session topic 7 - buse608

8/13/2019 Session Topic 7 - BUSE608

1/20

1/30

DR SAJJAD HAIDER

Topic 7:International Market Entry Strategies

BUSE 608

International Business

KAAU, 2011-12


2/20

2/30

DR SAJJAD HAIDER

Learning outcomes

Identify and analyse the factors on the basis of which

companies can decide; where to invest (choice of country)

when (timing of entry)

which product (or portfolio of products)

and which mode of entry (exports vs WOS)

Compare and contrast different market entry modes in respectto prevailing business environment, risks and commitmentinvolved

Understand the theoretical background of theinternationalisation process/strategy


3/20

3/30

DR SAJJAD HAIDER

Where to invest?


4/20

4/30

DR SAJJAD HAIDER

Where to invest?


5/20

5/30

DR SAJJAD HAIDER

Which foreign market?

Root, 1994: 28

PoliticalCultural

EconomicalSocial

Overallcountrystability

All countries

Preliminaryscreening

Consumers/userprofile, direct

estimates ofmarket size,market size

indicator

Accept/reject

Rejectedcountries

Prospectivetarget countries

Top-down

estimatesBottom-upestimates

Estimating

industry marketpotentials

Accept/reject

Rejectedcountries

High-market-potentialcountries

Entry conditions,competition audit

Distributionchannels

Consumers/users

Estimatingcompany salespotentials

Accept/reject

Rejectedcountries

Secondarytar et markets

Target country


6/20

6/30

DR SAJJAD HAIDER

Timing of entry?

First-mover advantages

First-mover disadvantages

Second-mover advantages

Late entrants

Factors:

Market situation

Customer demand Government policies, etc.

Early entrants


7/207/30 DR SAJJAD HAIDER

Which product?

Introduction Growth Maturity Saturation Decline Time

Sales

Life

cycle

ofa

generic

product

Root,

1994:

27

Country A

Country B

Country CCountry D

Home

Country



Which modes of entry?

Exporting Licensing

Franchising

Management contracts (Turnkey

projects)

Collaborative strategies

Wholly-owned subsidiary

Greenfield investment Others
http://www.fluor.com/http://www.fluor.com/



IMEM: Exporting

Indirect exporting

Direct exporting

Export agents

Advantages and disadvantages Distributors

Advantages and disadvantages

Foreign sales branch/subsidiary

Advantages and disadvantages Problems

Managerial and export manager related



IMEM: Licensing & Franchising

Licensing: Firm grants a licensee exclusiveright to produce and market the productwithin an agreed area for a period of time in

return for a royalty based on sales.

Advantages & disadvantages

Franchising:a specialised form of licensingin which franchisee agree to abide by the rule

as to how it does business

Advantages & disadvantages



IMEM: Turnkey projects (MCs)

Performance of administrative andtechnical functions of an operation

in return for a fee

A mean of exporting process

technology to other countries

Advantages and disadvantages


12/20



The joint venture is the most flexible

instrument for making fits out of misfits. It will

become increasingly important. It is at thesame time the most demanding and difficult

of all tools of diversification, and the least

understood

Alliances as a broad-based strategy will only ensure a

companys mediocrity, not its international

leadership. No company can rely on another outside,

independent company for skills and assets that are

central to its competitive advantage. Alliances are

best used as a selective tool, employed on a

temporary basis or involving non-core activities


14/20



Entry Mode Advantages disadvantages

Exporting Ability to realise location and experience

curve economies

High transport costs, trade barriers,

problems with local marketing agents

Turnkey contracts

Licensing

Franchising

Ability to earn return from process

technology skills in countries where FDI is

restricted

Low development cost and risks

Creating efficient competitors, lack of

long-term market presence

Lack of control of technology and quality,

inability to realise location, experienceeconomies and engage in global strategic

coordination

Collaborative

strategies

Access to local partners knowledge,

Sharing development costs and risks,

politically acceptability

Lack of control over technology, inability

to engage in global strategic coordination,

inability to realise location and

experience economies

WOS Protection of technology, ability to engage

in global strategic coordination, to realise

location and experience economies

High costs and risks

IMEMs: advantages & disadvantages


16/20

16/30 DR SAJJAD HAIDER

Scale and strategic commitment

Relationship between scale ofentry and strategic commitment

Value and risks

Impact on

Competition Existing and new competitors

Customers

First-mover advantage

Financial resources, inflexibility

International market

entry mode

Resource required Market

specificity

LOI

WOS/Greenfield Very high High 9

WOS acquired High High 8

Majority JV Moderate to hi High 7

50-50 JV Moderate High 6

Minority JV Moderate High 5

Export subsidiary Moderate Moderate 4

Direct export Low to moderate Low 3

Agent/distributor Low Low 2

Licensing/franchisin Very low Very low 1

sole

venture

Branch export/subsidiary

Joint venture

Licensing

Agent/distributor export

Indirect export

c

o

n

t

r

o

l

Risk (Adopted from Root, 1994: 18)


17/20


Decision framework

Are transportation costs high ExportImport

barriers

FDI

Is know-how valuable &

is protection possible?

Tight control over

foreign ops required

Is know-how easy to licence

License

Yes

Yes

Yes

Yes

Yes

No

No

No

No

No


18/20


19/20


Theories of internationalisation

Internalisation theory(Buckley & Casson 1976)

Location specific advantage theory(Franko 1971; Stopford & Wells 1972)

Eclectic theory(Dunning 1980, 1988)

Strategic behaviour approach(Harrigan 1985; Kogut 1988)

The product life cycle approach(Vernon 1966)

The Uppsala model(Johnson & Vahlne 1977)

Network approach

(Hakansson & Johanson 1988)

Born global(Madsen & Servais 1997)


20/20

session topic 7 - buse608

Documents