Strategies to Enter

Global Markets

Objectives
Understand different factors
influencing choice of particular mode
of entry into a global market
Describe various modes of entry into
international market

Internationalization
Decisions
How to Enter?(Entry mode selection)

Basic Entry
Decisions

Which market to enter?

- Look at growth potential, profit
potential, size of market
- Consumerism grows with large
market size
- Growth potential is important for long
term investment
- Economic and political factors to be
considered

Contd.
When to Enter those market?
-Are we the first ones to enter those
market; FIRST MOVER ADVANTAGE Grab larger share in market
Untapped market
Develop brand loyalty

 First mover has disadvantages:

-risk about customer reaction
-pioneering cost
-competitors are aware of market
conditions
-disadvantage of first mover becomes
advantage for the competitor

Different modes of
entry to IB
EXPORTING
LICENSING/
CONTRACT
MANAGEMENT
TURNKEY
MERGERS
STRATEGIC
FOREIGN
DIRECT
CONTRACTS
AND
MANUFACTURING
ALLIANCE
FRANCHISING
CONTRACTING
ACQUITIONS
INVESTMENT(WITH ALLIANCES)

INDIRECT EXPORTS

EXPORTING
It is the marketing and direct sale of
domestically produced goods in
another country.
It is a traditional and most common
mode of entry.
Small firms with limited financial and
other resources find exports most
suitable form of expansion

DIRECT EXPORTING
It is selling the products in a foreign
country directly through its
distribution arrangements or through
a host countrys company.
Firm is directly involved in marketing
its products in foreign markets.
To implement direct exporting a firm
must have representations in foreign
market

direct exporting
includes:

Market Contact
Market Research
Physical Distribution
Export documentation
Pricing

INDIRECT
EXPORTING

Indirect Exporting is exporting the

products either in their original form
or in the modified form to a foreign
country through another domestic
company. Eg. Various publishers in
India sell their books in India which in
turn export to various foreign
countries.

Exporting
ADVANTAGES

DISADVANTAGES

Less costly than setting up

production abroad

Countries which ban certain

products to be imported are
discouraging exports

Exporting proves to be very

profitable when there is a sudden
decline of the product in home
country

Does not lead to profits always

LICENSING

In this mode the domestic

manufacturer leases the right to use
its intellectual property i.e
technology, work methods, patents,
copyright, brand names, trade marks
etc to a manufacturer in a foreign
country for a fee.
Domestic Manufacturer- Licensor
Manufacturer in Foreign country Licensee

LICENSING
Licensing may be attractive when
host countries restrict imports or FDI
or when the market is small.

 Exclusive License- arrangement provides

exclusive rights to produce and market an
intangible property in specific geographic
region.
Non- Exclusive License- does not grant a firm
sole access to market. Other companies of
same region may be granted license to use
technical skills
Cross Licensing-give one party a licence to use
(patented or copyright material) in return for a
similar licence.

LICENSING

LICENSING
ADVANTAGES

DISADVANTAGES

It carries low investment on part

of licensor

Licensing agreements reduce the

market opportunities for both
licensor and licensee

It carries low financial risk to

licensor

Both parties have responsibilities

to maintain product quality and
promoting product.

Licensor can investigate foreign

market without much efforts

Costly and tedious litigation may

crop up

Licensee gets the benefit with

less investment on R&D.

Problem of leakage of trade

secrets of the licensor. Licensee
may develop his reputation.

FRANCHISING
Franchising is a form of licensing.
Under franchising, an independent
organisation called the franchisee
operates the business under the
name of another company called the
franchisor.
Franchisor can exercise more control
over franchisee than licensing.

FRANCHISING
Under this agreement franchisee
pays a fee to the franchisor.
Franchisor provides following
services to the franchisee:
- Trademarks
- Operating systems
- Product reputations

FRANCHISING
ADVANTAGES

DISADVANTAGES

Franchisor can enter global

markets with low investment and
low risks

Difficult to control international

franchisee.

Franchisor can get the

information regarding markets,
culture, customs and
environment of host country.

Franchising agents reduce the

market opportunities for both
franchisor and franchisee.

Franchisee gets benefits R&D

with low cost

There is scope for

misunderstanding between the
parties

Franchisee escapes risk of

product failure

Problem of leakage of trade

secrets

CONTRACT
MANUFACTURING

It is outsourcing entire or part of

manufacturing operations
Example- nike has contracted with a
no. Of factories in South East Asia to
produce its athletic footwear and it
concentrates on marketing.

CONTRACT
MANUFACTURING

ADVANATGES

DISADVANTAGES

International company gets the

locational benefits by host
countrys production

Poor working conditions in host

country companies affect the
company image.

Small and medium industrial units Host country companies may not
in host country can also develop
strictly adhere to production
as most of production activities
design, quality, design problems
take in these units.
It reduces cost of production as
host country companies with their
relatives cost advantage produce
at low cost.

MANAGEMENT
CONTRACTS

It is an agreement between 2
companies, whereby one company
provides managerial assistance,
technical expertise and specialised
services to the second company of
the agreement for a certain agreed
period in return for monetary
compensation.

MANAGEMENT
CONTRACTS

According to Kotler, Management

contracting is a low risk method of
getting into a foreign market and it
starts yielding income right from the
beginning. Such a contracted
agreement becomes fruitful if
contracting firm is given an option to
purchase some shares in managed
company within stated period.

MANAGEMENT
CONTRACTS

Monetary Compensation may be-a flat fee

- Percentage over sales
- Performance bonus based on
profitability, sales growth, production
- Example- Hotel Industry

MANAGEMENT
CONTRACTS

ADVANATGES

DISADVANATGES

Foreign company earns additional

income without any additional
investment, risks

Sometimes the companies allow

the companies in the host
country even to use their trade
marks and brand name. Host
countrys companies spoil the
brand name if they do not keep
up the quality of product service.

Helps to enter other business

areas in host country

Host country companies may leak

secrets of technology

Countries with abundant skilled

and semi-skilled labor like India
have privilege of producing
products at desired time in
international markets

Over dependence on contracting

firm and loss of control on
operations

Developing country is able to

utilize specialised expertise in

There may be misunderstanding

between foreign managers and

TURNKEY PROJECT
Turning the key when plant is fully
operational.
It is a contract under which a firm
agrees to fully design, construct and
equip a manufacturing/
business/service facility and turn the
project over to purchaser when it is
ready for operation for a
remuneration.

TURNKEY PROJECT
In this agreement seller provides a
ready to use facility to the buyer in a
foreign country.
In other words, seller firm constructs
a facility, starts operations, trains
local personnel, and then transfers
the facility to foreign owner.

TURNKEY PROJECT
Forms of remuneration- A fixed price(firm plans to implement
project below this price)
- Payment on cost+basis (total
cost+profit)

TURNKEY PROJECT
Recent approach to turnkey projects
is BOT(Build-Operate-Transfer)
Mega projects like International
turnkey project include nuclear
power plants, air ports, oil refinery,
national highways, railways lines.
They are large and multi year
projects

TURNKEY PROJECT
ADVANTAGES

DISADVANATGES

Helps firm in specialising key

competencies.

A rival firm is created for the firm

entering into project with a
foreign country firm.

For big infrastructural projects

like railways airports, dams, etc
host country is in a position to
obtain top class design.

These deals are short term role of

firm gets over once it hands over
the (key) technology to foreign
enterprise

JOINT VENTURE
2 or more firms join together to
create a new business entity which is
legally separate from its parent
company
In this form of entry a firm enters
into a partnership agreement with
one or more local companies in the
target country or with firms either
from third country or home country.

JOINT VENTURE
Partnership agreement includes:
Sharing of equity
Market know how
Technology skills
An imp feature of this form is contracting
firm maintain their separate and
independent legal entities. This is
welcomed by countries where
restrictions on investment are imposed

JOINT VENTURE
ADVANTAGES

DISADVANTAGES

Firm with limited resources can

also enter foreign market through
joint venture

There could be conflict among

corporate objectives of partners

Less political risk

Cultural differences can lead to

management problems

Share the cost of administration

and also risk of failure

Staff might be overburdened with

JV

If the firm has entered into a joint

venture with local partner, then it
has an advantage of getting first
hand information about culture,
language, political, competitive
conditions.

Freedom to act independently is

missing in JV. Problems of coordination may arise

MERGERS AND
ACQUISITIONS

When 2 firms completely lose their

individual identity and amalgamate into a
new firm representing the interests of the
2, it is known as merger
When a firm acquires or purchases the
other firm, acquisition is said to have
taken place. In a cross border acquisition,
management control of assets and
operations of a domestic company to a
foreign company takes place.

MERGERS AND
ACQUISITIONS

ADVANTAGES

DISADVANTAGES

Benefits from economies of scale

Acquiring form should be in same

field as old firm, otherwise on
account of lack of experience and
expertise the business of
acquired firm may suffer.

Capturing a large market

Loss of talented managerial staff

can affect performance of
acquired unit thus lead to losses

Tapping the underutilised

resources

Acquiring firm may have to

overpay for assets of acquired
firm

Reducing financial risk

Sometimes, new firm does not

weigh pros and cons of acquired
firm and later realise that more
than potential benefits there are
losses from acquired firm.

STRATEGIC
ALLIANCE

Strategic Alliance b/w 2 countries

means that they have mutually
agreed to contribute their
capabilities and strengths so that
alliance could be a strong
competitive firm in the world.

Motive behind
strategic alliance

Join hands with prospective or actual

competitors
Increasing size of market
Develop new technology
Achieve economies of scale
Synergetic effects in the partner
firms

ADVANTAGES

STRATEGIC
ALLIANCE

DISADVANTAGES

Potential competitors can be

eliminated

Sharing resources may breed

future competitors for firms

No loss of individual identity for

participating firms belonging to
different countries

Different goals of firms may lead

to conflicts

Individual risks of running the

firms alone gets reduced
Participating firms agree to share
the investment cost
Firms forming strategic alliance
have access to each others
tangible and intangible resources

COUNTER-TRADE
In this mode of entry, firms do away
with currency transactions. On the
contrary, they export certain items in
return of items imported (of same
value) from the same country.

COUNTER-TRADE
It can be any of the following forms:
Barter- goods exchanged for goods
Buyback- supplier of plant & machinery agrees
to buy goods manufactured with that P&M
Compensation deal- part payment in cash and
rest in products
Counter purchase- seller initially receives full
payment in cash, but agrees to spend an
amount in that country within the stipulated
time period.

COUNTER-TRADE
ADVANTAGES

DISADVANTAGES

Developing countries resort to

this mode of entry due to foreign
exchange problems faced by
them.

Development of export market is

affected

Suitable for firms need to fully

export their plant capabilities and
want to enter difficult foreign
markets

Bilateralism is given importance

instead of multilateralism

Preferred by many firms to

dispose off their obsolete
products and also increase sale of
capital goods

FOREIGN DIRECT
INVESTMENT(FDI)

According to IMF, FDI is defined as

investment that is made to acquire a
lasting interest in an enterprise
operating in an economy other than
that of investor.
It is a long term international capital
movement, made for the purpose of
productive activity with the intention
of managerial control of foreign firm

FOREIGN DIRECT
INVESTMENT(FDI)

Motives for FDI

Managerial skill
Technical knowledge
Capital and technology

Thank you