Market entry strategies by Alina Sachapow and Gloria Armesto

Market Entry StrategiesSubsidiaries

Gloria Armesto, Alina Sachapow

Market Entry StrategiesSubsidiaries

Outline1. Introduction2. Entering a foreign country

1. Reasons2. Forms of entry3. considerations

3. Subsidiary1. Definitions and Characteristics2. Advantages and Disadvantages3. Forms of Subsidiaries

4. Example: Petrobras in Colombia5. Conclusion6. Bibliography


Introduction


Entering a Foreign Country

Reasons• New geographic markets for existing products• By entering a new market

– increased sales– diversified sales– higher brand awareness – business stability and avoiding crisis– gain experience


Entering a Foreign CountryForms of Entry• Franchising• Contract manufacturing• Joint venture• Strategic alliance• Minority stake• Subsidiary

– Greenfield investment– Acquisition

• Merger• Export

– Direct– Indirect

• Licensing


Entering a Foreign Country

Considerations• Market size and profitability• Legal barriers • Limitations to trade (high tariffs and quotas)• Incentives offered by government• Environmental factors• Cultural environment


Entering a Foreign Country• Analysis of potential competitors, customers, suppliers• required level of knowledge and training in exporting procedures• Positioning of product• Competitive advantages• Market entry strategy:

– resource consumption– reversibility– flexibility– speed– possibilities for control– timing (pioneer or follower)– Acceptance in the foreign market– Possibility of economies of scale and scope


Subsidiaries

Definitions and Characteristics• Legally independent foreign entities• Control by more than 50%• All profits to parent company• Investment entry• Adherence to the foreign country’s laws• Consolidation • Own processes and tasks in marketing, production, logistics and

sourcing decisions• Complete value chain and specialized subsidiaries• Centers of competence or centers of excellence• High risk and high control


Subsidiaries


Advantages Disadvantages

- Resources, capabilities and competences - Integration with company

- Interaction with and knowledge about local markets

- Expensive

- Different perspectives and ideas - High amount of resources

- Full control - Political, social, economic risks and uncertainties

- Parent company receives all profits

- Better coverage of regions

- Improvement of competitiveness

- Avoiding currency risks

- Tax incentives

- Less negotiations than for other modes of entry

Subsidiaries

Forms of Subsidiaries• Ownership

– Majority stake = 50.1% to 99.9 % of stock or voting right– Wholly owned subsidiary = entirely owned and controlled by parent

company• Structure

– Greenfield = start-ups – Acquisition = takeovers


Subsidiaries• Greenfield

– Establishment of new production facilities such as offices, buildings, plants and factories

– Movement of intangible capital– Greenfield FDI directly adds to production capacity in the host country,

contributes to capital formation and employment generation


Subsidiaries• Cross border Mergers and Acquisitions

– Merger: Merging of capital, assets and liabilities of existing enterprises – Acquisition: Partial or full takeover of an existing company– FDI through M&A does not directly add to capital stock of host country

• Horizontal– same industry

• Vertical– client-supplier or buyer-seller relationships


Subsidiaries• Greenfield

– For production of high-tech products – Internal diversification

• Acquisition – Marketing– Valuable trade mark, brand name or process technology– Diversified and large firm, high entry barriers in markets, industries

with slow growth– External diversification


Subsidiaries


http://dealbook.nytimes.com/2011/01/03/confident-deal-makers-pulled-out-checkbooks-in-2010/

Subsidiaries

Gloria Armesto, Alina Sachapowhttp://www.unctad.org/en/docs/webdiaeia20111_en.pdf

Subsidiaries

Greenfield


Advantages DisadvantagesNo restructuring or adaptation costs Much time, money and resources

necessaryFull control over technology, employees etc.

No direct local knowledge, networks etc.

More flexibility in human resources, suppliers, logistics, plant layout, manufacturing technologyGovernment incentives

Subsidiaries

Acquisition


Advantages DisadvantagesExisting knowledge, local networks and distribution channels

Restructuring might require many resources

Production can start right away Integration is costly and time intensive, might not be supported by employees

Less competitors Hard to consolidate different values and norms

Faster access to market Outdated equipment, plants, brand names, unmotivated workforce

Better adapted equipment to local conditions

BibliographyInternet Sources• http://www.mybusiness.co.uk/YTeT-jBone4LcQ.html

accessed on 10.11.2011, 20.00 • http://www.wright.edu/~tdung/entry.pdf

accessed on 10.11.2011, 20.15• http://macabacus.com/accounting/subsidiary-accounting

accessed on 10.11.2011, 21.00• http://www.investopedia.com/terms/s/subsidiary.asp#axzz1dhvAiCRv

accessed on 12.11.2011, 19.30• http://moneyterms.co.uk/subsidiary/

accessed on 12.11.2011, 20.35• http://www.kelley.indiana.edu/rugman/Papersbooks/Web%20Papers/

SubsidiarySpecificAdvantagesinMNEs.pdfaccessed on 18.11.2011, 20.00

• http://dealbook.nytimes.com/2011/01/03/confident-deal-makers-pulled-out-checkbooks-in-2010/accessed on 22.11.2011, 22.30

• http://www.unctad.org/en/docs/webdiaeia20111_en.pdfaccessed on 22.11.2011, 22.35


BibliographyLiterature • Global Marketing Management, Masaaki Kotabe, Kristiaan Helsen, John Wiley and Sons Inc., 2010• Strategies of Internationalization – an Overview, Stefan Schmid, ESCP-EAP, 2009 • International Business, the challenges of globalization, John Wild, Kenneth Wild, Jerry Han, Pearson

Prentice Hall, 2008 • Handbuch International Business, Strategie, Praxis, Fallbeispiele, Susanne Czech-Winkelmann, Anke

Kopsch, Erich Schmidt Verlag, 2008• Produktmanagement, Grundlagen, Methoden, Beispiele, Andreas Hermann, Frank Huber, Gabler, 2009• World Investment Report 2006, FDI from Developing and Transition Economies: Implications for

Development, United Nations Conference on Trade and Development, United Nations, New York, 2006• Bachelorarbeit: Comparative Analysis on Different Impacts of Greenfield Investment and

Merger&Acquisitions in Selected Foreign Markets, Audrey Indovina Juanda, Berlin, 2007


Education

Market entry strategies by Alina Sachapow and Gloria Armesto