How to enter a new market

Value chain decisions Partnership decisions

The value chain

Devised by Porter (1980) to analyse what happens inside companies Kotler (1996) competition today is not between companies but between networks of value-delivery systems the winner will be the company that has the better network Terpstra configuring the value-added chain - which activities to do yourself and which to pay someone else to do.

Make or Buy?

The Value Added Chain

Terpstra and Sarathy Design
Components

Manufacture Assembly

Distribution Marketing

Retailing

Where does your expertise lie? Where can you add most value to the product?

Where can the activities be done the cheapest?

Where can you sell at the highest profit Where are the gaps in the market?

 Indirect export sales in home market to foreign buyers export management companies Direct export foreign distributors local sales agents marketing subsidiary Foreign production assembly contract manufacturing licensing joint venture acquisition new greenfield start-up

Partnership Decisions (entry mode)

Licensing
Any deal to allow exclusive rights to use knowledge, image, brand name, expertise e.g. recipe for food or drink character licensing e.g. Harry Potter

Franchise
Licensing a business format an agreed blue-print for the business
Franchisor supplies Brand name Method of production or service Training Quality standards Franchisee supplies Capital to buy franchise and premises Management Ownership

Reduces the risk of foreign operation Circumvents limits on foreign ownership Risk to reputation if quality standards not enforced Could train a future competitor

Management Contract
International firm runs a locally-owned business

Turn-key project
International firm builds/sets up business then sells/leases it to a local operator

Which method to chose? (Kotler)

Indirect Direct Contractual Joint Wholly-owned
Commitment, risk, control, profit potential

Externalised Export modes

Intermediate Contractural modes

Internalised Hierarchical Investment modes

Hollensen, S Global Marketing 2000

Factors affecting choice of entry mode

Internal factors
firm size, international experience product complexity, advantages tacit know-how (transferability of expertise)

Policy preferences
reduce risk retain control flexibility (v commitment)

External factors
Socio-cultural distance Country risk factors Market size and potential Direct and indirect trade barriers Intensity of competition Availability of intermediaries/partners

The Reebok case

Draw a diagram of the value-added chain for trainers
who performs each activity? what type of partnership? where is it performed? why? where is the most value added? Why?

Apart from the brand-owners and their contractors, who are the other stakeholders?

 Who is responsible for the poor conditions of the workers? Who could do something about it? Why dont they? What strategies could a Finnish shoe-maker adopt to compete with these global chains?

The value-added chain in leisure

Draw a value-chain diagram for Disney theme parks a tour-operator Sony (music/film/software/hardware etc) a sports promoter What are the stages, how do they add value, who owns them?