Global Market-Entry Strategies

Submitted By: Binny Grover(15) Ritika Choudhury(39) Sachin Kumar(41) Varun Kaw(56) Vivek Kumar(58)

1. Target Market Selection 2. Choosing the Mode of Entry 3. Exporting 4. Licensing 5. Franchising 6. Contract Manufacturing 7. Joint Ventures 8. Wholly Owned Subsidiaries9. Strategic Alliances 10. Timing of Entry 11. Exit Strategies

The need for a solid market entry decision is an integral part of a global market entry strategy. Entry decisions will heavily influence the firms other marketing-mix decisions. Global marketers have to make a multitude of decisions regarding the entry mode which may include: (1) the target product/market (2) the goals of the target markets (3) the mode of entry (4) The time of entry (5) A marketing-mix plan (6) A control system to check the performance in the entered markets

A crucial step in developing a global expansion strategy is the selection of potential target markets A four-step procedure for the initial screening process: 1. Select indicators and collect data 2. Determine importance of country indicators 3. Rate the countries in the pool on each indicator 4. Compute overall score for each country

Decision Criteria for Mode of Entry: Market Size and Growth Risk Government Regulations Competitive Environment Local Infrastructure Classification of Markets: Platform Countries (Singapore & Hong Kong)

Emerging Countries (Vietnam & the Philippines) Growth Countries (China & India) Maturing and established countries (examples: South Korea, Taiwan & Japan) Company Objectives Need for Control Internal Resources, Assets and Capabilities Flexibility

Mode of Entry Choice: A Transaction Cost Explanation Regarding entry modes, companies normally face a tradeoff between the benefits of increased control and the costs of resource commitment and risk. Transaction Cost Analysis (TCA) perspective Transaction-Specific Assets (assets valuable for a very narrow range of applications)

Indirect Exporting Export management companies Cooperative Exporting Piggyback Exporting Direct Exporting Firms set up their own exporting departments

Licensor and the licensee Benefits: Appealing to small companies that lack resources Faster access to the market Rapid penetration of the global markets Caveats: Other entry mode choices may be affected Licensee may not be committed Lack of enthusiasm on the part of a licensee

 Biggest danger is the risk of opportunism Licensee may become a future competitor

How to seek a good licensing agreement: Seek patent or trademark protection Thorough profitability analysis Careful selection of prospective licensees Contract parameter (technology package, use conditions, compensation, and provisions for the settlement of disputes)

Franchisor and the franchisee Master franchising Benefits: Overseas expansion with a minimum investment Franchisees profits tied to their efforts Availability of local franchisees knowledge Caveats: Revenues may not be adequate Availability of a master franchisee

 Limited franchising opportunities overseas Lack of control over the franchisees operations Problem in performance standards Cultural problems Physical proximity

Benefits: Labor cost advantages Savings via taxation, lower energy costs, raw materials, and overheads Lower political and economic risk Quicker access to markets Caveats: Contract manufacturer may become a future competitor Lower productivity standards

 Backlash from the companys home-market

employees regarding HR and labor issues Issues of quality and production standards Qualities of an ideal subcontractor: Flexible/geared toward just-in-time delivery Able to meet quality standards Solid financial footings Able to integrate with companys business Must have contingency plans

Cooperative joint venture Equity joint venture Benefits: Higher rate of return and more control over the operations Creation of synergy Sharing of resources Access to distribution network Contact with local suppliers and government officials

Caveats: Lack of control Lack of trust Conflicts arising over matters such as strategies, resource allocation, transfer pricing, ownership of critical assets like technologies and brand names Drivers Behind Successful International Joint Ventures : Pick the right partner

 Establish clear objectives from the beginning Bridge cultural gaps Gain top managerial commitment and respect Use incremental approach

Acquisitions Greenfield Operations Benefits: Greater control and higher profits Strong commitment to the local market on the part of companies Allows the investor to manage and control marketing, production, and sourcing decisions Caveats: Risks of full ownership

 Developing a foreign presence without the

support of a third part Risk of nationalization Issues of cultural and economic sovereignty of the host country Acquisitions and Mergers Quick access to the local market Good way to get access to the local brands

Greenfield Operations Offer the company more flexibility than acquisitions in the areas of human resources, suppliers, logistics, plant layout, and manufacturing technology. Types of Strategic Alliances Simple licensing agreements between two partners Market-based alliances

 Operations and logistics alliances Operations-based alliances

The Logic Behind Strategic Alliances Defend Catch-Up Remain Restructure Cross-Border Alliances that Succeed: Alliances between strong and weak partners

seldom work. Autonomy and flexibility Equal ownership Other factors: Commitment and support of the top of the partners organizations Strong alliance managers are the key

 Alliances between partners that are related in terms of products, technologies, and markets Similar cultures, assets sizes and venturing experience A shared vision on goals and mutual benefits

 When should the firm enter

a foreign market? Other important factors include: level of international experience, firm size Mode of entry issues, market knowledge, various economic attractiveness variables, etc.

Reasons for exit: Sustained losses Volatility Premature entry Ethical reasons Intense competition Resource reallocation

Risks of exit: Fixed costs of exit Disposition of assets Signal to other markets Long-term opportunities Guidelines: Contemplate and assess all options to salvage the foreign business Incremental exit Migrate customers

Chapter 9

Kotabe & Helsen's Global Marketing Management, Third Edition, 2004

27

Chotukool consumes half the power consumed by regular refrigerators and uses high-end insulation to stay cool for hours without power It keeps food stuffs 20 degree Celsius below ambient temperature It is an engineering excellence only 20 parts, as opposed to more than 200 parts in a normal refrigerator and hence less maintenance It works on inverter or battery The unit is highly portable, with 43 liters of volume inside a fully plastic body weighing less than 10 pounds.

Specification Internal capacity:43 litres Weight:8.9 kgs Dimension:59.8 cm x 41.8 cm x 55.9 cm Power source:230V 50 Hz AC Current:0.3 amperesWattage:62 W Price - Rs 3,250/

People needed an affordable way to keep milk, vegetables and leftovers cool for a day or two both at home or away. This job is urgent in a country where a third of all food is lost to spoilage, according to the United Nations Commission on Sustainable Development. Cooling solution for Mass market and Retailers in Rural Areas. Areas which have shortage of electricity

Fiscal Year 2010-11: Rs. 58 billion (US$ 1.2 billion) Combined Sales of the Company and its major subsidiaries and affiliates, for FY 2010-11: Rs. 150 billion (US$ 3 billion) The Company has a network of Company-operated GODREJ INTERIO Retail Stores, more than 2,200 Wholesale Dealers, and more than 18,000 Retail Outlets. The Company has Representative Offices in Colombo (Sri Lanka), The Netherlands, Sharjah (UAE), Riyadh (Saudi Arabia) and Guangzhou (China-PRC).50 billion (US$ 3 billion) EMPLOYEES - 11,000 (including 2,000 in Sales and Service)

Parameters Financial strength Risk taking ability Market knowledge Commitment

Verdict High High High High

The markets considered were the emerging markets in Latin America, Africa and Asia Some very broad market characteristics favoring selection were: High percentage of rural population, large number of small/medium retail stores, inherent desire for cost efficient refrigeration, power shortage issues

The strategy for expansion: Proactive formal process, following and expansive strategy (expanding to similar markets first)

Parameter
Geography Political and legal environment Economy Demography

Brazil

Argentina

Nigeria

Egypt

Bangladesh
Favorable

Favorable Favorable Favorable Favorable Favorable Favorable Favorable

Favorable Favorable Favorable

Infrastructure
Social and cultural factors Competition Demand

Neutral

Neutral

Neutral

Neutral

Neutral
Favorable

Favorable Favorable

Favorable Favorable

Favorable Favorable

Favorable Favorable

Favorable Favorable

Population: 158,570,535 (9th) Population density: 964.42/sq km (9th ) GDP per capita: $1,572

Government: Parliamentary democracy

Official language: Bengali Rural population: approx 70%

Listed among next 11 economies based on macroeconomic stability, political maturity, openness of trade and investment opportunity and quality of education

Parameter
Geography Political and legal environment Economy Demography Infrastructure

Status
Close proximity to home market, low export costs Parliamentary democracy, robust legal framework Rapidly developing market based economy 55% working age population Transport facilities poor, shortage of power (LT 60%) Favorable Favorable Favorable Favorable

Verdict

Neutral
Favorable
Favorable

Social and cultural factors

Competition

Very similar to home market

Innovative ,one of a kind product, with low or no competition Can be expected to be very high

Demand

Favorable

Parameters No of Rural households Average refrigerator penetration Potential sales No of FMCG retailers Country Restrictions Import duties

Value/Remarks 1.95 Cr 2% 7% of 1.95 Cr = 13.6lakhs 5.7 lakhs (5.1 per 1000 people) Good bilateral relations 22%

Export market identified : Bangladesh Indirect exporting

Usually a manufacturer sells to a trader who then exports Usually in the case of commodities Very low risk

Direct exporting

The manufacturer directly exports One of the strategies adopted by many competitors Slightly more prone to risks

Licensing

It could be passing on technology, patents, trade secret or brand name Inherent problem of control ,possible brand dilution and future competition PLC ideally short

Joint Ventures

Tie ups with local players Maybe mandated by local regulations Could require substantial investment Risk is shared Can lead to learning and technology adoption

Wholly owned foreign enterprises

Total control Local laws might prohibit 100% investment High risk but maximum returns

More control over the channel vs. Exports Requirement of last mile deep penetration Large future potential of the market

Low technology product

Non conflicting/Complementary licensee available Problems
Future competition Conflicts over margins with the Licensee Retail Price control

Two-pronged strategy to reach different customer segments

Channel Description

Rural Retailers

Large beverage company like Coca cola, Pepsi And /Or Bangladesh Dairy Cooperative which are our customers W and W grains (Cargill)

Tie up with beverage company so that chotukool complements their product. Cobranded product Cargill warehouse which stocks the product -> supplies to the distributors -> Agricultural Retailers SHGs

Rural Households

Price out of factory= 3250*0.9*0.95 = INR 2705 Logistics Cost = INR 100 (From Pune to Cargill warehouse in Bangladesh ) 100 units in 1 ton truck Distance 2300Km (Pune to Dhaka ) INR 5 per km INR 10,000 per trip for 100 units = INR 100 (Max.) Customs -22% Price to Cargill INR 3420 Price to Coke/ BDC INR 2740 ( 20% discount)

The media classes chosen will have the objective of attaining maximum reach and also act as frequency builders The company will have a substantial role to play in the media planning and will have to make an initial investment into promotional activities

The advertisements will be aired on local radio channels and print ads will be published in regional language newspapers
Promotion will be done in the form of wall paintings, mobile vans, demo stalls at melas and haats, large hoardings and hoardings on busses and trucks Co branding is to be done with Coca cola/ Pepsi/ BDC in FMCG retail outlets Below the line promotion will be taken up by Cargill

Thank You!