Notes on Market Entry Strategies
The elements of entry strategy
Developing a company strategy for entering foreign markets will require a
comprehensive plan, with objectives, resources, and policies.
Each target market is unique in some ways, and each product or service
should satisfy unique market needs.
The plan that will constitute the market entry strategy will need to include:

the company’s objectives and goals in the target market

the policies and resource allocations that follow from these

the choice of the appropriate entry mode

the control system necessary to monitor performance in the market

a time schedule.
Ways of entering overseas markets
Once an organisation has decided to enter an overseas market, the way in
which it does so is of crucial strategic importance.
The mode of entry selected affects both a firm’s entire marketing mix and
its control over the mix elements.
There are only three ways of entering a foreign market:

Indirect exporting.

Direct exporting.

Overseas ventures.
Criteria for selecting a mode of entry
There are two fundamental elements that will influence the choice of mode
of entry for a firm:
1.
The market – for example, some countries limit the import of products
into their market.
2.
The firm itself – for example, does the organisation have prior
experience of global trade?
The factors affecting the market are:

The firm’s marketing objectives.

Some channels may not provide sufficient feedback.

Some modes of entry may not provide the necessary quality.

Mode availability.

Assessment of such risks as expropriation may influence the choice of
mode of entry.

The plan may also include provision for future expansion from export
to other forms of global business.
The factors affecting the product or service are:

The nature of the product.

The projected volume of trade over a period of time.

The firm’s resources.

Availability of appropriate staff.

Learning curve requirements.

The firm’s need to exert control.
Market selection policies
Firms engaging in global trade will tend to fall into two categories, those
that are reactive in style and those adopting a proactive approach.
Similarly, in implementing a proactive market selection policy the marketer
may choose between two different methodologies for screening export
markets – expansive or contractible methods.
In the same way the major strategic alternatives for market expansion are
market concentration and market spreading.
Channels in global marketing
Management should be striving to select the ‘best’ marketing channel, that
is, the one that comes closest to completely satisfying the target customers,
fits the entire marketing mix, and still satisfies the company’s overall
objectives.
In this endeavour, the channel of distribution should be viewed as an
integrated system with the manufacturer on one end and the final user or
buyer on the other end, and this is referred to as the whole channel concept.
There are three basic elements of the marketing channel system:
1.
The headquarters organisation developed by the manufacturer to
implement its global marketing operations.
2.
The methods through which the products are sent to foreign markets.
In global marketing these are channels between nations.
3.
The means by which these products reach the target, final user, or
consumer in the foreign markets.
The choice of channels
For manufacturing organisations, the choice of channel is fundamentally
between direct export, indirect exporting or overseas production.
For companies in the Hospitality Industry, who mainly provide services,
there are different, and more limited, channels available.
These channels include:

Direct Foreign Investment.

Licensing Operations.

Franchising.

Joint Ventures.

Strategic Alliances.
Foreign direct investment (FDI) is where participation in the management,
and control of the enterprise, is involved, and where ownership may range
from 100% downward.
Licensing entails the sale of a patent (concerning a product or process),
commercial knowledge, technical advice and assistance, or use of a
trademark or trade name on a contractual basis.
Franchising is a particular form of licensing in which the franchiser makes
a total marketing programme available, including brand name, product,
method of operation and management advice.
A joint venture is a project in which two or more parties invest, and which
usually results in the formation of a new company in which the parties have
shares, with neither party having effective control over the decision making
process.
Strategic alliances are different from joint ventures in that they are more
extensive, so that, in an alliance the partners contribute commercial knowhow, technology, marketing expertise, access to distribution, networks etc.
Examining entry strategy alternatives
The choice of mode of entry may change over time. A plan drawn up
selecting one of these modes of entry may also include provisions for
eventual expansion.
The level of involvement is influenced by the:

corporate objectives

nature of the markets

nature of consumer culture

coverage of the market

speed of entry

level of control

marketing costs and commitment

profit payback

investment costs

administration requirements

personnel

flexibility.
Concentrating or spreading markets
Market concentration strategy is a slow and gradual rate of growth in the
limited number of markets, whereas a market spreading strategy is a fast
rate of growth in the number of markets served at the early stages of
expansion.
Concentration can provide the following conditions:

can create higher market shares

provides stronger competitive positions

allocation of resources to each market will be higher

greater commitments and controls (and also risks) in the choice of
market entry modes

heavy promotional outlays.
Spreading can provide the following conditions:

can create entry barriers against competitors

creates higher profitability

less promotional expenditure

more reliance on foreign distributors and agents

reduces the risks of concentrating resources and exploits the
economics of flexibility.
The pros and cons of licensing
The attractions of licensing agreements for the licenser may be seen as:

They require little capital outlay, maybe none at all. This may be very
attractive to small firms entering the world market.

Licensing permits a quick and least problematic way of entering
foreign markets.

The firm gains immediate access to local market knowledge,
distribution and existing consumer contracts.

Licensing permits market entry and development which would
otherwise be closed, because of tariffs on foreign establishments, or
high costs involved in setting up wholly owned subsidiaries.

There are difficulties in the repatriation of profits, dividends and,
sometimes, royalties.
The pros and cons of franchising
The advantages of franchising as a means of rapidly entering the global
market are:

It is a much more rapid way to expand business activity over a larger
area with minimum investment than other forms of market entry
strategy.

It is very profitable for the franchiser who receives income both from
royalties and from fees from the acquisition of some aspects of a
service.
The pros and cons of joint ventures
The advantages of joint ventures are:

a firm can expect higher returns than royalty payments under a
licensing arrangement are likely to yield

greater control can be exerted over sales and marketing operations

risk on a new venture is shared, especially when it involves long-term
capital investment

the firm will gain more global experience and greater familiarity with
the local environment, enabling the joint venture to be more aware of
cultural sensitivities and changing market conditions so as to improve
its marketing strategy

foreign governments look more favourably upon joint ventures
because they fear loss of control over their economies if their
industries go into foreign ownership. They feel that nationals will get
more of the benefits of technology transfer and more profit.
The risks in strategic alliances
Strategic alliances are a corporate response to the evolution of an intensely
competitive global market.
They are different from joint ventures in that they are more extensive.
But there are risks associated with strategic alliances:

There may be differences in corporate culture and management
philosophy and practice, which can threaten the survival of the
alliance.

The objectives may be set on short-term goals as opposed to long-term
gains.

The partners may have different approaches to problem solving: one
partner may prefer a technical the other a marketing solution.

There is a danger of one-way flow of technological know how if
procedures and guarantees are not enforced and maintained.

Strategic partnerships are a response to global competition in order to
enhance a firm’s global competitiveness. These global coalitions are
established to enter markets and gain access to a whole series of
resources and skills.