Published on March 15, 2014
Modes of Global Market entry Sub: International Marketing By- Lovekshitij Suryavanshi
3 Rules • A company aims to enter in foreign Market must have a concrete strategy • Naïve Rule – Company uses same entry mode for all foreign markets • Pragmatic rule - Company uses a workable entry mode for each market. These kinds of companies start with low risk entry modes. • Strategy Rule – Alternative decision modes are compared and evaluated before decision is made.
Types of Entry Mode - Export Mode • Products of company are manufactured in the domestic market or a third country and then transferred directly or indirectly to the host market. • While establishing export channels company decides role and functions. • Major Export Types - Indirect Export - Direct Export - Co-operativite Export
Indirect Export • Product Manufacturing company do not export products directly. • Domestic Export House or Trading Company export products manufactured by company. INDIA Company AManufacturer Export House / TC USA Host Company
Direct Export • Product Manufacturing company export products directly without any third party. • Involved in documentation, delivery, pricing etc. • Manages agents and distributers.
Co-operative Export • Two or more companies involve in collaborative agreements to produce products to export. • Small firms do not achieve sufficient scale economies in manufacturing because of size of local market or inadequacy of management. • E.g: Bulk export, research, joint manufacturing etc
Types of entry mode - Intermediate Entry Mode • No full ownership involved • Ownership shared between parent company and local partner • Types of Intermediate entry mode - Licensing - Franchising - Contract Manufacturing - Joint Ventures
Licensing • It is an arrangement wherein the licensor gives something of value to the licensee in exchange for certain performance and payments from the licensee. • A formal permission or right offered to a firm or agent located in host country to use a home firm’s proprietary technology resource in return for payment. • Another way for firm to establish local production in foreign markets without capital investment.
• Licensing may include - Patent for product or process - Technical advice and assistance - Marketing advice and assistance - Use of Trademark and name • E.g: GSK, biocon, Quick Heal
Franchising • An independent organization operates the business under the name of another company • Franchisee pays fee to the franchisor • Franchisee owns right to use trade marks, systems, operating function, employee training etc .
Types of Franchising • Product & Trade Name Franchising - Dealer use Trade Name & Trade Mark e.g: Dominos (Jubilant Food Works ) • Business Format Franchising - Franchisor transfer package - Package contains Trade marks/name, copyright, designs, patents, trade secret etc. e.g: Who Wants to be Millionaire -> KBC
• Advantages - low risk, low entry cost - Quick development in International Market - Precursor to FDI in foreign market • Disadvantages - High cost of creating international brand -Problem with local legislation - Risk of International reputation
Contract Manufacturing • Company do business in foreign market with responsibility for production to local firm • e.g: IKEA, Danone • Advantages: - low risk - no huge investment in foreign market - avoids transfer-pricing problems • Disadvantages - hard to find reliable manufacturer - contractor could become competitor - Quality control become difficult
Joint Venture • Two or more firms join together • Legally separate new business entity • Shared ownership e.g: Sistema Shyam TeleServices (MTS) Alcatel – Lucent Bharati Walmart • Advantages: - less costly than acquisitions - shared risk of failure • Disadvantages: - Large investments of resources - cultural differences may result in management differences
Types of Entry Mode - Hierarchical • Company completely owns & control foreign entry • Investment mode • New set-up in host country is fully own subsidiary by parent company. • 2 Types - Merger or Acquisition - Green Field
Merger or Acquisition • Domestic company merge with foreign company to enter in Int’l market • Domestic company may acquire/purchase foreign company • e.g: Nokia (Fin)- Siemens (Ger) data n/w & telecommunication division • Advantages: - Immediate grab of market share - Less time & quick to execute • Disadvantages: - tedious task (bankers, lawyers from both countries)
Green Field Strategy • Set-up operations in foreign market from zero • Purchase local property & man power • e.g.: Mercedes – Benz production in Pune Volkswagen India • Advantages: - Control of operations - No risk of loosing technical competence to competitor • Disadvantages: - Lengthy process from scratch - Pre research is time consuming
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