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CHAPTER MARKET ENTRY STRATEGIES VTHN ngocvth@uel.edu.vn Entry as a channel decision CONTENTS Importance of the entry decision Entry strategies Factors influencing choice of entry mode Selecting the entry mode INTRODUCTION • • • • • Key strategic issue First stage of channel decision Channels between nations Initial or continuing entry Determines degree of control over mix “An international market entry mode is an institutional arrangement necessary for the entry of the company’s products, technology, and human and financial capital into a foreign country/market.” (Albaum, Duerr & Strandskov, International marketing and Export Management, 2011) CHANNEL STRUCTURE A company’s interna0onal marke0ng channel is the path in the structure of distribu0on through which the products of the company reach the final consumer or user (marke0ng channels in foreign countries) The structure of distribu0on for reaching any foreign market includes: intermediary marke0ng agencies or ins0tu0ons IMPORTANCE OF THE ENTRY DECISION - Critical decision - Influences final price - Inappropriate entry mode = failure - Creates barrier to entry for competitors - Help minimise risk THE WHOLE CHANNEL CONCEPT the headquarters’ organization developed by the manufacturer to implement its international marketing operations the methods used or channels through which the products are sent to foreign markets – the channels between nations the means by which these products reach the target, final user or consumer in the foreign markets, assuming that the importers are not the final users or consumers – the channels within nations 3.1 THE ELEMENTS OF ENTRY STRATEGY ● the objectives and goals in the target market; ● needed policies and resource allocations; ● the choice of entry modes to penetrate the market; ● the control system to monitor performance in the market; ● a time schedule 3.2 ALTERNATIVE MARKET ENTRY MODES 3.2 ALTERNATIVE MARKET ENTRY MODES Channel between naen first mode of entry used • Many mul4na4onals s4ll export Piggybacking “when a company sells its products abroad using another company’s distribution facilities” 3.2 ALTERNATIVE MARKET ENTRY MODES 3.2 ALTERNATIVE MARKET ENTRY MODES Joint Venture • Two or more companies forming a separate company in which all partners have equity and management voice • Variable equity share • Not all partners provide finance, could be factory, labour etc • Many governments insist on JVs for entry into market • Examples: “Regional joint ventures have proven to be an effective way to combine Nokia's global technology leadership with strong local partners to accomplish faster and higher market penetration in new and emerging markets” Nokia 3.2 ALTERNATIVE MARKET ENTRY MODES “I learned a lot, I hope they learned a lot too, about how important it is for a local partner to take the lead in the marke9ng area.” President, True (TelecomAsia mobile brand following split with Orange) 3.2 ALTERNATIVE MARKET ENTRY MODES Wholly - Owned Subsidiaries Acquisition • Acquisition of a going concern • Part-share or 100% • May be regulated e.g Competition Commission • High cost option • Examples: “DHL acquired too much and was unable to digest the business cultures properly.” (International Freight Weekly, 2007) 3.2 ALTERNATIVE MARKET ENTRY MODES Wholly - Owned Subsidiaries Organic Growth Build company without help of partner 100% ownership, high cost High level of commitment Level of experience important Maybe equity regulations Examples Hyundai, Tesco 3.2 ALTERNATIVE MARKET ENTRY MODES “We asked ourselves should we keep the emphasis on organic growth or take the risk of doing a large acquisi9on with all the problems and challenges of integra9on” Carrefour, Chief Execu/ve Officer, Jose Luis Duran, Retail Bulle/n 2006 3.2 ALTERNATIVE MARKET ENTRY MODES Other An emerging type of alliance is the outsourcing of service work e.g India, China, and the Philippines India is being used by US companies for creating call centers India offers better-educated (college educated) workers than its US counterparts (high-school educated) China is rising fast as a services and manufacturing outsourcing hub In 2004, China’s role was largely focused on providing back-office support for financial service, telecom, software, and retailing companies in neighboring Asian countries (Einhorn and Kripalani, 2003) 3.2 ALTERNATIVE MARKET ENTRY MODES Some alternative channels within a nation Model of a global retailer’s entry mode choice FACTORS INFLUENCING CHOICE OF ENTRY MODE INTERNAL ● ● Market objec=ves Speed of entry, level of control, involvement Experience & exper=se More experience, less risk (NB percep:on of risk) ● Resources Financial and human ● Product ● Payback ● Learning EXTERNAL ● ● ● ● Market size and potential Existing and future Market access Barriers to entry, legal barriers, availability of partner Level of risk Political, economic and cultural Cost of entry FACTORS INFLUENCING CHOICE OF ENTRY MODE SELECTING THE ENTRY MODE Naïve rule Pragmatic rule Strategy rule Same entry mode for all markets Ignores heterogeneity of markets Workable mode of entry for each market Change when not feasible / profitable All alternatives systematically compared & evaluated (Root, 1994) Establishment chain model stepwise internationalisation to foreign markets SUMMARY • Important, but complex decision • Each mode has its own advantages • Decision will depend on company and market conditions • Choice is a net result of conflicting forces • Complex process with numerous trade-offs • There is no ideal mode of entry • Mode of entry can be changed when experience acquired or market conditions change Select an industrially developed country (perhaps Japan or a European country) and a relatively less developed country (perhaps a Latin American or African country) Contrast the relative importance of the factors that should be taken into consideration by a foreign-based manufacturer of a low-unit priced packaged good selling in both markets, when determining policy on selecting appropriate channels of distribution in those markets In which case is the managerial decision easier to make? Discuss ?