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BU 612 Market and Mode of Entry (Week 5)
Legal/Regulatory Influences (contd)
Foreign Market Selection Mode of Entry an overview
Readings?
Ch 7 and 8; Czinkota et al. 2009
Next class?
Ch 9; Calantone and Zhou 2001
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Main Legal Systems Common Law
UK, Canada, the USA, many of the former colonies of the UK
Code Law (aka civil law)
Found where common law is not used
Based on an all-inclusive system of written rules of law (civil, commercial and
criminal)
Islamic Law
Encompasses religious duties and obligations and the secular aspect of the law
regarding human rights
Often applied with code or common law
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Islamic law Koran is the basis for Shariah (Islamic law)
It encompasses:
religious duties and obligations
patterns of social and economic behavior for all individuals
property rights, economic decision making and types of economic freedom
The overriding objective of the Islamic system is social justice
Advocates risk sharing
Prohibits the payment of interest Prohibits investment in activities that violate the Shariah, e.g., the
business of alcohol, gambling, casinos
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Also Marxist-Socialist Tenets Govern Eastern European countries commercial legal system
Czech and Poland revised and re-instituted preWorld War II commercial legalcodes
USSR and China need an entire commercial legal system with respect toprivate ownership, contracts, due process, and other legal mechanisms
Russia is moving toward a democratic system
China is attempting to activate a private sector within a multi-componenteconomy, but their legal systems are still nascent
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Please read the pdf file labeled Tourism Australia on D2L.
Also, check out this link:
http://www.youtube.com/watch?v=rn0lwGk4u9o
Tourism Australia
http://www.youtube.com/watch?v=rn0lwGk4u9ohttp://www.youtube.com/watch?v=rn0lwGk4u9o7/31/2019 612 Week 5 for D2L
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How does the law impact marketing? Product
Physical and chemical aspects
Safety standards
Price
Government price controls
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Sales, Service and Distribution Shipping and rights of carriage
Communications
Deceptive, misleading or fraudulent practices
Propriety and taste
Promoting certain products to certain markets
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IP, Counterfeiting and Piracy Millions of dollars to establish brand names, designs, trademarks etc.
Inadequate protection from products being counterfeited or pirated as
many countries do not recognize trademarks and patents registered inother countries.
McDonald had to buy its trademark back in Japan
In a common-law country, ownership of intellectual property rights isestablished by prior use.
In many code-law countries, ownership is established by registration.
A trademark in Jordan belongs to whoever registers it first in Jordan so thereare McDonalds restaurants, Microsoftsoftware, and Safeway groceriesall legally belonging to a Jordanian
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Country differences (e.g.) USA
Operates under the first to
invent rule
Protects individual inventors
Patents
Applications secret
Granted in up to 24 mos.
Valid for 17 years afterapproval
Japan
Operates under the first to
register policy
Promotes technology sharing
Patents
Applications public
Granted in 4-6 years
Valid for 20 years from timeof application
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Cyber-law Existing internet law does not completely cover the protection of domain
names, taxes, jurisdiction in cross-border transactions and contractualissues
Countries are drafting legislation to address the myriad legal questions notclearly addressed by current law
Examples of unresolved issues
Cyber squatters register descriptive nouns, geographic names, ethnic groups,
pharmaceutical substances and other similar descriptors and hold them until they aresold at an inflated price
The collection of taxes on sale of products, i.e., when taxes should be collected, wherethey should be collected, and by whom
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Foreign
marketselection:potential
determinants
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Viewing market
selection as a process
of segmentation
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Entering foreign markets
Understand what markets are appropriate
Understand whether you want to:
Enter
Take a
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Country clustering (see Cavusgil et al. 2004 in Industrial MarketingManagementfor more details)
Countries are clustered by market size, growth, intensity, infrastructure,
receptivity, free market structure, risk from the perspective of the US
Cluster 1: Mozambique, Senegal, Bangladesh, Yemen, Nepal, Kenya
Cluster 2:
South Africa, Egypt, Honduras, Morocco, Ghana, Indonesia, Algeria, Nigeria,
Pakistan
Cluster 3:
Malaysia, Slovak Republic, Dominican Republic, Tunisia, Vietnam, Syria
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More..Cluster 4:
Mexico, Thailand, Georgia, Turkey, Philippines, Peru, Jordan, Albania, Armenia,
Ukraine, Azerbaijan, Sri Lanka, Moldova, Belarus, Mongolia
Cluster 5:
Russia, Brazil, Argentina, Uruguay, Kuwait, Croatia, Bolivia, Saudi Arabia, El
Salvador, Venezuela, Colombia, Bulgaria, Guatemala, Paraguay, Ecuador,
Romania
Cluster 6:
Singapore, Ireland, S Korea, Spain, Chile, Portugal, Estonia, Slovenia, UAE,
Greece, Czech Republic, Hungary, Poland, Costa Rica, Latvia, Lithuania, Panama
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MoreCluster 7:
Japan, Germany, UK, Belgium, Netherlands, Hong Kong, France, Denmark,
Switzerland, Austria, Italy, Israel
Cluster 8:
Canada, Australia, Finland, Sweden, Norway, New Zealand
Cluster 9:
China, India
All from the perspective of:
USA
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Market screening one example
The Business Environment Risk Index (BERI)
Focus? Political risk
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Screening a 2nd example Identify socioeconomic andpolitical indicators you (the
management team) consider critical
These usually reflect wider strategic objectives
Determine the importance of the indicators to your firm
Rate the countries in your consideration pool on each
indicator
Calculate overall score for each country
Prioritize
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E.g.
Country Per capita
Income
Population Competition Political Risk Score
Country A 50 25 30 40 3400
Country B 20 50 40 10 3600
Country C 60 30 10 70 3650
Country D 20 20 70 80 3850
Weight 25 40 25 10
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Screening a 3rd example Collect historical data on your current export market(s)
Use the indicators you plan to use for the new market(s)
Xic (score of country c on indicator i)
Evaluate your post-entry performance in each of those markets E.g. success score on a 1-10 scale (Sc is success of country c)
Derive weights for each of the country indicators
Use regression with past data (or Delphi approach)
Rate the new/potential countries on each indicator
Predict performance in prospective markets
Plug into earlier regression
Prioritize
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Screening a 4th
example
1
Domestic (home) regulations? What do they suggest?
Management preferences?
2
Economic, political and legal risk?
Market culture, nature and potential size?
3
Competitive barriers?
Entrenched competition?
4
Market fit?
Market responsiveness?
5
Resourcing requirements?
Meet strategic objectives and support competitive advantage?
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Screening a 5th
example
Building a Market Attractiveness/Competitive Strength
Matrix
Involves a combination of:
the management teams experience-based opinions
research
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The market
attractiveness/
competitive
strength matrix
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E.g. of underlying
questionnaire for
placing countries on
a market
attractiveness/competitive strength
matrix
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Discussion Question Read the Tata Nano case on pp 198-99 of your text.
Ignore the questions on p. 199 but answer this
Using any two examples of the market screening
approaches in these notes (as well as your text), identify
logical countries for Tata Nano to enter.
Note you will need to identify a potentially relevant pool ofcountries to consider, justify your screening criteria and work
through the two market screening approaches.
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The international market
segmentation/screening
process: an example of
the proactive and
systematic approach
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Timing of entry Tricky area
Easy to get burned
Very idiosyncratic
Applies to both initial market entry as well as product launches
E.g. early into China?
If you have lots of international experience, are big, have a broad scope
of products, competitors are already there, willing to use non-equity
modes (Gaba et al. 2002)
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Gross
nationalproduct
percapita
High
LowTime
The waterfall approach to market entry
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Advanced
countries
Developing
countries
Less developed
countries
The shower approach to market selection
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A guerilla approach:
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Appropriate
global marketing
strategies for
SMEs (according
to the text)
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Factors influencing the decision to concentrate
vs. diversify across countries
E.g. growth through market development vs. penetration
E.g. accepting of risk vs. risk averseCompany Factors
E.g. low volume vs. high volume business
E.g. standardized vs. customized offerProduct Factors
E.g. small niche vs. large markets
E.g. low vs. high loyaltyMarket Factors
E.g. low vs. high costs to target/support markets
E.g. standardized vs. customized communications
MarketingFactors
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Examples of entry mode options?
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Examples of different B2C entry modes
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Insights from Czinkota et al. (2009)
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Underlying everything? Cooperative relationships
aka strategic alliances
a coalition of 2 or more organizations to achieve strategically significant
goals that are mutually beneficial
Key characteristics
Each party has something the other values
The partnership is autonomous and is flexible
Have commitment and support of top management
Parties are complementary and not too different
Start narrow grow over time
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Rules for choosing mode of entry (Root 1994)
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Factors affecting the foreign market entry mode decision
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Important Note:
Why would you exit (de-internationalize)?
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Exit considerationsBarriers to exit? Guidelines
Fixed costs of exit
Getting rid of assets
Signals to your other markets
Long-term opportunities
Salvage what you can, if you
can
But be aware of escalation bias
Make an incremental exit
Migrate customers