MARKET ENTRY STRATEGIES
Indirect Exporting
1) Definition: selling goods to foreign buyers through intermediaries such as export agents,
export merchants or buying houses.
2)
Advantages
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allows you to continue to concentrate
on your domestic business.
demands minimal involvement in the
export process
the firm does not have to build up an
overseas marketing infrastructure.
you can field-­test your products for
export potential.
an almost risk-­free way to begin
you have limited liability for product
marketing problems-­there’s always
someone else to point the finger at
Disadvantages
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development of overseas market
depends to a very large extent on
middlemen and not on the firm
producing the export goods.
lose control over your foreign sales
you very rarely know who your
customers are, thus lose the
opportunity to tailor your offerings to
their evolving needs.
when you visit, you are a step
removed from the actual transaction.
you feel out of the loop.
the intermediary might also be offering
products similar to yours, including
directly competitive products, to the
same customers instead of providing
exclusive representation
your long-­term outlook and goals for
your export program can change
rapidly, and if you’ve put your product
in someone else's hands, it’s hard to
redirect your efforts accordingly.
3) Examples:
Fran Wilson Creative Cosmetics.
Brands in the Bay: M.A.C, Kitchen Aid, Clinique, Chanel, Coach, UGG.....etc
Direct Exporting
1) Definition:Direct exporting is when the manufacturer or supplier controls all the oversea
activities and collects all the drawbacks.
2)
Advantages
Disadvantages
-­ The potential profits are greater
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because you are eliminating
intermediaries.
You have a greater degree of control
over all aspects of the transaction.
You know who your customers are.
It takes more time, energy and money
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than you may be able to afford.
It requires more "people power" to
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cultivate a customer base.
Servicing the business will demand
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more responsibility from every level of
your organization.
You are held accountable for whatever
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happens. There is no buffer zone.
You may not be able to respond to
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customer communications as quickly as
a local agent can.
You have to handle all the logistics of
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the transaction.
If you have a technological product, you
Your customers know who you are.
They feel more secure in doing business
directly with you.
Your business trips are much more
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efficient and effective because you can
meet directly with the customer
responsible for selling your product.
You know whom to contact if something
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isn't working.
Your customers provide faster and more
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direct feedback on your product and its
performance in the marketplace.
You get slightly better protection for
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your trademarks, patents and
copyrights.
You present yourself as fully committed
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must be prepared to respond to
technical questions, and to provide
on-­site start-­up training and ongoing
support services.
and engaged in the export process.
You develop a better understanding of
the marketplace.It takes more time,
energy and money than you may be
able to afford.
3) Examples Canon, Sony, Apple, Acer, Dell, that taylor golf club company.
Licensing
1) Definition: A business arrangement in which one company gives another company
permission to manufacture its product for a specified payment
2)
Advantages
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Obtain extra income for technical
know-­how and services
● Reach new markets not accessible by
export from existing facilities
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Quickly expand without much risk and
Disadvantages
Lower income than in other entry
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● Loss of control of the licensee
manufacture and marketing
operations and practices leading to
large capital investment
Pave the way for future investments in
the market
● Retain established markets closed by
trade restrictions
● Political risk is minimized as the
licensee is usually 100% locally
owned
● Is highly attractive for companies that
are new in international business.
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loss of quality
Risk of having the trademark and
reputation ruined by an incompetent
partner
● The foreign partner can also become
a competitor by selling its production
in places where the parental company
is already in.
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3) Examples:
Disney Consumer Products
Warner Bros. Consumer Products
Marvel Entertainment Inc.
General Motors
Nascar
Ferrari
Franchise
1) Definition: Franchising is the practice of using another firm's successful business model.
The franchisor is a supplier who allows an operator, or a franchisee, to use the supplier's
trademark and distribute the supplier's goods. In return, the operator pays the supplier a
fee. For the franchisor, the franchise is an alternative to building 'chain stores' to
distribute goods that avoids the investments and liability of a chain. The franchisor's
success depends on the success of the franchisees.
2)
Advantages
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“Owning a franchise allows you to go into
business for yourself, but not by yourself.”
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A franchise provides franchisees with a
certain level of independence where they
can operate their business.
A franchise provides an established
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product or service which may already enjoy
widespread brand-­name recognition. This
gives the franchisee the benefits of a
pre-­sold customer base which would
ordinarily takes years to establish.
A franchise increases your chances of
Disadvantages
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The franchisee is not completely
independent. Franchisees are required to
operate their businesses according to the
procedures and restrictions set forth by the
franchisor in the franchisee agreement.
These restrictions usually include the
products or services which can be offered,
pricing and geographic territory. For some
people, this is the most serious
disadvantage to becoming a franchisee.
In addition to the initial franchise fee,
franchisees must pay ongoing royalties
and advertising fees.
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business success because you are
associating with proven products and
methods.
Franchises may offer consumers the
attraction of a certain level of quality and
consistency because it is mandated by the
franchise agreement.
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Franchisees must be careful to balance
restrictions and support provided by the
franchisor with their own ability to manage
their business.
A damaged, system-­wide image can result
if other franchisees are performing poorly or
the franchisor runs into an unforeseen
problem.
The term (duration) of a franchise
agreement is usually limited and the
franchisee may have little or no say about
the terms of a termination.
3) Examples: McDonalds, Burger King, Domino’s Pizza, Haagen-­Dazs, KFC, Pizza Hut,
Pizza Nova, Taco Bell, Yogen Fruz, 7-­Eleven, Subway, Dairy Queen
Contract Manufacturing
1) Definition:Production or goods by one firm, under the brand of another firm. Contact
manufacturers provide such service to several firms based on their own or the
customer’s designs, formula, and/or specification. Also called private label
manufacturing.
Advantages
Can be Cost-­Effective:The use of contract
manufacturers means that the hiring
firm does not need to purchase
expensive manufacturing facilities,
equipment, machinery, raw materials
or hire specialized labor. This not only
allows the hiring firm to focus solely
on sales, advertising and marketing, it
allows a firm that is comparatively
more efficient at manufacturing to
carry out the process. As a result,
hiring firms often benefit from
economies of scale and the
purchasing power of large
manufacturers. All of these factors
lower production costs.
Divides Risk:Another benefit of contract
manufacturing is it spreads the risk of
Disadvantages
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Binding Contract
Once a contract is signed with a
manufacturer, the hiring firm
essentially calls all the shots. This can
lead to serious problems for the
reputation of the manufacturer if the
wrong firm is partnered with.
Differences in quality standards can
lead to disputes
● Once a contract is signed with a
manufacturer, the hiring firm
essentially calls all the shots. This can
lead to serious problems for the
reputation of the manufacturer if the
wrong firm is partnered with.
Differences in quality standards can
lead to disputes
● developing a new product across
multiple companies. Were a company
to carry out all aspects of production
single-­handedly, it would be taking a
huge gamble on the success of that
product. As companies would
essentially live or die on the success
of a new product, risk-­taking and
innovation would be disincentivized.
3) Examples:OXID,SCI System, Solectron,Celestica.
Joint Venture
1) Definition: A business arrangement in which two or more parties agree to pool their
resources for the purpose of accomplishing a specific task.
2)
Advantages
Disadvantages
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Provide companies with the
opportunity to gain new capacity and
expertise
● Allow companies to enter related
businesses or new geographic
markets or gain new technological
knowledge
● Access to greater resources,
including specialised staff and
-­ Disagreements may arise between 2
businesspeople who clash culturally
and socioeconomically.
-­ A possible imbalance in levels of
expertise or experience within the
cooperation.
-­ Possible lack of leadership in both
parties resulting in ineffective results.
-­ Thorough research needs to be done in
● technology
Sharing of risks with a venture partner
● More money is pooled in and you can
concentrate on bigger projects
● Collaboration makes working more
efficient and people can divide jobs
based on what they’re known to be
good at
careful precision to ensure success.
-­ One party may be lacking to bring the
financial needs necessary for the
venture.
-­ If cultural or social clashes are noticed,
any further joint ventures or
agreements with outside parties could
be in jeopardy due to public
disagreements and therefore, lost
opportunity.
-­ Venture objectives could be a problem
due to miscommunication within the
cooperation and one is feeling mislead
or has different objectives/information.
-­ The mixed attitudes of leadership could
impair the relationship within the
venture and create varied
management styles. (ex. “too many
cooks in the kitchen”)
3) Examples: Sony Ericson, Virgin Mobile Indian Limited, cow corning, millercoors, penske
truck leasing, norampac, owens-­corning,
Acquisition
1)Definition:
A corporate action in which a company buys most, if not all, of the target company's
ownership stakes in order to assume control of the target firm. Acquisitions are often
made as part of a company's growth strategy whereby it is more efficient to take over an
existing firm's operations and niche compared to expanding on its own. Acquisitions are
often paid in cash, the acquiring company's stock or a combination of both.
2)
Advantages
Disadvantages
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does not require cash
lets the target (the seller) realize the
potential the merged entity, instead of
being limited to sales proceeds.
● shareholders of smaller entities to
own a smaller piece of a larger pie,
increasing their overall net worth.
● avoid many of the costly and
time-­consuming aspects of asset
purchases, Eg. assignment of leases
and bulk-­sales notifications.
● cost efficiencies through economies
of scal
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scale if business becomes too large,
leads to higher unit costs.
● Culture clash between different types
of businesses reduces the
effectiveness of the integration.
● conflict of objectives between different
businesses, meaning decisions are
more difficult to make and causing
disruption in the running of the
business.
3) Examples:AT&T, Comcast, AOL,
Greenfield
1) Definition: A form of foreign direct investment where a parent company starts a new
venture in a foreign country by constructing new operational facilities from the ground up.
2) A greenfield strategy is to enter into a new market without the help of another business
who is already there. Acquisition is the opposite of a greenfield entry.
Advantages
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Developing countries often offer
prospective companies tax-­breaks,
subsidies and other types of
incentives to set up greenfield
investments
Create new long-­term jobs in the
foreign country by hiring new
employees.
jobs are created and knowledge and
technology is gained to boost the
country's human capital.
Provides maximum design flexibility to
meet project requirements
New facility will reduce required
maintenance
Can be designed to meet current and
future needs
Opportunity to improve corporate
image
Suitable for either lease or own option
Disadvantages
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Some sites are not fully developed
and have additional development
costs such as headworks costs for
sewer and
water
Council approval time frames may be
longer for new sites
High demand of industrial sites may
mean that sites available have
difficulties
(slope, ground conditions)
Potential problem if there are any
country of origin issues, negative
impact if manufactured in a low wage
country
Political risk -­ repatriation of profits
Increased risk exposure with the
resource commitment on the scale
usually required
3) Examples: Hyundai, Volkswagen, Aldo, Alcan, Adobe, Adidas, McDonalds, Abercrombie &
Fitch, Westfield, Berri, H&M