Global Marketing Management Masaaki Kotabe & Kristiaan Helsen Third Edition John Wiley & Sons, Inc., 2004 Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 1 Chapter 9 Global Market-Entry Strategies Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 2 Chapter Overview 1. 2. 3. 4. 5. 6. 7. 8. Target Market Selection Choosing the Mode of Entry Exporting Licensing Franchising Contract Manufacturing Joint Ventures Wholly Owned Subsidiaries Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 3 Chapter Overview (contd.) 9. Strategic Alliances 10. Timing of Entry 11. Exit Strategies Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 4 Introduction The need for a solid market entry decision is an integral part of a global market entry strategy. Entry decisions will heavily influence the firm’s other marketing-mix decisions. Global marketers have to make a multitude of decisions regarding the entry mode which may include: – (1) the target product/market – (2) the goals of the target markets – (3) the mode of entry Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 5 Introduction (contd.) – (4) The time of entry – (5) A marketing-mix plan – (6) A control system to check the performance in the entered markets Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 6 1. Target Market Selection A crucial step in developing a global expansion strategy is the selection of potential target markets (see Exhibit 9-1 for the entry decision process). A four-step procedure for the initial screening process: 1. Select indicators and collect data 2. Determine importance of country indicators 3. Rate the countries in the pool on each indicator 4. Compute overall score for each country Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 7 2. Choosing the Mode of Entry Decision Criteria for Mode of Entry (see Exhibit 9-12): – Market Size and Growth – Risk – Government Regulations – Competitive Environment – Local Infrastructure » Classification of Markets: Platform Countries (Singapore & Hong Kong) Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 8 2. Choosing the Mode of Entry (contd.) Emerging – – – – Chapter 9 Countries (Vietnam & the Philippines) Growth Countries (China & India) Maturing and established countries (examples: South Korea, Taiwan & Japan) Company Objectives Need for Control Internal Resources, Assets and Capabilities Flexibility Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 9 2. Choosing the Mode of Entry (contd.) Mode of Entry Choice: A Transaction Cost Explanation – Regarding entry modes, companies normally face a tradeoff between the benefits of increased control and the costs of resource commitment and risk. – Transaction Cost Analysis (TCA) perspective – Transaction-Specific Assets (assets valuable for a very narrow range of applications) Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 10 3. Exporting Indirect Exporting – Export management companies Cooperative Exporting – Piggyback Exporting Direct Exporting – Firms set up their own exporting departments Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 11 4. Licensing Licensor and the licensee Benefits: – Appealing to small companies that lack resources – Faster access to the market – Rapid penetration of the global markets Caveats: – Other entry mode choices may be affected – Licensee may not be committed – Lack of enthusiasm on the part of a licensee Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 12 4. Licensing (contd.) – Biggest danger is the risk of opportunism – Licensee may become a future competitor How to seek a good licensing agreement: – Seek patent or trademark protection – Thorough profitability analysis – Careful selection of prospective licensees – Contract parameter (technology package, use conditions, compensation, and provisions for the settlement of disputes) Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 13 5. Franchising Franchisor and the franchisee Master franchising Benefits: – Overseas expansion with a minimum investment – Franchisees’ profits tied to their efforts – Availability of local franchisees’ knowledge Caveats: – Revenues may not be adequate – Availability of a master franchisee Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 14 5. Franchising (contd.) – – – – – Chapter 9 Limited franchising opportunities overseas Lack of control over the franchisees’ operations Problem in performance standards Cultural problems Physical proximity Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 15 6. Contract Manufacturing Benefits: – Labor cost advantages – Savings via taxation, lower energy costs, raw materials, and overheads – Lower political and economic risk – Quicker access to markets Caveats: – Contract manufacturer may become a future competitor – Lower productivity standards Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 16 6. Contract Manufacturing (contd.) – Backlash from the company’s home-market employees regarding HR and labor issues – Issues of quality and production standards Qualities of an ideal subcontractor: – Flexible/geared toward just-in-time delivery – Able to meet quality standards – Solid financial footings – Able to integrate with company’s business – Must have contingency plans Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 17 7. Joint Ventures Cooperative joint venture Equity joint venture Benefits: – Higher rate of return and more control over the operations – Creation of synergy – Sharing of resources – Access to distribution network – Contact with local suppliers and government officials Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 18 7. Joint Ventures (contd.) Caveats: – Lack of control – Lack of trust – Conflicts arising over matters such as strategies, resource allocation, transfer pricing, ownership of critical assets like technologies and brand names Drivers Behind Successful International Joint Ventures : – Pick the right partner Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 19 7. Joint Ventures (contd.) – – – – Chapter 9 Establish clear objectives from the beginning Bridge cultural gaps Gain top managerial commitment and respect Use incremental approach Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 20 8. Wholly Owned Subsidiaries Acquisitions Greenfield Operations Benefits: – Greater control and higher profits – Strong commitment to the local market on the part of companies – Allows the investor to manage and control marketing, production, and sourcing decisions Caveats: – Risks of full ownership Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 21 8. Wholly Owned Subsidiaries (contd.) – Developing a foreign presence without the support of a third part – Risk of nationalization – Issues of cultural and economic sovereignty of the host country Acquisitions and Mergers – Quick access to the local market – Good way to get access to the local brands Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 22 9. Strategic Alliances Greenfield Operations – Offer the company more flexibility than acquisitions in the areas of human resources, suppliers, logistics, plant layout, and manufacturing technology. Types of Strategic Alliances – Simple licensing agreements between two partners – Market-based alliances Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 24 9. Strategic Alliances (contd.) – Operations and logistics alliances – Operations-based alliances The Logic Behind Strategic Alliances – Defend – Catch-Up – Remain – Restructure Cross-Border Alliances that Succeed: – Alliances between strong and weak partners Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 25 9. Strategic Alliances (contd.) seldom work. – Autonomy and flexibility – Equal ownership – Other factors: » Commitment and support of the top of the partners’ organizations » Strong alliance managers are the key Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 27 9. Strategic Alliances (contd.) » Alliances between partners that are related in terms of products, technologies, and markets » Similar cultures, assets sizes and venturing experience » A shared vision on goals and mutual benefits Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 28 10. Timing of Entry International market entry decisions should also cover the following timing-of-entry issues: – When should the firm enter a foreign market? – Other important factors include: level of international experience, firm size – Mode of entry issues, market knowledge, various economic attractiveness variables, etc. Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 29 10. Timing of Entry (contd.) Reasons for exit: – Sustained losses – Volatility – Premature entry – Ethical reasons – Intense competition – Resource reallocation Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 30 11. Exit Strategies Risks of exit: – Fixed costs of exit – Disposition of assets – Signal to other markets – Long-term opportunities Guidelines: – Contemplate and assess all options to salvage the foreign business – Incremental exit – Migrate customers Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 31 Copyright © John Wiley & Sons, Inc. 2004 Chapter 9 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 32