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International Business & Market Entry Strategies (Multi-domestic:…
International Business & Market Entry Strategies
Multi-domestic
: product and service optimization; giving decentralizing decision-making authority to local business units in each country
Disadvantages
faces more uncertainty because of the customization for different countries; cannot take advantage of scaled economies that could help reduce costs
Advantages
focuses on competition within each country and maximizes local responsiveness; assumes that the markets differ and, therefore, are segmented by country boundaries; recognizes consumer needs; industry conditions, political and legal structures, and social norms vary by country
customization of products to meet the specific preferences of local customers (e.g. KFC tempura for Japanese customers); can compete more effectively
Transnational
: combination between global and multi-domestic
Disadvantages
balancing opposing local and global goals
combining the multi-domestic and global strategies is hard to do because it requires fulfilling the goals of flexibility and coordination
Advantages
effective implementation often outperforms competitors who use either the multi-domestic or global corporate-level strategies
best of both worlds; global efficiency and local responsiveness
Global
: centralized and controlled by the home office and seeks to maximize global efficiency
Advantages
sells the same products and services in the same way as every country
assumed to be interdependent; the home office attempts to achieve integration across these businesses
products are much more likely to be standardized and not tailored to local markets
emphasizes larger economies and offers more opportunities to utilize innovations developed at the corporate level or in one or more countries' markets
decreases overall risk
Disadvantages
difficult to manage due to needs to coordinate strategies and operating decisions across borders
achieving efficient operations requires the sharing of resources, coordination, and cooperation across country boundaries; requires centralization control
hinders market share in local markets because the global strategy isn’t as responsive
International and Local Environment
: adapting certain components of strategies to accommodate local environments
Advantages
allows skipping middlemen and go directly to suppliers and customers
Disadvantages
some companies that expand into international markets may ave to change their product until it adapts; it needs local intermediaries to help develop a base of business and an acceptable level of customer awareness and sophistication
some countries have very different traditions and models of competition; meaning strategies will vary across markets
Market Entry Strategies
A little More Costly/Risky
Turnkey Projects
Disadvantage:
government intervention is very high; lack of familiarity with the foreign language and market behaviors; difficulty retaining control and ownership of markets; competition may emerge and it difficult to anticipate; no interest after project completion
Advantage:
service-based; good way to enter foreign markets as the client is normally a government and often the project is being financed by an international financial agency; guaranteed pay
Greenfield Investments
Advantage:
assets increased from buying land and building a facility to operate the business on an ongoing basis in a foreign market; Gain local market knowledge; can be seen as insider who employs locals; maximum control
Disadvantage:
costly & high risk due to government regulations, transportation costs, and the ability to access technology or skilled labor
Buying a Company
Advantage:
some markets buying an existing local company may be the most appropriate; the purchased company may have substantial market share or is a direct competitor; immediately provide the status of being a local company and you will receive the benefits of local market knowledge, an established customer base and be treated by the local government as a local firm.
Disadvantage:
certainly the most costly and determining the true value of a firm in a foreign market will require substantial due diligence
Wholly Owned
Advantage:
more control and management of the business.
Disadvantage:
less advantages of other market entry modes as it involves setting up a presence from scratch; takes more time
Market Entry Strategies
Less Risky and Costly
Joint Ventures
Advantage:
1+1=3 process; work together in a particular market; create a third company; risks and profits are normally shared equally
Disadvantage:
conflicts of interest may occur between the different parties (e.g. profit shares, amounts invested, etc.)
Franchising/Licensing
Advantage:
rapid market expansion; can be easily transferred into other markets with strong brand recognition; useful if the purchaser of the license has a relatively large market share in the market you want to enter
Disadvantage:
revenues may be significantly lower than other market entry methods; lack of control over production and marketing
Partnering
Advantage:
can take a variety of forms from a simple co-marketing arrangement to a strategic alliance for manufacturing; useful in those markets where the culture, both business and social, is different than your own as local partners
Disadvantage:
higher cost than exporting, licensing, or franchising; integration problems between two corporate cultures
Direct Exporting
Advantage:
cost effective and easy; selling directly into the market you have chosen; established sales program ; good quality control
Disadvantage:
requires careful planning especially when accepting orders from overseas customers
Piggy-backing
Advantage:
reduces your risk and costs due to selling domestically and the larger firm is marketing your product or service for you internationally
Disadvantage:
promotion and branding need careful consideration; hard to find a suitable partner; risk the loss of control over the product