BU 330 ME Module 1 Unit 1

Planning for International Market Entry: Making
Choices and Establishing the Route to Global Success
UNIT 1
Selecting a Market Entry
Strategy
◎ Assessing Feasibility
◎ Gathering Competitive Intelligence
◎ Types of Market Entry Strategies
◎ Market Entry Considerations
◎ Trading Entry Strategies:
o Direct Exporting
o Indirect Exporting
o E-Commerce
Continued…
© 2017 FITT All Rights Reserved
Planning for International Market Entry: Making
Choices and Establishing the Route to Global Success
UNIT 1
Selecting a Market Entry
Strategy
◎ Investing Entry Strategies, Transfer-Related:
o Licensing
o Franchising
o Subcontracting
o Strategic Alliances
◎ Investing Entry Strategies, FDI-Related:
o Branch Office
o Joint Venture
o Greenfield and Brownfield Investments
o Mergers and Acquisitions
◎ Market Entry Strategies for Services
Why Is This Important?

Assessing Feasibility
Assessing Organizational Readiness
o Mission and goals o Financial resources
o Commitment to change o Production resources/capacity
o Product/service offerings o Logistics resources
o Human resources o Cultural competence

Assessing Feasibility, Continued
Completing International Target Market Research
Select Research Design and

Define Research Objectives
Data Sources
Design Data Collection Tools

Create Research Brief and Collect Primary Data
Screen Potential Organize and Analyze

International Markets the Data
Present Conclusions and

The Research Process Apply the Research
ADAPTED FIGURE 1.1

Risk Analysis
o Currency risk o Commercial risk
o Economic risk o Personnel risk
o Political risk o Technology risk
o Social risk o Intellectual property risk

Cost Analysis
A critical step in determining feasibility, a number of cost analyses may be generated
using different assumptions.
Barriers to Market Entry

When entering a market, some obstacles or conditions will make entry more
challenging.
See Table 1.1 – Barriers to Market Entry

Gathering Competitive Intelligence
Competitive Landscape Maps

o A chart that indicates what is important to consumers in a chosen market.
o Different information types, e.g.:
• Comparison of price and quality
• Important product or service qualities
• Sales strategy
• Key product differences

o Charts indicate the position of each competitor, competitive gaps, areas that can be a
niche in the market.

Types of Market Entry Strategies
When? Where? How?
FIGURE 1.2

Types of Market Entry Strategies, Continued
When? Where? How?
Trading Entry Strategies
Investing Entry Strategies

o Transfer-Related
o Foreign Direct Investment-Related

Market Entry Considerations
Special Economic Zones (SEZs)

o There are over 3,000 SEZs of various sizes set up by 135 countries’ governments to
promote exporting, create employment and stimulate economic growth.
o Typically three types of zones:
• FTZs: Free/foreign trade zones
• EPZs: Export processing zones
• BPAs: Bonded port areas or bonded warehouses

Market Entry Considerations, Continued
o Organization goals o Intermediaries
o Size of organization o Control
o Resources o Investment
o Product or service o Time
o Remittance o Risk
o Competition o Flexibility
See Table 1.2

Trading Entry Strategies
FIGURE 1.2

Trading Entry Strategy
DIRECT EXPORTING
Some for the most important customers for direct-exporting
organizations include:
o Importers
o Wholesalers
o Distributors
o Retailers
o Government procurement departments
o Consumers

Trading Entry Strategy, Continued
DIRECT EXPORTING
Finding Customers
o Does the business have solid financial backing?
o Does the business have a reputation for paying invoices on time?
o Does the business have wide coverage in the target market?
o How much stock will the business hold?
Government Procurement
Business Models for Direct Exporting

See Table 1.3 – Considerations for Working with Agents or Distributors

Considerations for Working with
Agents or Distributors
Continued…
TABLE 1.3

Considerations for Working with
Agents or Distributors, Continued
TABLE 1.3

DIRECT EXPORTING
Advantages and Disadvantages of Indirect Exporting
ADVANTAGES DISADVANTAGES
• Controls over manufacturing processes • Need for significant investment in
research
• Can withdraw from market
• Errors due to lack of experience and skills
• Can obtain in-depth information
• Difficulty breaking into trade blocs
• Difficulty managing currency exchange

DIRECT EXPORTING
When is Direct Exporting a Suitable Strategy?

Direct exporting is a simple entry strategy but it can be resource
consuming. Several conditions must be considered before
determining if direct exporting is suitable.
See Table 1.4 – Conditions for Direct Exporting

INDIRECT EXPORTING
Potential Intermediary Customers:
Piggybacking
o Export houses (trading houses or export
Be complementary to the product
merchants) line or function provided by the
carrier.
o Confirming houses
Be suitable for the carrier’s
o Foreign organizations based in the organization’s distribution and marketing chain.
country (buying offices) Have a markup substantial enough
to justify efforts by the carrier.
Have sufficient demand in the
target market to predict substantial
sales.

INDIRECT EXPORTING
Advantages and
Countertrade
Disadvantages of Indirect
o The method most often used Exporting
ADVANTAGES
Finding Customers • Cheapest entry strategy
• Flexible
o Exporter associations help find reputable • Intermediary organizations handle all
exporting activities
merchants
DISADVANTAGES
• Control of activities overseas transfers to
the intermediary organization
• Will not gain valuable knowledge
• A need for after-sales service or value-
added activities

INDIRECT EXPORTING
When is Indirect Exporting a Suitable Strategy?

Often chosen by smaller or new organizations, it can increase
profits but will be less useful in developing long-term market
share. Several conditions must be considered before
determining if indirect exporting is suitable.
See Table 1.5 – Conditions for Indirect Exporting

E-COMMERCE
E-commerce / e-business is the buying and selling of goods or

services on the Internet or through other electronic means.
o Virtual storefronts
o Email marketing
o Online auction sites
o Technology to facilitate commerce, e.g. enterprise resource planning (ERP)
o Online payment solutions

Investing Entry Strategies
FIGURE 1.2

Investing Entry Strategy, Transfer-Related
LICENSING
Advantages and Disadvantages of Licensing
o Attractive if organization has valuable IP o Entry to target market is limited
o Can enter markets that have restrictions o Terms of licence must be monitored and
o Benefit from licensee’s local market knowledge enforced
o Can avoid the use of capital o Licensee might use IP to become a
o Can maintain option to expand competitor
o Can move into several markets at once o Intensive research and planning is required

Investing Entry Strategy, Transfer-Related, Continued
LICENSING
When is Licensing a Suitable Strategy?

Can be advantageous to increasing market share and for
expanding into multiple markets, but it creates risk to
intellectual property. Several conditions must be considered
before determining if licensing is suitable.
See Table 1.6 – Suitable Conditions for Licensing

FRANCHISING
First-generation franchise Advantages and

o Permission to use name or produce goods
Disadvantages of Franchising
ADVANTAGES
Second-generation franchise • Cheapest entry strategy
• Can rapidly expand
o Complete business package outlining • Benefit form knowledge of franchisee
• Can have greater level of control over
operations business activities
DISADVANTAGES
• Products and services must be
standardized
• May have limitations on availability or
quality
• Need to carefully monitor performance

FRANCHISING
When is Franchising a Suitable Strategy?

While it enables an international presence and rapid
expansion without significant target market investment,
maintaining standard products or services can be difficult.
Several conditions must be considered before determining if
franchising is suitable.
See Table 1.7 – Conditions for Franchising

SUBCONTRACTING
Advantages and Disadvantages of Subcontracting
o No real costs to establish o Distribution, marketing and sales must be
o Relationship is easy to terminate organized
o Organization does not require business licence o Subcontractors can be difficult and time
consuming to find
o Organization is free to focus on core
competencies o Subcontractors must be vetted carefully and
monitored
o Products can be produced in target market
o Potential for damage to reputation
o Products can be sold under subcontractor’s
brand
o Governments welcome subcontracting
arrangements
o Benefit from subcontractor’s knowledge

SUBCONTRACTING
When is Subcontracting a Suitable Strategy?

It can reduce costs, provide access to complementary
resources and allow diversification. It can be cheap and
flexible but requires significant management time and carries
a risk to intellectual property. Several conditions must be
considered before determining if licensing is suitable.
See Table 1.8 – Suitable Conditions for Subcontracting

STRATEGIC ALLIANCES
Advantages and Disadvantages of Loosely Coupled Strategic Alliances
o Local presence without having to invest o Reputation of local partner will impact
o Avoid problems with cultural and language organization‘s reputation
differences o Requires substantial commitment, careful
o Requirements for accreditation are met by selection of partner
partner o Need for contract with effective dispute
o Partnerships often receive tax benefits mechanism
o Organizations can bid for contracts in local
market
See Figure 1.10 – The Strategic Alliance Continuum

The Strategic Alliance Continuum
FIGURE 1.10

Investing Entry Strategy, FDI-Related
BRANCH OFFICE
Advantages and Disadvantages of Opening Branch Offices
o Simple way to establish presence o Costs could present tax or legal problems
o Supports responsive, customer demand o Property leases
o Complete control o Expensive, time consuming
o Can train staff to personal preferences o Assume responsibility for every link in
distribution chain
o Direct contact with end-users
Retail Outlets
Some organizations create a network of retail outlets. These can be either owned/operated by the
parent company or by operators with a relationship to the parent company.

Investing Entry Strategy, FDI-Related, Continued
BRANCH OFFICE
When is Opening a Branch Office a Suitable Strategy?

o Want to establish or expand presence relatively easily
o Can devote managerial time
o Can deal with legal aspects

JOINT VENTURE
Various Forms of Joint Ventures:

o Research and development joint ventures
o Production joint ventures
o Marketing and distribution joint ventures
o Hybrid joint ventures

JOINT VENTURE
Advantages and Disadvantages of Joint Ventures
o Provides higher sales volume, greater o Must relinquish some control
market penetration and profit potential o Can be difficult to regain funds from
o Shared investment = limiting liability investment if partners pull out
o Local partners = reduced animosity o Problems related to sharing of profits: need for
carefully negotiated agreements
o Government-provided incentives

JOINT VENTURE
When is a Joint Venture a Suitable Strategy?

o The objective is maximum profits, rapid expansion or diversification
o Commitment to long-term investment is possible
o Comfortable with moderate risk
See Table 1.9 – Conditions for Joint Ventures

GREENFIELD AND BROWNFIELD INVESTMENTS
Advantages and Disadvantages of Greenfield and Brownfield Investments
o Riskiest and most expensive o Investment may be substantially limited
o Must be committed to long-term o Carefully planning needed to determine best
o Investment may be welcomed, encouraged form of investment
o Well-funded organizations = opportunities to
enter new market with high level of control
o Profits do not have to be shared

GREENFIELD AND BROWNFIELD INVESTMENTS
When are Greenfield and Brownfield Investments Suitable?

When wanting to increase profits, reposition, or acquire new
resources/technologies, these investments can achieve the
desired ends. The investments usually require long-term
commitment to a market and an ability to take on high risk.
Several conditions must be considered before determining if
Greenfield or Brownfield investments are suitable.
See Table 1.10 – Conditions for Greenfield and Brownfield Investments

MERGERS AND ACQUISITIONS
Mergers are the ultimate partnership as two organizations are joined.
Acquisitions see on organization become part of another.

o Form of foreign direct investment
o Requires negotiation to determine relative value

Market Entry Strategies for Services
Services require different market entry considerations because:
o Services are intangible.
o Services cannot be protected with patents.
o Services are received by customer at production location.
o Service provision relies on human interaction.
Selling Consultancy Services

o Can withdraw cheaply and easily o Significant investment is needed
o Can obtain in-depth information o Foreign markets difficult to break into
o Do not have to share profits o Payments can be problematic
o Customers ten to select domestic providers

Market Entry Strategies for Services, Continued
Licensing Services
Franchising Services
Branch Offices for Service Providers
Joint Ventures for Service Providers
Hiring a Sales Representative
Mutual Recognition Agreements

BU 330 ME Module 1 Unit 1

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Planning for International Market Entry: Making

Choices and Establishing the Route to Global Success

© 2017 FITT All Rights Reserved

o Mission and goals o Financial resources

o Commitment to change o Production resources/capacity

o Product/service offerings o Logistics resources

o Human resources o Cultural competence

© 2017 FITT All Rights Reserved

Select Research Design and

Design Data Collection Tools

Screen Potential Organize and Analyze

Present Conclusions and

ADAPTED FIGURE 1.1

© 2017 FITT All Rights Reserved

o Currency risk o Commercial risk

o Economic risk o Personnel risk

o Political risk o Technology risk

o Social risk o Intellectual property risk

© 2017 FITT All Rights Reserved

Barriers to Market Entry

© 2017 FITT All Rights Reserved

Competitive Landscape Maps

o Different information types, e.g.:

• Comparison of price and quality

• Important product or service qualities

• Key product differences

© 2017 FITT All Rights Reserved

© 2017 FITT All Rights Reserved

When? Where? How?

Trading Entry Strategies

Investing Entry Strategies

o Foreign Direct Investment-Related

© 2017 FITT All Rights Reserved

Special Economic Zones (SEZs)

• FTZs: Free/foreign trade zones

• EPZs: Export processing zones

• BPAs: Bonded port areas or bonded warehouses

© 2017 FITT All Rights Reserved

o Organization goals o Intermediaries

o Size of organization o Control

o Product or service o Time

See Table 1.2

© 2017 FITT All Rights Reserved

© 2017 FITT All Rights Reserved

o Government procurement departments

© 2017 FITT All Rights Reserved

o Does the business have a reputation for paying invoices on time?

o Does the business have wide coverage in the target market?

o How much stock will the business hold?

Business Models for Direct Exporting

© 2017 FITT All Rights Reserved

© 2017 FITT All Rights Reserved

© 2017 FITT All Rights Reserved

• Difficulty managing currency exchange

© 2017 FITT All Rights Reserved

When is Direct Exporting a Suitable Strategy?

© 2017 FITT All Rights Reserved

© 2017 FITT All Rights Reserved

© 2017 FITT All Rights Reserved

When is Indirect Exporting a Suitable Strategy?

© 2017 FITT All Rights Reserved

E-commerce / e-business is the buying and selling of goods or

o Online auction sites

o Technology to facilitate commerce, e.g. enterprise resource planning (ERP)