International Marketing

Sixth Edition
International Student Version

Masaaki Kotabe • Kristiaan Helsen

Chapter 9
Market Entry Strategies

Copyright © 2013 John Wiley & Sons, Inc.

 Chapter Overview

1. Country Selection
2. Scale of Entry
3. Exporting
4. Licensing
5. Franchising
6. Contract Manufacturing (Outsourcing)
7. Expanding through Joint Ventures
8. Wholly Owned Subsidiaries
9. Dynamics of Entry Strategies
10. Timing of Entry
11. Exit Strategies

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 Introduction

• The need for a solid market entry decision is an integral part of

a global market entry strategy.
• Entry decisions will heavily influence the firm’s 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

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 1. Country Selection

• A crucial step in developing a global expansion strategy is

the selection of potential target markets (Exhibit 9-1).
• 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

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Exhibit 9-1: Logical Flowchart
of the Entry Decision Process

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 2. Choosing the Mode of Entry

• Decision Criteria for Mode of Entry:

– Market Size and Growth
– Risk
– Government Regulations
– Competitive Environment/Cultural Distance
– Local Infrastructure
(See Exhibits 9-2 and 9-3.)

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 Exhibit 9-2: Method for Prescreening Market
Opportunities

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 Exhibit 9-3: Opportunity Matrix for Henkel in Asia
Pacific

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 2. Choosing the Mode of Entry

• 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
(See Exhibit 9-4.)

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 Exhibit 9-4: Top 20 Global Franchises

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 2. Choosing the Mode of Entry

• 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)

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 3. Exporting

• Indirect Exporting
– Export merchants
– Export agents
– Export management companies (EMC)
• Cooperative Exporting
– Piggyback Exporting
• Direct Exporting
– Firms set up their own exporting departments

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 4. Licensing

• 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

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 4. Licensing

• 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)

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 5. Franchising

• Franchisor and the • Caveats:

franchisee – Revenues may not be adequate
• Master franchising – Availability of a master franchisee
– Limited franchising opportunities
• Benefits:
overseas
– Overseas expansion with a
– Lack of control over the franchisees’
minimum investment
operations
– Franchisees’ profits tied to
– Problem in performance standards
their efforts
– Cultural problems
– Availability of local
franchisees’ knowledge – Physical proximity

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 Exhibit 9-5: GNC International Franchising

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 6. Contract Manufacturing (Outsourcing)

• 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 company’s home-market employees regarding HR
and labor issues
– Issues of quality and production standards

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 6. Contract Manufacturing (Outsourcing)

Qualities of An Ideal Subcontractor:

– Flexible/geared toward just-in-time delivery
– Able to meet quality standards
– Solid financial footings
– Able to integrate with company’s business
– Must have contingency plans

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 7. Joint Ventures

• 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

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 7. Joint Ventures

• 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 (Exhibit 9-7)

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 Exhibit 9-6: Conflicting Objective in Chinese Joint
Ventures

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 7. Joint Ventures

• 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
– Create a launch team during the launch phase:
(1) Build and maintain strategic alignment
(2) Create a governance system
(3) Manage the economic interdependencies
(4) Build the organization for the joint venture

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Exhibit 9-7: Starbuck’s Coffee’s Criteria in Selecting
Partners

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 8. Wholly Owned Subsidiaries

• 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.

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 8. Wholly Owned Subsidiaries

– 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

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 8. Wholly Owned Subsidiaries

– 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

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 9. Strategic Alliances

• Types of Strategic Alliances

– Simple licensing agreements between two partners
– Market-based alliances
– Operations and logistics alliances
– Operations-based alliances

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 9. Strategic Alliances

• The Logic Behind Strategic Alliances

– Defend
– Catch-Up
– Remain
– Restructure

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 Exhibit 9-8: Advantages and Disadvantages of
Different Modes of Entry

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 9. Strategic Alliances

• Cross-Border Alliances that Succeed:

– Alliances between strong and weak partners seldom work.
– Autonomy and flexibility
– Equal ownership

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 9. Strategic Alliances

– 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
• Have similar cultures, asset sizes and venturing experience
• Tend to start on a narrow basis and broaden over time
• A shared vision on goals and mutual benefits

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 10. Timing of Entry

• International market entry decisions should also cover

the following timing-of-entry issues:
– When should the firm enter a foreign market?
– Other important factors include: level of international
experience, firm size, and breadth of product & service
offerings.
– Mode of entry issues, market knowledge, various
economic attractiveness variables, etc.

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 Exhibit 9-9: Timeline of Wal-Mart’s International
Expansion

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 11. Exit Strategies

• Reasons for Exit:

– Sustained losses
– Volatility
– Premature entry
– Ethical reasons
– Intense competition
– Resource reallocation

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 11. Exit Strategies

• 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

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