L3: Market Selection and Entry Strategies

MK328 Strategic Marketing in an International Context

University of Strathclyde
Lecture 3: Market Selection and Entry Strategies
Key Topics:

• Screening

• Entry modes

• Strategic alliances

• Risk Management

International Market Screening

Definition:

• International market screening is the process of identifying and evaluating potential foreign markets for expansion based on specific criteria.

Theoretical Framework:

• PESTEL Analysis:
    - A framework screening based on six factors:
      - Political: Stability and regulations.
      - Economic: GDP, growth rates, income levels.
      - Social: Cultural compatibility and demographics.
      - Technological: Level of technology and innovation.
      - Environmental: Sustainability and environmental regulations.
      - Legal: Trade laws and regulations.

• Market Attractiveness Criteria:
    - Key factors include:
      - Market size
      - Growth rate
      - Competition
      - Entry costs
      - Risk levels

• Macro vs. Micro Screening:
    - Start with macro-level indicators: GDP, population.
    - Transition to micro-level specifics: target audience, distribution channels.

Objective:

• To eliminate countries that do not meet basic criteria for market entry.

Methodology:

• Economic Indicators:
    - Assess economic metrics like GDP and income levels for viability.

• Political and Legal Environment:
    - Use PESTEL analysis to identify stable, favorable environments.

• Sociocultural Factors:
    - Evaluate using Hofstede's cultural dimensions.

Industry-Specific Screening

Objective:

• Evaluate market potential for a specific industry or product.

Methodology:

• Market Demand:
    - Analyze reports and trends to understand consumer behavior.

• Competition Analysis:
    - Use Porter's Five Forces Framework, assessing:
      - Threat of new entrants
      - Bargaining power of buyers and suppliers
      - Intensity of competitive rivalry

• Regulatory Environment:
    - Identify industry-specific regulations affecting operations.

In-depth Screening (Micro-level Analysis)

Objective:

• Narrow down to a few high-potential markets for further analysis.

Methodology:

• Market Entry Barriers:
    - Evaluate tariffs, trade restrictions, logistical challenges.

• Market Accessibility:
    - Assess infrastructure and distribution using indices like the World Bank's Ease of Doing Business Index.

• Consumer Preferences and Behavior:
    - Conduct primary (surveys, focus groups) or secondary research.

CAGE Distance Framework

Objective:

• Assess differences between home and target countries via Cultural, Administrative, Geographic, and Economic distances.

Methodology:

• Cultural Distance:
    - Identify cultural gaps affecting marketing strategies.

• Administrative Distance:
    - Examine legal differences and political stability.

• Geographic Distance:
    - Consider logistics and infrastructure connectivity.

• Economic Distance:
    - Compare income levels and cost structures.

• Reference: Ghemawat, P. (2001) "Distance still matters."

Final Selection and Strategy Development

Objective:

• Finalize market choices and develop entry strategy.

Methodology:

• SWOT Analysis:
    - Conduct SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis for selected markets.

• Entry Mode Selection:
    - Choose entry modes (e.g., export, joint venture) based on market and resource availability.

• Strategic Fit:
    - Evaluate alignment with company's strategic objectives.

Pilot Testing and Continuous Monitoring

Pilot Testing Objective:

• Test the market before full-scale entry.
  
  Methodology:

• Market Testing:
    - Launch a pilot product to gather feedback.

• Performance Evaluation:
    - Measure success against KPIs to decide on scaling up.

Continuous Monitoring Objective:

• Ensure long-term success and adaptability.

Methodology:

• Ongoing Market Analysis:
    - Monitor market trends, competitive actions, regulations.

• Performance Metrics:
    - Regularly assess market performance and adjust strategies.

Small vs. Large Enterprises (SME vs. LSE)

SME's Approach to IMS:

• Reactionary IMS due to unsolicited orders.
  
  Proactive and Systematic Approach Includes:

1. Selection of relevant segmentation criteria

2. Development of appropriate segments

3. Screening to narrow down target countries

4. Micro-segmentation within qualified countries

LSE's Approach:

• More pragmatic due to resources, emphasizing commitment through a long-term strategy.

Case Study 9.1: Jarlsberg®

1. Market Entry Mode Suggestions:
     - Scandinavia: Prefer a joint venture or direct exporting.
     - Asia: Consider franchising or local partnerships.

2. Hierarchical Mode Motives in the USA:
     - Control over quality, brand integrity, and market adaptation.

3. Post-Subsidy Entry Mode Preference for Tine:
     - Joint venture or licensing to adapt to new market conditions.

Entry Modes

Definition:

• Strategies businesses employ to enter foreign markets.

Types of Entry Modes:

1. Exporting:
     - Direct (self-managing) vs. Indirect (using intermediaries).

2. Licensing and Franchising:
     - Allowing partners to utilize brand/business model.

3. Joint Ventures:
     - Collaboration with local partners.

4. Wholly Owned Subsidiaries:
     - Direct investment through acquisitions or operations.

Exporting

Direct Exporting Examples:

1. Rolls-Royce Holdings (Aerospace):
     - Exports engines directly to clients, ensuring product quality control.

2. Burberry (Luxury Fashion):
     - Direct exports with high brand integrity and quality control.

Indirect Exporting Examples:

1. Twinings (Tea):
     - Partners with local distributors to reach international customers.

2. Dyson (Consumer Electronics):
     - Initially used indirect exporting through third-party partnerships.

Licensing and Franchising

Licensing Examples:

1. Disney (Entertainment):
     - Licenses products based on characters to various manufacturers.

2. Coca-Cola (Beverages):
     - Local bottling companies produce and distribute under the Coca-Cola brand.

3. Nike (Sportswear):
     - Licenses local firms to manufacture and distribute products.

Franchising Examples:

1. McDonald's (Fast Food):
     - Grants licenses for franchise operations ensuring adherence to standards.

2. The Body Shop (Cosmetics):
     - Leverages franchisees for global expansion with lower investments.

3. Hilton Hotels & Resorts (Hospitality):
     - Franchisees operate hotels under Hilton brand, benefiting from global support.

Joint Ventures

Example Applications:

1. BP (Energy):
     - Engaged in joint ventures to explore resources, notably with Rosneft.

2. GlaxoSmithKline (Pharmaceuticals):
     - Partnered with Dr. Reddy's Laboratories for market distribution.

Wholly Owned Subsidiaries

Examples:

1. Toyota (Automotive):
     - Operates subsidiaries like Toyota Motor North America for full control.

2. Unilever (Consumer Goods):
     - Has subsidiaries that cater to local market preferences while maintaining global strategies.

Intermediate and Hierarchical Entry Modes

Intermediate Entry Modes:

• Definition: Collaborative approaches with shared control.
    - Examples: Joint Ventures, Franchising.

• Advantages: Lower investment, access to expertise.

• Challenges: Potential conflicts and loss of control.

Hierarchical Entry Modes:

• Definition: High control and resource commitment.
    - Examples: Direct Investments, Acquisitions.

• Advantages: Full operational control.

• Challenges: High investment costs and risks.

Theoretical Framework: Dunning’s OLI Paradigm

• Elements:
    - Ownership: Firm’s unique assets, capabilities.
    - Location: Benefit from specific market attributes.
    - Internalisation: Control transactions internally rather than using the market.

• Purpose and Use:
    - Understanding foreign investment motivations and decisions.

Risk-Return Trade-off:

• Higher risk strategies may yield higher returns; for example, wholly owned subsidiaries entail greater risk.

Strategic Alliances

Definition:

• Partnerships between companies focusing on mutual goals in foreign markets.

Types of Alliances:

• Equity Alliances: Shared ownership and investment.

• Non-Equity Alliances: Licensing and distribution agreements, joint R&D.

Theoretical Framework:

• Resource-Based View (RBV): Access to complementary resources.

• Transaction Cost Economics: Cost reduction in market entry via alliances.

Case Example: Volkswagen and Suzuki

• Established partnership in 2009 to leverage strengths in the automotive market.

• Objective: Volkswagen wanted to enhance its presence in emerging markets while Suzuki sought technology access.

• Challenges: Cultural differences and strategic disagreements led to dissolution in 2015.

Case Study: Starbucks in India

Context:

• Joint venture with Tata Global Beverages.

Screening Process:

• Macro Screening: High population and coffee culture growth.

• Micro Screening: Urban centers indicated high demand.

Risk Management

Definition:

• Process of identifying, assessing, and mitigating risks associated with international operations.

Types of Risks:

• Political Risk: Regulatory instability, expropriation.

• Economic Risk: Exchange rate fluctuations, inflation.

• Cultural Risk: Misunderstanding local customs.

• Operational Risk: Supply chain disruptions, labor strikes.

Risk Management Mitigation Strategies

• Conduct thorough risk assessments before market entry.

• Use hedging strategies for financial risks.

• Diversify markets to minimize dependence.

Entry Mode and Risk Study

Key Points:

• Low Risk Entry Modes:
    - Exporting, licensing, franchising involve low financial risk.

• Moderate Risk Entry Modes:
    - Joint ventures and strategic alliances share responsibilities, presenting moderate risks.

• High Risk Entry Modes:
    - Wholly owned subsidiaries and acquisitions carry significant investment and market risk potential.

Summary and Wrap-Up

Recap of Key Topics:

1. International Market Screening

2. Entry Modes

3. Strategic Alliances

4. Risk Management

Closing Discussion:

• Analyze which of these components is crucial for international success and why.

Next Lecture

• Date: 29/01/26 (3-5 pm)

• Guest Speaker: Deans of Huntly

• Following Weeks:
    - Week 3: 03/02/26 – Culture and Environmental Analysis
    - 05/02/26 – Designing the Global Marketing Programme