International Marketing Entry Strategies free essay sample

Reasons why firms get involved in international markets: Chain of supply(in terms of raw materials),if there are shortage of raw materials in the domestic market ,a firm may opt for the international market, also if the firm has abundant resources the firm can produce locally and export to foreign markets. Optimistic response: the managers and the share holders may have the ambition of going global as a strategic objective. When the product cannot be sold in the local or domestic market: the product may have reached the maturity stage of its product life cycle, hence the need to find new markets for it where it can be rejuvenated and introduce it as a new product. Additional volume: the firm may have surplus production which it may consider for the foreign markets for example in Uganda companies like Mukwano Group of Companies is now exporting to the Great lakes region. Spreading business risks across wider markets, sometimes a firm may not want to keep it‘ eggs† in one†basket†especially when it has the capital base to operate in the foreign market for example Simba Telecom has extended its distribution and Telecom business to other African markets. Gaining access to new markets, firm may have the objective of increasing its market share and the alternative to the domestic market is to go international. A firm may go global with an objective of achieving lower costs and enhancing competitiveness. Factors considered before going international: The planning process: This is important because it helps decision makers to examine all the factors that can affect the success of international marketing programmes. The company’s objectives and Resources: for a company to succeed in an international market it must evaluate is a parent company’s resource in relation to the international market it wants to enter. Level of commitment: the firm must determine whether it is ready in terms personnel, financial and time commitment. Philosophical orientation: this has to relate to the corporate objectives of the firm, this includes: polycentrism, ethnocentrism, geocentrism and regionalcentrism. The firm has to study the external environment by the use of tools like SLEPT (PESTEL) or SWOT analysis to understand the industry and the perceived risks. MARKET ENTRY DECISION STRATEGIES: There are various market entry strategies a firm can consider when entering an international market. There is no universal strategy but the best strategy would be one circumstantially chosen after vivid scrutiny of factors that should be considered before choosing a market entry mode as discussed above. The choice of the entry mode depends on the following factors: Internal factors/conditions: Objectives of the firm regarding sales volumes, time scale and market coverage. If the objective of the firm is of low sales volume for a limited period of time establishing a foreign owned production facility may be appropriate relative to other modes of entry kike exporting. Need for control: The level of control of marketing activities varies greatly from modes of entry. If the firm requires absolute control, establishing a wholly foreign owned investment (subsidiary) is preferred to other modes like indirect exporting which offer virtually no control. The firm’s resources: Resource requirements in terms of human and financial vary according to the modes of entry used. If the firm has less resources indirect exporting or use of agents can be used. Flexibility requirements: the marketer should understand the legal aspects in the given foreign market since the domestic market laws are usually used to settle disputes. The laws related to international business must be clearly understood. The speed of entry: if speed is required, lincencing, exporting or use of agents and distributors. A wholly owned firm may be suitable if the firm is not in a hurry. The size of the firm: small firms are less likely to provide the level of investment capital, organizational ability for operating expensive modes of entry such as wholly owned investment. Management orientation: the foreign market entry will also depend on the decisions of the managers as regards the strategies and policies. External factors: Market potential (size and growth): An international marketer should first understand,analyse the market potential in terms of size and growth rate, if these are high an overseas subsidiary and licensing can be a suitable mode of entry. Competitive environment: The nature of competition and the entry modes used by the competitors have an effect on the entry method used by an international firm. For example the telecom sector and Banking sector. Host country regulations; some countries dictate the modes of entry. And in some countries a firm is given quotas of the product to supply so in such circumstances a firm will opt for a mode that does not require a big investment. The culture of the host country is also important; some countries are not friendly to foreign investors. Risk factors like political instability will affect the mode of entry to choose from, these risks vary from country to country. For example a country that is not politically stable like Somalia and Southern Sudan will require that a firm considers Exporting strategy, because establishing a wholly owned investment is more risky. The Pay back period: Pay back period varies from one entry mode to another. Exporting, lincencing and franchising may have a shorter pay back period compared to joint ventures and a wholly foreign investment. MARKET ENTRY STRATEGIES . EXPORTING: This is the marketing and direct sales of the domestically produced goods and services into another country. It is traditional well established method of reaching the foreign market. No investment in foreign production facility is required. Most costs associated with exporting are in the form of marketing expenses. Top exporters globally include; Japan, China, Germany, USA and India among others. Exporting can take the following forms: Direct Exporting; this is where a company assumes direct responsibility for selling to foreign markets. The firm can set up a ex[porting department or can work through foreign agents, Travelling sales people. Indirect Exporting: independent international middlemen can be hired by an international firm to do the exporting. For example the Bic pen company exports to the Ugandan market through African Queen Ltd,a Ugandan distribution firm. General evaluation of the Exporting strategy I. It minimizes political risks. II. Effective when the market potential is not known. III. It allows flexibility of control of the marketing activities. IV. Termination of business relationships does not incur significant costs and time. Disadvantages I. Fluctuating foreign exchange rates may affect earnings. II. Government interventions can affect earnings for example in Uganda in 2010 there was a controversy between Ministry of Trade and Industry and the Distributors of Eveready Batteries. III. It is difficult to respond to market changes. IV. Lack of control over marketing activities especially under indirect exporting. 2. JOINT VENTURE: Under this strategy an international firm joins with the foreign firm to establish Production and Marketing facilities. Joint ventures can be through. )Licensing: This is where a manufacturing company Grants a license to a foreign firm, and it pays a fee or loyalties in exchange for the use patents, product formular, company name, trade mark or anything of value. Advantages of Licensing: I. It is a cost effective way for affirm to expand, since there is no much capital investment. II. It allows the test of the market with out major involvement. III. It is effective when tariffs ar e high. IV. It provides an opportunity to enter a country or market when production is not possible for example when the host country regulations, risk of xpropriation, lack of resources etc. V. It increases the inflow of sophisticated technology and managerial expertise in the host country. VI. It is a relatively cheaper and simple mode of entry. Disadvantages: I. It restricts the ability of the firm to take full advantage of the market potential. II. There are no guarantees of future expansion. III. It creates competition in the third markets. IV. Loss of control of the firm’s technology. V. Loss of control over the quality of the products. VI. It can result into conflict between Licensee and the linceser. VII. End of business relationship is costly and involves a lot of legalities. b)Franchising: This is a type of licensing that specifies in more detail than licensing of what is expected of the franchisee, the franchiser grants the franchisee the permission to a patent, trade mark, product formular,product formular,company name or anything of value. The franchiser provides operational and managerial help to franchisee eg. in terms of financing, equipment, raw materials, managerial etc. Note: the advantages and the disadvantages are the same as licensing. 3. STRATEGIC ALLIANCES This involves cooperation between firms with out the creation of a new business organization. Alliances are motivated by the desire to share technology and productive resources. They are usually used by Companies in USA, ASIA,PACIFIC AND EUROPE. Advantages I. It allows access to foreign markets. II. It levels distribution of large research and development expenses. III. It enables sharing of complimentary resources. IV. There is spread of risks. Disadvantages I. There is a possibility of misunderstanding and ineffective communication particularly when different cultures are present. II. There is loss of competitive strength. 4. Wholly Owned Foreign Investment This involves establishing manufacturing or assembling facilities in foreign country, it involves a lot of capital investment and time, the firm assumes responsibility for strategic and operational functions. Advantages I. The firm has direct control over business activities. II. The firm gains greater knowledge over foreign local markets. III. The firm does not have to share its profits with other firms. IV. The firm can better apply specialize skills. Disadvantages I. It faces more political risks in case of political turmoil in a host country. II. The mode requires more resources and commitment than any other mode of entry. Conclusion Because of increasing trade between nations today across the globe it is very important that an international marketer understands the international business environment and the factors that affect international trade to be able to make informed decision on the entry mode to consider when entering the foreign market. REFERENCES: 1. International Marketing by Michael R. CZinkota. 2. Global Marketing by Warren J. Keegan, Mark Green, 3rd Edition. Prentice Hall. 3. Global Marketing: Foreign, local and Global Management by Jonny K. Johnson. 4. Building an Import/Export Business by Kenneth D. Weiss: Publisher: Willy. TOPIC: STRATEGY OPTIONS FOR ENTERING AN INTERNATIONAL MARKET. BY: RUGUMAYO ANDREW MPIRWE, MBA 11, MARKETING OPTION. REG. NO. 2011/U/HD/390/MBA KYAMBOGO UNIVERSITY. INTRODUCTION International Marketing Decisions Today due to the rapid growth rate of globalization, all types of businesses are seeking to expand their operations across borders into the global market place. A firm after several considerations can choose an entry strategy to enter a foreign market, among the modes of entry is: Exporting, Lincencing, Joint venture and direct investment, strategic alliances among others that will be discussed later. Reasons why firms get involved in international markets: Chain of supply(in terms of raw materials),if there are shortage of raw materials in the domestic market ,a firm may opt for the international market, also if the firm has abundant resources the firm can produce locally and export to foreign markets. Optimistic response: the managers and the share holders may have the ambition of going global as a strategic objective. When the product cannot be sold in the local or domestic market: the product may have reached the maturity stage of its product life cycle, hence the need to find new markets for it where it can be rejuvenated and introduce it as a new product. Additional volume: the firm may have surplus production which it may consider for the foreign markets for example in Uganda companies like Mukwano Group of Companies is now exporting to the Great lakes region. Spreading business risks across wider markets, sometimes a firm may not want to keep it‘ eggs† in one†basket†especially when it has the capital base to operate in the foreign market for example Simba Telecom has extended its distribution and Telecom business to other African markets. Gaining access to new markets, firm may have the objective of increasing its market share and the alternative to the domestic market is to go international. A firm may go global with an objective of achieving lower costs and enhancing competitiveness. Factors considered before going international: The planning process: This is important because it helps decision makers to examine all the factors that can affect the success of international marketing programmes. The company’s objectives and Resources: for a company to succeed in an international market it must evaluate is a parent company’s resource in relation to the international market it wants to enter. Level of commitment: the firm must determine whether it is ready in terms personnel, financial and time commitment. Philosophical orientation: this has to relate to the corporate objectives of the firm, this includes: polycentrism, ethnocentrism, geocentrism and regionalcentrism. The firm has to study the external environment by the use of tools like SLEPT (PESTEL) or SWOT analysis to understand the industry and the perceived risks. MARKET ENTRY DECISION STRATEGIES: There are various market entry strategies a firm can consider when entering an international market. There is no universal strategy but the best strategy would be one circumstantially chosen after vivid scrutiny of factors that should be considered before choosing a market entry mode as discussed above. The choice of the entry mode depends on the following factors: Internal factors/conditions: Objectives of the firm regarding sales volumes, time scale and market coverage. If the objective of the firm is of low sales volume for a limited period of time establishing a foreign owned production facility may be appropriate relative to other modes of entry kike exporting. Need for control: The level of control of marketing activities varies greatly from modes of entry. If the firm requires absolute control, establishing a wholly foreign owned investment (subsidiary) is preferred to other modes like indirect exporting which offer virtually no control. The firm’s resources: Resource requirements in terms of human and financial vary according to the modes of entry used. If the firm has less resources indirect exporting or use of agents can be used. Flexibility requirements: the marketer should understand the legal aspects in the given foreign market since the domestic market laws are usually used to settle disputes. The laws related to international business must be clearly understood. The speed of entry: if speed is required, lincencing, exporting or use of agents and distributors. A wholly owned firm may be suitable if the firm is not in a hurry. The size of the firm: small firms are less likely to provide the level of investment capital, organizational ability for operating expensive modes of entry such as wholly owned investment. Management orientation: the foreign market entry will also depend on the decisions of the managers as regards the strategies and policies. External factors: Market potential (size and growth): An international marketer should first understand,analyse the market potential in terms of size and growth rate, if these are high an overseas subsidiary and licensing can be a suitable mode f entry. Competitive environment: The nature of competition and the entry modes used by the competitors have an effect on the entry method used by an international firm. For example the telecom sector and Banking sector. Host country regulations; some countries dictate the modes of entry. And in some countries a firm is given quotas of the product to supply so in such circumstances a firm will opt for a mode that does not require a big investment. The culture of the host country is also important; some countries are not friendly to foreign investors. Risk factors like political instability will affect the mode of entry to choose from, these risks vary from country to country. For example a country that is not politically stable like Somalia and Southern Sudan will require that a firm considers Exporting strategy, because establishing a wholly owned investment is more risky. The Pay back period: Pay back period varies from one entry mode to another. Exporting, lincencing and franchising may have a shorter pay back period compared to joint ventures and a wholly foreign investment. MARKET ENTRY STRATEGIES . EXPORTING: This is the marketing and direct sales of the domestically produced goods and services into another country. It is traditional well established method of reaching the foreign market. No investment in foreign production facility is required. Most costs associated with exporting are in the form of marketing expenses. Top exporters globally include; Japan, China, Germany, USA and India among others. Exporting can take the following forms: Direct Exporting; this is where a company assumes direct responsibility for selling to foreign markets. The firm can set up a ex[porting department or can work through foreign agents, Travelling sales people. Indirect Exporting: independent international middlemen can be hired by an international firm to do the exporting. For example the Bic pen company exports to the Ugandan market through African Queen Ltd,a Ugandan distribution firm. General evaluation of the Exporting strategy I. It minimizes political risks. II. Effective when the market potential is not known. III. It allows flexibility of control of the marketing activities. IV. Termination of business relationships does not incur significant costs and time. Disadvantages I. Fluctuating foreign exchange rates may affect earnings. II. Government interventions can affect earnings for example in Uganda in 2010 there was a controversy between Ministry of Trade and Industry and the Distributors of Eveready Batteries. III. It is difficult to respond to market changes. IV. Lack of control over marketing activities especially under indirect exporting. 2. JOINT VENTURE: Under this strategy an international firm joins with the foreign firm to establish Production and Marketing facilities. Joint ventures can be through. )Licensing: This is where a manufacturing company Grants a license to a foreign firm, and it pays a fee or loyalties in exchange for the use patents, product formular, company name, trade mark or anything of value. Advantages of Licensing: I. It is a cost effective way for affirm to expand, since there is no much capital investment. II. It allows the test of the market with out major involvement. III. It is effective when tariffs ar e high. IV. It provides an opportunity to enter a country or market when production is not possible for example when the host country regulations, risk of expropriation, lack of resources etc. V. It increases the inflow of sophisticated technology and managerial expertise in the host country. VI. It is a relatively cheaper and simple mode of entry. Disadvantages: I. It restricts the ability of the firm to take full advantage of the market potential. II. There are no guarantees of future expansion. III. It creates competition in the third markets. IV. Loss of control of the firm’s technology. V. Loss of control over the quality of the products. VI. It can result into conflict between Licensee and the linceser. VII. End of business relationship is costly and involves a lot of legalities. )Franchising: This is a type of licensing that specifies in more detail than licensing of what is expected of the franchisee, the franchiser grants the franchisee the permission to a patent, trade mark, product formular,product formular,company name or anything of value. The franchiser provides operational and managerial help to franchisee eg. in terms of financing, equipment, raw mat erials, managerial etc. Note: the advantages and the disadvantages are the same as licensing. 3. STRATEGIC ALLIANCES This involves cooperation between firms with out the creation of a new business organization. Alliances are motivated by the desire to share technology and productive resources. They are usually used by Companies in USA, ASIA,PACIFIC AND EUROPE. Advantages I. It allows access to foreign markets. II. It levels distribution of large research and development expenses. III. It enables sharing of complimentary resources. IV. There is spread of risks. Disadvantages I. There is a possibility of misunderstanding and ineffective communication particularly when different cultures are present. II. There is loss of competitive strength. 4. Wholly Owned Foreign Investment This involves establishing manufacturing or assembling facilities in foreign country, it involves a lot of capital investment and time, the firm assumes responsibility for strategic and operational functions. Advantages I. The firm has direct control over business activities. II. The firm gains greater knowledge over foreign local markets. III. The firm does not have to share its profits with other firms. IV. The firm can better apply specialize skills. Disadvantages I. It faces more political risks in case of political turmoil in a host country. II. The mode requires more resources and commitment than any other mode of entry. Conclusion Because of increasing trade between nations today across the globe it is very important that an international marketer understands the international business environment and the factors that affect international trade to be able to make informed decision on the entry mode to consider when entering the foreign market. REFERENCES: 1. International Marketing by Michael R. CZinkota. 2. Global Marketing by Warren J. Keegan, Mark Green, 3rd Edition. Prentice Hall. 3. Global Marketing: Foreign, local and Global Management by Jonny K. Johnson. 4. Building an Import/Export Business by Kenneth D. Weiss: Publisher: Willy.