International Entry Strategies

Mikkeli 2005Compiled by Rulzion Rattray

Market Share Drives Profitability. Profit Impact of Market Strategy (PIMS) Associates

0

5

10

15

20

25

30

35

40

8 8 15 24 38Market Share Percentage

ROI%

Adapted from Gale, B.T., (1987), “The PIMS Principles”, Free Press. pp 97

Strategic Factors• Critical markets Prahalad,

& Doz, (1986).

– Markets that are profit sanctuaries for competitors

– Markets with volume & state of the art customers

– Markets with good margins

• National Competitive Adv. Porter, M.E., (1990).

• Increasing global levels of FDI.

• Increasingly competitive world markets

01/10/97 7Rulzion Rattray UAD

Global market

participation

Global market

participation

Global MarketShare

Globalbalance

Globallystrategic markets

Globalisation StrategyG. Yip Total Global Strategy 1995

Additional Location Determinants:• Infrastructure

– Transportation, Communications, Electricity, Wage rate, Cost of land, Construction cost, cost of raw material.

• Regulatory/Economic– Cost of bureaucracy– Economic Stability

• Tax rate:– statutory rate general tax burden– effective rate; rate adjusted for all other factors including

subsidies and investment incentives.– Profit repatriation

• Social & Political:– Political stability, culture & language barriers, government

efficiency, corruption, crime levels, cost of pollution control.– Characteristics of local labour; Education, availability, work ethic.

Timing of Market EntryEconomic Effects of Being an Early Mover

High Possible Returns(Advantage)

High Possible Returns(Advantage)

High Uncertainty/Cost(Disadvantage)

High Uncertainty/Cost(Disadvantage)

Market Power:• Barriers to followers• Technical leadership• Product positioningPre-emptive opportunities:• Marketing• Early access to resources• Brand RecognitionStrategic Opportunities:• Location selection• Low competition

Uncertainty:• Undeveloped regulations• Low government experience• New industryOperational Risks:• Lack of supply inputs• Lack of support infrastructure• Unstable market structureExtra Cost:• Learning Curve• Training cost• Anti-immitation costs

Adapted from Shenkar, O. and Luo, Y.(2004), “International Business”, John Wiley and Sons, Inc. pp 273.

Trade related Entry:• Exporting directly or using intermediaries

– Terms of payment: FOB, (Free on Board), FOR (Free on rail), FAS (Free along side), CIF (Cost, Insurance & Freight).

– Key documentation: L/C (Letter of Credit) an irrevocable L/C usually required. See Shenkar, O. and Luo, Y.(2004), Chap 14 for detailed explanation.

• Subcontracting; – e.g. Nike in China

• Countertrade– a form of barter e.g. McDonalds paid for some

franchises in Vodka.

Transfer Related Entry

• Here there is some transfer of ownership involved, user buys some rights in product.– Widely used in products with high level of

intellectual property rights.• International Leasing, e.g. capital intensive

products, earth moving/ mining equipment.• International Licensing; licence in return for

royalty• International Franchising; eg. McDonalds• Build Operate Transfer: typically large capital

and technology based projects, e.g power station

FDI Entry• Foreign Direct Entry involves greater

levels of commitment and risk.– Branch Office; exists as an extension of the

parent and has legal liability. Firms often limit liability by use of offshore subsidiaries.

– Joint Ventures; cooperative with specified contract. Equity based joint ventures.

– Wholly Owned Subsidiary; either by acquiring a fimr or starting a firm from scratch.

Continuum of Entry Modes

Trade Related•Export, Subcontracting, counter trade

Transfer Related•Leasing, Licensing, Franchising, BOT

FDI Related•Joint Ventures, Subsidiaries

Risk &Return

Organisational control and resource commitment

Adapted from Shenkar, O. and Luo, Y.(2004), “International Business”, John Wiley and Sons, Inc. pp 284.

Continuum of Cooperation TechnicalTraining

PatentLicensing Franchising

Non-equityco-operativeagreements

Equity JointVenture

Extent of Interorganisational Dependence

Negligible Moderate High

Collaborate with your competitors -and win Garry Hamel, Yves Doz & CK Prahalad

• Horizontal co-operation a window on each others capabilities:– Opportunity to acquire other’s skills and technologies

• Strategic Alliances:– Competition in another form– Limited life span– Learning from partners of paramount importance

• Mutual Gain is Possible– Where strategic goals converge but competitive goals diverge– Size & market power of both is modest compared with industry

leaders– each partner believes it can learn from the others whilst

protecting its own skills• Only enter partnership if you can learn!

References• Contractor F. & Lorange P. , 1988, “Cooperative Strategies In International

Business”, Lexington Books. Cited in de Wit, B & Meyer, R, Eds. (1994), “Strategy Process, Content & Context, an International Perspective” Pp PP321-331.

• de Wit, B & Meyer, R, (1998), “Strategy Process, Content & Context, an International Perspective” 2nd Ed.

• Gale, B.T., (1987), “The PIMS Principles”, Free Press.• Hamel, G. Prahalad, C.K., (1993), Strategy as Stretch & Leverage, Harvard

Business Review, vol. 71 no. 2.• Hamel G., Doz Y. & Prahalad C .K. , 1989, “Collaborate With Your

Competitors and Win”, Harvard Business Review Jan Feb. 1989. See De Wit & Meyer PP336-343.

• Özsomer, A., & . Cavusgil, T.S., (1999),“A dynamic analysis of market entry rates in a global industry: a community ecology perspective ”, European Journal of Marketing, Vol 33 No 11 pp 1038 – 1063.

• Porter, M.E., (1990), “The Competitive Advantage of Nations”, Free Press, See de Wit, B & Meyer, R, (1998), Pp 773-785.

• Prahalad, C.K., & Doz, Y., (1986), “The dynamics of Global Competition”, Free Press. See de Wit, B & Meyer, R, Eds. (1998), pp 753-772.

• Shenkar, O. and Luo, Y.(2004), “International Business”, John Wiley and Sons, Inc. (Available Library)

• Yip, G., (1995), “Total Global Strategy”, Prentice Hall.