MODES OF ENTRY INTO INTERNATIONAL MARKETS:Distribution agreements, Critical mass & optimism traps

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International Marketing MKT630

Lesson # 28

MODES OF ENTRY INTO INTERNATIONAL MARKETS

Entry Strategies

Choosing a mode of entry in international markets:

Choice for an appropriate mode of entry into international markets would depend on a host of factors.

The key factors are given as follows:

Nature of business

Size of the company

Resource availability to the firm

Firm's international strategy

Need for control over business and brands

Ownership advantages

A firm holds unique competitive advantage that overcomes problems of competing in foreign

countries i.e. brand names, technology, economies of scale etc.

· Location advantages for the firm

· Internationalization advantages for the firm

a firm must benefit more from controlling the foreign business activity than hiring another

company to conduct the business

· Market size & growth

6. Risk of operating in the foreign market

7. Government regulation

8. Competitive environment in the country

9. Local infrastructure

All these factors combined determine the overall market attractiveness of the countries being considered

Classification of countries for entry mode selection:

· Markets can be classifies in five types of countries based on their respective attractiveness

Platform

Countries that can be used to gather intelligence and establish a network- i.e Dubai

Emerging

i.e Vietnam, Philippines companies should build up an initial presence, i.e. via a liaison

office

Growth

Early mover advantages often allows companies to build up a significant presence in order to

capitalize on future market opportunities

Mature & Established

These countries have far fewer growth prospects than other types of markets often times,

local competitors are well entrenched

Entry modes and foreign market development:

International Marketing MKT630

Depending on the nature of foreign markets the suggested modes for entry are as follows;

Platform countries

Establish a base to learn, collect information and set up contacts an office perhaps

Emerging markets

Agents representative office

Growth markets

Joint venture local subsidiary

Maturing markets

Joint venture local operations

Established markets

Joint venture acquisition

Entry strategies into international markets:

Selecting and changing entry modes

in a specific country, market attractiveness and the pressure to produce locally are often the most

important criteria for selecting entry modes

by and large governments of developing countries prefer foreign firms to manufacture locally, or

at least to assemble imported parts and components within the country

due to lack of information decisions on entry modes are therefore have to be made under great

uncertainty even though they may affect the well-being of the firm for many years to come

Distribution agreements

presently there is an increasing trend towards more direct involvement in world markets,

especially among larger and more experienced firms - especially in larger markets

distribution agreements, however remain crucial for smaller, less experienced firms and for

markets or market segments which are presently of secondary importance

in many countries there are also restrictions on foreign firms regarding certain activities - where

they need to join with local partners

traditional Chinese distributors, dominating most of the South & East Asian markets, tend to look

at distribution as a cash management business

successful partnerships require a fit in strategies, resources, culture and organization

some Western distributors have been in Asia since colonial times - Diethelm, East Asiatic,

Hagemeyer, Liebermann, Inchcape, Jardine and Swire

Japanese sogo shosha, with dominant role in Japan have often failed to come up to the

expectations of foreign firms with limited sales

Choice of location

the choice of location for the firm within a country / region has to be made at a very early stage of

market entry and carries far-reaching consequences

the choice of location is influenced by location of joint venture partner, location of customer/s,

close to supplier/s, costs, availability of operational infrastructure / supporting industries

International Marketing MKT630

Critical mass & optimism traps

any entry decision is connected with the question of how many resources should be deployed in

the country

the theoretical answer is easy: enough to make an impact on the market, but not so much as to

waste capital or human resources which could be used more efficiently elsewhere

in practice the problem lies in the identification of the critical mass threshold where any

additional input of resources results in a disproportionately high growth in output

this can normally be found by taking the most successful (often the largest) competitor in the

market as the benchmark

Competitive moves for entry into international markets:

· First mover advantage

Unilever still dominates Indonesian and Pakistani markets, P&G those of Philippines - neither of

them have been able to make large inroads into the other's territory

more recently, Japanese firms have opened up new markets for themselves ahead of Western

firms and shaped them to their standards - in Vietnam motorcycles are already called Hondas -

and repair shops Hon-Da service station

· Late entry strategies

the things that work in favor of the first mover represent entry barriers to firms which enter a

market later than competitors

a frontal attack requires superior resources

a late entry is advisable when competition is in turmoil because of technological change in the

industry or changes in the marketplace - or due to changes in distribution systems

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