Market entry strategy

What is market entry strategy?

• Allows companies to offer their products in international markets

• Methods companies use to plan, distribute and deliver goods to international markets

Factors determining market entry strategy

• Vision

• Attitude towards risk

• Type of product

• Value of the product

• Transport requirements and procedure

• Current competition

• Consumer needs

• Host country socio-political situation

• Desire of control

• Committed investment

Advantages in exporting

• No investment in foreign production facilities are needed

• Low cost

• High efficiency

• Favorable government policy

• Foreign currency

Disadvantages of exporting

• High labor cost in home country

• High transportation cost

• Tarriff barriers can make export costly and risky

• Foreign exchange risk

• Foreign agent’s loyalty concerns

• Regulation from government

What is turnkey projects

• Contracter agrees to handle every detail of the project for a foreign client, including the training of operation personnel

• At completion the foreign contractor get the key

• Common in environmental consulting, architecture, constructoion and engineering

Advantages of turnkey projects

• Less risk

• Less investment

• More revenue short term

• Good in case of limited FDIs

• Market expansion

• Sharing of expertise

Disadvantages of turnkey projects

• Lack of authority the owner has over the construction and design

• Not suitable for all type of companies and products

• Lot of dependency

• Possible revenue loss

• The potential loss of a competitive advantage

What is licensing

• An arrangement where a licensor grants the rights to intangible property to the licensee for a specified period and in return licensor receive royalty fees from the licensee

Advantages of licensing

• Income without overhead

• Potentially better marketing

• The ability to enter foreign market more easily

• The diffusion of conflict

Disadvantages of licensing

• Risk of IP theft

• No guarantee of revenue

• Risk of diminishing reputation

• Potential conflicts

What is franchising

• A specialised form of licensing in which the franchisor sells intellectual rights to the franchisee and also insists that they agree to aabide by the strict rule regarding how they do business

• Works well for firms that have a repeatable business model that can easily be transferred into other markets

Advantages and disadvantages with franchising

Advantages:

• Fast expansion

• Can adopt host ocuntry culture easily

Disadvantages:

• Less capable of supporting competition attack in the foreign country

• Quality control
  

What is joint venture

• A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task

• Each of the participants is responsible for the profit or loss and cost associated with it

Advantages with joint venture

• Gaining support from local partner

• Sharing risk and cost

• Less government intervension

Disadvantages of joint venture

• Risk of llosing core techonology

• Not having total control

• Possible clash between partners

Two options

1. Hold majority ownership in the venture

2. Wall off a partner’s technology that’s central to the core competence of the firm

What is wholly ownership subsidiary

Option 1: Set up a new operation in the foreign country (Greenfield venture)

Option 2: Acquire an established firm in the host country (acquisition)

Advantages of wholly ownership subsidiary

• Less risk of losing core technology

• Tight control

• Attaining an economy of scale

Disadvantages of wholly ownership subsidiary

• Huge sunk cost and high risk

• Lack of local support

What is acquisition

• A corporate transaction in which company purchase a portion of another company’s share or asset

Advantages and major reasons of failure for acquisition

Advantages:

• Quick to execute

• Allows a firm to prempt competition

• less risky than greenfield venture

Reasons of failure

• Firm may overpay for the acquisition

• There may be cultural clash

• Challenges are under estimated

What is greenfield venture

• When a company establishes a subsidiary in another country, building its operation fromt he ground

• Advantage: simpler to establish

• Disadvantage: High cost, long term commitment and more vulterable