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The Internationalization Process & Market Entry Strategies

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The Internationalization Process & Market Entry Strategies

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  1. The Internationalization Process & Market Entry Strategies

  2. Market Entry Decisions • Foreign Market Selection • Timing & Order of Entry • Market Expansion Strategies • Mode of Entry Decisions

  3. Foreign Market Selection Step 1: Preliminary Screening of Foreign Markets Key Question: • Which foreign markets warrant further detailed investigation? Decision Based On: • Intl. Environmental Variables

  4. Foreign Market Selection Step 2: Assessment of Industry Market Potential Key Question: • What is the aggregate demand in each of the selected markets?

  5. Decision Based On: • Market Access Data • Product Potential Information • Infrastructural Facilities

  6. Foreign Market Selection Step 3: Company Sales Potential Analysis Key Question: • How attractive is the potential demand for my products? Decision Based On: • Sales Volume Forecasts

  7. Timing & Order of Entry Decisions • Sprinkler Approach -- Entering Multiple Foreign Markets Simultaneously • Waterfall Approach -- Initially Entering One or More Lead Markets and Timing Subsequent Entry in a Phased Manner

  8. Segmentation, Targeting & Product Positioning • Market Segmentation Dividing the market into distinct groups of buyers with different needs, characteristics and/or behavior • Market Targeting Evaluating each market segment’s attractiveness and selecting one or more market segments to enter • Product Positioning Planning for the product to occupy a clear, distinctive, and desirable place relative to competing products in the mind of target customers

  9. Consumer Market Segmentation • Geographic Different geographical regions, cities, countries • Demographic Age, sex, income, education, occupation, religion, race, nationality • Psychographic Social class, lifestyles, personalities • Behavioral Purchase occasion, benefits sought, user status, usage rate, loyalty

  10. International Market Segmentation Approaches • Develop Cut-Off Criteria • Shortlist based on Preliminary Screening • Microsegmentation • Individual Country based • Cross-border segments

  11. Requirements for Effective Segmentation • Measurable • Sizable • Accessible • Actionable

  12. Target Marketing • Evaluating Market Segments • segments size and growth • segment structural attractiveness (Competitive Intensity) • company objectives and resources • Selecting Market Segments

  13. Global Target Market Strategies • Universal Segments • “Global Teen Segment” • Standardized Approach • Differentiated Strategies • Diverse Segments • Same product, different target segments • Canon AE-1 Camera • Mixed Strategy

  14. A Comparison of U.S. and Mexican Ads for Speed Stick Brand Deodorants

  15. LACK OF RESIDUE BRUT SPEED STICK IDEAL VECTOR (U.S.) OLD SPICE SPEED STICK SURE OLD SPICE GILLETTE BRUT EFFECTIVENESS SURE RIGHT GUARD DEGREE RIGHT GUARD GILLETTE DEGREE • - U.S. Consumers • - Mexican Consumers Comparison of Perceptions of U.S. v.s. Mexican Males IDEAL VECTOR (Mex)

  16. MUM LADY SPEED STICK SECRET LADY SPEED STICK SURE SECRET MUM TEEN SPIRIT TEEN SPIRIT • - U.S. Consumers • - Mexican Consumers Comparison of Perceptions of U.S. v.s. Mexican Females LACK OF RESIDUE IDEAL VECTOR (U.S.) IDEAL VECTOR (Mex) EFFECTIVENESS

  17. Market Expansion Strategies • Concentration vs Diversification • Countries vs Segments Conc Div Conc 1 2 Div 3 4

  18. Market Expansion Strategies • Strategy 1: • When product appeals to a definite group of customers across markets and cost of penetration is very high (HDTV) • Strategy 2: • When product line appeals to different segments & cost of penetration is relatively high (consumer electronic goods)

  19. Market Expansion Strategies • Strategy 3: • Defined homogenous segments across markets (Benz, Jaguar, etc.) • Strategy 4: • Products with mass appeal with relatively low cost of penetration (most consumer non-durable goods)

  20. Choice of Entry Modes • Exporting • Direct vs Indirect • Contractual Agreements • Licensing, Franchising, etc. • Equity Based • Joint Ventures • Wholly Owned Subsidiary • Strategic Alliance

  21. Choosing the Mode of Entry • Decision Criteria for Mode of Entry • Market Size and Growth • Risk • Government Regulations • Competitive Environment • Local Infrastructure

  22. Choosing the Mode of Entry (cont) • Company Objectives • Need for Control • Internal Resources, Assets, and Capabilities • Flexibility • Mode of Entry Choice : A Transaction Cost Explanation

  23. Exporting • Indirect Exporting • Cooperative Exporting • Direct Exporting

  24. Stages in the Export Process • Uninterested • Partially Interested • Exploring • Experimental • Experienced

  25. Indirect Channels of Exports • Merchants vs Agents • Trading company • General Trading Companies • Sogo Shosha (C. Itoh; Mitsui, Mitsubishi, etc.) • Export Trading Companies • Daewoo, Sears World Trade • Export/Import Broker • Export Management Company • international sales specialists who function as the export dept. of mfrs.

  26. Cooperative Arrangements • Piggyback Marketing • GE; Borg-Warner, etc. • Marketing Cooperative Associations • Export Cartels • OPEC • DeBeers Central Selling Orgn. • Webb-Pomerene Associations

  27. Direct Channels of Exports • Export departments • Export Sales Subsidiary • Foreign Sales Branch/Subsidiary • Storage or Warehousing facilities • Travelling Salesperson

  28. Advantages and Disadvantages of Entry Modes

  29. Advantages and Disadvantages of Entry Modes

  30. International Strategic Alliances • Strategic Alliance • refers to any type of cooperative agreements between two or more firms who are potential or actual competitors. • Can take multiple forms including: JVs, R&D collaborations, piggy backing, sourcing relationships, etc.

  31. International Strategic Alliances • In general, any relationship that involves mutual dependence and shared decision making between two or more firms can be characterized as a strategic alliance. • It differs from traditional JVs in that: • strategic alliances are increasingly between firms in the industrialized nations • the focus is on creation of new products and technologies rather than the distribution of existing ones

  32. Why Strategic Alliances? • Rising R&D Costs • Shortening Product Life Cycles • Growing Barriers to Market Entry • Increasing Need for Global Scale Economies • Expanding Importance of Global Standards • Forms the basis of Building and Sustaining Competitive Advantage in Industries undergoing major Transitions

  33. Managing International Alliances • The Logic of Collaboration • Identifying when, where, and why to collaborate • An alliance is usually one of several options for pursuing a strategic goal; it is never an end in itself • Strategic Goals: Product Exchange; Corporate Learning & Market Positioning • Cost-Benefit Tradeoffs • Alternatives to Collaboration: Self-Sufficiency; Buying the Inputs or Skills; Full Acquisition.

  34. Key Issues in Managing International Alliances • Selecting Partners • Knowing how to maximize benefits and minimize risks of partnerships • Complementary needs and assets • Structuring Alliances • Choosing organizational forms that provide incentives for success • Contracts vs. Equity Relationships

  35. Key Issues in Managing International Alliances • Building Alliance Networks • Creating a system of reinforcing alliances, and avoiding chaos • Network Design: Is the whole greater than the sum of the parts? Who controls the network? & Where is competitive advantage created? • Alliance Dynamics • Managing with an eye to the forces for change in a relationship

  36. Key Issues in Managing International Alliances • Limits to Alliances • Recognizing the constraints on collaborative strategies • Organizational Constraints; Strategic Gridlock; Dependence • The Role of Governments • Antitrust laws • Host government intervention

  37. INCOTERMS • Ex-works (EXW) • Free Carrier (FCA) • inland vs destination point • Free Alongside Ship (FAS) • seller responsible for inland transportation. unloading and wharfage • Loading, ocean transportation and insurance are buyer’s responsibilities

  38. INCOTERMS • Free on Board (FOB) • Cost & Freight (CFR) • Cost, Insurance & Freight (CIF) • port charges • documentation charges • other charges • Delivery Duty Paid (DDP)

  39. Terms of Payment • Consignment • Open Account • Documents against Acceptance (Time Draft) • Documents against Payment (Sight Draft) • Letter of Credit • Confirmed LC • Cash in Advance

  40. Letter of Credit A Letter of Credit is an instrument issued by a bank, at the request of a buyer. The bank promises to pay a specified amount of money on presentation of documents stipulated in the L.C.

  41. Letter of Credit • Irrevocable vs Revocable LC • An irrevocable L.C. cannot be modified or cancelled without the consent of the exporter • Confirmed vs Unconfirmed • A confirmed L.C. is one where a domestic bank certifies the credibility of the issuing bank • Revolving vs Non-revolving

  42. Bill of Lading The bill of lading is a document used in ocean transportation that serves 3 distinct functions: • it is the contract of carriage between the shipper and the transportation company • it is a receipt of goods • it is evidence of title to the merchandise

  43. Export Pricing Strategies • Standard Worldwide Pricing • Rigid Cost-Plus Pricing • Marginal Cost-Plus Pricing • Market-Differentiated Pricing

  44. Price Escalation • Export Related Costs • Cost of adapting products to foreign markets • Operational costs • personnel • market research • shipping & insurance • communication costs • Tariffs & Taxes • Costs associated with hedging, factoring/forfaiting

  45. Strategic Options to Deal with Price Escalation • Reorganizing/shortening the distribution channel • Product modification (backward innovation) • Shipping & Assembling components in Free Trade Zones • Overseas Production or sourcing (duty drawbacks)

  46. Marginal vs Rigid Cost-Plus Pricing • Firm-specific Factors • Extend of product differentiation • Corporate stance toward exporting • Financial resources to sustain initial losses • Domestic Gross Margins • Need for long term capacity utilization • Economies of scale benefits

  47. Marginal vs Rigid Cost-Plus Pricing • Export Market Specific Factors • Growth Potential • End-User Price Sensitivity • Competitive Intensity • Terms of Sale & Financing • Exchange rate risk

  48. Export Strategies When Domestic Currency is Weak • Stress Price Benefits • Expand Product line and add more costly features • conduct conventional cash-for-goods sale • use rigid cost-plus pricing wherever possible • Bill foreign customers in domestic currency

  49. Export Strategies When Domestic Currency is Weak • Minimize expenditures in host country currency • Minimize borrowing in host country • Buy needed services (advertising, insurance, etc.) in domestic market

  50. International Transfer Pricing • Transfer pricing is the pricing of sales within members of a corporate family • HQ to Subsidiaries • Subsidiaries to HQ • Subsidiary to Subsidiary