Market entry strategies/modes What is entry mode? • The way of how to enter market • Which and how many intermediaries to involve = design of the channel • Three BASIC ENTRY MODES: • A) export modes = 100% externalizing (low control, low risk, high flexibility) DISTRIBUTOR/IMPORTER/DEALER • B) intermediate modes = contractual modes (shared control and risk, split ownership between 2 or more companies) JOINT VENTURES – NEW FIRM • C) hierarchical modes = 100% internalizing (high control, high risk, low flexibility) FOREIGN SALES SUBSIDIARY Potential determinants of the firm´s choice of foreign markets Royal Ahold example Factors influencing choice of entry mode • TARGET MARKET - nature, size and geographical distribution of customers - needs, requirements and preferences of customers (+ frequencies and amount of purchases) - level of economic development of the market (availability of suitable marketing organizations) - market access (competitive situation, infrastructure development, intermediary availability, political stability, legal barriers) - governmental policies • PRODUCT - nature (unit value, weight and bulk, technical complexity, perishability…) - use - selling job requirement - stage of development (PLC) • COMPANY RELATED FACTORS - marketing management capability and know-how - international market know-how - financial strength - extent of control Importance of entry decisions • Price that final users or consumers will pay (margins, efficiency…) ? • Product decisions (location of production base, fluctuation of production – production stability problems of inventory, security of employment…)? • Speed and costs of international channel development (+ time)? • Forecasting of structural changes in distribution? • The offer and selection of suppliers? • Organization of company? • Strengths and weaknesses of every link in channel? • Objectives, resources and policies + the control system to monitor the performance • Case study Jarlsberg EXPORTING/export mode • - number and type of intermediaries, functions performed – full- service high specialization (clearing goods) PARTNER MINDSHARE (= measurement of the strength of a relationship - effort, involvement, sales performance… - drivers: (1) commitment and trust; (2) collaboration; (3) mutuality of interest and common purpose + product, brand and profit. • 3 major types: a) indirect export – another domestic company – export house, trading company… performs exporting activities b) direct export – company performs exporting activities (majority of or all) itself c)cooperative export – collaborative agreements with other organizations – some exp. activities Indirect export modes • Limited international expansion objectives • Minimal resources • Gradual market entry • Test of market • Little or no control over the way the product is marketed • No contact • Little or no information Direct export modes DISTRIBUTOR • independent company that stocks the manufacturer's product • It has freedom o choose own customer and price • Profit from the differences between seller and buyer price • Exclusive representatives = sole distributors in a country • Buy on their own accounts • Usually represents the manufacturer in all aspect of sales and servicing • AGENT • Independent company that sells on behalf of the manufacturer • Usually it will not see or stock the product • Exclusive, semi-exclusive, non-exclusive • Commission on a pre-agreed basis • Sells to wholesalers and retailers • Some furnish market and financial information Cooperative export - export marketing groups • Functions: - exporting in the name of the association - consolidating freight, negotiating rates and chartering ships - performing market research - appointing selling agents abroad - obtaining credit information and collecting debts - setting prices for export - allowing uniform contracts and terms of sale - allowing cooperative bids and sales negotiation • Usually SMEs – more effective Case study: Lysholm Linie Aquavit INTERMEDIATE ENTRY MODES • = transfer of skills and knowledge • Contract manufacturing – outsourced to an external partner specialized in production and production technology – lower risk, lower costs, appropriate foreign market demand; better interaction with local market, high level of control; high flexibility; product could be exported • Licensing – patent covering a product or process, know-how, technical/marketing advice and assistance, use of trade mark/name – concentration on core competences - R&D, lower expertise for overseas, the end of the PLC in home country, government regulations restrict foreign direct investment… • Franchising – product and trade name, business format package (trade mark/name, copyright, design, patent, trade secret, business and management know-how, geographic exclusivity, market research for the area…) • Strategic alliances/joint ventures – new opportunities, speed up market entry, lower costs compared to solely business; up-stream collaboration – on R&D and/or production; down-stream – marketing, distribution, sales, service - = Y coalition; both streams – X coalition • Seeking for resources: • Development know-how • Sales and service expertise • Low-cost production facilities • Strategically critical manufacturing capabilities • Reputation and brand equity • Market access and knowledge • Financial resources… • ? Who is the leading company? • ? Double..management? • ?Repatriation of profits? • ? Shared equity? • Mixing different cultures! • Developing trust! • Providing an exit strategy! • http://wps.pearsoned.co.uk/ema_uk_he_hollensen_globalmark_4/64/16424/4204785.cw/index.html MARIOTT Case study Ka-Boo-Ki HIERARCHICAL ENTRY MODES • The firm completely owns and control foreign market entry mode • Allocation of responsibility and competence between head office and subsidiaries • Domestic-based sales representatives/manufacturer´s own sales force • Resident sales representatives/sales subsidiary/sales branch • Sales and production subsidiary • Region centre • Transnational organization(globally integrated) http://wps.pearsoned.co.uk/ema_uk_he_hollensen_globalmark_4/64/16425/4204808.cw/index.html STARBUCKS Case study: condoms Durex condoms Entry mode and involvement BERI Business Environment Risk Index BCG gowth-share matrix (applied to international marketing) Dimensions of BCG matrix MARKET/COUNTRY ATTRACTIVENESS Market size (total and segments Market growth (total and segments) Buying power of customers Market seasons and fluctuations Average industry margin Comp. conditions Market prohibitive conditions Government regulations Infrastructure Economic and political stability Psychic distance COMPETITIVE STRENGTH (relative) Market share Marketing ability and capacity (country-specific know-how) Product fits to market demands Price Contribution margin Image Technology position Product quality Market support Quality of distributors and service Financial resources Access to distribution channels Managing the channel • RELATIONS WITH INTERMEDIARIES: - Gravity policy (selling to the intermediary and „let it be“) - Push policy (promotion through the marketing channel – aggressive sale and promotion the product to other channel members at lower levels) - Pull policy (mass advertising of the company – end users demand the product from intermediaries) • COMMUNICATION GAPS: - Cultural (values, social norms, attitudes) - Nationality (loyalty) - Environmental (knowledge and fitness – one country versus the foreign country) - Distance (geographic inperfections on existing communication media) Alternative basic international channels