Chapter three

INTERNATIONAL
MARKET ENTRY
MODE

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 3.1 Analyzing international market
International Marketers have to make a multitude
of decisions regarding the entry mode which may
include:
 the target product/market
 the goals of the target markets
 the mode of entry
 the time of entry
 a marketing-mix plan
 a control system

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  3.1.1 Index for international marketing
International market is a complex and dynamic by its nature.
In deciding to enter the international market, companies need to
consider the following indicators.
 Gross domestic product (GDP)
 Industrial and agricultural sector statistics
 Market size and potential
 Consumer buying power
 Investment figures (Foreign direct investment data, other
trade statistics)
 Marketing support infrastructure
 Political, legal and financial environment of country

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 3.1.2 Target Market Selection
Target market selection refers to choosing different markets to
be entered in the near future.
International Marketing Entry Evaluation Process.
It is a five stage process, and its purpose is to gauge which
international market or markets offer the best opportunities for our
products or services to succeed.
The five steps are
 Country Identification,
 Preliminary Screening,
 In-Depth Screening,
 Final Selection and
 Direct Experience.
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Step One - Country Identification
country identification - which means that you undertake a
general overview of potential new markets.
E.g
 China
 Sudan
 Italy
 USA
Step Two - Preliminary Screening
Now you begin to score, weight and rank nations based upon
macro-economic factors such as
 currency stability,
 exchange rates,
 level of domestic consumption and so on.
 Now you have the basis to start calculating the nature of market
entry costs.

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 Step Three - In-Depth Screening
Now, one can deal with not only macro-economic factors but also local conditions
such as marketing research in relation to the marketing mix i.e.
 what prices can be charged in the nation? –
 How does one distribute a product or service such as ours in the nation?
 How should we communicate with target segments in the nation?
 How does our product or service need to be adapted for the nation?
All of this information will form the basis of segmentation, targeting and
positioning.
Step Four - Final Selection
A final scoring, ranking and weighting can be undertaken based upon more focused
criteria.
Step Five - Direct Experience
Personal experience is important. Marketing manager or their representatives
should travel to a particular nation to experience firsthand the nation's culture and
business practices.
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3.2 Selecting a market entry mode
A mode of entry into an international market is the channel which
your organization employs to gain entry to a new international
market.
Decision Criteria for Mode of Entry:
 Market Size and Growth
 Competitive Environment
 Risk
 Local Infrastructure
 Government Regulations .
 Company Objectives
 Need for Control
 Internal Resources, Assets and Capabilities
 Flexibility

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3.3 Types of Entry modes

Entry modes to the international market can be divided in to three ways. I .e. Exporting,
contractual and investment entry modes. I n addition there are other types of entry modes.

Entry modes

Exporting Contractual I nvestment

I ndirect Licensing Green field

exporting investment
Franchising
Acquisition
Direct
exporting
Management
Contract J oint
venture
Cooperative
exporting Turnkey
Contracts

Strategic
alliance

Contract
Manufacturin
g

Assembly
operations

Merger

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1. Exporting entry modes
Exporting is the process of selling goods or services produced in
one country to other countries.
Companies that plan to engage in exporting have a choice between
three broad options:
 Indirect exporting
 Cooperative exporting
 direct exporting.
a. Indirect exporting:
It is Exporting by using domestic intermediaries or through a
foreign agent.
It is perceived as a good mode of entry for the beginner exporter.
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Cooperative exporting,
The firm enters into an agreement with another
company (local or foreign) where the partner will
use its distribution network to sell the exporter’s
goods.
Direct exporting
Direct exporting means that the company sets up
its own export organization and relies on a
middleman based in a foreign market (e.g., a foreign
distributor).

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Advantages Disadvantages
 Low initial investment  Potential costs of trade
 Reach customers quickly barriers
 Complete control over Transportation cost
production
Tariffs and quotas
 Benefit of learning for
 The exporting strategy
future expansion
function is poor when the
company’s home country
currency is strong.
 Difficult to respond to
customer needs well

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 2. contractual entry modes
are long term non equity agreements between an international company and an
entity in a foreign target country that involve the transfer of:
 technology or
 human skills.
i. Licensing
Licensing is a contractual transaction where the firm—the licensor—offers some
proprietary assets to a foreign company—the licensee—in exchange for royalty fees.
Examples of assets that can be part of a licensing agreement include
 trademarks,
 technology know-how,
 production processes, and
 Trade secrets.
 patents.
 manufacturing process
 brand name
License is the purchase or sale of product or process technology, design and marketing
expertise by contract.

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Advantages of licensing: Disadvantages of licensing:
 Gives access to difficult markets  disclosure of accumulated
 it has low capital risk and low competitive knowledge and
commitment of resources experience
 It may Improve delivery and  it creates possible future
service levels in local markets competitors
 Low initial investment  difficulty of control over licensee
 Avoids trade barriers operations
 Access to local knowledge  passive interaction with the
 Easier to respond to customer market
needs  exclusion of some export
markets
 Organizing licensing operations:
costs of adaptation, transfer and
controlling

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ii . Franchising
 is similar to licensing, although franchising tends to involve longer-
term commitments than licensing.
 Franchising is basically a specialized form of licensing in which the
franchiser not only sells intangible property to the franchisee
(normally a trademark), but also insists that the franchisee agree to
abide by strict rules as to how it does business.
 As with licensing, the franchiser typically receives a royalty payment,
which amounts to some percentage of the franchisee revenues.
 licensing is a strategy pursued primarily by manufacturing companies,
 franchising, which resembles it in some respects, is a strategy employed chiefly by
service companies.
 The franchisor provides
 trademarks,
 operating systems
 well-known products as well as service support such as advertising, specialized
training and quality-assurance programs.
 Franchising allows the franchiser to maintain consistency of its
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Advantage Disadvantages
 low development cost and  The franchisee is not completely
risk independent.
 Widespread brand name  Franchisees must pay ongoing royalties
recognition and advertising fees.
 Provides proven products  Franchisees carefulness to balance
and methods restrictions and support provided by the
 Franchises offer important franchisor with their own ability to
pre-opening support manage their business.
 Franchises offer ongoing  Limited term (duration) of a franchise
support agreement
 Lack of control over quality

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 Iii .Turnkey operations
is an agreement by the seller to supply a buyer with a facility
fully equipped and ready to be operated by the buyer’s
personnel, who will be trained by the seller.
In international marketing, the term is usually associated with
giant projects that are sold to governments or government-run
companies.
Large-scale plants requiring technology and large-scale
construction processes unavailable in local markets
commonly use this strategy.
Such large-scale projects include building
 steel mills;
 cement,
 fertilizer, and
 chemical plants;
 and those related to such advanced technologies as
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Advantages: • Disadvantages:
– Can earn a return on knowledge – No long-term interest in the foreign
asset. country.
– Less risky than conventional – May create a competitor.
FDI. – Selling process technology may be
selling competitive advantage as
well.

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 iv. Management contract
is an agreement whereby one firm
provides managerial assistance, technical
expertise, or specialized services to a
second firm for some agreed-upon time in
return for a fee.

attractive because they allow firms to earn

additional revenues without incurring
investment risks or obligations

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 Advantages Disadvantages
Access to local Potential incentive
management skills problem
Avoids buying Potential adverse
unwanted assets selection problem
Retains strategic How do you know
control the competencies of
the manager?

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 V . Contract manufacturing
A company contracts with firms in foreign countries to
manufacture or assemble the products while retaining the
responsibility of marketing the product.
 product is produced in the foreign market by local producer
under contract with the firm.
 contract covers only manufacturing,
 marketing is handled by a sales subsidiary of the firm which
keeps the market control.
 In common saying it is
a form of outsourcing

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  Advantages  Disadvantages
 job creation for host  expropriation risk
country  large capital investment
 host country gaining  There is also the risk of
resources (capital and transferring the
technology) technological know-how
 low trade barriers to a potential foreign
 higher profit competitor
 utilization of local labor  loss of profit margin on
 host country's economic production activities
incentives

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Vi . Strategic alliance
can be described as a coalition of two or more organizations to
achieve strategically significant goals that are mutually
beneficial.
to enhance their long term competitive advantage by forming
alliance with its competitors, existing or potential in critical areas,
instead of competing with each other.
A strategic alliance involves a contractual agreement between
two or more enterprises stipulating that the involved parties will
cooperate in a certain way for a certain time to achieve a common
purpose.
are also advantageous for small entrepreneurial firms that may be
too small to make the needed investments to enter the new market
themselves.

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 Advantage Disadvantage
 Improves efficiency,  lack of direct control
productivity, and financial  Goal difference.
stability
 require a significant time
 Opens the door to new
investment to develop an
funding opportunities
effective alliance or
 Increases market share and partnership
reduces competition
 Promotes information
sharing and networking
 Leverages collective
thinking, problem solving,
and advocacy

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 Vii . Assembly operations
Assembly means the fitting or joining together of fabricated
components.”
In this strategy, parts or components are produced in
various countries in order to gain each country’s
comparative advantage.
Capital-intensive parts may be produced in advanced
nations, and
labor-intensive assemblies may be produced in a less
developed country, where labor is abundant and labor
costs low.
This strategy is common among manufacturers of
consumer electronics.
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 Advantages Disadvantages
-circumventing trade barriers -Local product-
- utilization of local labor content laws

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Viii .Merger
A merger is a strategy through which two firms agree to
integrate their operations on a relatively coequal basis.
Advantage Disadvantage
 provide improved capacity  lead to less choice for consumers.
utilization  Diseconomies of Scale
 gain economies of scale  Leads to Higher Prices
 gain new technology  difficulty of coordination
 reduce tax obligation  Job loss
 Reduced Industry Rivalry

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 3. investment entry modes
 involve ownership by an international company of
manufacturing plants or other production units in target
country.
1. Joint Venture
It refers to sharing of ownership and management between
foreign firm and local firm.
 is preferred by large and more multinational firms.
 And smaller and less multinational firms in high potential
markets.
 is not suitable when contractual and investment risks (even
high potential countries) are high.

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 Advantages Disadvantages
 Access to partner’s local  Potential loss of
knowledge proprietary knowledge
 Reduction of concern  Potential conflicts between
about overpayment partners
 Both parties have some  Neither partner has full
performance incentives performance incentive
 Significant control over  Neither partner has full
operation control
 It spread the risk between  Slowed decision making
or among partners. due to the involvement of
a number of parties

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 2. Greenfield investment
refers to building factories and offices
from scratch and it is the establishment
of a new wholly owned subsidiary.
 is high risk due to the costs of establishing
a new business in a new country.
takes much time due to the need of
establishing new
 operations,
 distribution networks,

 and the necessity to learn and implement

appropriate marketing strategies

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 Advantages Disadvantages
 Slower startup
 Requires knowledge
of foreign
 Normally management
feasible
 High risk and high
 Avoids risk of commitment
overpayment
 Huge capital
 Avoids problem requirement
of integration
 full control

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 3. Acquisition
An acquisition is a process by which one
organization purchases (acquires) the other
firm.
 gives quick access.
 is lower risk than Greenfield investment
 it is often complex and potentially costly,
 but it is able to full control to the firm
Advantages Disadvantages
 Access to target’s local  Uncertainty about target’s value
knowledge  Difficulty in “absorbing”
 Control over foreign operations acquired assets
 Control over own technology  Infeasible if local market for
corporate control is
underdeveloped

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 THANK YOU

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