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Global Marketing Management
Chapter 8 Entry and Expansion
Strategies: Marketing and Sourcing
Warren J. Keegan
Overview
Decision Criteria for IB
Entry & Expansion Decision Model
Exporting
Additional Expansion Alternatives
Market Strategy
Summary
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Learning Objectives
To identify criteria for selection of foreign markets.
To appreciate which market entry alternatives are
available to companies.
To recognise export activities as a process developing
over time.
To understand different entry startegies: sourcing,
licensing,investment & ownership
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Decision Criteria for IB
Political risk
Market access
Factor cost & conditions
Shipping consideration
Country infrastructure
Foreign Exchange
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Selecting Foreign Markets
... should be based on a number of criteria:
market-related characteristics
cost-related aspects
the regulatory framework
tariffs, duties & non-tariff trade barriers
the importance of these selection criteria depends
upon the industry & the markets taken into
account
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Market Selection Criteria
1. Market Potential
2. Market Access
3. Shipping Cost & Time
4. Appraising Level & Quality of
Competition
5. Service
6. Product Fit
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Critical Questions for a
Product-Market Profile: The 9 W´s
1.Who buys our product?
2.Who does not buy our product?
3.What need or function does our product serve?
4.What problem does our product solve?
5.What are customers currently buying to satisfy the need and/or
solve the problem for which our product is targeted?
6.What price are they paying for the products they are currently
buying?
7.When is our product purchased?
8.Where is our product purchased?
9.Why is our product purchased?
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A Multi-Stage Selection Process
Approx. 150
countries
Markets which drop out
due to restrictions („must“
criteria)
Source: adapted from D.J.G. Schneider, and
R.U. Müller, Datenbankgestützte
Marktselektion: Eine methodische Basis für
Internationalisierungs-strategien, Stuttgart,
1989
Markets which are filtered out
based on a first set of
selection criteria
Markets which are filtered out
based on a second set of
selection criteria
Potential foreign
target markets
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Visiting the Potential Market
... is essential after assessment & selection of
potential market(s)
goals:
to confirm (or contradict) assumptions regarding
market potential
to gather additional (primary) data
to develop a marketing plan in co-operation with the
local agent or distributor
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Production Abroad
100 %
Ownership &
Strategic Alliances
Ownership
Ownership and
Control
Equity Joint Ventures
Licensing
Franchising
0
0
Control
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Management
Contracts
100 %
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 COUNTRY-OF-ORIGIN EFFECT DEALS
WITH QUALITY PERCEPTIONS OF
PRODUCTS. THIS EFFECT DIFFERS BY
PRODUCT CATEGORY. ALSO, THE
QUALITY LEVEL AT WHICH A COUNTRY
PRODUCES IS FACTORED IN.

COUNTRY-OF-ORIGIN BIAS
CUSTOMERS TEND TO OVERSTATE THE
POSITIVE AND NEGATIVES OF PRODUCT
ATTRIBUTES AND THIS CAN CAUSE A BIAS
TOWARDS PRODUCTS FROM A GIVEN
COUNTRY.
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Direct Exporting
Direct market representation
via wholesalers or retailers or directly to the consumers
Independent representation
independent distributor
Piggyback marketing
distribution through another distributor´s channel
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Exporting: A Developmental Process
Stages of the firm
1. ... is unwilling to export.
2. ... fills unsolicited export orders (export seller).
3. ... explores the feasibility of exporting (may bypass stage 2).
4. ... exports to one or more markets on a trial basis.
5. ... is an experienced exporter to one or more markets.
6. ... pursues country or region focused marketing.
7. ... evaluates the global market potential. All markets, domestic &
international, are regarded as equally worthy of consideration.
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Export Selling vs. Export Marketing
Export selling involves selling the same
product, at the same price, with the
same promotional tools in a different
place
Export marketing tailors the marketing
mix to international customers
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Requirements for Export Marketing
An understanding of the target market
environment
The use of market research and identification
of market potential
Decisions concerning product design, pricing,
distribution and channels, advertising, and
communications
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Government programs that support
Exports
Tax incentives
Subsidies
Governmental assistance
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Governmental Actions to Discourage
Imports and Block Market Access
Tariffs
Import controls
Nontariff barriers
Quotas
Discriminatory procurement policies
Restrictive customs procedures
Arbitrary monetary policies
Restrictive regulations
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Export-Related Problems
Logistics
Legal procedure
Servicing exports
Sales promotion
Foreign market intelligence
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Sourcing Decision Factors
1.
2.
3.
4.
5.
6.
Factor costs & conditions
Logistics
Country infrastructure
Political risk
Market access
Exchange rate, availability &
convertibility of local money
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Non-exporting modes of entry
Three main non-exporting modes of
entry
Licensing (including franchising)
Strategic Alliances
Wholly owned manufacturing subsidiaries
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Three modes of
entry
Host Country
Home country
LICENSING
Blueprint : “how to do it”
Host County
WHOLLY-OWNED SUBSIDIARY
A replica of home
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STRATEGIC ALLIANCE (J.V.)
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A “joint effort”
Licensing
“contractual arrangement whereby one
company (licensor) makes an asset
available to another company (licensee)
in exchange for royalties, license fees or
other form of compensation”
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Licensing
LICENSING refers to offering a firm’s
know-how or other intangible asset to
a foreign company for a fee, royalty,
and/or other type of payment
Advantages for the new exporter
• The need for local market research is reduced
• The licensee may support the product strongly
in the new market
Disadvantages
• Can lose control over the core competitive
advantage of the firm.
• The licensee can become a new competitor to
the firm.
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Licensing
Original Equipment Manufacturing
(OEM)
A company enters a foreign market by
selling its unbranded product or
component to another company in the
market country
Examples:
• Canon provides cartridges for HewlettPackard’s laser printers
• Samsung sells unbranded television sets ,
microwaves, and VCRs to resellers such as
Sears, Amana, and Emerson in the U.S.
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Franchising
 A form of licensing where the franchisee in a
local market pays a royalty on revenues - and
sometimes an initial fee - to the franchisor who
controls the business and owns the brand.
 The local franchisee typically invests money in
the local operation and has the right to operate
under the franchisor’s brand name.
 The franchisee gets help setting up the
operation, usually according to a welldeveloped blueprint. The business is typically
very standardized (fast food operations is a
case in point).
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Franchising
A form of licensing
“a company permits its name, logo,
cultural design and operations to be
used in establishing a new firm or
store.”
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Franchising Pros and Cons
Advantages
The basic “product” sold is a wellrecognized brand name.
The franchisor provides various market
support services to the franchisee
The local franchisee raises the necessary
capital and manages the franchise
A disadvantage
Careful and continuous quality control is
necessary to maintain the integrity of the
brand name.
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Keegan: Global Marketing Management
Strategic Alliances
Strategic Alliances (SAs)
Typically a collaborative arrangement
between firms, sometimes
competitors, across borders
Based on sharing of vital information,
assets, and technology between the
partners
Have the effect of weakening the tie
between potential ownership advantages
and company control
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Equity and Non-Equity SAs
Equity Strategic Alliances
– Joint Ventures
Non-equity Strategic Alliances:
– Distribution Alliances
– Manufacturing Alliances
– Research and Development Alliances
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Equity Alliances: Joint Ventures
Joint Ventures
Involve the transfer of capital, manpower,
and usually some technology from the
foreign partner to an existing local firm.
Examples include Rank-Xerox, 3MSumitomo, several China entries where a
government-controlled company is the
partner.
This was the typical arrangement in past
alliances – the equity investment allowed
both partners to share both risks and
rewards.
Today non-equity alliances are common.
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Joint Ventures
Company run by two or more partner firms
Risk is shared and different value chain strengths are
combined
Influence depends on degree of ownership
Good opportunity to build on local know-how
JV finds greater acceptance by local authorities
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Distribution Alliances
Also called “piggybacking”, “consortium
marketing”
 Examples
• SAS, KLM, Austrian Air, and Swiss Air
• STAR Alliance (United Airlines, Lufthansa,
Air Canada, SAS, Thai Airways, and Varig
Brazilian Airlines)
• Chrysler and Mitsubishi Motors
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Pros and Cons of Distribution
Alliances
 Advantages
Improved capacity load
Wider product line
Inexpensive access to a
market
Quick access to a
market
Assets are
complimentary
Each partner can
concentrate on what
they do best
 Disadvantages
Time arrangement
can limit growth for
the partners
Can hinder learning
more about the
market, creating
obstacles to further
inroads
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Manufacturing Alliances
 Shared manufacturing examples
Volvo and Renault share body parts and
components
Saab engines made by GM Europe
 Advantages
Convenient
Money saving
 Disadvantages
The organization must deal with two principals in
charge of production, harder to communicate
customer feedback
Can putKeegan:
constraints
on future growth
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Global Marketing Management
R&D Alliances
 R&D Alliances
Provide favorable economics, speed of
access, and managerial resources and are
intended to solve critical survival questions
for the firm
Used to be seen as particularly risky, since
technological know-how is often the key
competitive advantage of a global firm
The risk of dissipation has become less of a
concern, however, as technology diffusion
is growing ever faster anyway.
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Wholly-owned
Subsidiaries/Acquisition
Represents the most extensive engagement abroad
Subsidiary is either established through the creation of a
new facility or the acquisition of an existing firm
Company has complete decision power & control
Investor achieves greater flexibility
In many countries majority or 100% ownership by
foreign companies is forbidden
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Manufacturing Subsidiaries
Wholly Owned Manufacturing
Subsidiaries
Undertaken by the international firm for
several reasons
To acquire raw materials
To operate at lower manufacturing costs
To avoid tariff barriers
To satisfy local content requirements
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Manufacturing Subsidiaries
ADVANTAGES
• Local production lessens
transport/import-related costs,
taxes & fees
• Availability of goods can be
guaranteed, delays may be
eliminated
• More uniform quality of product
or service
• Local production says that the
firm is willing to adapt products &
services to the local customer
requirements
DISADVANTAGES
• Higher risk exposure
• Heavier pre-decision
information gathering &
research evaluation
• Political risk
• “Country-of-origin” effects
can be lost by manufacturing
elsewhere.
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FDI: Acquisitions
Instead of a “greenfield” investment, the company can
enter by acquiring an existing local company.
Advantages
Speed of penetration
Quick market penetration of the company’s products
Disadvantages
Existing product line and new products to be
introduced might not be compatible
Can be looked at unfavorably by the government,
employees, or others
Necessary re-education of the sales force and
distribution channels
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Entry Modes and Local Marketing Control
 The local marketing can be controlled to varying
degrees, quite independent of the entry mode chosen.
The typical global firm maintains a sales subsidiary to
manage the local marketing. Examples:
marketing control
mode of entry
independent agent
joint with alliance partner own sales subsidiary
exporting
Absolut vodka in the US Toshiba EMI in Japan
Volvo in the US
licensing
Disney in Japan
Microsoft in Japan
Nike in Asia
strategic alliance autos in China
EuroDisney
Black&Decker in China
FDI
Goldstar in the US
Mitsubishi Motors in US P&G in the EU
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Market Expansion Strategies
Narrow focus: concentrated
markets/concentrated countries
Country focus: diverse
markets/concentrated countries
Country diversification: concentrated
markets/diverse countries
Global diversification: diverse
markets/diverse countries
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Summary
The choice of potential foreign markets
must be based on a thorough evaluation of
criteria which influence the potential
success abroad; eg market potential, market
access, or product fit.
Once the potential foreign target market(s)
is selected, a company has to decide how to
enter this market.
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