Class 2.
2.1. Selection of
Markets
International
Evaluation of International Markets:
Two Main Approaches
Considering international market
as country or group of countries
Considering international market
as groups of consumers (from
different countries) with similar
behavior
«+» Secondary information is often enough
«+» A lot of information on the country
«+» More adequate information
«+» Sales and marketing often organized
divided by countries
«+» More possibilities to adapt products to
the needs of foreign consumers
«-» From the marketing point of view it is
crucial to work similarly with similar
customers, and vice versa
«-» Firm needs to conduct primary research
«-» Problems in finding reliable crossnational statistics
2
Three Qualifying Criteria
Criteria
Purpose
To determine accessibility
Accessibility
Can we serve the market effectively and efficiently?
What may prevent us from doing so?
To determine profitability
Profitability
Can the market afford us? Can we get adequate profits? What
is the likely return on investment and timescale of payback?
To determine market size
Market size
What is the existing market size? Is there a latent market?
What is the potential for emerging demand?
Secondary Data
“Fine” Market Screening Process
Internal Environment
• Size / amount of
• Internationalization
•
resources
• Type and nature of
industry
economic, legal,
socio-cultural,
technological factors
objectives
•Degree of international
knowledge
External Environment
Political,
• International industry
structure
• Competitive
environment
•Market size, potential
Potential Markets (by continent)
Primary Data
Specific country within the chosen continent
Specific segment within the chosen country
Target segments of customers
4
Globalizing processes as a system of interconnected
elements
THE GLOBAL ECONOMY
THE REGIONAL ECONOMY
THE NATIONAL
ECONOMY
Transnational
corporations
Nation-states
THE LOCAL
ECONOMY
Technology&
Global Shifts
Environmental Analysis
Macro Environment
• International laws & wars
• Economic situation
• Socio-cultural factors
• Technological development
• Ecological factors
• Political
• Economic
• Socio-cultural
• Technological
Regional Environment
• Legal
• Public policy,
risk and regulation
Micro Environment
• Market Opportunity Analysis
• Competitive Environment
• Consumer Behavior
6
Market Opportunity Analysis
Market Opportunity Analysis (MOA) enables the firm to
identify opportunities within new markets and thoroughly
understand the market structure, competitive landscape,
customer needs and competing technologies
The analysis of the findings provides the firm with:
an expert assessment of whether the market is attractive
/ penetrable;
a market entrance strategy;
the optimal approach to gain market share;
more profitable links in the value chain;
potential partner organizations and acquisition targets
and a depth understanding of how to maximize chances
of success.
Competitive Environment
The competitive landscape
Which companies are active within the market?
Which companies are the major players ?
Who are the specialists that focus on the business ?
Which companies are important but minor players in the business ?
Recent entrants to the market ?
Segments of the market serviced by each competitor
Product and service profiles of suppliers
Claimed product or service advantages
Distribution channels used
Partners
Key information on each competitor (geographical coverage, locations
of head offices, production plants and sales offices, staff numbers)
Growth history within the business
Financial performance of suppliers
Nature of the competitive environment (stable, change or rapid
change)
Pricing
Consumer Behavior
The key components of Consumer Analysis are:
Analysis of buying processes and decision making
Analysis of customer expectations
Customer satisfaction research
Measurement of customer loyalty
Pricing research
The key components of B2B Customer Analysis are:
Composition and structure of decision making unit
Analysis of buying processes and decision making
Analysis of suppliers within target markets
Methods of identifying and evaluating suppliers
Analysis of customer expectations from suppliers
Customer satisfaction research
Measurement of customer loyalty
Pricing research
Analysis of reasons for lost business
Expanded Marketing Process Model
Capture value
from customers
Create value for customers and build customer relationships
Understand the
marketplace
and customer
needs and
wants
Research
consumers and
market
Manage
marketing
information and
customer data
Design a
customer-driven
marketing
strategy
Select customers
to serve:
segmentation and
targeting
Decide on a value
proposition:
differentiation and
positioning
Construct a
marketing
program that
delivers
superior value
Product and
service design:
build strong
brands
Pricing: create
real value
Distribution:
manage demand
and supply
chains
Promotion:
communicate VP
Marketing technology
Global markets
Build profitable
relationships and
create customer
satisfaction
CRM and CEM:
build strong
relationships with
chosen
customers
Partner
relationship
management:
build strong
relationships with
marketing
partners
Capture value
from
customers to
create profits
and customer
quality
Create
satisfied loyal
customers
Capture
customer
lifetime value
Increase share
of market and
share of
customer
Ethical and social responsibility
Marketing Information System
General data
bank
Analytical
data bank
Statistical
data bank
Information Dissemination
Processes / Mechanisms
Internal and Environmental
Data / Information
Information
Processing
Organization
Decisionmakers
Decisions
Strategy
Market
Strategic
decisions
Managerial
decisions
Operational
decisions
How to
compete
Marketing
Mix
Resources
Control
Decision to Enter International Market
Alternatives
Main factors
Questions
To enter international
market immediately
Firm’s resources
Motivations of
managers / owners
Experience of top
managers in
international
activity
Ability to export
competitive goods /
services
International
market
opportunities
Are our goods / services able to meet export
demand?
On what information the answer is based?
What changes are needed in the marketing
mix to meet the international demand?
If our good / services are suitable for foreign
markets why didn’t we act internationally
before?
What do we know about governmental
support of export or entry of foreign markets?
To postpone
international market
entry
No intention to enter
international market
Process of International Markets Selection
5. Target markets within
target countries
Microsegmentation
4. Market Attractiveness
(BCG Matrix, McKinsey Matrix)
3. Scanning
(BERI, other indexes)
Target countries
selection
2. Segment profiles
Global market segmentation
1. Segmentation criteria
13
CAGE Model
Source of
distance
Cultural
distance
Administrative Geographical
distance
distance
Economic
distance
Linguistic
differences
Different
ethnic groups
Underdeveloped
ethnic and
social networks
Weak institutions
No common
monetary or political
organizations
Political hostility
State policy
No colonial
interconnections
Income
differences
Differences in the
value and quality of:
- natural resources
- financial resources
- human resources
- infrastructure
- information and
knowledge
- intermediary
services
Religious
differences
Different
social norms
Physical distance
No common
boundaries
No access to
seas and rivers
Small size of the
country
Underdeveloped
transport and
communications
infrastructure
Different climate
BERI Index –
Business Environment Risk Information Index
Criteria
Political stability
Weight
Value1)
Total value2)
х4 (max)
=100(max)
3
Economic growth
2,5
Currencies convertibility
2,5
Manpower costs/productivity of labour
2
Short-time credits
2
Long-time credits/venture capital
2
Attitude to foreign investors and profits
1,5
Nationalization
1,5
Inflation
1,5
Balance of payments
1,5
Execution of contracts
1,5
Bureaucracy
1
Communications
1
Local management and partners
1
Professional services and contractors
Sum
0,5
25
1)
Scale «0» to «4»: 0 – unacceptable terms; 1 – bad terms; 2 – middle terms; 3 – good terms ; 4 – ideal terms
2)
BERI ≥ 80 – favorable investment environment, developed economy; 70 ≤ BERI ≤ 79 – not so favorable and developed; 55 ≤ BERI ≤ 69 – developing economy
having investment potential; 40 ≤ BERI ≤ 54 – high level of risk, underdeveloped economy; BERI < 40 – a very high level of risk, investing is possible only
exceptionally
GE /McKinsey Matrix
GE /McKinsey Matrix
Class 2.
2.2. International
Entry Modes
Market
Entry Mode Choice
Considered by many as the most
important aspect of a firm’s
internationalization strategy
Entry mode will determine long-term
success or withdrawal from foreign
markets
Poor decisions can be very costly for
the firm
Factors in the Entry Mode Decision
Target country
market factors
Target country
environmental
factors
External factors
Internal factors
Company product
factors
Target country
production
factors
Home country
factors
Entry
mode
decision
Company resource
and commitment
factors
Strategies of Foreign Market Entry
Step by step (Waterfall model)
Simultaneously (Watering can model)
Developed
countries
Developing
countries
Underdeveloped
countries
Время
Developed
countries
Developing
countries
Underdeveloped
countries
Foreign Market Entry Modes
Entry Modes
Export
Associated
Investment
Licensing
Joint ventures
Indirect
Franchising
Direct
Management
contracts
Production
Fully owned
companies
Acquisitions
Strategic
alliances
22
Types of Exporting
Indirect exporting
Distributor
Export agent
EMC
Direct exporting
Export department
Export sales representatives
E-business
Cooperative exporting
Export groups
Piggyback exporting
Foreign Direct Investment (FDI)
The ultimate form of foreign involvement
Direct ownership of foreign-based assembly,
manufacturing or sales facilities
The company can buy part or full interest in a
local company (M&A) or build its own facilities
(GFI, ex nihilo)
Considered the “preferred” mode of entry
Advantages and Disadvantages of FDI
Advantages
-
-
Cost economies (labor, raw materials, incentives, freight savings,
etc…)
Better image in host country
Deeper relationship with government, customers, local suppliers,
distributors
Better adaptation
Full control of investments
Long term objectives
Disadvantages
-
High initial and operating costs
High level of risk
FDI Options
Make-or-buy decision
Greenfield investment / Ex nihilo
Mergers and acquisition
Branch or subsidiary?
Structure
Legal status
Analyzing FDI project
Assessing profitability
Discounted cash flow analysis
FDI nowadays
Developing economies absorbed close to half of
global FDI inflows
Development of South-South cooperation
15% below pre-crisis level
FDI to developed countries continued to decline
Poorest regions continued to see declines in FDI
FDI to service industries fell: business services,
finance, transport and communications, utilities
50% of global FDI – TNC’s market-seeking projects
Associated Entry Modes
Newest, most recent forms of international business
Transfer of technology or know-how between two firms
Shared risks
Only option in countries where the government requires
foreign firms to use local capital
Better access to local market knowledge
Types of Associated Entry Modes
Joint venture: foreign and local investors share
ownership and control of local operations
Licensing: licensor licenses a foreign company to use a
manufacturing process, trademark, patent, trade secret or
other item of value for a fee
Management contracts: firm exports management
services instead of a product, separation between
ownership and management
International Franchising: contractual association
between a franchisor (manufacturer, wholesaler or service
organization) and franchisees (independent business
people who buy the right to own and operate units in the
franchise system). Franchising is based on some unique
product, service or method of doing business.
Industrial franchising
Distribution franchising
Service franchising
NEM cooperation
$2 trillion in sales 2010
NEMs include contract manufacturing, services, outsourcing,
contract farming, franchising, licensing, management
contracts
$1.2 trillion – outsourcing, $340 – franchising, $340 licensing, $100 – management contracts
TNCs make choice between FDI and NEM based on its
strategy, the relative costs and benefits, the associated risks,
feasibility of available options
Example of International
Franchising Entry Modes
Direct modes
Direct franchising (16%)
Subsidiary (19%)
Area development agreements (14%)
Indirect modes
Joint venture (16%)
Master franchising (34%)
In the Direct system the franchisor is controlling and coordinating
the activities of the franchisees directly. In the indirect system a master
franchisee (subfranchisor) is appointer to establish and service its own
Subsystem of franchisees within its territory
International franchising comparative matrix
Strong
Master
franchising
Distance /
Adaptation
Direct franchising
Joint venture
FDI
Area
development
agreement
Direct
franchising
Weak
Weak
Commitment /
Control
Strong
Foreign Market Entry Modes
Entry mode
Control
Assets
share
MIN
MIN
MAX
MAX
VC
MAX
FC
MIN
Market
share
Risk
MIN
MIN
MAX
MAX
Indirect export
Direct export
Licensing
Production by contract
Local production
VC - Variable (direct) costs
FC – Fixed (overhead) costs
MIN
MAX
Entry Mode Choice Summary
Entry modes vary in terms of resource or equity
commitment to foreign markets
Low-commitment modes can allow firm to reduce risk in
high-risk countries, culturally diverse countries or limited
potential markets
Desired degree of control over international operations
influences choice of entry mode
Loss of control yields limited returns
No market entry strategy is appropriate in all
circumstances
Most firms will have a vast portfolio of entry modes,
depending on each specific market situation
Comparing Different Entry Mode Options
High
Franchising
FDI
Licensing
Wholly owned
subsidiary (M&A)
Management contract
Contribution
of know-how
Branch office
AD / Concessionaire
EMC
Piggy back
Agent
Minority shareholding
through partial acquisition
ITC / distributor
Low
Majority JV investment
(local partner know-how)
Foreign buying
department
Low
Level of ownership
High
Choosing the Right Entry Mode
All entry modes
Internal factors
External factors
Comparative profit
contribution analysis
Rejected entry
modes
All feasible entry modes
Comparative
risk analysis
Comparative analysis for
nonprofit objectives
Ranking by overall
comparative assessment
The right entry mode
Target
market
Marketing channels within markets
Class 2.
Practical work
Task 2. Choosing proper country to
enter
Compare BRICS countries, create the chart and find the closest country
to Russia
Global shift
Transformation of world economy to
geo-economy
Globalization: geographically and
organizational tendencies
TNCs play significant role Interactions
between state and TNC
Surge economy: the only thing is
certain - changes
New tendencies
Internet commerce
High competition
Networking
Innovations
Intangible assets
Information, knowledge driven economy
Growing power of developing and BRICS
countries
No geographical barriers