Chapter 7
Entry and Competing
In Foreign Markets
1
1
The foreign markets entry decision-making
1
Analysis
COUNTRY OPPORTUNITIES
2
COUNTRY RISK ANALYSIS
(Assessing Country
Attractiveness)
3
COMPETITIVE ANALYSIS
4
Implementation
• External
• Internal
ENTRY MODE
5
DEVELOPMENT PATHS
6
2
ORGANISATION:CONTROL
Entry and Development
3
Objectives
Market Driven
Resources Driven
Capture growth opportunities
of the region to expand
global sales
Capture resources (natural,
human, knowledge) for
global competitiveness
Global Innovation
Regional Production
and Innovation
Global Production and
back offices
Local Production
Local marketing
Export Processing Factories
Sourcing base
Export
4
First Mover Advantages
Acquirers advantages
Window of Opportunity
Followers advantage
First movers advantages
• Pre-empt key resources
• Establish standards
• Blocks brands and distribution
• Learn
• Benefit from mistakes of first movers
• Capitalize on blind spots
• Ride on efforts of first movers
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Chinese entry in the car industry
Group
Pioneers
(mid-1980s)
1st follower gen.
(late 1980s/early
1990s)
2nd follower gen.
(late 1990s)
Start
1985
1985
1987-98
1988
1990
1991
1991
1992
1992
1999
1999
Carmakers in China
 Beijing Jeep
 Shanghai VW
 Guangzhou Peugeot
 Tianjin Daihatsu (TLA in 1986)
 FAW Group (TLA in 1988)
 Changan Suzuki (TLA in 1988)
 Guizhou Subaru (TLA in 1989)
 Dongfeng Citroen
 FAW-VW
 Shanghai GM
 Guangzhou Honda
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M/S in 2001
0.7%
31.9%
–
8.7%
3.0%
7.2%
0.2%
7.4%
17.3%
8.1%
7.1%
Three Dimensions Of Global
Competitive Positioning
Global Standardisation
Multiple Segments
Local Adaptation
Single Segment
Compete
on Costs/price
Advantages
Compete
on Differentiated/value
Advantages
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Standardised or Localized ?
High
(Global Scale)
Minimun Size
of
Production
MODULAR
STANDARDISATION
And MULTIBRANDS
GLOBAL
STANDARDISATION
Aircraft
Microprocessors
BasicChemicals
Pulp and paper
Electronic Componernts
Elevators
IT Services
Handphones
E.g. : Otis, Nokia
E.g. : Intel, Dell
PROCESS
STANDARDISATION
Low
(Local Scale)
LOCAL
ADAPTATION
Consumer Banking
Consulting Services
Mobile telephony Services
Cement
Example: Cemex
Example: HSBC
Little Difference across the World
(Global Segments)
Countries specific
(Local Segments)
Customers Requirements and Competitive Contexts
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8
Positioning: Value Proposition
Pure
Global
Adaptive
Usage
Product
Same
Same
Message
Same
Different
Customer
Group
Same
Usage
Same
Adaptive
Product
Fully
Adaptive
Different
Different
Same
Different
Different
Same
Different
Different
Same
Different
Distribution
Same
Different
Same
Different
Brand
Same
Different
Same
Different
Price
Same
Different
Different
Different
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9
Positioning: Segmentation
Rich
Luxurious and top-of-the-line products and services.
Global brands are well entrenched
Middle Class
Mainly increasing urban markets.
Mix of global focus and local brands
and products and services
Still important in term of numbers.
Product and services adaptation
and simplification are needed
Bottom of the Pyramid
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10
Competing
• Technological Performances
• Superior Quality
• Superior Service
• Image
• Customization
• Timeliness and Responsiveness
• Relationships
• Risk Reduction
Differentiation ?
Customer Value
Price
Costs
Industry
Average
Profit
Internal Costs
• Economies of Scale due to size
• Economie of Scope due to shared costs
• Low cost of factors ( labor, materials..)
• Installed base
• Superior productivity in processes
Supplies
Cost
Leadership ?
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Sources of Competitive Advantages
R&D
Resources
based
Asset
based
•Higher quality
scientists and
technologists
• Better data base
• Higher amount of
funding for R&D
• More creative
designers
• Superior existing
products line
•Patents
• More efficient CAD
• Proprietary scientific/
Competencies
based
technological know-how
• Superior and faster
product development
• Superior research
techniques
Procurement
• Better suppliers
• Larger suppliers’
base
• Cheaper sources
of supplies
• Higher quality
supplies
• More effective
warehousing
and inventories
management
• Electronic data
purchasing
• Economies of
scale due to high
volume of purchase
• More effective supply
chain mgt (JIT)
• More effective supplier
relationships
management
Manufacturing
• Better location
and
infrastructure
• Higher
qualification of
work force
• Lower labor
costs?
• Economies of scale
due to volume
• Better quality/cost
processes
• More advanced CAM
•Proprietary equipment
• Better
management of :
plant quality
processes and
time
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Marketing
Sales and
Distribution
• Good quality
channel partners
• Superior strategic
and marketing
intelligence
• Higher quality
marketing and
sales personnel
•Well established
brand/reputation
• Density and
scope
of distribution
• Superior product and
brand management
• Superior customer
relationship
management
General
Management
• Higher quality
managerial personnel
• Cheaper cost of capital
• Strong “sponsors”
•Privileged access to
licenses from authorities
•Better electronic data
mgt and transmission
network
•Better financial mgt
• Better HR mgt
• Superiority in
strategizing
• More effective,
timely, responsive
organisational
mechanisms
• “Better” corporate
culture
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Building a Business System in a
Foreign Environment
Product
Service
Design
Innovation
Resources
Sourcing
• Availability
of scientists
• Availability
of suppliers
Production
• Skill base of
the workforce
• Production managers
Marketing
General
Management
• Sales force
• Information
• Local Financing
• Local Skills
• Infrastructure: Transport, telecom
Assets
• IT infrastructure
• Support & maintenance
of equipment
• Ability to adapt
Competencies • Appropriate
Technology
• Logistics
• Negotiation skills
• Quality management
• Transfer
of production
technology
• Quality
management
• Process control
• Distribution
network
• Branding – global/local
• Relationship
management
• Working capital
management
• Partnership
management
▪ What do we transfer without adaptation? ▪ What do we need to adapt or create? ▪ How?
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How do firms’ capabilities fit to regional/local markets?
The Transfer, Adapt, Create model
R&D
Procurement
What capabilities
are needed to compete?
What capabilities
do we bring and can
transfer?
What capabilities do
we bring but need
to adapt?
What capabilities do
we not bring and need
to create?
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Manufacturing
Marketing
General
Management
Transferability of Competitive Advantages
What is the value of our existing advantages on local markets?
 To what extent do we need to adapt our products and
management approaches?
 What new capabilities need to be acquired and how?
Technological
Transfer
Adapt
Competitive
Advantages
Social
Adaptation
through learning
Replicate
Global
(Same across
the world)
Consumer Behavior
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Local
Entry Modes
Wholly-Owned
Subsidiary
Acquisition
License
Franchise
Joint-Venture
Benefits?
Feasibility?
Costs?
Risks?
16
Agent
Distributor
Office
Entry Modes
Wholly-owned
subsidiary
Market
Attractiveness
Costs
Time
Horizon
Acquisition
Long pay-off
License
Relevant for both attractive markets
and less attractive markets
Relevant for attractive markets
High investments
Joint Venture
High
Medium
Medium-term
if properly
managed
Risks
High exposure
Internal
Requirements
Local know-how
Acquisition skills
Local insights
Competitive
Advantages
Can be high for
early entrants
Can be high if
properly managed
High
Medium-term
Shared risks but
risks of conflicts
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Low
Short-term
Low risks
Partnership
management
Technology
transfer
Leveraged with
partner
Limited but
testing base
HIGH
JOINT VENTURE
JOINT VENTURE
MARKETING SUBS
WHOLLY
OWNED
MARKETING
ACQUISITION
SUBSIDIARY
OPPORTUNITIES
REP OFFICE
DISTRIBUTOR
AGENT
LOW
LICENSE
JOINT VENTURE
LOW
HIGH
JOINT VENTURE
ACQUISITION
WHOLLY OWNED
DISTRIBUTOR
LOW
HIGH
PRESSURE FOR LOCALISATION
RISKS
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Business development and managerial skills
PIONEERING
Critical
Task
Individual
Skills
Create a small team
with mandate to
gather information,
establish contacts,
initiate first move
- Cultural
- Relational
ESTABLISHING
DEVELOPING
COUPLING
- Invest
- Create JV
- Logistical base
- Develop people
- Expand networks
- Broaden scope
- Internal networking
- Interdependencies
- Educational
leadership
- Political
- Relational
- Technical
- Leadership
- Technical
- Relational
-Leadership
-Technical
- Relational
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Organizational Capabilities
LOCAL HUMAN
RESOURCES MANAGEMENT
LEARNING
INNOVATING
- Recruitment
- Socialisation
- Career
- Training
- Managing expatriates
- Business practices
- Business and social cultures
- Local sources of innovation
- Transferring technology
- Adapting “best practices”
- Creating global base out of
local resources
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Linkages
LOCAL LINKAGES
CORPORATE LINKAGES
- Citizenship
- Public relations
- Suppliers/distributors/retailers
- Local communities
- Local education institutions
- Partners
- Business associations
- Role in corporate portfolio
- Reporting
- Integration in global value chain
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