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International Market Entry Strategies (Partnering- Strategic Alliance…
International Market Entry Strategies
Partnering- Strategic Alliance
What is it?
Market arrangement to a strategic alliance for manufacturing with a partnering business.
When is it used?
Useful strategy in those markets where the culture is substantively different than your own thus as local partners bring local market knowledge, contacts and if chosen wisely customers.
Disadvantages
Higher cost than exporting, licensing, or franchising
Integration problems between two corporate cultures
Different views on different subjects and benefits between the two parties
Fragile
Finding balance is difficult
Advantages
Shared Costs reduce the need for investments
Reduced risk
Seen as a local entity
Joint Finanacial strength
Direct Exporting
What is it?
Selling directly into the market you have chosen using in the first instance you own resources.
Advantages
Potential profits are greater due to cut in intermediaries
Already prior understanding of customers
Control over all aspects of transactions
Customers know who you are
Feedback gets back to you faster and more directly on products
You know who to contact if something goes wrong
Somewhat better protection on trademarks , patents , and copyrights
Better understanding of the market
Disadvantages
Larger risk in credit , financing, collection, rejected merchandise and after sale service.
Greater Initial Overlay
Difficulty in stock maintenance
High distribution costs
Need for better managers for documentation, shipping, financing, collection etc.
Too much dependence on distributors
Licensing & Franchising
What is it?
Firm transfers the rights to the use of a product or service to another firm
When is it used?
Used if the purchaser of the license has a relatively large market share in the market you want to enter. North American process know as Franchising
Advantages
Options to buy into partner exist or provision to take royalties in stock.
Capital not tied up in foreign operation
Linkage of parent and receiving partner interests means both get most out of marketing effort
Good way to start in foreign operations and open the door to low risk manufacturing relationships
Fast Entry
Disadvantages
Limited form of participation - to length of agreement, specific product, process or trademark
Potential returns from marketing and manufacturing may be lost
Partner develops know-how and so licence is short
Licensees become competitors - overcome by having cross technology transfer deals and
Requires considerable fact finding, planning, investigation and interpretation.
Turnkey Projects
What is it?
Particular to companies that provide services such as environmental consulting, architecture, construction and engineering. The facility is built from the ground up and turned over to the client ready to go – turn the key and the plant is operational.
Disadvantages
Risk of revealing companies secrets to rivals, and takeover of their plant by the host country.
Can create efficient global competitors
No control over deign and construction matter, so project may not be up to par with expectations
No long-term interest in country resulting in a
major market for the output of the process exported
High Costs
A form that is difficult to implement
High financial risk
Advantages
Contractors will be motivated to finish the job so they can get paid
Good amount of time to find the right investors and financing to pay for the project
Contractor takes responsibility for the design through completion and commission
Earning great profits especially in countries where direct investment is limited
Great chance of a permanent stay in the foreign market after completion of the investment
Includes development and training for key employees
Joint Ventures
What is it?
Form of partnership that involves the creation of a third party company. It is the 1+1=3 process.
When is it used?
Two companies agree to work together in a market market and create a third company to undertake this.
Disadvantages
Partners have no full control of management
Difficulty recovering capital if need be
Agreements on third party markets to serve may be difficult
Different views on different subjects and benefits between partners
Advantages
Better local market intelligence provided by indigenous joint venture partner
Joint financial strength
Closer control over production, marketing and other business operations.
May be the source of supply for a third country.
Acquisition
What is it?
Buying an existing local company that has substantial market share and competes with you or due to government regulations
Advantages
You gain access to an established market.
You have skilled workers at your disposal.
Licences are “grandfathered” in.
You instantly acquire the company’s technology, clients and vendors.
Negotiations usually occur at top level, and the target company handles licensing and compliance.
You have instant branding.
You have one less competitor to deal with.
Your knowledge base increases.
Disadvantages
Existing problems are grandfathered to you
Which of the target company’s employees are politically connected, and with whom?
“Favours” and concessions may be assumed.
Company’s technology may well be outmoded
Branding is often not part of HQ’s ideals.
Costly and time-consuming.
Blending of corporate cultures.
Training local management (and HQ’s management).
Potential tax and legal problems.
Indirect Exporting-Piggybacking
What is It?
Using your product that you sell to a domestic firm and asking them to use in their foreign markets
Advantages
No need for international experience
Fast entry
Little or no financial commitment
Limited liability on product market issues
Can commit to domestic business
Almost no need for involvement in export process
Learn as you go in International marketing
Begin almost risk free
Disadvantages / Risk
Goals can change rapidly
Choosing the wrong distributor & market
Out of the loop in transactions
Never know who your customer is
Complete erosion of brand
No control over foreign sales
Greenfield Investments
What is it?
Buy the land, build the facility and operate the business on an ongoing basis in a foreign market
Advantages
Increased overall direct control over entire business like products and service manufactured
The ability to form marketing partnerships
Both products and pricing can be adapted to the needs of the local market.
The cost of using intermediaries to conduct business is virtually avoided altogether
Disadvantages
The barriers to entry can be costly.
The entry process may take years.
Competition will be difficult to overcome.
It is likely to cost more.