1.
Globalization
Global Marketing Environment
2. Global Economic 4. Cultural issues and Buying
Environment Behavior
3. Financial Environment 5. Political/ Legal Environment
Development of Competitive Strategy
6. Global Marketing
Research
7. Global Segmentation and 8. Global Marketing Strategies
Positioning
Contd….
9. Global Market Entry Mode
Global Marketing Strategy Development
10. Global Product Development 13. Communicating with the
11. Marketing Product and world Consumer
Services 14. Sales Management
15. Global Logistic and
12. Global Pricing Distribution
16. Export/Import Management
Managing Global Operation
17. Planning, Organization and Control of Global Marketing Operations
18. Marketing in Emerging Markets
19. Global Marketing and the Internet
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Chapter 9
Global Market Entry Modes
Chapter Overview
4
1. Target Market Selection
2. Choosing the Mode of Entry
3. Exporting
4. Licensing
5. Franchising
6. Contract Manufacturing (Outsourcing)
7. Expanding through Joint Ventures
8. Wholly Owned Subsidiaries
9. Strategic Alliances
10. Timing of Entry
11. Exit Strategies
Introduction
5
The need for a solid market entry decision is an
integral part of a global market entry strategy.
Entry decisions will heavily influence the firm’s other
marketing-mix decisions.
Global marketers have to make a multitude of
decisions regarding the entry mode which may
include:
(1) the target product/market
(2) the goals of the target markets
(3) the mode of entry
(4) The time of entry
(5) A marketing-mix plan
(6) A control system to check the performance in
the entered markets
1. Target Market Selection
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A crucial step in developing a global
expansion strategy is the selection of
potential target markets
A four-step procedure for the initial
screening process:
1. Select indicators and collect data
2. Determine importance of country indicators
3. Rate the countries in the pool on each
indicator
4. Compute overall score for each country
Logical Flowchart of the Entry
Decision Process
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2. Choosing the Mode of Entry
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Decision Criteria for Mode of Entry:
Market Size and Growth
Risk
Government Regulations
Competitive Environment/Cultural Distance
Local Infrastructure
Method for Prescreening Market
Opportunities
9
Opportunity Matrix for Henkel in
Asia Pacific
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2. Choosing the Mode of Entry
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Classification of Markets:
Platform Countries (Singapore & Hong
Kong)
Emerging Countries (Vietnam & the
Philippines)
Growth Countries (China & India)
Maturing and established countries
(examples: South Korea, Taiwan & Japan)
Company Objectives
Need for Control
Internal Resources, Assets and Capabilities
Flexibility
Entry Modes and Market
Development
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2. Choosing the Mode of Entry
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Mode of Entry Choice: A Transaction Cost
Explanation
Regarding entry modes, companies
normally face a tradeoff between the
benefits of increased control and the costs
of resource commitment and risk.
Transaction Cost Analysis (TCA) perspective
Transaction-Specific Assets (assets valuable
for a very narrow range of applications)
2. Choosing the Mode of
14
Entry
A given task can be looked at as a ‘‘make-or-
buy’’ decision: either the firm sources the task
out to third party agents or partners (low-
control modes such as exporting) or it does
the job internally (high control modes such as
foreign direct investment).
TCE argues that the desirable governance
structure (high- versus low-control mode)
depends on the comparative transaction costs,
that is, the cost of running the operation.
2. Choosing the Mode of
15
Entry
In the context of entry mode choice, the TCE
perspective treats each entry as a
‘‘transaction.’’
The TCE approach begins with the premise that
markets are competitive. Therefore, market
pressure minimizes the need for control.
Under this utopian scenario, low-control modes
such as exporting are preferable because the
competitive pressures force the outside partner
to comply with its contractual duties.
2. Choosing the Mode of
16
Entry
When the market mechanism fails, high-
control entry modes become more
desirable. From the TCE angle, market
failure typically happens when
transaction-specific assets become
valuable. These are assets that are
valuable for only a very narrow range of
applications.
Examples include brand equity,
proprietary technology, and know-how.
2. Choosing the Mode of
17
Entry
When these types of assets become very
important, the firm might be better off to
adopt a high-control entry mode in order
to safeguard these assets against
opportunistic behaviours of its managers
and uncertainty.
2. Choosing the Mode of Entry
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Mode of Entry Choice: A Resource-Based View
(RBV)
Possessing resources is not sufficient to create
CA, firm should be organized to take full
advantage of its resources.
Firms with imperfectly imitable RB CA expands
through wholly owned entry modes, as
It can protect the value of its RB Advantages
against value erosion (patent theft)
Firm can capture and transfer knowledge between
the parent and foreign subsidiary more efficiently
2. TCE vs. RBV: prediction of
different entry modes
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Mode of Entry Choice: A Resource-Based View (RBV)
TCE predicts high-control entry modes because of
opportunistic behavior of the firm’s partner( licensee),
RBV attributes market failures to other mechanisms;
when the MNC has superior capabilities in deploying its
know-how and the prospective (license) faces
challenges in efficiently acquiring and integrating that
knowledge MNC will prefer high-control entities
TCE focuses on entries as a one time event, RBV looks
at a sequence of entries as a dynamic process where
MNC is able to learn from and build on its previous entry
experience
2. TCE vs. RBV: prediction of
different entry modes
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The third difference relates to the firm-
specific advantages:
TCE focuses on their exploitation the RBV
stresses both their exploitation and
development
RBV states that market entries are not only
pushed by the resources held by the MNC,
but that the target entry could also help the
MNC in developing new advantages
2. TCE vs. RBV: prediction of
different entry modes
21
An empirical study of entry decisions made by the
180 largest MNCs over a fifteen year period found
that MNCs are most likely to enter with wholly
owned subsidiaries when one of the following
conditions holds:
The entry involves an R&D-intensive line of
business
The entry involves an advertising-intensive line
of business (high brand-equity)
The MNC has accumulated a substantial amount
of experience with foreign entries
2. TCE vs. RBV: prediction of
different entry modes
22
On the other hand, MNCs are most likely
to prefer a partnership when one of these
holds:
The entry is in a highly risky country
The entry is in a socioculturally distant
country
There are legal restrictions on foreign
ownership of assets
3. Exporting
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Indirect Exporting
Export merchants
Export agents
Export management companies (EMC)
Cooperative Exporting
Piggyback Exporting
Direct Exporting
Firms set up their own exporting
departments
4. Licensing
24
Licensor and the licensee
Benefits:
Appealing to small companies that lack resources
Faster access to the market
Rapid penetration of the global markets
Caveats:
Other entry mode choices may be affected
Licensee may not be committed
Lack of enthusiasm on the part of a licensee
Biggest danger is the risk of opportunism
Licensee may become a future competitor
4. Licensing
25
How to seek a good licensing
agreement:
Seek patent or trademark protection
Thorough profitability analysis
Careful selection of prospective licensees
Contract parameter (technology package,
use conditions, compensation, and
provisions for the settlement of disputes)
5. Franchising
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Franchisor and the
franchisee Caveats:
Master franchising – Revenues may not be adequate
– Availability of a master franchisee
Benefits:
– Limited franchising opportunities
Overseas expansion
overseas
with a minimum
investment – Lack of control over the
franchisees’ operations
Franchisees’ profits
tied to their efforts – Problem in performance
standards
Availability of local
– Cultural problems
franchisees’
knowledge – Physical proximity
International Efforts of Ten Well-
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Known Franchise Companies
International Franchising with
Papa John’s
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6. Contract Manufacturing
(Outsourcing)
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Benefits:
Labor cost advantages
Savings via taxation, lower energy costs, raw materials,
and overheads
Lower political and economic risk
Quicker access to markets
Caveats:
Contract manufacturer may become a future competitor
Lower productivity standards
Backlash from the company’s home-market employees
regarding HR and labor issues
Issues of quality and production standards
6. Contract Manufacturing
(Outsourcing)
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Qualities of An Ideal Subcontractor:
Flexible/geared toward just-in-time delivery
Able to meet quality standards
Solid financial footings
Able to integrate with company’s business
Must have contingency plans
7. Joint Ventures
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Cooperative joint venture
Equity joint venture
Benefits:
Higher rate of return and more control over
the operations
Creation of synergy
Sharing of resources
Access to distribution network
Contact with local suppliers and
government officials
7. Joint Ventures
32
Caveats:
Lack of control
Lack of trust
Conflicts arising over matters such as
strategies, resource allocation, transfer
pricing, ownership of critical assets like
technologies and brand names
Conflicting Objective in Chinese
Joint Ventures
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7. Joint Ventures
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Drivers Behind Successful International Joint
Ventures
Pick the right partner
Establish clear objectives from the beginning
Bridge cultural gaps
Gain top managerial commitment and respect
Use incremental approach
Create a launch team during the launch phase:
(1) Build and maintain strategic alignment
(2) Create a governance system
(3) Manage the economic interdependencies
(4) Build the organization for the joint venture
Starbuck’s Coffee’s Criteria in
Selecting Partners
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8. Wholly Owned Subsidiaries
36
Acquisitions and Mergers
Quick access to the local market
Good way to get access to the local brands
Greenfield Operations
Offer the company more flexibility than
acquisitions in the areas of human
resources, suppliers, logistics, plant layout,
and manufacturing technology.
8. Wholly Owned Subsidiaries
37
Benefits:
Greater control and higher profits
Strong commitment to the local market
on the part of companies
Allows the investor to manage and
control marketing, production, and
sourcing decisions
8. Wholly Owned Subsidiaries
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Caveats:
Risks of full ownership
Developing a foreign presence without
the support of a third part
Risk of nationalization
Issues of cultural and economic
sovereignty of the host country
9. Strategic Alliances
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Types of Strategic Alliances
Simple licensing agreements between two
partners
Market-based alliances
Operations and logistics alliances
Operations-based alliances
9. Strategic Alliances
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The Logic Behind Strategic Alliances
Defend
Catch-Up
Remain
Restructure
Generic Motives for Strategic
Alliances
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9. Strategic Alliances
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Cross-Border Alliances that Succeed:
Alliances between strong and weak
partners seldom work.
Autonomy and flexibility
Equal ownership
9. Strategic Alliances
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Other factors:
Commitment and support of the top of the
partners’ organizations
Strong alliance managers are the key
Alliances between partners that are related in
terms of products, technologies, and markets
Have similar cultures, asset sizes and
venturing experience
Tend to start on a narrow basis and broaden
over time
A shared vision on goals and mutual benefits
10. Timing of Entry
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International market entry decisions should
also cover the following timing-of-entry
issues:
When should the firm enter a foreign market?
Other important factors include: level of
international experience, firm size, and
breadth of product & service offerings.
Mode of entry issues, market knowledge,
various economic attractiveness variables,
etc.
Timeline of Wal-Mart’s
International Expansion
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11. Exit Strategies
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Reasons for Exit:
Sustained losses
Volatility
Premature entry
Ethical reasons
Intense competition
Resource reallocation
11. Exit Strategies
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Risks of Exit:
Fixed costs of exit
Disposition of assets
Signal to other markets
Long-term opportunities
Guidelines:
Contemplate and assess all options to
salvage the foreign business
Incremental exit
Migrate customers
Advantages and Disadvantages of
Different Modes of Entry
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