Chapter 9
Market Entry and Servicing
Strategies
John S. Hill
Chapter Outline
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Introduction: Exporting Strategies
Contractual Forms of Market Entry
Investment Options for Servicing Foreign
Markets
Matching Market Servicing Strategies to
Environmental and Corporate Needs
Chapter Outline: Market Entry and Servicing Strategies
Market Entry and
Servicing Strategy
Exporting
Strategies
Indirect
Exporting
Direct exporting
Contractual Methods of
Market Entry &
Servicing
Licensing
Franchising
Contract manufacturing
Co-production
Matching Market Entry and
Servicing Strategies to
Environmental & Corporate
Needs
Investment Options
International JointVentures
Mergers &
Acquisitions
Greenfield Operations
Exporting Strategies
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Indirect Exporting
and Use of Trading
Companies
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Direct Exporting
Export Strategies
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Indirect Exporting and Use of Trading Companies
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Indirect exporting uses third party intermediaries
US Trading Companies and Associations: ETC (Export
Trading Companies) & WPA (Webb-Pomerene Associations )
Taiwanese Trading Companies: independent producers and
suppliers
Mainland China Trading Companies: industry-centered
Japanese Trading Companies, “big nine” sogo shosha, over 1000
overseas offices, annual turnover tops $350 billion
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Export Strategies
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Direct Exporting
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For small and medium sized firms, cheap and
flexible
For large international firms, exporting/importing
are vital parts of international operations
Key elements in global company supply chains for
material supplies and distribution of final products
International firms account for 2/3 world trade
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Contractual Forms of Market Entry
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Three Major Types of
Agreements
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Management Contracts
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Contract Manufacturing
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Co-production
Agreements
Contractual Forms of Market Entry
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Three Types of Most Popular Agreements
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Licensing
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Allowing foreign-based firm use of production processes,
marketing logos, trademarks or brand names for a defined
time period in specific market and for a pre-specified royalty
fee
Danisco Cultor in Asia: low cost manufacturing after patent
expiry
Ferrari Motor Sports: publicize brand through clothing
Umbro: low cost way tt compete with Adidas and Nike
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Contractual Forms of Market Entry
 Three
Major Types of Agreements
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Franchising
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Franchisees given rights for production or marketing
of the product; considerable control exerted over both
the production processes and marketing strategy
McDonalds, KFC and Pizza Hut
Hyatt and Holiday Inn, require up to $100 million in
real estate and capital expenditures per hotel
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Contractual Forms of Market Entry
 Three
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Major Types of Agreements
Franchising
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Controlling Foreign Franchisees
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Concentrating ownership via trusted master franchisers
Diluting ownership: many independent operators
Contractual Forms of Market Entry
 Three
Types of Most Popular Agreements
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Master Franchising
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Individuals supervise and develop a number of
franchises within a country or region
HFC, a leading franchiser of brand name hotels (e.g.,
Howard Johnson, Day’s Inn, Ramada), residential
real estate (Century 21, Caldwell Banker, ERA) and
rental cars (Avis)
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Contractual Forms of Market Entry
 Dealing
with Local Market
Environments
Archaic legal frameworks and bureaucracies
 Political Unrest: dependencies on local
businesspeople and buoyant local economies
 Cultural obstacles: culturally
sensitive foods industries where
menus are adapted
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Contractual Forms of Market Entry
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Other Contracts and Agreements
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Management Contracts, international companies, for a fee,
train local employees and manage foreign-based facilities for a
prescribed time period (hotels)
Contract Manufacturing, foreign firms using specific
materials and/or processes to manufacture products or provide
services for third party companies. May be home-market or
foreign manufacture; flexibility advantages but control
disadvantages
Co-Production Agreements, manufacturing joint ventures,
with partners retaining their independent marketing and
distribution rights
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Investment Options for Servicing
Foreign Markets
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International Joint
Ventures (IJVs)
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Mergers and
Acquisitions (M&A)
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Greenfield Operations
Investment Options for Servicing
Foreign Markets
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International Joint Ventures (IJVs): Definition &
Key Decision Areas
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International corporations and local firms join forces to share
ownership and management responsibilities in specially
created enterprises
Equity Structure, control over IJV operations
Technology Transfer Arrangements, ‘the best’ technologies v.s.
those matching market needs
Asset Valuation problems, value land, buildings, equipment
and intangible assets (good will, brand names, etc.)
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Investment Options for Servicing
Foreign Markets
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International Joint Ventures (IJVs)
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Divisions of management responsibility, ‘who is really in
control?’
Financial Policy and Strategic Objectives, dividend and profit
reinvestment/repatriation policies
Blending of global corporate objectives with local goals,
manufacturing for other subsidiaries, allocating export rights,
and pricing issues
Cultural problems and changing relationships
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Investment Options for Servicing
Foreign Markets
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Mergers and Acquisitions (M&A)
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Over 75 percent (or over $866 billion) were M&A in the $1.2
trillion equipment and management assets over 1999-2000;
gives quick access and impact in highly competitive markets
Seven types of companies in M&A
Carnivores: M & A an everyday function. Nestle, Unilever,
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Electrolux and GE
Dairy Farmers: buy and sell businesses to increase shareholder
value. Hanson
Vegetarian: infrequent opportunistic acquirers. Sony’s and
Matsushita’s purchase of Hollywood
Investment Options for Servicing
Foreign Markets

Mergers and Acquisitions (M&A)
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Seven types of companies in M&A
White Hunters: frequently go for firms that are bigger than they
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are. UK supermarket trolley maker WPP’s takeover of US
advertising agency giant J. Walter Thompson
Gentleman Shooters: large takeovers after exhaustive research.
BMW’s takeover of British auto firm Rover
Cross-Breeders, leading national companies to form regional (or
global) powerhouses. Sweden’s ASEA and Brown-Boveri of
Switzerland in heavy electrical equipment
Global mega-mergers, to build critical mass and presences in the
international markets. Renault’s $5.4 billion investment in Japan’s
number 2 car maker, Nissan.
Investment Options for Servicing
Foreign Markets
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Implementing M & A Strategies
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Evaluation of Prospects
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Financial analysis
Strengths-weaknesses-opportunities-threats
(SWOT)
Cost and value chain analysis
Competitive analysis
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Investment Options for Servicing
Foreign Markets
 Implementing
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M & A Strategies
Post Acquisition Strategies
Stand-alone policies: leave the acquired company as it
is; little interference
 Integration strategies: into parent company
operations to reap financial, manufacturing,
marketing synergies
 M&A Assessment: was it worth
it and did we execute it well?
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Investment Options for Servicing
Foreign Markets
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Greenfield Operations
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Build foreign subsidiaries to suit their needs
Advantages
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Need not deal with existing managements and facilities
Start fresh with the firm’s own technologies, management
styles and corporate cultures
Complete control of subsidiary development and market
strategies
Investment Options for Servicing
Foreign Markets
 Greenfield
Operations
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Disadvantages
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Must build in-market relationships with
suppliers, distributors from scratch
Competitors have time to adjust their strategies
and prepare for a new rival
The risks of making major resource commitments
and of financing losses until facilities reach their
full market potential
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Investment Options for Servicing
Foreign Markets
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Greenfield Operations
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Conditions favoring:
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Financing needs are low
Markets are developing slowly and industry competition
levels are low
Leading edge products and process technologies; can
guard against intellectual property theft
Global brands and reputations are advantages
Strong corporate cultures are keys to corporate success
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Investment Options for Servicing
Foreign Markets
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Greenfield Operations
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Country Selection Criteria
Proven manufacturing capabilities in the global
context
Market potential
Competitor presences (they are there,
why aren’t we?)
Favorable environment: no major
operating problems
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Investment Options for Servicing
Foreign Markets

Greenfield Operations
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Site Location Within the Country determined by:
Government location incentives (undeveloped regions)
Economically significant centers (customers)
Availability of qualified personnel
Essential resources are available
Transportation and infrastructures must be
adequate
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Investment Options for Servicing
Foreign Markets
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Greenfield Operations
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Siting Research and Development Capabilities
Historical patterns: home market-based
Current R&D strategies
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Research labs in traditional fields: located in major
markets or ‘competence regions’ (e.g. silicon valley)
Development labs: product adaptations to local needs
Facilities in new emerging areas: Latin America, Asia
Managing the R&D Site: size is important; and leadership
(reputation, connections)
Matching Market Servicing Strategy to
Environmental and Corporate Needs
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External Factors
Internal Factors
Matching Market Servicing Strategy to
Environmental and Corporate Needs
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External Factors
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Global industry analyses: Countries with significant
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market sizes and high market growth
Market environment analyses: less problematic for
experienced firms; essential for newcomers
Competitive Factors: alert firms to competitor
presences and what facilities rivals have in particular
markets; competitive advantages can accrue (e.g.
producing and customizing in-market to counter
import competition)
Matching Market Servicing Strategy to
Environmental and Corporate Needs
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Internal Factors
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Corporate Objectives
Learning and market feedback: build up global expertise
Flexibility: the ability to switch resources quickly in response
to corporate and marketplace needs (exporting)
Control over products and
manufacturing processes
Matching Market Servicing Strategy to
Environmental and Corporate Needs
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Internal Factors
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Corporate Resources
Managerial resource scarcity may be countered by use of third
party expertise
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International management expertise: necessary for direct
exporting; less so for contractual modes of market entry
(licensing, franchising, turnkey operations, etc); essential for
investments
Marketing and operating costs: cheaper for indirect exporters,
necessary for all entry strategies
Competitive advantage: firms seek to leverage home market
advantages into foreign country environments; brand/corporate
reputation, service, customization
Key Points
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Many types of entry strategies
Exporting (direct/indirect)
Contractual Methods
Investment Options
Site Selection
R&D Facilities
Strategies to match company’s
external and internal needs