Anders Kjøller 03 04 17
Zealand Global Workshop
CUSTOMER SEGMENTATION, MARKET & PARTNER STRATEGY
Anders Kjøller, Dansk Industri
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Market
SelectionAnalysis Strategy
“A Success aboard starts with a dialogue at home”
DI's department for international
business consultancy (DIBD)
Experts in strategic business development in
emerging and developing markets
Experience from more than 700 projects in
more than 40 countries
Offices in China, Russia, India, Brazil, USA,
Mexico, and Kenya.
67 employees in Denmark and the DI's foreign
offices
Global network of sister organizations and
partners
Implementation /
market entry
Home Aboard
Export & Internationalization ConsultancyComparative market and location studiesMarket StudiesFeasibility studies / business plansMarket entry strategyDistributor Management Tools"Own Man In" market start-up solutionOutsourced Subsidiary Administration
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Højreklik på billedet, vælg ”Skift
dette layout:
For at få et baggrundsbillede:
PREPARATION
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DI tools for International Partnerships
Value-based Customer Segmentation
Structured Market Selection
Partner Search
Partner Management Guide
Link: http://di.dk/Marked/Eksport/vaerktoejertilinternationalisering/Pages/eksportrvaerktoejer.aspx
Operational tools developed by DI in close cooperation with selected member companies
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Internationalization
1
2
3
Customer Segmentation
Which customer segment does the company serve best?
Structured Market Selection
Which markets to enter?
Market Entry Mode
Select suitable market entry modeStrategic importance vs. company’s resources & risk profilePriority of markets, assessment of market potential
Prior to expansion into foreign markets consider:
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Structure of each of the 3 modules today
Presentation of the tool(s)
Work with the tool related to your own company
Questions & follow-up
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Internationalization
1
2
3
Customer Segmentation
Which customer segment does the company serve best?
Structured Market Selection
Which markets to enter?
Market Entry Mode
Select suitable market entry modeStrategic importance vs. company’s resources & risk profilePriority of markets, assessment of market potential
Prior to expansion into foreign markets consider:
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Customer Segments & Value Propositions
How to link your customer segments with matching value propositions
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Value Proposition
What The Customer
Needs
Your Offering
The Marketplace
Offerings
Your Value
Proposition
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Observe and decode the customer’s perspective
Value Proposition Canvas
Source: Value Proposition Canvas, Strategyzer
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Know your customers’ purchasing criteria
$
Customers
demand?
Do your
customers
have similar
needs?
Do your
customers
seek the same
value solution?
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Value Based Customer Segmentation
3 advantages
1. Optimal Resource
Allocation
2. Increased Profit
3. Market Selection
Understand the customers needs, collect information about your customers, examine in detail how your company creates value for the each of your customers
Group customers based on similar customer needs
The more precise the definition of the customer segments, the more efficiently the marketing can be designed
Consciously deselected irrelevant customer segments based on insight into which type of customers you serve best.
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Priority: Choice of key customer segment
ToFocus on few
selected
Customer
Segments
FromServing All
Customer
Segments
Randomly
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Value Based Segmentation: The 3 Steps
2 Customer segments are formed
CS1 CS4CS2 CS3
Selection of segmentation variablesV1, V2, V3 … V81
3Selection of target group
CS5 CS6
CS5CS1
6-8 variables are selected.
Customer profiles are prepared from knowledge on existing customers. Based on the profiles, customer groups are created.
Based upon an internal analysis, focus segments are chosen.
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Step 1: Selected Segmentation Variables
Price
Customer Relationship
Advisory
After Sales Service
Product and quality
Considerations when
the variables are
selected
• Its impossible to cover everything, select 6-8 variables at most, and stick with them
• Stay focused! - what are the key factors why the customers select you?
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The continuum of segmentation variables
Price
Customer Relationship
Advisory
After Sales Service
Product and Quality
Price important
Relationship orientated
Highly important
Highly Demanding
High tech / Quality Important
Price less important
Transaction orientated
Less important
Less demanding
Standard products
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Step 2: Method
1. The group develops customer profiles, preferably lead by the colleague who knows the customer best. Inputs from the entire group are however important.
2. Develop customer profiles for all types of customers
3. Subsequently, customer profiles are evaluated and compared. Possible differences are discussed (this discussion is important, as this highlights how your company creates values for the customers, and your market position)
4. Collect the customer profiles in homogenous groups and subsequently describe them as customer segments
5. On the basis of interviews with the customer, test the profiles, keeping focus on where you create value, and where you do not
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Step 2: Customer profile (illustration)
Price
Customer Relationship
Advisory
After Sales Service
Product and Quality
Price important
Relationship orientated
Highly important
Highly Demanding
High tech / Quality Important
Price less important
Transaction orientated
Less important
Less demanding
Standard products
Customer: Company X
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Creating Customer Segments
CUSTOMER SEGMENT 1:
CUSTORMER SEGMENT 3
CUSTORMER SEGMENT 2
CUSTORMER SEGMENT 4
Divide the customer profiles in homogenous groups and subsequently describe them as customer segments
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Define customer segment
• “We have to know that we are price sensitive with regards to subjects and systems, but simultaneously keep a holistic perspective”
• “Be capable of delivering components or systems varying with our needs and your competitiveness”
• “Deliver counselling, sparring, and service”
• “Carry the assignment as a strategic partner, and keep in mind that we strive towards close collaboration with the customer”
• “Deliver on the agreed upon time• Offer short, competitive delivery
times on new subjects”• “Goodwill is earned through fast,
flexible and reliable deliveries and service”
Characteristics of Customer Segment X
Price sensitive large scale customer within sector XCustomer typically demands system solutions or components with special requirements Customer appreciates close cooperation and require a high level of service
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Step 3: Method
Deciding on a Target Groups
2
Customer segments are formed
1
3
Selection of target group
Evaluate all customer segments in two dimensions
Customer segment’s attractiveness (Market segment)The company’s ability to service the segment (company’s competiveness)
Plot the result in the evaluation matrix
Use MS Excel
Focus segments are selected
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Step 3: Deciding on Target Groups
Customer Segment's Attractiveness
The Company’s Ability to Service the Customer Segment
Access to market segmentSize of markets segmentGrowth with in market segment
Is the company able to optimally service the customer segment with the current product portfolio?Does the company’s marketing mix meet the customer segment’s needs? Does the company’s financial marketing, and personnel recourses to service the customer segment?Does the company service the customer segment better than competitors?
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Step 3: Customer Segment’s Attractiveness
Criteria Very
Poor
1
Poor
2
Medium
3
Good
4
Very
Good
5
Weight % Score
Total score 100%
Segment: _____________________________________
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Step 3: Company’s Ability to Service Segment
Criteria Very
Poor
1
Poor
2
Medium
3
Good
4
Very
Good
5
Weight % Score
Total score 100%
Segment: _____________________________________
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Step 3: Evaluation Matrix
1 2
3 4
Low
High
High
Not Attractive
The company is very good at servicing the customer
segment
The company is poor at servicing the customer
segment
Customer Segment Attractiveness
Co
mp
etitive
ne
ss
Very Attractive
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1 2
3 4
Step 3: Evaluation Matrix (illustration)
Low
High
High
Very Attractive Not Attractive
Customer Segment Attractiveness
Co
mp
etitive
ne
ss
1
2
3
4
5
The company is very good at servicing the customer
segment
The company is poor at servicing the customer
segment
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Process
Presentation of the tools
Work with the tool related to your own company
Questions
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VHSJDI
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Workshop Exercise
Customer SegmentationHow to profile customers and create customer segments How to evaluate and selected the best customer segment(s)
#1
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Customer Segmentation
Key Variables
What are the unique selling points
of your product?
• Select the key variables which are the unique selling points of your product
• Select variables, write them on post it notes, and put them on the “Key Variables” template to be discussed in the forum
Question
1
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The continuum of segmentation variables
Price
PR
OF
IL
ES
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
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Customer Segmentation
Questions
Prepare two customers profiles based
on two of your existing customers?
• Write the select variables (from first exercise) on the customer profile template and define the range
• Draw profiles of two of your existing customers, who have different buying patterns
Profiling customer segments2
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Segments & Value Proposition
Which customer segment(s) do you serve the best?
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1 2
3 4
Evaluation Matrix (illustration)
Low
High
High
Very Attractive Not Attractive
Customer Segment Attractiveness
Co
mp
etitive
ne
ss
The company is very good at servicing the customer
segment
The company is poor at servicing the customer
segment
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Customer Segments & Value Proposition
Source: Value Proposition Canvas, Strategyzer
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Internationalization
1
2
3
Customer Segmentation
Which customer segment does the company serve best?
Structured Market Selection
Which markets to enter?
Market Entry Mode
Select suitable market entry modeStrategic importance vs. company’s resources & risk profilePriority of markets, assessment of market potential
Prior to expansion into foreign markets companies should consider:
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Market Assessment
Total market
Irrelevant
Markets
Relevant
Markets
Wide screening
Attractive
Markets
Not able to
compete
Attractive
Market
Segments
Competitive
Attractive
Market
Segments
Fine screening
Fine screening
Best
Competitive within chosen segments
Better than the competitors within
this customer segment
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Priorities: Choice of Focus Markets
On which markets can products easily be imported?Where is distribution accessible?Few conditions apply to the market
Where do we want to sell our products?Where should our focus be?Where do we make best use of our resources?Markets chosen from objective criteria
ToStructured
Market
Selection
FromRandom
Market
Selection
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3
The Model
2
1 Wide Screening
Fine Screening
Market
AttractivenessCompetitiveness
Final Selection
External Internal
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Core
Markets
Low
(1)
High
(5)
High
(5)
Very Attractive Not Attractive
Market Attractiveness
Co
mp
etitive
ne
ss
Re-distribute
Resources
Upgrade
Capacities
Non-
Interesting
Markets
Structured Market Selection
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Højreklik på billedet, vælg ”Skift
dette layout:
For at få et baggrundsbillede:
Case: House of Prince
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Case: House of Prince Tobacco
Separated as independent subsidiary company in 1990International cigarette manufacture with sales in 40+ countriesCigarette production in Denmark, Norway, Latvia and PolandHouse of Prince has sales subsidiaries in Sweden, the Baltics, Czech Republic, Hungary and Greece Total sale annually of more 28 billion cigarettesNet turnover of 3 billion DKK in 2007/2008750 employees – 600 in Denmark (Søborg)Own by British American Tobacco since 2008
International Growth on
European Markets
Norway 1961
Sweden 1962
Germany 1974
Greece 1980
Czech Republic 1990
Latvia 1992
Lithuania 1994
Estonia & Poland 1995
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Case: House of Prince Tobacco
PRINCE
CHALLENGES
Decreasing total markets in the Western countries
Decreasing market share in home markets
Decreasing earnings as a result of rise in “budget cigarettes”
Increased competition as a result of consolidation within
industry
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KosovoJuli
2005
ArmeniaAug 2004
GeorgiaJuli 2006
JapanApr. 2005
BulgariaOkt. 2006
Hong K.Apr 2005
IranApr
2005
IraqAug 2004
IsraelMar
2004
LibanonApr. 2003
PortugalDec 2004
AlbaniaApr. 2005
HungaryMaj 2005
AustriaMaj 2005
SlovakiaApr. 2004
KazakhJuly 2005
SerbiaDec 2002
Ex
pan
sio
n in
to n
ew
m
ark
ets
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The Problem!
Lack of overall direction
Lack of focus and prioritization
Poor utilization of resources
!
NEED: Structured Market Selection
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Priorities: Choice of Focus Markets
On which markets can products easily be imported?Where is distribution accessible?Few conditions apply to the market
Where do we want to sell our products?Where should our focus be?Where do we make best use of our resources?Markets chosen based on same criteria
ToStructured
Market
Selection
FromRandom
Market
Selection
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3
The Model
2
1Wide Screening
Fine Screening
Market
AttractivenessCompetitiveness
Final Selection
External Internal
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Step 1: Wide Screening
Screening Criteria
General market data
Purchasing power
Buyer patterns and trends
Infrastructure (e.g. access to harbor, storage, distribution structure)
Presence of core customers
Political & economic stability
Language (ability to communicate in English)
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Step 2: Fine Screening - 2 Dimensions
Market
Attractiveness
Company
Competitiveness
Market growthPurchasing powerCustomers in focus segmentCompetition (No. of competitors)Price sensitivenessSubstitutesCustoms and import restrictions
Branding and image strengthDeliveries and logisticsCompetitiveness Quality Competitiveness PriceAccess to technical serviceAbility to invest in capacity building
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How to do it?
1
2
3
4
5
Define Questions
Decide On Weights
Market Attractiveness is Evaluated for
Each Market
Company Competitiveness in Each
Market is Evaluated
The Selected Markets Are
Placed in the Evaluation Matrix
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Define assessment questions
Define the questions which will serve as assessment criteria for each market in the two dimensions (market attractiveness and competitiveness)
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Core
Markets
Low
High
High
Very
Attractive Not Attractive
Market Attractiveness
Co
mp
etitive
ne
ss
Re-distribute
Resources
Upgrade
Capacities
Non-
Interesting
Markets
Structured Market Selection
Market
Market Z
Market X
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Process
Presentation of the tools
Work with the tool related to your own company
Questions
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Core
Markets
Low
High
High
Very Attractive Not Attractive
Market Attractiveness
Co
mp
an
y’s C
om
pe
titive
ne
ss
Re-distribute
Resources
Upgrade
Capacities
Non-
Interesting
Markets
Structured Market Selection
MA
RK
ET
S
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Core
Markets
Low
High
High
Very
Attractive Not Attractive
Market Attractiveness
Co
mp
etitive
ne
ss
Re-distribute
Resources
Upgrade
Capacities
Non-
Interesting
Markets
Structured Market Selection (Example)
Egypt
Germany
Sweden
ArgentinaUK
Spain
Potential markets
Selected markets
China
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Core
Markets
Low
High
High
Very
Attractive Not Attractive
Market Attractiveness
Co
mp
etitive
ne
ss
Re-distribute
Resources
Upgrade
Capacities
Non-
Interesting
Markets
Structured Market Selection
__________
__________
____________________
_____________________
___________
Your Markets?
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Market Selection
Market Selection
Market
• Which markets are you currently considering to enter into?
• Place the selected markets in the matrix, thereby assessing each market both in terms of “market attractiveness” (X axis) and your own “company’s competitiveness” (Y axis)
• Use the template
Questions
1
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Valg af etableringsform (Entry Mode)
Hvad er fordelene og ulemperne ved de forskellige etableringsformer
Skitsér din etableringsform
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Internationalization
1
2
3
Customer Segmentation
Which customer segment does the company serve best?
Structured Market Selection
Which markets to enter?
Market Entry Mode
Select suitable market entry modeStrategic importance vs. company’s resources & risk profilePriority of markets, assessment of market potential
Prior to expansion into foreign markets consider:
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Different types of entry modes
Direct Export
Management Agreements
Rep. office
Agent / Distributor
Licensing
Franchising
WFOE / Subsidiary (100%)
Co-operative JV
Sales Subsidiary
Equity JV
Contract manufacturing
Risk
Return
Resource commitment
Control
Global Integration
Strategic FlexibilityIndirect Export
Production Investment Modes
Contractual Modes
Export Modes
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Entry Mode - comparison
ENTRY MODEFACTORS SUGGESTING THIS
ENTRY MODEADVANTAGES DISADVANTAGES
Export
• Export
• Agent
• Distributor
• Rep Office
• Sales Office
- Limited sales potential in the
target country
- Limited product adjustment
required
- Distribution channels close to
production
- Liberal import policies
- High political risk
- High value/weight relationship
- Minimum risk and investment
- Fast penetration of the market
- Maximum capacity utilisation on
existing production facilities
- Less management resources
required
- Trade barriers and import duty
increase costs
- Higher transport costs
- Limited access to local
information
- The brand and the company is
considered a foreign
brand/company
Contractual
Modes
• Licensing
• Franchising
• Contract manufacturing
• Co-operative JV
- Import and investment barriers
- Legal security possible in the
target country
- Limited sales potential
- Large cultural distance
- Partner lacks the ability to
become a competitor
- Minimise risk and investment
- Fast penetration of the market
- Possibility to evade trade barriers
- Often high ROI
- Limited control over asset use
- Partner could become a
competitor
- Contract period usually limited
- The earning potential can be
limited
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Entry Mode - comparison
ENTRY MODEFACTORS SUGGESTING
THIS ENTRY MODEADVANTAGES DISADVANTAGES
Joint Venture- Import barriers
- Large cultural distance
- High sales potential
- Some political risk
- Assets can effectively be priced
- 100% foreign owned
companies not allowed
- Local companies that can
contribute effectively to
penetrating the market
- Evade ownership restriction
and cultural distance
- Combine the resources of two
companies
- Potential for learning
- Obtain status as local
competitors
- Less investment required
- Requires significant
management resources
- Less control
- Higher risk than previous
modes
- Partner could become a
competitor
- Objectives change over time =>
not always in the same
direction
- Difficult to maintain mutual
dependence
Wholly owned
Subsidiary
- Import barriers
- High sales potential
- Low political risk
- Need for control
- Short cultural distance
- Knowledge of the market
- Easier to use special
competencies
- Obtain local status
- Highest degree of control
- High risk
- Low flexibility in abrupt market
changes
- Significant management
resources required
- Local conditions hard to handle
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Case 1: Company X’s entry mode with distributor
Payment for spare parts
Spare
parts
Company X Foreign Partner
Machine supplyForeign
Customers
Sales provision
Spare parts
Payment for
Spare parts
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Case 2: Company X’s entry mode with license + distribution
Company X A/S Foreign PartnerForeign
Customers
High Tech components for local distribution
Technology og Know-how
Royalty and payment
Local
Sub-supplier
Raw materials for
production
Sales of own and
imported products
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Case 3: Joint venture + License + Management + Distributor
Managem
ent
agre
em
ent
Local PartnerDanish Partner
Joint
Venture
Local
Customer
Local
Customer
Local
Customer
Share capital
Lic
ense
agre
em
ent
Shareholders Agreement
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Determining Factors
Legal Framework
Country Risk
General Experience
Entry Barriers
Project Orientation
Government
Policies
Infrastructure
Cultural Distance
Demand Conditions
Structural
Uncertainty
Competition
Strategic Intent
Buyer Relations
Supplier Relations
Specific Experience
Contractual Risks
Project Size
Asset Specificity
Resources
Partner Availability
Product features
Country
Factors
Firm
Factors
Industry
Factors
Project
Factors
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The Main Principle…
The marketing channel should deliver the required products and services in the right
quality at the minimum cost
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Process
Presentation of the tools
Work with the tool related to your own company
Questions
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VHSJDI
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Workshop Exercise
Relevant Entry Mode Discuss the suitable entry mode(s) related to your own company
#3
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Choice of Relevant Entry Mode
Entry Mode
What is the suitable market entry mode for your company?
• Reflect on the different types of entry modes and/or the combinations of entry modes• What is the suitable market entry mode for your company? • Sketch how you see your market entry mode• Use the template
Questions
1
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Anders Kjøller
Manager
DI International Business Development E-mail: [email protected]: (+45) 33 77 37 72 / (+45) 26 20 45 60
www.di.dk/international