Global Marketing

Topic: Modes of entry in overseas markets

Lecturer: Mr. Medwynter

MODES OF ENTRY IN OVERSEAS MARKETS

1) 2) 3) 4) 5) 6)

Three categories of entry Three criteria for selecting a mode of entry Examination of export entry mode Distinguish between direct exports and indirect exports Examine the rational for overseas production Methods of overseas production

THREE MODES OF ENTRY

Broadly speaking three modes of entry are identified INDIRECT EXPORT DIRECT EXPORT OVERSEAS MANUFACTURING
.

INDIRECT EXPORT

which the resell the product to customer overseas DRAGON STOUT: sold to wholesale in Jamaica who in turn ship goods to To onto

DIRECT EXPORTS These are sales to customers overseas. These customers may be intermediary org. based abroad or end-users
.

OVERSEAS MANUFACTURER A firm may set up its own production operation aboard or enter into joint venture with enterprises overseas market.
. -

Licensing Contract manufacturer Joint venture Wholly owned overseas production

Acquisition Organic grow

Decision to enter market Exporting Overseas prod CM V

Indirect

Di ect

Home-based

L WO

Managers buying offices piggy banking

Overse as Export Agents

To final users Via company Branch offices

KEY ISSUES EXPORT

-

Exchange rates, protectionism Lack of knowledge

OVERSEAS PRODUCTION
-

Political risk, partnership Managing overseas facilities

CRITERIA FOR SELECTING A MODE OF ENTRY

To choose a mode of entry to a particular market, the following should be considered: THE FIRM'S MARKETING OBJECTIVES In relation to volume, timescale and coverage market 2) FIRM'S SIZE
1)

A small firm will be less likely to set up overseas production

3)

MODE AVAILABLITY A firm might have to use different modes of entry to enter different markets

4) MODE QUALITY 5) HUMAN RESOURCES REQUIREMENTS 6) MARKET INFORMATION FEEDBAK

7) 8) 9)

LEARNING CURVE REQUIREMENTS RISK- Political Expropriation of overseas assets- discouraging CONTROL NEEDS The more involved the greater the degree of control over the marketing mix variable

RATIONAL FOR OVERSEAS PRODUTION

Location aboard can offer eventually a better understanding of the problems and needs of customers. Some markets are so large that economies of scale can be gained by overseas production. Production cost are lower in some countries overseas than at home

For firms producing bulky products overseas production can reduce storage and transportation cost Overseas production can overcome the effect of tariff and non-tariff barrier to imports. [apan- car manufacturer. When overseas government is a customer- winning combination

METHODS OF OVERSEAS PRODUCTION

A firm strategic choice of overseas production method depend on its objective resources and level of commitment to IM. LICENSING Licensing agreement is a commercial contract whereby the licenser gives something of value to a licensee in exchange for certain performances and payments. The licenser provide any of the following: - Manufacturer know- how Marketing advise and assistance the right to use trademark, brand, technical advise and assistance

Including supply of essential material. Right to produce patented product Eg. HEINEKEN BEER IN JAMAICA

ADVANTAGES OF LICENSING
1) 2)

3) 4) 5) 6)

It require no investment-only cost of monitoring It enables entry into new markets that would otherwise be closed- tariff, government attitudes and policies. As a mode of entry it is simple and quick The licenser gains access to knowledge and local New products can be introduced to many countries quickly because of low investment requirement. It provides all the usual benefits of overseas production

SOME DRAWBACKS TO LICENSING

Revenues from licenses are very low less than 10% of turnover A licensee may eventually become the licenser's competitor- know-how- power Product quality can deteriorate if licensee has a more lax attitude Although contract may specify minimum sales volume there is some danger that the licensee will not fully exploit the market. HEINKEN/ RED STRIPE 3:1 ratio

FRANCHISING
This is a type of licensing. The franchise agreement specifies in more detail than a licensee agreement, exactly what is expected of the franchisee In this agreement the franchiser supply ingredients, standard package of goods components, management and marketing.

FRANCHISING CONT'D
The franchise provide capital, personal involvement, local market knowledge. KFC

FRANCHISING CONT'D

FRANCHISING CONT'D
HOLIDAY INN

FRANCHISING CONT'D

BURGER KING

FRANCHISING CONT'D

HILTON HOTEL

FRANCHISING CONT'D

TACO BELL

ADVANTAGES I DISADVANTAGES OF FRANCHISING

Same as licensing Extra benefit- provide some leverage of controlling the franchisee activities

CONTRACT MANUFACTURER
Contractor makes contract with firm aboard whereby the contractee manufactures or assembles a product on behalf of the contractor. Contractor maintains full control over marketing and distribution. Examples of firms that use this method PROCTER & GAMBLE COLGATE DEL MONTE

CONTRACT MANUFATURE CONT'D

ADVANTAGES
-

There is no need to invest in plant abroad The risk of asset expropriation is minimized Control of marketing is retained by contractor Risk associated with currency fluctuation

JOINT VENTURES
A joint venture is an arrangement where two firms or more join forces for manufacturing, financial and marketing purposes and each has a share in both the equity and the management of business

of joint venture. Joint ventures are bound by much stronger formal ties.

JOINT VENTURES CONT'D

Some countries encourage encouraged joint ventures Eg. RUSSIA, INDIA, NIGERIA, CUBA Joint ventures can reduce the risk of government intervention Joint ventures can provide close control of marketing etc.

MAJOR DISADVANTAGESOF JOINT VENTURES

-

Disagreements over: Profit shares Amount invested The management of the joint venture The marketing strategy

should minimize by: Careful selection of partners Formulation of jointly beneficial Contracts

MAJOR DISADVANTAGES OF JOINT VENTURES CONT'D

-

Pre-arranging for arbitration to resolve any clashes that occur etc

WHOLLY OWNED OVERSEAS PROD

Example: PEPSI JAMAICA LTD COKE NESTLES ADVANTAGES
-

The firm does not have to share profits The firm does not have to share or delegate decision The firm is able to operate a completely integrated and synergistic into firm There's non of the communication problem

MAJOR DISADVANTAGES
-

Substantial investment required Suitable managers with required skills difficult located Some overseas governments discourage, and sometimes prohibits 100% ownership of an enterprise by a foreign firm partner's market, knowledge, distribution system and other local expertise