Chapter 3

International Expansion Strategies

International development phases

• Phase 1: Initial market entry

• Phase 2: Local market expansion

• Phase 3: Globalization

Choosing which markets to enter

Opportunities and threats are assessed at two different levels:

• General business climate of a country

• Specific product market

Country/Market Choice

• Market information

• Competitor information

• Internal information

Market information

• Market potential: measure current demand, forecast future growth, new product launches…

• Market access: “openness”, cost and delays, legal and customs obstacles, marketing infrastructure (distribution channels, ad agencies, etc…)…

• Market receptiveness: perception of firm, “made in” effect of country of origin…

• Market stability: economic, legal, political, cultural risks…

Competitor information

• Who are the competitors?– Inventory of competition– Direct/indirect– Local/global

How many?– Market share?

Internal Information• Production capacities: product adaptation, quality

control, packing, stocking, transport…• Marketing and sales situation: current strategy,

distribution channels, brand image, quality advantages, relationships…

• General strategic situation: situation in domestic market, new product development, innovation, competitive advantage…

• Business goals: short term and long term goals• Financial resources: costs of canvassing, capital

budgeting orientation, available cash, export subsidies…

• Human resources: staff and management motivation, availability, training required, expatriates…

Internal export audit, “diagnostic export”

Criteria for ranking export markets

• General attractiveness of the market

• Competitive advantage

• Risk

• Global strategic importance

• Possible synergies

Market-Portfolio Matrix

Market-Portfolio Matrix

Country Attractiveness

Low

High

Internal strengthsLow High

DIVEST

INVEST

SELECTIVITY

Market selection strategies (Ayal and Zif)Choice of target markets is based on two different alternatives:

• Market penetration (concentration) vs. market skimming (diversification): a limited number of markets or large number of markets

– Market penetration: rather low expansion rate in a few markets for intensive development. The goal is to obtain high market share in each country before expanding into others.

– Market skimming: high rate of return while maintaining a low level of resource commitment. The firm selects more easily available market targets while minimizing risk and investment.

• Segment penetration (concentration) vs. segment skimming (diversification): similar or dissimilar market segments– Segment penetration: focus on a small number of segments in which the

firms seeks a dominant position

– Segment skimming: brand and product diversity, specific launches for some markets

Timing of entry

Simultaneous entry vs. sequential entry

• Simultaneous entry: preempt competition be establishing presences in all major markets, limit opportunities for imitation, potential scale economies may lead to lower unit costs

• Sequential entry: build on knowledge and experience, generally preferred if substantial financial, managerial or other resources are required