emerging markets.5 6

Chapter 5Chapter 5::

Entry Strategies for Emerging Entry Strategies for Emerging MarketsMarkets

Entry Strategies for Emerging Entry Strategies for Emerging MarketsMarkets

Need thoughtful strategy to tackle Need thoughtful strategy to tackle dissimilarities at different levels (global, dissimilarities at different levels (global, macro, micro)macro, micro)Entry strategies depend on numerous Entry strategies depend on numerous factors including:factors including:– Size of the market, business environmentSize of the market, business environment– Product-market fitProduct-market fit– Competitive levelsCompetitive levels

Export Entry ModesExport Entry ModesIndirect ExportingIndirect Exporting

Gives responsibility to domestic intermediariesGives responsibility to domestic intermediaries– Market penetration costs handed offMarket penetration costs handed off

Minimizes risk, low start-up costsMinimizes risk, low start-up costsLack of controlLack of control– Intermediary sets final price/Intermediary sets final price/– their image is your imagetheir image is your image

Firms use EMCs or ETCs to order to utilize their Firms use EMCs or ETCs to order to utilize their established foreign market networkestablished foreign market networkIn process, firms could lose controlIn process, firms could lose control

Export Entry ModesExport Entry Modes

Direct ExportingDirect ExportingExporting through overseas intermediariesExporting through overseas intermediaries

Higher start-up costs, riskier than indirect Higher start-up costs, riskier than indirect methodmethod

Basic criterion is controlBasic criterion is control– Determined by technical sophistication of the product, Determined by technical sophistication of the product,

need for after-sales serviceneed for after-sales service

Contractual Entry ModesContractual Entry Modes

LicensingLicensingDomestic firm (licenser) makes intangible Domestic firm (licenser) makes intangible assets available to foreign company assets available to foreign company (licensee) in exchange for royalties/payments(licensee) in exchange for royalties/payments– Quick and easy method of penetrating a foreign Quick and easy method of penetrating a foreign

marketmarket– Guaranteed royalties, little capital investmentGuaranteed royalties, little capital investment– Low commitment entry modeLow commitment entry mode


Licensing (cont.)Licensing (cont.)DisadvantagesDisadvantages– Limited revenue compared with exporting or Limited revenue compared with exporting or

investing in marketinvesting in market– Agreement locks in specific entry mode that Agreement locks in specific entry mode that

cannot be altered until contract expirescannot be altered until contract expires– Lack of control over marketing/production Lack of control over marketing/production

processesprocesses


FranchisingFranchisingGrants business systems and property rightsGrants business systems and property rights– Franchisee operates under franchiser’s nameFranchisee operates under franchiser’s name– Follows franchiser’s policies and proceduresFollows franchiser’s policies and procedures– Franchiser receives compensation from the Franchiser receives compensation from the

franchiseefranchiseeAllows for quick expansion into new marketsAllows for quick expansion into new markets– Must continuously provide support to franchiseeMust continuously provide support to franchiseeStill a lack of control over everyday operationsStill a lack of control over everyday operations


Technology TransferTechnology TransferNature of technology/service is at the coreNature of technology/service is at the core– Includes price, method of transfer, terms of Includes price, method of transfer, terms of

exchange, buyer-seller relationshipexchange, buyer-seller relationship

Exclusive products/service can charge a Exclusive products/service can charge a premium price, common products/service premium price, common products/service cannotcannot


CountertradeCountertradeTransaction of goods and services between Transaction of goods and services between two parties in addition to or in place of two parties in addition to or in place of currencycurrencyGrowing resurgence due to lack of Growing resurgence due to lack of money/lack of appropriate exchange ratesmoney/lack of appropriate exchange rates– Indebted countries have difficulty securing creditsIndebted countries have difficulty securing credits


CounterpurchaseCounterpurchaseNon-traditional countertrade agreementNon-traditional countertrade agreement- If the contractual exchange is not of equal value, the If the contractual exchange is not of equal value, the

remaining payment is made in cashremaining payment is made in cash

Buyback AgreementBuyback Agreement■ ■ Western firms provide technology and supplies to Western firms provide technology and supplies to

produce goodsproduce goods■ ■ HHost plant pays back firm in goods produced by ost plant pays back firm in goods produced by

plant until initial start-up costs are recoveredplant until initial start-up costs are recovered


OffsetOffsetDeveloping country purchases goods that Developing country purchases goods that require certain parts to be constructed in require certain parts to be constructed in purchasing countrypurchasing country– Often found in defense sectors, expensive itemsOften found in defense sectors, expensive items

ClearingClearingAchieving balanced accounts of withdrawals Achieving balanced accounts of withdrawals and depositsand deposits


Management ContractsManagement ContractsLegal right to manage everyday operations in Legal right to manage everyday operations in a foreign marketa foreign market– Alternative to foreign investmentAlternative to foreign investment

Doesn’t allow Western firm to establish Doesn’t allow Western firm to establish permanent market positionpermanent market position– Consumes time and human capitalConsumes time and human capital


Contract Manufacturing/SubcontractingContract Manufacturing/SubcontractingHost company manufactures/produces Host company manufactures/produces product provided by Western firmproduct provided by Western firm– Finished product can then be exported or Finished product can then be exported or

marketed locallymarketed locally

Similar to licensingSimilar to licensing– Requires small investment, allows for quick entryRequires small investment, allows for quick entry

Problems finding adequate host manufacturerProblems finding adequate host manufacturer


Turnkey ProjectsTurnkey ProjectsCompleted projects are turned over to foreign owner Completed projects are turned over to foreign owner just before commencementjust before commencement– Contractor must train and prepare owner to operate facilityContractor must train and prepare owner to operate facility

Developing countries usually prefer these projects to Developing countries usually prefer these projects to direct investmentdirect investment– Desire to be self-sufficientDesire to be self-sufficient– Distrust of Western corporationsDistrust of Western corporations


Infrastructural ProjectsInfrastructural ProjectsFormalized buying process, integral government roleFormalized buying process, integral government roleBuying done by privately-owned or government Buying done by privately-owned or government operated organizationsoperated organizationsSeller’s marketSeller’s market

Marketing SubsidiaryMarketing SubsidiaryGood mechanism for capitalizing on spin-off sales Good mechanism for capitalizing on spin-off sales and after-sales serviceand after-sales serviceExcellent information source for marketExcellent information source for market

Investment Entry ModesInvestment Entry Modes

Joint VenturesJoint VenturesEquity shared between two companiesEquity shared between two companies– Majority, minority, or fifty-fifty ventureMajority, minority, or fifty-fifty venture– Shares capital, limits riskShares capital, limits risk– Both parties must be patient and flexible with one Both parties must be patient and flexible with one

anotheranotherChoosing local partner is very importantChoosing local partner is very important– Provides local knowledge and skills necessary to Provides local knowledge and skills necessary to

run operationsrun operations


Foreign Direct Investment (FDI)Foreign Direct Investment (FDI)

Transfer of entire enterprise to a foreign marketTransfer of entire enterprise to a foreign marketCan be done through an acquisition or by Can be done through an acquisition or by building a new facility (i.e. Greenfield venture)building a new facility (i.e. Greenfield venture)Advantages: Advantages: – Lower production costsLower production costs– Marketing power (expand product line based on Marketing power (expand product line based on

local preferences)local preferences)


Foreign Direct Investment (cont.)Foreign Direct Investment (cont.)

However, FDI requires more capital resources However, FDI requires more capital resources and hence more risk (i.e. political)and hence more risk (i.e. political)DisadvantagesDisadvantages– Difficulty finding adequate company to acquireDifficulty finding adequate company to acquire– Problems fitting acquired company into existing Problems fitting acquired company into existing

operationsoperations– Blocked currencyBlocked currency

Chapter 6Chapter 6::

Developing and Managing Developing and Managing Relationships in Emerging Relationships in Emerging

MarketsMarkets

Developing and Managing Developing and Managing Relationships in Emerging MarketsRelationships in Emerging MarketsCultural differences greatly affect Cultural differences greatly affect management’s ability to conduct businessmanagement’s ability to conduct businessVerbal and nonverbal communications must Verbal and nonverbal communications must adapt to those of host cultureadapt to those of host culture– Nonjudgmental behaviors inspire trust Nonjudgmental behaviors inspire trust

Types of Relationships in Emerging Types of Relationships in Emerging MarketsMarkets

Managing Relationships With a Foreign Gov.Managing Relationships With a Foreign Gov.

Host countries trade policy has huge Host countries trade policy has huge ramifications for Western firmsramifications for Western firms

Important to find right mix between company Important to find right mix between company resources and government needsresources and government needs– Use alter, avoid, accede or ally strategies to Use alter, avoid, accede or ally strategies to

manage conflictmanage conflict


An An alter strategyalter strategy should be used when the should be used when the firm has power and sees the issue has critical firm has power and sees the issue has critical to their operationsto their operations

An An accede strategy accede strategy is appropriate when the is appropriate when the firm has little power to influence and sees the firm has little power to influence and sees the issue as irrelevantissue as irrelevant


An An avoid strategyavoid strategy should be used when the should be used when the firm is in a position of power but the issues firm is in a position of power but the issues are of low importance to the firm but of high are of low importance to the firm but of high importance to the host governmentimportance to the host government

An An ally strategy ally strategy is most effective when the is most effective when the firm has limited power but sees the issue as firm has limited power but sees the issue as importantimportant


Managing Relationship with ExpatriatesManaging Relationship with Expatriates

An expatriate is someone who lives and works in An expatriate is someone who lives and works in another countryanother country– Requires special attention to properly satisfy needs of Requires special attention to properly satisfy needs of

individual and family membersindividual and family members

Many struggle with cultural differencesMany struggle with cultural differences– Expatriate failure is major problem in international Expatriate failure is major problem in international

management, often due to spousal/family adjustment management, often due to spousal/family adjustment – Training programs are needed to support transitionTraining programs are needed to support transition


Managing Relationships With A Foreign PartnerManaging Relationships With A Foreign Partner

Develop cross-functional (complementary) Develop cross-functional (complementary) teams in order to:teams in order to:

– Build and maintain relationships at all organizational levelsBuild and maintain relationships at all organizational levels

– Ensure that relationships are still intact if lead contact at Ensure that relationships are still intact if lead contact at foreign partner leavesforeign partner leaves


Managing Relationships With Foreign Managing Relationships With Foreign CommunitiesCommunities

Active participation builds trust, improves Active participation builds trust, improves imageimage– Creates consumer confidence, loyal workforceCreates consumer confidence, loyal workforceActivities may include sponsoring events, Activities may include sponsoring events, implementing sound HR policies, showing implementing sound HR policies, showing respect for societal norms, contributing directly respect for societal norms, contributing directly to social and economic developmentto social and economic development


Managing Relationships With Foreign CustomerManaging Relationships With Foreign Customer

Implement feedback systems Implement feedback systems Convey long-term objectivesConvey long-term objectivesMaintain respect for cultural differencesMaintain respect for cultural differences

Forming Partnerships in Emerging Forming Partnerships in Emerging EconomiesEconomies

Four types of alliancesFour types of alliances

1.1. Cartel - Formed for operational efficiency among Cartel - Formed for operational efficiency among competitors (OPEC-like)competitors (OPEC-like)

2.2. Cooperative - Formed among non-competitors Cooperative - Formed among non-competitors (suppliers, customers) (vertical integration)(suppliers, customers) (vertical integration)

3.3. Competitive - Formed for a strategic (often limited) Competitive - Formed for a strategic (often limited) purpose among competitors (R&D)purpose among competitors (R&D)

4.4. Collaborative - Formed for a strategic purpose Collaborative - Formed for a strategic purpose among non-competitors (towel/toiletries example)among non-competitors (towel/toiletries example)

Selecting a Foreign Partner for a Selecting a Foreign Partner for a Joint VentureJoint Venture

Requires accurate assessment of prospective Requires accurate assessment of prospective partner and partner and task criteriapartner and partner and task criteria– Initial evaluation can eliminate future conflictInitial evaluation can eliminate future conflict

Both parties should be compatibleBoth parties should be compatible– Provide complementary (but not overlapping) Provide complementary (but not overlapping)

capabilities in order to be competitivecapabilities in order to be competitive

Selecting a Foreign Partner: Selecting a Foreign Partner: Partner-Related CriteriaPartner-Related Criteria

General Partner CharacteristicsGeneral Partner Characteristics““Personality traits” of the partner include philosophy, reliability, Personality traits” of the partner include philosophy, reliability, motivation, experiencemotivation, experience

Property Rights ProtectionProperty Rights ProtectionEnsures that technical and intellectual properties cannot be Ensures that technical and intellectual properties cannot be exploited by partnerexploited by partner

Compatibility of Business PhilosophiesCompatibility of Business PhilosophiesRequires complete analysis of prospective partner’s operating Requires complete analysis of prospective partner’s operating strategies, policies, and proceduresstrategies, policies, and procedures

CommitmentCommitmentDesire to put in quality time and effort towards the projectDesire to put in quality time and effort towards the project

Selecting a Foreign Partner: Selecting a Foreign Partner: Partner-Related CriteriaPartner-Related Criteria

Compatibility of Business PhilosophiesCompatibility of Business PhilosophiesRequires complete analysis of prospective partner’s Requires complete analysis of prospective partner’s operating strategies, policies, and proceduresoperating strategies, policies, and procedures

CommitmentCommitmentDesire to put in quality time/effort towards the projectDesire to put in quality time/effort towards the project

MotivationMotivationRisk sharing, market access, economies of scale, cost Risk sharing, market access, economies of scale, cost savingssavingsHigher motivational when partner has complementary Higher motivational when partner has complementary resources and skills = greater efficiencyresources and skills = greater efficiency

ReliabilityReliabilityDifficult to determine until there is some business experience Difficult to determine until there is some business experience with partner; decision based on past experiencewith partner; decision based on past experience

Selecting a Foreign Partner: Selecting a Foreign Partner: Task-Related CriteriaTask-Related Criteria

Refers to operational resources and skillsRefers to operational resources and skills– Marketing, R&D, Customer ServiceMarketing, R&D, Customer Service

Financial ResourcesFinancial ResourcesPartner should have healthy financial indicatorsPartner should have healthy financial indicators– Examine credit rating, financial ratiosExamine credit rating, financial ratios

Sluggish past performance might restrict growthSluggish past performance might restrict growth

R&D and Technical ResourcesR&D and Technical ResourcesThe higher the level of technical resources, the smoother the The higher the level of technical resources, the smoother the transition of technologytransition of technologyQuality is more important than quantityQuality is more important than quantity– Evaluate new product development/enhancementEvaluate new product development/enhancement


Marketing ResourcesMarketing ResourcesCoverage assess of target market, relations with distributors, Coverage assess of target market, relations with distributors, current capabilitiescurrent capabilitiesImportant to consider past performance and current image of Important to consider past performance and current image of partnerpartner

Production ResourcesProduction ResourcesCurrent condition of plants and fixed assetsCurrent condition of plants and fixed assetsAbility to secure government incentivesAbility to secure government incentives


Organizational ResourcesOrganizational ResourcesManagerial skills, competent staffManagerial skills, competent staffExamine partner’s approach to business transactions, Examine partner’s approach to business transactions, performance measures, personnel selection criteriaperformance measures, personnel selection criteriaPlanning and control systems must be compatiblePlanning and control systems must be compatible

Customer ServiceCustomer ServiceNecessary for repeat purchases, strong imageNecessary for repeat purchases, strong imagePowerful competitive toolPowerful competitive toolAssessment of geographical market coverageAssessment of geographical market coverage

emerging markets.5 6

Documents