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Lesson#28
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Entry Strategies
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MODES OF ENTRY INTO INTERNATIONAL MARKETS
Entry Strategies
Choosing a mode of entry in international markets:
Choice for an appropriate mode of entry into international
markets would depend on a host of factors.
The key factors are given as follows:
• Nature of
business
• Size of the
company
• Resource
availability to the firm
• Firm’s
international strategy
• Need for control
over business and brands
• Ownership
advantages
– A firm holds
unique competitive advantage that overcomes problems of competing in foreign
countries i.e. brand names, technology, economies of scale etc.
• Location
advantages for the firm
•
Internationalization advantages for the firm
– a firm must
benefit more from controlling the foreign business activity than hiring another
company to conduct the business
• Market size &
growth
6. Risk of operating in the foreign market
7. Government regulation
8. Competitive environment in the country
9. Local infrastructure
All these factors combined determine the overall market
attractiveness of the countries being considered
Classification of countries for entry mode selection:
• Markets can be
classifies in five types of countries based on their respective attractiveness
– Platform
• Countries that
can be used to gather intelligence and establish a network- i.e Dubai
– Emerging
• i.e Vietnam,
Philippines – companies should build up an initial presence, i.e. via a liaison
office
– Growth
• Early mover
advantages often allows companies to build up a significant presence in order to
capitalize on future market opportunities
– Mature &
Established
• These
countries have far fewer growth prospects than other types of markets – often
times,
local competitors are well entrenched
Entry modes and foreign market development:
Page
77
Depending on the nature of foreign markets the suggested modes
for entry are as follows;
Platform countries
– Establish a base
to learn, collect information and set up contacts – an office perhaps
Emerging markets
– Agents –
representative office
Growth markets
– Joint venture –
local subsidiary
Maturing markets
– Joint venture –
local operations
Established markets
– Joint venture –
acquisition
Entry strategies into international markets:
Selecting and changing entry modes
– in a specific
country, market attractiveness and the pressure to produce locally are often the
most
important criteria for selecting entry modes
– by and large
governments of developing countries prefer foreign firms to manufacture locally,
or
at least to assemble imported parts and components within the
country
– due to lack of
information decisions on entry modes are therefore have to be made under great
uncertainty even though they may affect the well-being of the
firm for many years to come
Distribution agreements
– presently there
is an increasing trend towards more direct involvement in world markets,
especially among larger and more experienced firms - especially
in larger markets
– distribution
agreements, however remain crucial for smaller, less experienced firms and for
markets or market segments which are presently of secondary
importance
– in many countries
there are also restrictions on foreign firms regarding certain activities -
where
they need to join with local partners
– traditional
Chinese distributors, dominating most of the South & East Asian markets, tend to
look
at distribution as a cash management business
– successful
partnerships require a fit in strategies, resources, culture and organization
– some Western
distributors have been in Asia since colonial times - Diethelm, East Asiatic,
Hagemeyer, Liebermann, Inchcape, Jardine and Swire
– Japanese
sogo shosha, with dominant role in
Japan have often failed to come up to the
expectations of foreign firms with limited sales
Choice of location
– the choice of
location for the firm within a country / region has to be made at a very early
stage of
market entry and carries far-reaching consequences
– the choice of
location is influenced by location of joint venture partner, location of
customer/s,
close to supplier/s, costs, availability of operational
infrastructure / supporting industries
Page
78
Critical mass & optimism traps
– any entry
decision is connected with the question of how many resources should be deployed
in
the country
– the theoretical
answer is easy: enough to make an impact on the market, but not so much as to
waste capital or human resources which could be used more
efficiently elsewhere
– in practice the
problem lies in the identification of the critical mass threshold where any
additional input of resources results in a disproportionately
high growth in output
– this can normally
be found by taking the most successful (often the largest) competitor in the
market as the benchmark
Competitive moves for entry into international markets:
•
First mover
advantage
– Unilever still
dominates Indonesian and Pakistani markets, P&G those of Philippines - neither
of
them have been able to make large inroads into the other’s
territory
– more recently,
Japanese firms have opened up new markets for themselves ahead of Western
firms and shaped them to their standards - in Vietnam
motorcycles are already called Hondas -
and repair shops
Hon-Da service station
•
Late entry
strategies
– the things that
work in favor of the first mover represent entry barriers to firms which enter a
market later than competitors
– a frontal attack
requires superior resources
– a late entry is
advisable when competition is in turmoil because of technological change in the
industry or changes in the marketplace - or due to changes in
distribution systems
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