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 segment’s 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
• Microsegmentation
– 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
SPEED STICK
IDEAL VECTOR (U.S.)
OLD SPICE
SPEED STICK
BRUT
OLD SPICE
GILLETTE
SURE
IDEAL VECTOR (Mex)
EFFECTIVENESS
SURE
RIGHT
GUARD
GILLETTE
DEGREE
RIGHT
GUARD
DEGREE
 - U.S. Consumers

- Mexican Consumers
Comparison of Perceptions of U.S. v.s. Mexican
Females
LACK OF RESIDUE
MUM
IDEAL VECTOR (U.S.)
LADY SPEED
STICK
SECRET
LADY SPEED
STICK
IDEAL VECTOR (Mex)
SURE
SECRET
EFFECTIVENESS
MUM
TEEN
SPIRIT
 - U.S. Consumers

- Mexican Consumers
TEEN
SPIRIT
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
– Wholly Owned Subsidiary
• 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
Disadvantage
Exporting
Ability to realize location and
experience curve economies
High transport costs
Trade barriers
Problems with local marketing agents
Turnkey
contracts
Ability to earn returns from
process technology skills in
countries where FDI is
restricted
Creating efficient competitors
Lack of long-term market presence
Licensing
Low development costs and
risks
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
Disadvantage
Franchising
Low development costs and
risks
Lack of control over quality
Inability to engage in global strategic
coordination
Joint
ventures
Access to local partner’s
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
Wholly
owned
subsidiaries
Protection of technology
Ability to engage in global
strategic coordination
Ability to realize location and
experience economies
High costs and risks
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 buyer’s 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)
• arm’s-length transaction
Why Use Countertrade?
•
•
•
•
Lack of money
Lack of value of money
Nonconvertibility 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
Firm’s 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
EXAMINE DATA AVAILABILTY
Can Secondary Data be Used?
Types of Problems That CAn be
Solved Using Secondary Data
No
ASSESS VALUE OF RESEARCH
RESEARCH DESIGN
Construct
Issues in
Primary Data Collection
Measurement
Sampling
Equivalence
Qualitative Methodsi
Analysis
Types
Market Orientation
Strategic Orientation
Problem Orientation
Yes
Cost/ Benefit Analysis
Causal
Descriptive
Exploratory
Sources of Bias
Frequency & Ease of Use
Coding
Wording
Format
Surveys
Instrument Design
Country/ Regional
Specific Bias
Data Preparation
Data Manipulation
Scale Development
Sampling
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 doesn’t 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