Global Marketing Entry

7/28/2019 Global Marketing Entry

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Global Marketing

Topic:Modes ofentryin overseas

markets

Lecturer:Mr. Medwynter


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MODES OF ENTRY IN OVERSEAS MARKETS

1) Three categoriesofentry

2) Three criteriaforselectinga mode ofentry

3) Examinationof export entry mode

4) Distinguishbetween directexports and indirectexports

5) Examinethe rationalfor overseas production

6) Methods ofoverseasproduction


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THREE MODES OF ENTRY

Broadly speakingthree modes of entry are identified

INDIRECT EXPORT

DIRECT EXPORT

OVERSEASMA

NUFA

CTURING

. INDIRECTEXPORT

which the rese

llthe product to customeroverseas

DRAGON STOUT:sold to wholesaleinJamaica who inturn

ship goods to To onto


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.

DIRECT EXPORTSThese are sales to customers overseas. These customers

may be intermediary org.based abroad orend-users

. OVERSEAS MANUFACTURER

A firm may set up its own productionoperationaboard orenterintojointventure withenterprisesoverseas market.

- Licensing

- Contract manufacturer

- Joint venture

- Wholly owned overseas production Acquisition

Organicgrow


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Decisiontoentermarket

Exporting

Overseasprod

Indirect Diect

Home-based

L CM V

WO

Managersbuyingoffices piggybanking

Overse

as

ExportAgents

To finalusers

Viacompany

Branchoffices


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KEYISSUES

EXPORT

- Exchange rates, protectionism

- Lack of knowledge

OVERSEASPRODUCTION

- Politicalrisk,partnership

- Managingoverseas facilities


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CRITERIA FORSELECTING A MODE OF ENTRY

To choose a mode of entry to a particularmarket, the

followingshould be considered:

1) THE FIRM'SMARKETINGOBJECTIVES

In relation to volume,timescale and coverage market

2) FIRM'SSIZE

A smallfirmwillbe lesslikely to set up overseas

production

3) MODEAVAILABLITYA firmmight have to use differentmodes of entry to

enterdifferentmarkets


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4)MODEQUALITY

5) HUMAN RESOURCES

REQUIREMENTS

6) MARKETINFORMATIONFEEDBAK

7) LEARNINGCURVE REQUIREMENTS

8) RISK-Political

Expropriation ofoverseas assets- discouraging9) CONTROLNEEDS

The more involved the greaterthe degree ofcontrolover the marketingmix variable


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RATIONAL FOROVERSEAS PRODUTION

Locationaboard can offer eventually a better

understanding of the problems and needs ofcustomers.

Some markets are so large that economies ofscale can be

gained by overseas production.

Production cost are lowerin some countriesoverseas thanat home


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Forfirmsproducingbulkyproducts overseas productioncan reduce storage and transportationcost

Overseasproduction can overcome the effect of tariffand

non-tariffbarrierto imports.[apan- car manufacturer.

When overseas government is a customer- winning

combination


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METHODS OF OVERSEAS PRODUCTION

A firmstrategicchoice ofoverseasproductionmethod

depend on itsobjectiveresources and level ofcommitment

to IM.

LICENSING

Licensing agreement is a commercial contract whereby thelicensergives something of value to a licensee in exchange

forcertainperformances and payments.

The licenserprovide any of the following:

- Manufacturerknow- how

Marketingadvise and assistance the right to use trademark,brand,

technicaladvise and assistance


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Includingsupply ofessentialmaterial.

Right to produce patented product

Eg.HEINEKEN BEERIN JAMAICA


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ADVANTAGES OF LICENSING

1) It require no investment-only cost ofmonitoring

2) It enables entry into new markets that would

otherwise be closed-tariff,government attitudesand

policies.3) As a mode of entry itissimple and quick

4) The licensergainsaccess to knowledge and local

5) New products can be introduced to many countriesquicklybecause of lowinvestmentrequirement.

6) It providesall the usualbenefits ofoverseas

production


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SOME DRAWBACKS TO LICENSING

Revenues from licenses are very lowless than 10% of

turnover

A licensee may eventuallybecome the licenser's

competitor-know-how-power Product quality can deteriorateiflicensee has a more lax

attitude

Althoughcontract may specify minimumsales volumethere is some dangerthat the licenseewill not fully

exploit the market. HEINKEN/ RED STRIPE

3:1 ratio


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FRANCHISING

Thisis a type of licensing. The franchiseagreement

specifiesin more detail than a licenseeagreement, exactly

what isexpected of the franchisee

In thisagreement the franchisersupply ingredients,

standard package of goods components, management and

marketing.


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FRANCHISING CONT'D

The franchiseprovidecapital,personalinvolvement,local

market knowledge.

KFC


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FRANCHISING CONT'D

HOLIDAY INN


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FRANCHISING CONT'D

BURGERKING


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FRANCHISING CONT'D

HILTON HOTEL


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FRANCHISING CONT'D

TACO BELL


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ADVANTAGES I DISADVANTAGES OF

FRANCHISING

Same as licensing

Extra benefit-provide some leverage ofcontrollingthe

franchiseeactivities


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CONTRACT MANUFACTURER

Contractormakes contract withfirmaboard whereby the

contractee manufactures orassembles a product on behalf

of the contractor.Contractor maintainsfull controlover

marketing and distribution.

Examples of firms that use thismethod

PROCTER& GAMBLE

COLGATE

DEL MONTE


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CONTRACT MANUFATURE CONT'D

ADVANTAGES

- There is no need to invest inplantabroad

- The risk ofasset expropriationisminimized

- Control ofmarketingisretained by contractor- Riskassociatedwith currency fluctuation


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JOINT VENTURES

Ajointventure is an arrangement where two firms or more

join forces formanufacturing,financial and marketing

purposes and each has a share in both the equity and the

management ofbusiness

ofjoint venture

.

Jointventures are bound by much

strongerformalties.


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JOINT VENTURES CONT'D

Some countriesencourage encouragedjoint ventures

Eg.RUSSIA,INDIA,NIGERIA,CUBA

Jointventures can reduce the risk ofgovernmentintervention

Jointventures can provideclosecontrol ofmarketingetc.


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MAJOR DISADVANTAGESOF JOINT VENTURES

Disagreementsover:

- Profitshares

- Amountinvested

-The management of the jo

i

nt venture- The marketingstrategy

shouldminimizeby:

- Carefulselection ofpartners

- Formulation ofjointlybeneficial

- Contracts


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MAJOR DISADVANTAGES OF JOINT VENTURES

CONT'D

- Pre-arranging forarbitration to resolve any clashesthat

occur etc


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WHOLLYOWNED

OVERSEASPROD

Example: PEPSI JAMAICALTD

COKE

NESTLES

ADVANTAGES

- The firm does not have to shareprofits

- The firm does not have to share or delegatedecision

- The firmisable to operate a completely integratedand

synergisticintofirm

- There's non of the communicationproblem


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MAJORDISADVANTAGES

- Substantialinvestmentrequired

- Suitablemanagers withrequiredskills

- difficultlocated

- Some overseas governments discourage, and sometimesprohibits 100% ownership of an enterprise by a foreign

firm

-

partner's market, knowledge,d

istr

ibut

ionsystem andother localexpertise

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Global Marketing Entry