. Shipping cost & time. Potential competition. Service requirement. Product fit. • Visit the potential market.

• Entry & expansion decision model. A. Exporting is appropriate strategy when one of more of the following conditions prevail. a. The volume of foreign business is not large enough to justify production in the foreign market. b. Cost of production in the foreign market is high. c. The foreign market is characterized by production bottlenecks like infrastructural problems, material supplies etc. d. There are political or other risks of investment in the foreign country. e. The company has no permanent interest in the foreign market or there is no guarantee of the market available for a long period. Ø

f. Foreign investment is not favored by the foreign country concerned. g. Licensing or contact manufacturing is not a better alternative. Ø Export marketing requires. a. An understanding of target market environment. b. The use of marketing research & the identification of market potential. c. Decisions concerning product design, pricing, distributions & channels, advertising & communication.

Ø a. o o o o b. o o Export related problems. Logistics. Arranging transportation. Transport rate determination. Handling documents. Obtaining financial information. Distribution co-ordination. Packaging. Obtaining insurance. Legal procedure. Government red tape. Product liability. Licensing. Customer / Duty.

c. o o d. o o o e. o o o Servicing Export. Providing parts availability. Providing repair service. Providing technical advice. Providing ware housing. Sales Promotion. Advertising. Sales effort. Marketing information. Foreign market intelligence. Locating markets. Trade restrictions. Competition overseas.

Ø Organizing for exporting. a. Organizing in the manufacturer’s country. ü In house export organization. The possible arrangement for handling exports include the following. 1. As a part time activity performed by domestic employee. 2. Through an export partner affiliated with the domestic marketing structure that takes possession of the goods before they leave the country. 3. Export department. 4. Export department within an international division.

External independent organization. Export trading company. Export management company. Export merchant. Export brokers. Combination export managers. Manufacturer’s export representatives or commission agent. 7. Export distributors. ü 1. 2. 3. 4. 5. 6.

b. Organizing in the market country. ü Direct representation. v Advantages. o Direct representation by a company’s own employee in the market control & communication. o Direct representation allows decisions regarding program development, resource allocation & price changes. ü Independent representation. v Criteria. o Smaller markets. o Independent representation handles numerous other products. ü Piggyback marketing.

B. Sourcing. Ø Ø a. b. c. d. e. f. The opposite of exporting is importing. Sourcing decisions factors. Factor cost & conditions. Logistics. Country infrastructure. Political risk. Market access. Exchange rate, availability & convertibility of local money.

C. Licensing. Ø o Licensing is an agreement that permits foreign company to use industrial property (i. e. patents, trademarks & copyrights), technical know-how & skills (i. e. feasibility studies, manuals, technical advice), architectural & engineering design or any combination of these in a foreign market. Licensing is not only restricted to tangible products. q Licensing offers several advantages. o It allows company to spread out it’s research & development & investment cost while enabling it to receive incremental income with negligible expenses.

q Why Licensing should be used? o o o o o Trade barriers. When capital is scares. When country is sensitive to foreign ownership. It allows quick & easy way to enter the market. When transportation cost is high. A company can avoid substantial risk & other difficulties with licensing. Benefits from brand Licensing. Brand Licensing receives an intangible benefits also. Brand is extended into new product categories in which trademark owner has no expertise.

q Negative aspects of Licensing. o o o Reduced profit with reduced risk. Manufacturer may be nurturing competitor. When licensee performs poorly. Agreement can also prevent the licensor from entering that market directly. Inconsistent product quality can injure the reputation of the product. Even when exact product formulations are followed, licensing can still sometimes can damage the product’s image – Psychologically.

q Licensing is a sound strategy under certain circumstances. o Licensing term must be carefully negotiated & explicitly treated. o License contract should include basic elements. ü Product & territorial coverage. ü Length of contract. ü Quality control. ü Grant back & cross licensing. ü Royalty rate & structure. ü Choice of currency. ü Choice of law. o A US licensor must pay attention to anti trust consideration.

o A prudent licensor does not assign a trademark to a licensee. o A licensing should be considered a two way street because a license also allows the original licensor to gain access to the licensees technology & product. o Over licensing or under licensing is not desirable. o Under licensing results in potential profit being lost where as over licensing leads to a weakened market through over exposure.

D. Joint Venture. o o A joint venture is a simply a partnership at corporate level & it can be domestic or international. A joint venture is an enterprise formed for a specific business purpose by two or more investors sharing ownership & control. q There are two separate overseas process. 1. Natural or non political investment process. In this process technology supplying firm gains a foot hold in an unfamiliar market by acquiring a partner that can contribute local knowledge & marketing sill.

2. The second investment process occurs when the local firms political leverage, through government persuasion, halts or reverses the natural economic process. Ø Partners committed to joint ventures is a function of perceived benefits (satisfaction & economic performance. ) of the relationship.

q Joint venture enjoy certain advantages. o o o Joint ventures substantially reduces the amount of resources (Money & Personnel). Joint venture strategy is the only way other than through licensing that a firm can enter a foreign market. MNC’s manage risks by structuring joint venture sharing arrangements. Sometimes social rather than legal circumstances require a joint venture to be formed. Joint venture can also work to satisfy social, economic & political circumstances.

q Joint venture limitations. o If the partners to the joint venture have not established clear cut decision making policy. o Whenever two individuals or organizations work togethere are bound to be conflicts. o Reasons. ü Cultural problem. ü Divergent goals. ü Disagreement over production & marketing strategies. ü We contribution by one or other partners. o Problem is matter of control.

E. Manufacturing. o o Manufacturing process can be employed as a strategy involving all or some manufacturing in foreign country. One kind of manufacturing process known as Sourcing, which involves manufacturing operations in host country not so much to sell there, but for the purpose of exporting from that country to the company’s home country or to other countries. § Methods. o Complete manufacturing to contract manufacturing. Partial manufacturing. o

• Why host country want foreign capital? o Job creation. o Brings additional resources like technology, management expertise & access to export market. • Why company chooses to invest in manufacturing facility abroad? o Gaining access to raw material. o Advantage of resources for it’s manufacturing operation. o Backward vertical integration.

o Lower labor cost. o Other factors of production like labor, energy & other inputs. o To reduce the transportation cost. o To minimize or avoid import taxes & other trade barriers. § Manufacturer should consider no. of factors before investment. o o o Restriction on inter company payments. Control on dividend remittance. Import duty concession. Guarantee against expropriation. Tax holidays.

§ Marketing consideration. o Product image deserves attention. o Competition. o Resources of various countries to determine comparative advantage. o Relative labor cost. o Types of products made. o Taxation. o Investment climate. o Chip unskilled labor importance is diminishing due to technology development.

F. Assembly operations. o Assembly means the fitting or joining together of fabricated components. § Strategy. o Parts or components produced in various countries. ü ü o o Capital intensive parts may be produced in advance nations. Labor intensive assemblies may be produced in LDC. Assembly operations allow company products to enter many markets without being subject to tariffs & quotas. Host country objects for screw driver assembly.

G. Management contract. o o In some cases government pressure & restriction force a foreign company either to sell it’s domestic operation or to relinquish control. The other way to generate revenue is to sign a management contract. H. Turn key operations. o It is an agreement by the seller to supply a buyer with a facility fully equipped & ready to be operated by the buyers personnel, who will be trained by the seller.

I. Acquisition. o When manufacturer wants to enter a foreign market rapidly & yet retain maximum control, direct investment through acquisition should be considered. § Reasons. o o Product / Geographical diversification. Acquisition of expertise (Technology, Marketing, Management). Rapid entry. o

§ Government welcomes foreign investment that starts up a new enterprise (Green Field Enterprise) since that investment increases employment & enlarges tax base. § Acquisition fails to do this. § Value of currency may either reduce or increase the cost of an acquisition.

J. Strategic Alliance. o o A relatively new organizational form of market entry & competitive co-operation is strategic alliance. Strategic alliance may be the result of mergers, acquisitions, joint ventures & licensing agreements. Unlike joint ventures which requires two or more partners to create a separate entity, a strategic alliance does not necessarily require a new legal entity. Strategic alliance may be more of a contractual arrangement where by two or more partners agree to co-operate with each other & utilize each partner’s resources & expertise to achieve rapid global market penetration.

§ Three types of Strategic Alliances. 1. Shared distribution. 2. Licensed manufacturing. 3. R&D Alliance.