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Market Entry Strategies

International Marketing Management

Research Paper (undergraduate) 2010 19 Pages

Business economics - Marketing, Corporate Communication, CRM, Market Research, Social Media

Excerpt

Table of Content

Management Summary

1. Introduction

2. Fundamentals of Market Entry Strategies
2.1 Reasons for companies to go international
2.1.1 Reactive reasons
2.1.2 Proactive reasons.
2.2 Deciding which markets to enter

3. Analysis of Market Entry Strategies
3.1 Exporting
3.1.1 Indirect exporting
3.1.2 Direct exporting
3.2 Joint Venturing
3.2.1 Licensing
3.2.2 Contract manufacturing
3.2.3 Management Contracting
3.2.4 Joint ownership
3.3 Franchising.
3.4 Direct Investment
3.4.1 Assembly
3.4.2 Wholly-owned subsidiary
3.4.3 Merger and Acquisition

4. Conclusion

Works Cited

Management Summary

Globalization has increased the competition amongst firms. There are more and more companies which are motivated to conquer foreign markets and enlarge their presence on these markets. For multiple reasons, companies adopt modes to enter foreign markets and find new channels of distribution.

Choosing the right and appropriate market entry strategy has a growing importance. As a matter of fact, companies should align their strategy to their objectives and adapt them to the foreign markets environment.

There are numerous different entry strategies which are all linked to different entry modes, different amounts of risks or costs. From the least costly mode to the most expensive one we distinguish three main strategies:

- Export is characterized by the transportation of finished goods from one country to another. The distribution on site is done by an intermediary or by foreign based distributors or agents.

- Joint Venturing includes different characteristics of various joint contracts with firms to produce or promote services or products.

- Direct investment is, when a company decides to invest directly into a foreign country by either establish an assembly operation, a wholly- owned operation as well as a merge or an acquisition.

Each of the market entry strategy has both, advantages and disadvantages. The less costly the strategy is, the less control the company has over the distribution channel. Consequently, the company depends more or less on foreign institutions or foreign partners.

All in all a company has to figure out for itself which strategy to choose, according to its particular situation, financial as well as economical and environmental. Therefore, before entering a market, a previous comprehensive research and analysis of the target market and its economic environment is indispensable to achieve a successful launch into an unknown market.

1. Introduction

During the last years, globalisation has increased the competition amongst firms and enlarged the company’s willingness to enter foreign markets.

Small, middle-sized and big companies are using different approaches to reach their target customers, increase profits or ensure the company’s growth. Different strategies offer these companies various opportunities to adapt modes to enter foreign markets and to find new channels of distribution.1

Choosing a market entry strategy is more and more growing in importance. In terms of choosing from a wide range of different strategies – from the cheapest to the most expensive one – companies should, as a matter of fact, align their strategy to their objectives and adapt them to foreign market environments.

The following term paper analyzes and intends to interpret the various market entry strategies with its different advantages as well as disadvantages.

This paper is structured in various chapters. First and before beginning the analysis and pointing out the strategies, chapter 2 will introduce fundamentals of market entry strategies, show reactive as well as proactive reasons which companies force to go international and an analysis which markets companies should enter. Chapter 3 will introduce all market entry strategies, beginning with exporting, joint venturing, franchising right up to the direct investment and show advantages and disadvantages. Finally all strategies will be compared in terms of rising costs or risks and give a summarized overview of the most convenient strategy for various markets, situations or company models.

2. Fundamentals of Market Entry Strategies

The following chapter will give an overview about various reasons and impulses which induce companies to enter new markets. Furthermore the second part of the chapter will give a summarized indication which markets to enter.

2.1 Reasons for companies to go international

Many different reasons persuade companies to go international and expand with their products to foreign markets. These reasons can be divided into the reactive and the proactive reasons which will be explained in the following chapter.

2.1.1 Reactive reasons

The reactive reasons include all actions where a company receives information about a new or foreign market and acts accordingly to these information or a possibly changed situation.2

The discovery of a new foreign market with promising future possibilities could initiate a company to go international and expand to that market. Simply the fact of an internal growth and prospective profits lead companies to enlarge their activities to a new market, strengthen its position in their segment and ensure territorial aggrandizement.3

Furthermore the reaction to different changes in the domestic market, like changes within the economic or political environment lead companies to expand.

Economic Environment changes include rising costs of production which force a company to find a more economical place of production.4

Changes within the political environment could force a company to expand overseas. These changes in the political environment could be the setup of possible tariff barriers which cause companies to set up manufacturing operations overseas in order to avoid increasing costs. Furthermore changes in work or safety regulations may cause a company to go international to a less restrictive location.5

The reaction to a growing competition also constitutes a reason for a company to go international. Companies are forced to follow their competitors to a new market in order to stay competitive and ensure its market position and market share.

Typically not all countries face the same types of risks. Therefore companies can diversify their risks by operating on several markets (market spreading). Such diversification in markets helps the firm to circumvent stiff market situations on its domestic market and spread its risks to different situations and markets.6

2.1.2 Proactive reasons

The proactive reasons mean to act in advance, to anticipate a prospective change and therefore plan for a future situation.7 Companies who are proactive in international business and perform accordingly are, in most cases, better positioned and prepared for changes within their market.8

To achieve a strategic advantage, companies enlarge their activities to new, untouched markets and obtain a market leading position in this area, compared to its competition. Such proactive behavior was seen in Russia, where Pepsi went into the Russian market before Coca Cola and received a leading market position.9

Power and prestige constitutes a further reason to enter a foreign market. By merging with other firms, companies gain market power and grow to a bigger and stronger corporation with affiliated operations in other countries.10

Rising labor costs coerced companies in the past to relocate its production to countries with cheaper labor and manpower.11 But also increasing costs for energy, raw materials respectively the whole production process constitutes a reason for a firm to expand and go international.

2.2 Deciding which markets to enter

After a company has decided to go international it has to decide which markets to enter. Therefore the company has to define its targets, the volume of the expansion and its planned approach. Furthermore the company has to decide how many countries it wants to enter as well as the speed of the expansion. It is recommendable that a company should at the beginning only concentrate on a few countries to reach there a high market share which builds the basis for further expansions. Also there must be a choice which types of countries the company wants to enter, for example industrial, emerging or developing country types. After it has identified potential countries to enter, it is important to analyze the nature of the market’s macro and micro environment to identify the specific opportunities and risks of these markets. As result the management is able to make a final decision if a certain country should be entered or not.12

[...]


1 Cf. Albaum G., Strandskov J., Duerr E., International Export Management, p. 242 ff.

2 Cf. http://www.businessdictionary.com/definition/reactive.html, 26.05.2010

3 Cf. Albaum G., Strandskov J., Duerr E., International Export Management, p. 46 ff.

4 Cf. http://www.witiger.com/internationalbusiness/whyexport.htm, 26.05.2010

5 Cf. Albaum G., Strandskov J., Duerr E., International Export Management, p. 46

6 Cf. Albaum G., Strandskov J., Duerr E., International Export Management, p. 46 ff.

7 Cf. http://www.businessdictionary.com/definition/proactive.html, 26.05.2010

8 Cf. http://www.witiger.com/internationalbusiness/whyexport.htm, 26.05.2010

9 Cf. http://www.pepsico.com/Global-Sites/Russia.html, 26.05.2010

10 Cf. http://www.witiger.com/internationalbusiness/whyexport.htm, 26.05.2010

11 Cf. Cahuc P., Zylberberg A., Labor Economics, P. 28

12 Cf. Kotler, P., Principles of Marketing, p. 222 et seq.

Details

Pages
19
Year
2010
ISBN (eBook)
9783640672394
ISBN (Book)
9783640672158
File size
512 KB
Language
English
Catalog Number
v154541
Institution / College
University of Applied Sciences Fulda
Grade
1,0
Tags
Market Entry Strategies International Marketing Management

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Title: Market Entry Strategies