9
Global Market
Entry Strategies
Learning Objectives
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Differentiate among market entry options—indirect exporting, direct exporting,
licensing, franchising, contract manufacturing, assembly, and full-scale integrated
manufacturing—and note the conditions under which each is an appropriate
strategy.
Explain the role of export management companies, export agents, and export
consortiums.
Note the ways in which the Internet has impacted international entry strategies
employed by firms.
List the pros and cons of establishing wholly owned subsidiaries and the pros and
cons of establishing joint ventures.
Compare and contrast technology-based, production-based, and distribution-based
strategic alliances.
Explain when entering a market by acquisition is desirable.
Define entry strategy configuration, bundling, and unbundling, and explain their
significance to market entry strategies.
Explain why market exit—and possibly re-entry—strategies might be necessary.
Chapter Outline
• Exporting as an entry strategy
– Indirect exporting, direct exporting
• Foreign production as an entry strategy
– Licensing, franchising, local manufacturing
• Ownership strategies
– Wholly owned subsidiaries, JVs, alliances
• Entering markets through mergers and
acquisitions
• Portal or e-business entry strategies
• Entry strategy configuration
• Exit strategies
Two Methods of Exporting
• Indirect - Reaching markets with the use of an
intermediary located in the exporter’s home
country
+ Leverage intermediary’s expertise
+ Good for firms with little international experience
- Less profit, less control, do not gain experience curve
effects
Two Methods of Exporting
• Direct – Reaching markets either
yourself or with the use of an
intermediary located in the foreign
market
+ More profit, greater control, able to
leverage experience curve effects
- Requires more expertise, management
time, and financial resources
Cooperating for Export
• Companies competing against each other
in their domestic market may unite to
address export markets
– Governments may encourage and support
cooperation
• Brazil’s Ministry of Development, Industry, and
Foreign Trade create export consortiums to
share logistical and promotion costs of entering
foreign markets
– SMEs may cooperate for export
• 83% Danish firms in Jutland cooperate
Foreign Production
• Firms may shift production to foreign markets
– Gain market position
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Circumvent import restrictions, communicate commitment
to market
– Defend market position
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Response to protectionism, currency fluctuations
Follow the customer
– Save costs
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Cheaper production factors, decrease transportation costs,
etc.
– Reduces currency risk as costs and revenue are in
the same currency
Foreign Production
• Franchising – Special type of licensing
where company makes total marketing
plan available, including brand name,
logo, products, and methods of
operation.
Foreign Production
• Contract Manufacturing – Company
arranges to have its products
manufactured by an independent local
company on a contractual basis
Foreign Production (cont.)
Other Options
– Assembly
– Full-Scale Integrated Production
– Manufacturing and Inter-firm
Licensing
Ownership Strategies
• Wholly Owned Subsidiaries –
Operations fully owned by a foreign
parent firm (May involve marketing,
assembly, or full-scale integrated
production operations)
Ownership Strategies (cont.)
• Joint Ventures (JVs) – Foreign
company invites an outside partner to
share stock ownership in a new unit.
Going It Alone in Overseas
Markets
• Companies increasingly are entering markets
with wholly owned subsidiaries and are buying
out their foreign affiliates
Strategic Alliances
• Strategic Alliances – an alliance
involving two or more global firms in
which each partner brings a particular
skill or resource to relationship.
Entering Markets via
Acquisitions
• Opening of financial markets has made
acquisition of publicly traded firms
much easier
Portal or E-business Strategies
• Through the use of web pages, email,
file transfer, and related communication
tools, firms have begun to enter markets
without establishing a physical presence
in the host country
Exit Strategies
• Circumstances may make companies
want to leave a country or market
– Market Consolidation – rationalizing
overseas operations, abandoning particular
markets
Exit Strategies (cont.)
• Political Considerations – Political
events may change the attractiveness
and/or viability of the market
Market Re-entry
• Several of the markets left by
international firms over the past decades
have become attractive again, and some
companies have reversed their exit
decisions and entered those markets a
second time