HANOI FULBRIGHT CONFERENCE I

DECISION TOOLSA Heuristic Thinking on

Emerging Market Entry Strategy

Doan Huu DucFB ‘97

HANOI FULBRIGHT CONFERENCE I

AGENDA

• What is it all about?

• How does it work?

• Decision trees?

• Why should we care?

• What can we take away?

HANOI FULBRIGHT CONFERENCE I

What is it?• Backgrounds

– Emerging Maket volatility

– Needs for methodological way to think through or best evaluate executives’ decisions

• Decision tools– Descriptive function: process flow and critical paths

– Prescriptive function: logical order for appropriate judgement or decision

– Mathematical & spreadsheet form: Estimate risk, potential growth and tradeoff

HANOI FULBRIGHT CONFERENCE I

How does it work?

1. Develop objective function

2. Analyze resources and needs

3. Estimate environmental paramenters

4. Identify decision variables

HANOI FULBRIGHT CONFERENCE I

Develop objective function– Why would a company want to enter a new market?– Company task: Motivation and Obstruction

• Internal motivation– Fulfill company culture and image– Get out of the loop– Cutting cost

• External motivation– Fast growth rate and large market size– High local demand– Attractive investment law / gaps– Access low cost resources– Modern infrastructure

– Do a company really know what they want?

HANOI FULBRIGHT CONFERENCE IEstimate environmental paramenters

– Where do you want to do business?– Company task: emerging market study

• Dynamic environment / volatility /unstable• Imperfect, inedequate, lack of regulations• Estimate vs real market size• Lack of standard distribution system and channels• Limited infrastructure• Limited local expertise and skilled labors• Cheap labor might not last long• Policy and social uncertainty

– Where can you do your business?

HANOI FULBRIGHT CONFERENCE I

Analyze resources and needs– What do you have?– Company task: commitment and capability review

• Long term commitment• Flexible strategy to cope with changes• Distance b/w the company and the government• Best timing• Product modification• Technology leapfrog• Right partner• HR investment

– What can you do?

HANOI FULBRIGHT CONFERENCE I

Identify decision variablesEXPORT LICENSING JOINT

VENTUREWHOLLYOWNED

SUBSIDIARY

COST (1: SMALL, 2: MEDIUM, 3: LARGE)

1. Cost of capital commitment 1 1 2 3

2. Cost of management commitment 1 1 2 3

3. Restrain on strategic and operationalflexibility of rest of multinational firm

1 3 2 1

4. Cost of enforcing terms of arrangement 1 3 ? 1

BENEFITS (1: SMALL, 2: MEDIUM, 3: LARGE?

1. Amount of payment to parent 1 ? ? ?

2. Stability of payment to parent 1 3 ? ?

3. Political security to parent 3 3 2 1

4. Contribution to parent’s store ofknowledge

1 1 2 3

5. Contribution to value of parent’strademark and trade name

1 1 2 3

6. Future availability of local outlet to parent 1 1 2 3

HANOI FULBRIGHT CONFERENCE I

Decision trees

• Filters

• Checklists

• Decision trees

• Scenarios

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FiltersFILTERS TARGETS FACTORS LEVEL OF ACCEPTANCEFilter 1 Market potential Economic declining sluggish growing volatility

Politic unstable changing new stable

Socio/Legal preliminary developing changing stable

MACRO Human scarce & unskilled avail. but unsktrainable skillful

Geographic izolated far from HQ close to HQ strategic L

Filter 2 Market vs. ProductGrowth stage Pre Growth Mature Decline

Cultural aceptance Never Poss indiff favor

Market data overflow OK Poor

Market size small medium large

Infrastructure Development Underdeveloped Developing Developed

Taxes & Duties small medium large

Filter 3 Factors Affecting Product Competition existing potential

Entry Barriers easy difficult Unreliable

Information base overflow OK Poor Lacking

Sales Projection small medium large

Profit potentials loss break even gain

MICRO Cost of entry small medium large

Product Aceptance Never Poss indiff favor

"Feel" Neg OK Pos

Filter 4 Target marketsCorp. FactorsImplementationsQuality of life boring/stressful OK interesting Exciting

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ChecklistsDEVELOPING SECTOR EMERGING SECTOR DEVELOPED SECTOR

1 Global experience Vital Critical Important2 Product characteristics Flexible Flexible Rigid3 New product only basic needs depend on lev of dev possible4 Mature product only basic needs possible difficult5 Partner relation Vital Important interesting6 Government relation Vital Critical interesting7 Customer relation interesting important Critical8 Geographic requirement Difficult possible9 Infrastructure requirement Difficult possible None

10 Economic development level requirement Difficult possible None11 Competition position interesting Important Critical12 Global strategy Possible possible Selective13 International strategy Possible possible Selective14 Transnational strategy Difficult possible possible15 Multidomestic strategy Difficult possible important16 Channel design interesting Important Required17 Channel member interesting Important Vital18 Consumer behavior Important Important Vital19 Culture awareness Vital Vital Important20 Finance awareness Vital Vital Vital21 Production size awareness interesting Important Critical22 Legal awareness Vital Vital Important23 Change/Revolving/Volatility Possible Vital possible24 Favor imported product Critical Important interesting25 Information availability Scarce Difficult possible26 Local competition Weak possible strong27 Nationalism Possible possible possible28 Getting latest technology Difficult very likely possible29 Inflation Possible possible difficult30 Transportation Difficult possible excellent31 Income very low low high32 Gaps b/w rich and poor Population small considerable large33 Size of rich vs. poor population small large comparable34 Literacy rate low average high35 Younger age high high low

HANOI FULBRIGHT CONFERENCE I

Decision treeHOME POSTITION TARGET MARKET POSTION

LeaderDominator

Strategy Niche player

Follower

Short termTarget $

Long termPlayers Big player

First comerPosition

Late comer

Market educatorFunction

Mkt penetrator

Small player

HANOI FULBRIGHT CONFERENCE I

Decision tree1 WHY ENTER AN EMERGING ECONOMY ? INTERNATIONAL EXPANSION

MODEL 1a Level of commitment CONSIDERING OTHERS

b Objectives Global Image Sales expansion Diversification ImpromptuExec. pref.

c Level of involving First mover Follower M & A

d Position/Requirement Brand Recgn Market Share Profit margin Burn $$MODEL 2 Cost saving Experience

a Level of commitment INTERESTED

b Objectives Local policies Markets Resources

c Level of involving Testing Penetrating Competing

d Position/Requirement Culture/legal Market size Resource Avail.MODEL 3 Market location Labor force

a Level of commitment HAVE TO MaterialsOthers

b Objectives Match Rivals Follow customers Distribution

c Level of involving wholly owned JVC Rep Off

d Position/Requirement Rival existence Customer existence Channels

2 WHEN TO ENTER? Now ASAP Soon Soon Whenever possible Later Later Wait & See Sometime Sometime How soon am I prepared to move (FLEXIBILITY) vs. how soon must I move (TIME PRESSURE)

3 OBSTRUCTION

4 CHANGE MANAGEMENT (A)

5 HOW TO ENTER?ASK

Self accessment

CHECKCountry risk analysis

6 WHERE TO ENTERPLAN

Matching process

ACTProceeding process

7 CHANGE MANAGEMENT (B)

CHANGABLE LEVELS OF COMMITMENT

SEE IF ANY CHANGE IN PART (d) CAN CHANGE THE COMPANY'S LEVEL OF COMMITMENT BEFORE THE ENTRY

SEE HOW THE FIRM CAN DEAL WITH CHANGE IN THE ENVIRONMENT AFTER THE ENTRY

POTENTIAL RISKS VS. POTENTIAL OPPORTUNITIES

POTENTIAL RISKS VS. POTENTIAL OPPORTUNITIES

WHAT YOU WANT TO DO VS. WHAT YOU CAN OFFER?

WHAT YOU CAN DO VS. WHAT YOU DARE ?

FILTERS

MATCHING DECISION TREE

MODES OF ENTRY

SEE IF ANY OVERRIDING ISSUES CAN CHANGE THE COMPANY'S LEVEL OF COMMITMENT BEFORE THE ENTRY

HANOI FULBRIGHT CONFERENCE I

Decision treeSUGGESTED DECISION PROCESS INTERNATIONAL EXPANSION

Profitability

STEP 1 Goal Growth Market share Social resp.

STEP 2 Possibilities Global Image Sales expansion Diversification

Local policies Markets Resource

Match Rivals Follow customers Distribution

Go to checklist 1

Testing Penetrating CompetingOverriding drivers First mover Follower M & AGo to checklist 0 Self Operating JVC Rep Off

Go to checklist 2

Brand Recgn Market Share Profit margin

Culture Accept Market Acceptance Cost saving

Legal stability Market Avail. Resource Avail.

Rival existence Customer existence Channels

Go to checklist 3

STEP 3 Modify objective Filter 1See exhibit 5: Filters Filter 2

Filter 3Filter 4

Go to checklist 4

STEP 4 Entry plans Decision treeSee exhibit 6 - Decision tree & Exhibit 7: Entry modes Entry modes

Go to checklist 5

Static situation Change situation

Timing of change Change trend

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Scenario planningVIETNAM

SE ASIA

STABLE ENVIRONMENTUNSTABLE ENVIRONMENT

OPEN & REFORM

SLUGGISH

HANOI FULBRIGHT CONFERENCE I

Why should we care?• As an entrepreneur

• Self assessment and road map planning• Calculating Risk vs Opportunity

• As an investor• Self assessment before invest• Self assessment while invest

• As an administrator• Understanding a investor• Evaluating an investment proposal

• As a profesional• Career selection• Strategy advice

HANOI FULBRIGHT CONFERENCE I

What can we take away?

With ambition to help an executive make the better decision as understanding why, where, when, and how to enter and sustain successfully in an emerging market, given her/his company’s particularly capability and dynamic environment, the decision tool consists of sets of quantitative and qualitative models, filters, and checklists to help observe and evaluate the common strategies and processes

HANOI FULBRIGHT CONFERENCE I

HANOI FULBRIGHT CONFERENCE I