Global Market Entry Strategies Marketing Essay

Each company has a spesific strategy may be selected to suit a company’s needs. Many companies use a combination of global and national strategies. Some firms use a global strategy elsewhere some countries and some products are more receptive to global strategies than others. Global strategies are directed at those national product markets that are large and have low barriers to foreign products and companies. They are also likely to comprimise the center of world demand, particularly in the newer, more technologically intensive product.

Companies adapting global strategies are not likely to target seriously countries with high barriers and small national product markets.However given the long term trend in declining trade barriers coupled with the economic growth, more companies will adopt global strategies. (Walker et al,1992)

GLOBAL MARKET ENTRY STRATEGIES

Wholly-owned subsidiary

Company acquisition

Assembly operations

Joint venture

Strategic alliance

Licencing

Contract manufacture

Direct marketing

Franchising

Distributers and agents

Sales force

Trading companies

Export management companies

Piggyback operations

Domestic purchasing

Market entry options

Source: Doole and Lowe 2005

1.EXPORTING

Exporting to a foreign market is a strategy many companies follow for at least some of their markets. Many countries do not offer a large enough opportunity to justify local production, so exporting allows a company to manufacture its products centrally for several markets and, therefore, to obtain economies of scale. Invensys Energy Systems(NZ) Ltd. serves as an example of a company driven by exporting. This is a typical example of a small to medium sized specialized company based in a small home market (New Zealand) and marketing niche products worldwide.

1.1 INDIRECT EXPORTING

A firm can contact foreign markets through a domestically located (in the exporter’s country of operation) intermediary, an approach called indirect exporting. The major advantage for using a domestic intermediary lies in that individual’s knowledge of foreign market conditions. Particularly for companies with little or no experience in exporting, the use of domestic intermediary provides teh exporter with readily available expertise. The most common types of intermediaries are brokers, combination export managers and manufacturers’ export agents. Browne & Dreyfus acts as the market link, thus sharing its exporting skill with several smaller firms that would find it diffucult to maintain their own exporting organizations. Despite their effiency for small firms, indirect exporters represent a small part of total global marketing.

1.2 DIRECT EXPORTING

A firm can use an intermediary located in the foreign market, an approach termed direct exporting. A company engages in direct exporting when it exports through intermediaries located in the foreign markets. Under direct exporting, an exporter must deal with a large number of foreign contacts, possibly one or mor efor each company the company plans to enter. Pasific world corp. Ä°s a small California based manufacturer of artificial fingelnails and nail care products. The company began export its products in 1992. Although the company is stil small, with thirty five employees, its Nailane brand is now one of the most widely distributed artificial nail brands in the world. With export 15 percent of sales and growing rapidly, the export share is expected to reach 25 percent over the next few years. The company believed it was successful by building long-term relationships with distributers, agents, and other partners.

1.3 FOREIGN SALES SUBSIDIARY

Many companies export directly to their own subsidiaries abroad, sidestepping independent intermediaries. The sales subsidiary assumes the role of independent distributer by stocking the manufacturer’s products, selling to buyers, and assuming the credit risk. The sales subsidiary offers the manufaccturer full control of selling operations in the foreign market. Such control may be important if the company’s products require the use of special marketing skills, such as advertising or selling. The exporter thus finds it possible to transfer or export not only the product but also the entire marketing program, which often makes the product success.

2.FOREIGN PRODUCTION

2.1 LICENCING AS A MARKET ENTRY STRATEGY

Under licencing, a company assigns to right to patent ( which protects a product, technology or process) or trademark ( which protect a product name) to another company for a fee or royalty. Using licencing as a method of market entry, a company can gain gain market presence without a major investment. The foreign company or licencee, gains the right to exploit the patent or trademark commercially, on either an exclusive( teh exclusive right to a certain geographic region) or an unrestricted basis.

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Companies use licencing for several reasons. For one, a company may not have the knowledge or the time to engage more actively in international marketing.The market potential of thetarget country may also be too small to support a manufacturing operation. A licencee has the advantage of adding the licenced product’s volume to an ongoing operation, thereby reducing the need for a large investment in new fixed assets. A company with limited resources can gain advantage by having a foreign partnermarket its product, both would sign a licencing contract. Licencing saves capital because no additional investment is necessary and allows scarce managerial resources to be concentrated on more lucrative markets.

In some countries where the political or economic situation appears uncertain, a licencing will avoid the potential risk associated with investments in fixed facilities. Both commercial and political risks are absorbed by the licencee. In other countries governments favor the granting of licences to independent local manufacturers as a means of building up an independent local industry. In such cases, a foreignmanufacturer may prefer to team up with a capable licencee, despite a large market size, because other forms of entry may not possible.

The French pharmaceutical company Sanofi has become a major user of licencing. A new entrant into drug business, the company realized that it could do only a limited number of research projects if it had to bring them from the lab to trial and eventual market entry.Sanofi therefore decided to engage in active licencing, letting other pharmaceutical companies market its newly discovered drugs. As a result of licencing and sharing, Sanofi was able to advance many more researchand development projects. With this strategy, Sanofi advanced to twenty-fifth place in pharmaceutical industry and achieved sales of $3.5 billion.

2.2 FRANCHISING

Franchising is a special form of licencing in which the franchiser makes available a total marketing program, including the brand name, logo, products and method of operation. Usually, the franchise agreement is more comprehensive than a regular licencing agreement because the total operation of the franchisee is prescribed.

2.3 CONTRACT MANUFACTURING

Under contract manufacturing , a company arranges to have its products manufactured by an independent local company on a contract basis. The manufacturer’s responsibility is restricted to production. Afterward, products are turned over to the international company, which usually assumes the marketing responsibilities for sales, promotion, and distribution. In a way, the international company’rents’ the production capacity of the local firm avoid establishing its own plan tor to circumvent barriers set up to prevent the important of its products. Contract manufacturing differs from licencing with respect to legal ralationship of the firms involved. The local producer manufactures based on orders from the international firm , but the international firm gives almost no commitment beyond the placement of orders.

Nokia the world leader in mobile phones, is using outsourcing of its manufacturing in some markets. South Korea’s Telson Electronics Co. Ä°s producing Nokia handsets fort he Korean market, with some being exported to other countries as well.

2.4 ASSEMBLY

By moving to an assembly operation, the international firm locates a portion of manufacturing process in the foreign country. Typically, assembly consists only of the last stages of manufacturing and depend on the ready supply of components or manufactured parts to be shipped from another country.Assembly usually involves heavy use of labor rather than extensive investment in capital outlays or equipment. Motor vehicle manufacturers have made extensive use of assembly operations in numerious countries. General motor has maintained major integrated production units only in the United States, Germany, the United Kingdom, Brazil and Australia.

2.5 FULL-SCALE INTEGRATED PRODUCTION

Establishing a fully integrated local production units represents the greatest commitment a company can make for a foreign market. Since building a plant involves a substantial outlay in capital, companies do so only when demand appears assured. International companies may have any number of reasons for establishing factories in foreign countries. Often, the primary reason is to take advantage of lower costs, thus providing a better basis for competing with local firms or other foreign companies already present. Also, high transportation costs and tariffs may make imported goods umcompetitive.

3. OWNERSHIP STRATEGIES

3.1 JOINT VENTURES

Under a joint venture (JV) arrangement, the foreign company invites an outside partner tos hare stock ownership in the new unit. The particular participation of the partners may vary, with some companies accepting either a minority or majority position. In most cases, international firms prefer wholly owned subsidiaries for reasons of control, once a joint venture partner secures part of the operation, the international firm can no longer function independently which sometimes leads to inefficiencies and disputes over responsibility for venture.

Despite the potential for problems, joint ventures are common because they offer important advantages to the foreign firm. By bringing in a partner, the company can share the risk for a new venture. The JV partner may also have important skills or contacts of value to the international firm. In other cases, the partner may represent important local business interests with excellent government contacts. A firm with advanced product technology may also gain market Access through the JV route by teaming up with companies that are prepeared to distribute its products.

Many international firms have entered Japan with JVs. During the 1960s and 1970s, the Japanese market was viewed as a diffucult environment, much different from other industrialized markets, and government regulations tightly controlled equity participation in ventures.

3.2 ALLIANCES

Alliances are different from Joint ventures in which two partners contribute a fixed amount of resources and the venture develops on its own. In an alliance, two entire firms pool their resources directly in a collaboration that goes beyond the limits of a joint venture. Although a new entity may be formed, it is not a requirement. Sometimes, the alliance is supported by some equity acquisition of one or both of the partners. In an alliance, each partner brings a particular skill or resourse usually, they are complementary and by joining forces, each expects to profit from the other’s experience. Typically, alliances involve distribution Access, technology transfers, or production technology, with each partner contributing a different element to the alliance.

One of the most experienced with technological alliances is Toshiba, a major Japanese electronics company. The company’s first technological alliances go back to the beginning of this century, when it contracted to make light bulb filaments for U.S based General Electric. The company has since engaged in alliances with many leading in international companies, among them General electric, IBM, United Technologies, Apple Computer, Sun Microsystems, Motorola and National Semiconductor, all of the U:S, and European firms such as Infineon, Electrolux, Kone and SGS. Toshiba entered a wide ranging alliance with the U:S based carrier Carrier Company, a leader in air conditioning equipment. Both Toshiba and Carrier placed their perspective Japanise units into alliance and formed a new company, 60 percent of which owned by Toshiba.

3.3 MERGERS AND ACQUISITIONS

International firms have always made acquisitions, but the need to enter markets more quickly than through building a base from scratch or entering some type pf collaboration has made the acquisitions route extremely attractive. This trend has probably been aided by the opening of many financial markets, making the acquisition of publicly traded companies much easier. Most recently, even unfriendly takeovers in foreign markets are now possible.

Reckitt&Coleman of the United Kingdom had always had a business in house hold cleaners in the U.S. Competing with Procter&Gamble, however, the company was always a distant player. The company therefore jumped at the chance to acquire L&F Household, which included the U.S. brand Lysol and accounted for $360 million in sales. Bringing in several brands and adding about$775 millionin new volume, Reckitt&Coleman considered the acquisition both faster and cheaper than building the same business on its own.

Mergers are also transacted among leading international firms. Even more complex are mergers of two firms with a wide range of geographic interests. Coca Cola acquired the worlwide beverage interests of Cudbury Schweppes and all related brands in about 155 countries. Because of spesific regulatory difficulties, however, not all countryoperations could be acquired by Coca Cola. Those in the United states, Norway, Switzerland, and some European Union member states were excluded.

4. E- BUSINESS OR PORTAL STRATEGIES

The technologicalrevolution of the internet, with its wide range of connected and networked computers, has given rise the virtual market entry strategy.Using electronic means, primarily web pages, email, file transfers, and related communications tools, firms have begun to enter markets without touching down. Acompany that establishes a server on the internet and establishes a webpage can be contacted from anywhere in the world.Consumers and industrial buyers who use modern internet browsers, such as Netscape, can search for products, services, and companies and in many instances can make purchases online.

Amazon.com, the leading internet retailer, established a presence overseas early. Via the internet, Amazon.com can compete globally without a presence in every market. The power of the internet not only helps competitors from large markets. It also shapes the accessto many overseas markets for smaller companies from emerging markets.

MARKETING ENVIRONMENT AND RISK

Marketing policies, plans and decisions are implemented in the context of an ever changing external environment. The nature of environment and the changes occuring within it present opportunities, threats and constraints to an organization’s activities.

Since the 1980s there have been changes in people’s shopping habits as a greater emphasis has been put on convenience shopping. Since joining EU, British firms and people have been influenced by the ideas expressed in other EU countries and enacted through the Europian Parliamnet, Indeed all the forces of marketing environment have made an impact on what firms and people want and do throughout the world. (Proctor, 2008 p.129)

POLITICAL RISKS

The kinds of political risk confronting a company range from confiscation through many lesser but stil significant government activities such as exchange controls , import restrictions and price controls. The most severe political risk is confiscation; sizing a company’s assets without payment. Another type of risk is domestication, when host countries take steps to transfer foreign investments to national control and ownership through a series of government decrees.

ECONOMIC RISKS

Even though expropriation and confiscation are waning in importance as a risk of doing business abroad, international companies are stil confronted with a variety of economic risks, often imposed with little warning. Restraints on business activity may be imposed under the banner of national security, to protect an infant industry, to conserve scarce foreign exchange, to raise revenue, to retaliate against unfair trade practises and a score of other real or imaged reasons. These economic risks are an important and recurring part of the political environment that few international companies can avoid. (Ghauri& Cateora, 2005)

CULTUREL FACTORS

CULTUREL DISTANCE

Hofstede’s framework for assessing cultures is one of the most widely referenced approaches for analyzing variations among cultures. He surveyed more than 116,000 IBM employees in 40 countries about their work related values. He found that managers and employees vary on five value dimensions of national culture. They are listed and defined as follows:

Power Distance: The degree to which people in a country accept that power in institutions and organizations is distributed unequally. Ranges from relatively equal(low power distance) to extremely unequal( high power distance)

Individualism versus collectivism: Individualism is the degree to which people in a country prefer to act as individuals rather than as members of groups. Collectivism is the equivalent of low individualism.

Quantity of life versus quality of life: Quantity of life is degree to which values such as assertiveness, the acquisition of money and material goods, and competition prevail. Quality of life is the degree to which people value relationships and show sensetivity and concern fort he welfare of others.

Uncertainty avoidance: The degree which people in country prefer structured over unstructured situations. In countries that score high on uncertainty avoidance, people have an increased level of anxiety, which manifests itself in greatrer nervousness,stres and aggressiveness.

Long term versus short term orientation: People in cultures with long term orientations look to future and value thrift and persistence. A short term orientation values the past and present and emphasizes respect for tradition and fulfiling social obligations. ( Robins& DeCenzo 2008)

FRANCHISING

The Foundation of Franchising

Over the last five decades, franchising has emerged as a leading intellectual property leveraging strategy for a variety of product and service companies at various stages of development. Recent International Franchise Association (IFA) statistics demonstrate that retail retail sales from franchised outlets constitute nearly 50 percent of all retail sales in United States, estimated at over $1 trillion and employing over 10 million people in 2002. Notwithstanding these impressive figures, franchising as a method of marketing and distribut,ng products and services is really only appropriate for certain kinds of companies. Despite the favorable media attention that franchisng has received over the past few years as a method of business growth, it is not for everyone. There are a host of legal and business prerequisites that must be satisfied before any company can seriously consider frabchising as an alternative for rapid expansion.

Responsible franchising starts with an understanding of the strategic esence of the business structure. As Bob Gappa of M2000 has been preaching for many years. There are three critical components of the franchise system- the brand, the operating system, and the ongoing support provided by the franchisor to the franchisee. The brand cretaes the demand, allowing the franchisee to initially obtain customers. The brand includes the franchisor’s trademarks and service Marks, its trade dress and decor, and all of the intangible factors that create customer loyalty and builds brand equity. The operating system essentially ‘ delivers the promise’ thereby allowing the franchisee to maintain customer relationships and build loyalty.The ongoing support and training provide the impetus for growth, offering the franchisee the tools and tips to expand its customer base and build its marketshare. The responsibility built franchise system is one that provides value to its franchisees by teaching them how to get and keep as many customersas possible, who consume as many products and services as possible, as often as possible. ( Sherman,2004)

Franchising happens when someone develops a business model and sell the rights to another entrepreneur, a francisee. The company selling the rights is the franchisor. The

franchisee usually gets the rights to the business model fra spesific time period and in a spesific geographic area. Franchising is sometimes referred to as business format franchising or product franchising. (Spinelli et al. 2004) In product distribution franchising, the most important part is the product the franchisor manufactures. The product sold by a product distribution franchisee usually require some presale preparation by the franchisee before they are sold ( such as Coca-Cola, where the franchiseemanufacturers and bottles the soda) or some additional post sale servicing ( such as you find at a Ford dealer with your periodic maintenance programs). But the major difference between the two types of franchising is that in the product distribution variety, the franchisor may licence its trademark and logo to its franchisees, but it typically does not provide them with an entire system for running their businesses. Providing a business system as in the hallmark of business format franchising. To ensure quality and consistency, most franchisors provide business spesific information in the manuals on how and where to order inventory, how to prepare products, and how to present them to customers. The franchisor sometimes even includes procedures for taking out the garbage, turning out the lights, and closing up at night. All these components are part of a business format franchise’s unique system. And in a good system, the franchisor prepares and then supports the franchisee to ensure that when you shop in one of their locations you get the same brand experience each and every time. Regardless of where they are, consumers believe they understand the level of quality thay will receive when they shop at a branded location. Because of this perception about branded chains, new franchises often have an established customer base on the day they open. Branding enables franchises to compete with the well-established, independent operators an deven against other franchised and nonfranchised chains. The advantage of brand recognition also extends to national accounts. Companies look at system that has a network of locations and trust that each will operate at the same level of consistency and commitment. That type of system can service their needs wherever the franchise has a location. Although the cost of entrance into a franchise system includes franchise fee, which s often cited as a disadvantage, the franchise benefits from the franchisor’s having tested operating systems, initial and advanced training for management and staff, operations manuals, marketing and advertising programs, site selection tools, store design, construction programs, the reduced cost of equipment, and the other necessary support required to successfully launch their business. Additionally, franchisees can ask their franchisor,a seasoned partner, questions, and they have a network of other franchisees in the system who can also be of assistance. Franchisees benefit from the home Office and field- consulting assistance most franchisors provide. Franchisees enjoy the purchasing power that comes from joining with others, which often results in a reduced cost of goods. They benefit from professionally designed point of sale marketing material, advertising, Grand opening programs, and other marketing materials that independents could never afford. Franchise systems can also afford to modernize through ongoing research and development and by test marketing new products and operating systems.(Seid& Thomas 2006) In a business format franchise the way the product is delivered is as important to the brand as the actual product, for example, golden arches and red-roofed building for McDonald’s. In a product franchise, the actual product – not the way it is delivered- is the focus. An Audi can be sold from sdandalone, single-brand store or froma multibranded dealership. While business format franchises tend to form a more rigid relationship, obligating the franchisee, the distinction between business format and product franchises is becoming more and more blurred. The key feature of franchise system that the ownership of the brand and the modus operandi for the delivery of the product are retained by the franchisor, and execution is a franchisee responsibility. (Spinelli et al. 2004)

Some franchisors become involved in supplying goods or services to franchisees. The franchiser could be designated or sole supplier of a particular product or service or merely one of several approved suppliers. The franchisor also may participate in negotiating supply and distribution contracts, in which case it often will require franchises to commit to a certain level of purchases. Franchisor owned and operated commissaries or distribution facilities are increasingly in vogue, as franchisors seek to regulate their system’s operation and the quality of the products and services sold through the system. In product based franchise programs, the franchise programs, the franchiser or its affiliate is, naturally, the sole source (or sponsor) of the goods distributed through the system. In business format franchise systems, the decision to become directly involved in the supply chain is a complex judgement for the franchisor to make.( Barkoff& Selden 2004)

FRANCHISING AS A GROWTH STRATEGY

Franchising As a Strategic Relationship

Prospective and current franchisors must always bear in mind that, first and foremost, franchising is about relationships. The franchiser and franchisee knowingly and voluntarily enter into a long term interdependent relationship, each depending on the other for its success. The exact nature of the franchisor- franchisee relationship has been compared to many others. There are parallels to the relationship between parent and child, between football coach and his team. The award of the franchise has been compared to the state that the state that grants a driver’s licence- you may use and renew the previlege of driving, but subject to the rules of the road and the payment of ongoing fees. Like the relationship between franchisor and franchisee, you have the freedom to drive but not necessarily however or whereever you want. There has been much emphasis in recent years to avaoid the ‘ Them versus Us’ mentalityand to shift organizational culture for a refocus on the ‘we’ as well as the ‘versus’. The focus has been on how can we work together for each other’s benefit, where the enemy is not each other but rather the competition.

The financial output of these parties working together can be very powerful in a competitive marketplace.In fact, some say that franchising had truly arrived in October 1997, when Warren Buffet, arguably one of the most financially savvy men on the planet, announced that his holding company, Berkshire Hathaway, Inc., agreed to acquire Dairy Queen, with 5,800 franchised outlets worldwide. For years, Buffet had also been one of the largest shareholders of McDonald’s and hinted that other franchisor acquisitions may be in the near future. Franchising continues to be an alternative growth and acquisition strategy for sophisticated international conglomerates.

Today’s franchisor must have an initial and ongoing commitment to being creative and competitive. Market conditions and technology that affecct franchising are changing constantly and the franchisee of the new millennium expects you to change at the same pace. For example, the ability to adopt your franchising system to allow for growth and market penetration into alternative and nontraditional venues is critical. The more creative and aggressive franchisors in the retail and hospitality industries are always searching for new locations where captive markets may be present, such as airports, hotels, hospitals, universities where trends toward outsourcing, the demand for brandedproducts and services, and the desire to enhance the captivecustomer’s experience have all opened up new doors and opportunities for franchising. A trend toward branding and abilit tos hare costs, positioning toward differentiation, and penetrate new market segments at a relative low cost have opened up many doors fort he creative and aggressive franchisor who is committed to capturing more market share and serving more and more customers. ( Sherman, 2004)