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The Internationalization Process & Market Entry Strategies

Market Entry Decisions


Foreign Market Selection Timing & Order of Entry Market Expansion Strategies

Mode of Entry Decisions

Foreign Market Selection


Step 1: Preliminary Screening of Foreign
Markets
Key Question: Which foreign markets warrant further detailed investigation? Decision Based On: Intl. Environmental Variables

Foreign Market Selection


Step 2: Assessment of Industry Market
Potential
Key Question: What is the aggregate demand in each of the selected markets?

Decision Based On: Market Access Data

Product Potential Information


Infrastructural Facilities

Foreign Market Selection


Step 3: Company Sales Potential Analysis
Key Question: How attractive is the potential demand for my products? Decision Based On: Sales Volume Forecasts

Timing & Order of Entry Decisions


Sprinkler Approach
-- Entering Multiple Foreign Markets Simultaneously

Waterfall Approach
-- Initially Entering One or More Lead Markets and Timing Subsequent Entry in a Phased Manner

Segmentation, Targeting & Product Positioning


Market Segmentation
Dividing the market into distinct groups of buyers with different needs, characteristics and/or behavior

Market Targeting
Evaluating each market segments attractiveness and selecting one or more market segments to enter

Product Positioning
Planning for the product to occupy a clear, distinctive, and desirable place relative to competing products in the mind of target customers

Consumer Market Segmentation


Geographic
Different geographical regions, cities, countries

Demographic
Age, sex, income, education, occupation, religion, race, nationality

Psychographic
Social class, lifestyles, personalities

Behavioral
Purchase occasion, benefits sought, user status, usage rate, loyalty

International Market Segmentation Approaches


Develop Cut-Off Criteria Shortlist based on Preliminary Screening Micro segmentation
Individual Country based Cross-border segments

Requirements for Effective Segmentation

Measurable Sizable Accessible Actionable

Target Marketing
Evaluating Market Segments
segments size and growth segment structural attractiveness (Competitive Intensity) company objectives and resources

Selecting Market Segments

Global Target Market Strategies


Universal Segments
Global Teen Segment Standardized Approach Differentiated Strategies

Diverse Segments
Same product, different target segments Canon AE-1 Camera

Mixed Strategy

A Comparison of U.S. and Mexican Ads for Speed Stick Brand Deodorants

Comparison of Perceptions of U.S. v.s. Mexican Males


LACK OF RESIDUE

BRUT OLD SPICE

SPEED STICK

IDEAL VECTOR (U.S.)

SPEED STICK
OLD SPICE

BRUT

GILLETTE

SURE

IDEAL VECTOR (Mex)

EFFECTIVENESS
SURE RIGHT GUARD

GILLETTE

RIGHT GUARD
DEGREE

DEGREE

- U.S. Consumers

- Mexican Consumers

Comparison of Perceptions of U.S. v.s. Mexican Females


LACK OF RESIDUE

MUM LADY SPEED STICK SECRET LADY SPEED STICK SURE MUM SECRET

IDEAL VECTOR (U.S.)

IDEAL VECTOR (Mex)

EFFECTIVENESS

TEEN SPIRIT

TEEN SPIRIT

- U.S. Consumers

- Mexican Consumers

Market Expansion Strategies


Concentration vs Diversification
Countries vs Segments

Conc Div

Conc 1 3

Div 2 4

Market Expansion Strategies


Strategy 1:
When product appeals to a definite group of customers across markets and cost of penetration is very high (HDTV)

Strategy 2:
When product line appeals to different segments & cost of penetration is relatively high (consumer electronic goods)

Market Expansion Strategies


Strategy 3:
Defined homogenous segments across markets (Benz, Jaguar, etc.)

Strategy 4:
Products with mass appeal with relatively low cost of penetration (most consumer non-durable goods)

Choice of Entry Modes


Exporting
Direct vs Indirect

Contractual Agreements
Licensing, Franchising, etc.

Equity Based
Joint Ventures WOS

Strategic Alliance

Choosing the Mode of Entry


Decision Criteria for Mode of Entry
Market Size and Growth Risk Government Regulations Competitive Environment Local Infrastructure

Choosing the Mode of Entry (cont)


Company Objectives Need for Control Internal Resources, Assets, and Capabilities Flexibility Mode of Entry Choice : A Transaction Cost Explanation

Exporting
Indirect Exporting Cooperative Exporting Direct Exporting

Stages in the Export Process


Uninterested Partially Interested

Exploring Experimental
Experienced

Indirect Channels of Exports


Merchants vs Agents Trading company
General Trading Companies
Sogo Shosha (C. Itoh; Mitsui, Mitsubishi, etc.)

Export Trading Companies


Daewoo, Sears World Trade

Export/Import Broker Export Management Company


international sales specialists who function as the export dept. of mfrs.

Cooperative Arrangements
Piggyback Marketing
GE; Borg-Warner, etc.

Marketing Cooperative Associations Export Cartels


OPEC DeBeers Central Selling Orgn. Webb-Pomerene Associations

Direct Channels of Exports


Export departments Export Sales Subsidiary Foreign Sales Branch/Subsidiary Storage or Warehousing facilities Travelling Salesperson

Advantages and Disadvantages of Entry Modes


Entry Mode Advantage Exporting Ability to realize location and experience curve economies Ability to earn returns from process technology skills in countries where FDI is restricted Low development costs and risks Disadvantage High transport costs Trade barriers Problems with local marketing agents Creating efficient competitors Lack of long-term market presence

Turnkey contracts

Licensing

Lack of control over technology Inability to realize location and experience curve economies Inability to engage in global strategic coordination

Advantages and Disadvantages of Entry Modes


Entry Mode Advantage Franchising Low development costs and risks Disadvantage Lack of control over quality Inability to engage in global strategic coordination

Joint ventures

Access to local partners Lack of control over technology knowledge Inability to engage in global strategic Sharing development costs and coordination risks Inability to realize location and Politically acceptable experience economies Protection of technology Ability to engage in global strategic coordination Ability to realize location and experience economies High costs and risks

Wholly owned subsidiaries

International Strategic Alliances


Strategic Alliance
refers to any type of cooperative agreements between two or more firms who are potential or actual competitors. Can take multiple forms including: JVs, R&D collaborations, piggy backing, sourcing relationships, etc.

International Strategic Alliances


In general, any relationship that involves mutual dependence and shared decision making between two or more firms can be characterized as a strategic alliance. It differs from traditional JVs in that:
strategic alliances are increasingly between firms in the industrialized nations the focus is on creation of new products and technologies rather than the distribution of existing ones

Why Strategic Alliances?


Rising R&D Costs Shortening Product Life Cycles Growing Barriers to Market Entry Increasing Need for Global Scale Economies Expanding Importance of Global Standards Forms the basis of Building and Sustaining Competitive Advantage in Industries undergoing major Transitions

Managing International Alliances


The Logic of Collaboration
Identifying when, where, and why to collaborate An alliance is usually one of several options for pursuing a strategic goal; it is never an end in itself Strategic Goals: Product Exchange; Corporate Learning & Market Positioning Cost-Benefit Tradeoffs Alternatives to Collaboration: SelfSufficiency; Buying the Inputs or Skills; Full Acquisition.

Key Issues in Managing International Alliances


Selecting Partners
Knowing how to maximize benefits and minimize risks of partnerships Complementary needs and assets

Structuring Alliances
Choosing organizational forms that provide incentives for success Contracts vs. Equity Relationships

Key Issues in Managing International Alliances


Building Alliance Networks
Creating a system of reinforcing alliances, and avoiding chaos Network Design: Is the whole greater than the sum of the parts? Who controls the network? & Where is competitive advantage created?

Alliance Dynamics
Managing with an eye to the forces for change in a relationship

Key Issues in Managing International Alliances


Limits to Alliances
Recognizing the constraints on collaborative strategies Organizational Constraints; Strategic Gridlock; Dependence

The Role of Governments


Antitrust laws Host government intervention

INCOTERMS
Ex-works (EXW) Free Carrier (FCA)
inland vs destination point

Free Alongside Ship (FAS)


seller responsible for inland transportation. unloading and wharfage Loading, ocean transportation and insurance are buyers responsibilities

INCOTERMS
Free on Board (FOB) Cost & Freight (CFR) Cost, Insurance & Freight (CIF)
port charges documentation charges other charges

Delivery Duty Paid (DDP)

Terms of Payment
Consignment Open Account Documents against Acceptance (Time Draft) Documents against Payment (Sight Draft) Letter of Credit Confirmed LC Cash in Advance

Letter of Credit
A Letter of Credit is an instrument issued by a bank, at the request of a buyer. The bank promises to pay a specified amount of money on presentation of documents stipulated in the L.C.

Letter of Credit
Irrevocable vs Revocable LC
An irrevocable L.C. cannot be modified or cancelled without the consent of the exporter

Confirmed vs Unconfirmed
A confirmed L.C. is one where a domestic bank certifies the credibility of the issuing bank

Revolving vs Non-revolving

Bill of Lading
The bill of lading is a document used in ocean transportation that serves 3 distinct functions:
it is the contract of carriage between the shipper and the transportation company it is a receipt of goods it is evidence of title to the merchandise

Export Pricing Strategies


Standard Worldwide Pricing Rigid Cost-Plus Pricing Marginal Cost-Plus Pricing

Market-Differentiated Pricing

Price Escalation
Export Related Costs
Cost of adapting products to foreign markets Operational costs
personnel market research shipping & insurance communication costs

Tariffs & Taxes Costs associated with hedging, factoring/forfaiting

Strategic Options to Deal with Price Escalation


Reorganizing/shortening the distribution channel Product modification (backward innovation) Shipping & Assembling components in Free Trade Zones Overseas Production or sourcing (duty drawbacks)

Marginal vs Rigid Cost-Plus Pricing


Firm-specific Factors
Extend of product differentiation Corporate stance toward exporting Financial resources to sustain initial losses Domestic Gross Margins Need for long term capacity utilization Economies of scale benefits

Marginal vs Rigid Cost-Plus Pricing


Export Market Specific Factors
Growth Potential End-User Price Sensitivity Competitive Intensity Terms of Sale & Financing Exchange rate risk

Export Strategies When Domestic Currency is Weak


Stress Price Benefits Expand Product line and add more costly features conduct conventional cash-for-goods sale use rigid cost-plus pricing wherever possible Bill foreign customers in domestic currency

Export Strategies When Domestic Currency is Weak


Minimize expenditures in host country currency Minimize borrowing in host country Buy needed services (advertising, insurance, etc.) in domestic market

International Transfer Pricing


Transfer pricing is the pricing of sales within members of a corporate family
HQ to Subsidiaries Subsidiaries to HQ Subsidiary to Subsidiary

Why Use Transfer Pricing?


Reduction of Taxes Reduction of Tariffs Increase Competitiveness of certain foreign markets Minimization of foreign exchange risks Minimization of political risks Management of cash flows

Types of International Transfer Pricing


Cost-based
most effective strategy but open to tough laws

market based (dealer price) arms-length transaction

Why Use Counter trade?


Lack of money Lack of value of money No convertibility of currency Offset financial risk

Other factors that make it more efficient to exchange goods directly than to use money as an intermediary As a competitive strategy Excellent mechanism to get a foothold into foreign markets

Major Drawbacks
Instead of there being a double coincidence of wants, there is likely to be a want of coincidence; so that, unless a hungry tailor happens to find an undraped farmer, who has both food and a desire for a pair of pants, neither can make a trade. Paul Samuelson

Transactions purely bilateral in nature and thus are not competitive Trade is formulated on the basis of the willingness to countertrade and not on economic considerations Creates economic inefficiencies

Types of Countertrade
Counterpurchase or parallel barter (46%)
Involves both cash & kind transactions Parallel reciprocity (a special case)

Buyback (11%)
Technology in return for finished goods Levi Strauss in Hungary

Offset (27.5%)
Cost offsets through investments Can be in multiple forms Common in high cost deals (defense)

Swaps (11%)
Debt for debt swaps Debt for equity swaps Debt for product swaps Debt for education swaps

Clearing Arrangements
Extend over long period Involve basket of goods Held as deposits representing purchasing power (credit - debit account)

Switch Trading (4.5%)


A type of clearing arrangement where credit can be sold or transferred to a third party

Information Requirements for Intl. Marketing


Depends on the type of decision Strategic Decisions
Foreign market selection Mode of entry decision Product/Market portfolio strategies Market expansion strategies

Tactical Decisions
Marketing mix strategies for individual country markets

THE INTERNATIONAL MARKETING RESEARCH PROCESS


FIRM OBJECTIVE INFORMATION REQUIREMENT Market Orientation Strategic Orientation Problem Orientation

Firms Needs

PROBLEM DEFINITION

Self Reference Criterion Country Region Global Subgroup/Segments Within Countries

CHOOSE UNIT OF ANALYSIS Advantages / Disadavantages of Secondary Research Sources of Secondary Data Types of Problems That CAn be Solved Using Secondary Data EXAMINE DATA AVAILABILTY Can Secondary Data be Used? No ASSESS VALUE OF RESEARCH RESEARCH DESIGN Construct Measurement Sampling Analysis Coding Wording Format Surveys Instrument Design Scale Development Sampling Equivalence Qualitative Methodsi Issues in Primary Data Collection Types Sources of Bias Frequency & Ease of Use Country/ Regional Specific Bias

Yes

Cost/ Benefit Analysis Causal Descriptive Exploratory

Data Preparation Data Manipulation T-tests & Cross TAbs DATA ANALYSIS Experimental Design & ANOVA Multivariate Techniques

INTERPRETATION/ PRESENTATION

Problem Identification and Definition


Problem may not always be couched in the same terms in different countries or cultural contexts Beware of self-reference criterion
Eg: Why doesnt powder detergent sell in Africa?

Issues in Multi-Country Data Collection


Availability Accuracy Comparability (the issue of equivalence) Cost

The EMIC - ETIC Dilemma


The schools of thought EMIC
Each culture is unique Advocates culture-specific approach

ETIC
Assessing universal attitudes and behavior Advocates culture-free approach

Major Sources of Secondary Data for IMR


U.S. government Other government embassies International organizations Directories and newsletters Electronic databases

Primary Sources of Data


Qualitative research methods Survey research Experimentation

Qualitative Research
Individual interviews Focus groups Projective techniques Observational methods

Cultural Influences
Language Unavailability of certain segment of population
Interviewing women in Saudi Arabia

Interviewer bias

Not all societies encourages frank and open exchanges


High context vs low context cultures Status consciousness Gender roles Role of elders

Disagreement may be seen as impolite or certain topics may be taboo differences in perceptions and attitudes

Survey Research
Mail Survey
Efficiency of postal system Absence of street and house numbers
Eg: In Venezuela houses have names (Casa Rosa) not numbers

Literacy rate Reluctance to respond in writing particularly sensitive issues (Eg: ownership of imported cars in Brazil)

Telephone Survey
Availability of telephones Efficiency of telephone system
Eg: Hung up - Russian telephone system

Mall Intercepts
Not common outside U.S

Questionnaire Design
Format
Structured vs Unstructured Direct vs Indirect

Content
Sensitivity of cultures

Wording
Translation-Re-translation

The Issue of Equivalence


Construct Equivalence
Are we studying the same phenomenon in countries X, Y, and Z?
Eg: Bicycles

- Recreation/exercise in the U.S.


- Basic mode of transportation in developing countries

Measurement Equivalence
Are the phenomenon in countries X, Y, and Z measured the same way?
Eg: Questionnaire translation and interpretation issues

Sampling Equivalence
Are the samples used i countries X, Y, and Z equivalent?
Eg: Literacy rates

Key Pitfalls in Conducting an International Marketing Research


Selecting a domestic research company to do your international research Rigidly standardizing methodologies across countries Interviewing in English around the world Setting inappropriate sampling requirements Lack of consideration given to language Lack of systematic intl. communications procedure Misinterpreting multi-country data across countries Not understanding cultural differences while conducting qualitative research

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