GM_9

Chapter 9: Entry and expansion strategies Agenda:Decision criteria for international businessEntry and expansion decision modelMarketing strategy alternativesFirms as Seekers by Expanding across BordersSeeking ResourcesSeeking Factor AdvantagesSeeking KnowledgeSeeking SecuritySeeking MarketsCzinkota 2005:176The effects of the international market environment onthe market entry decisionControl Decision on entry strategy and controlEntry modeCompetitive EthicalPolitica l Socio ‐economicTechnologicalLegalInternational marketing environmental factors to beconsidered in international market entry decisionsMarketingEnvironmental Factors DescriptionSocio‐economic State of market development, Population size, growth, density, concentration, disposable income, age distribution, urbanization and economic activity, inflation rates, economic activity, and state of infrastructural development, including communications, Geographical dispersion of consumersState of distribution system development and structureSocial organization, Climate EthicsPolitical Terms of entry and doing business, Political leaning ofgovernment, Climate for investment, Stability of governmentAttitudes to international investmentLegal Local business laws, Intending entrants’ domestic lowsInternational lawsCompetition Industrial and commercial structures, size, and concentrationsLeader or follower, Level and type of domestic and internationalinvestment, Transaction costs marginsCurrency Exchange fluctuations and conversion ratesExchange transfers, Exchangeability of currencyInflation and deflationDecision criteria for international businessPolitical riskMarket accessFactor costs and conditionsShipping considerationCountry infrastructureForeign exchangeCreating a product-market profileMarket selection criteriaMarket selection criteriaMarket potentialMarket accessShipping costs and timePotential competitionService requirementsProduct fitCreating a product-market profileWho buys our product?Who does not buy our product?What need or function does our product serve?What problem does our product solve?What are customers currently buying to satisfy the need and/or solve the problem for which our product is targeted? What price are they paying for the products they are currently buying?When is our product purchased?Why is our product purchased?International market entry and expansion decision modelSourcing: home, third, or host country?Cost, market access, country of origin factorsIn-country or in-region marketing organization?Cost, market impact assessment. If choice is to establish ownorganization, must decide who to appoint to key positionsSelection, training, and motivation of local distributors and agentsMarketing mix strategy: goals and objectives in sales, earnings, and share of market; positioning; marketing mix strategyStrategy implementationSource: Keagan 2007:238Internationalization process of organizationsState aspects Change aspects Market knowledge Commitment DecisionsCurrent ActivitiesMarket commitmentThe decision sequence for international directinvestmentSource: Czinkota 2005:175The Firm and Its Competitive AdvantageExploit ExistingCompetitive AdvantageAbroad ChangeCompetitive AdvantageProduction at Home:ExportingProduction AbroadLicensingManagement ContractControl AssetsAbroadJoint VentureWholly OwnedAffiliateGreenfield InvestmentAcquisition of Foreign Enterprise12345Requirement of export marketingAn understanding of the target market environmentThe use of marketing research and the identification of market potentialDecisions concerning product design, distribution and channels, advertising, and communications –the marketing mixExporting as a developmental processThe firm is unwilling to export; it will not even fill an unsolicited export order.This may be due to perceived lack of time (“too busy to fill the order”) or to apathy or ignorance.The firm fills unsolicited export orders but does not pursue unsolicited orders.Such a firm would be an export seller.The firm explores the feasibility of exporting (this stage may bypass stage 2)The firm exports to one or more markets on a trial basis.The firm is an experienced exporter to one or more markets.After this success, the firm pursues country, or region-focused marketing based on certain criteria (e.g. all countries where English is spoken, all countrieswhere it is not necessary to transport by water)The firm evaluates global market potential before screening for the best target markets to include in its marketing strategy and plan. All markets –domestic and international –are regarded as equally worthy of consideration. At this point, other environmental factors may come into play and the marketer might want to explore joint ventures or foreign direct investment opportunities to maximize international opportunities.Keagan 207: 240Export-related problemsArranging transportation Transport rate determination Handling documentationObtaining financial information Distribution coordination PackagingObtaining insurance LogisticsLegal Procedure Government red tape Product liability LicensingCustomers/dutyServicing ExportsProviding parts availability Providing repair service Providing technical advice Providing warehousing Sales promotion Advertising Sales effortMarketing information Foreign market intelligenceLocation markets Trade restrictions Competition overseasSource: Keagan 2007:241Organizing for exporting –organizing in themanufacturer’s countryIn-house export organization公司内部员⼯工-as a part-time activity performed by domestic employees-through an export partner affiliated with the domestic marketing structure that takes possession of the goods before they leave the country-through an export department that is independent of the domestic marketing structure-Through an export department within an international division-For multidivisional companies, each of the foregoing possibilities exists within each divisionExternal independent export organizationsexport trading companies (ETCs) export management companies (EMCs), export merchants, export brokers, combination export managers, manufacturer’s representatives or commission agent, export distributorsOrganizing for exporting –organizing in themarket countryDirect representationIndependent representationPiggyback marketing背驮式营销（piggyback marketing）：制造商利⽤用另⼀一个公司的分销渠道来分销产品，双⽅方均可获益Sourcing decision factorsFactor costs and conditions Logistics (time required to fill orders, security and safety, and transportation costs) Country infrastructure Political riskMarket access (tariff and nontariff barriers to trade) Exchange rate, availability, and convertibility of local money物流LicensingLicensing can be defined as a contractual arrangement whereby one company (the licensor) makes an asset available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation. The licensed asset may be a patent, trade secret, or other form of compensation. Advantages : can offer an attractive return on investment for the life of the agreement, providing the necessary performance clauses are in the contract. Disadvantages:very limited form of participation契约的，合同的Investment: Joint ventures合资；合资公司；合资企业（joint venture的复数） A joint venture with a local partner represents a more extensiveform of participation in foreign markets than either exporting orlicensing.Advantages:Sharing of risk and ability to combine differentvalue chain strengths.Disadvantages:-Sharing of rewards-a company incurs significant costs associatedwith control and coordination issues that arisewhen working with a partner-a dynamic joint venture partner can evolveinto a stronger competitor-country-specific restrictions-Cross-cultural differences in managerialattitudes and behavior can present formidablechallengeMarket entry and expansion by acquisitionProductCategory/Industry Acquiring Company Target Automotive Pharmaceutical Tobacco OilCommunicationsDaimler Benz Rhone-Poulenc British American Tobacco BP Amoco V odafoneChrysler Hoechst Zurich ArcoMannesmann AirTouchSource: adopted from Keagan 2007:251Definitions of M&AMergers & Acquisitions (M&A):Transactions which lead to a shift in the rights of ownership and control from one company to another. Basis of this shift is a change of ownership of the equity of one company.Acquisitions:Purchase of companies or parts of companies (majority or minority).Merger:Combination of two or more legally independent companies, with at least one company losing its legal independence.Other forms of M&A: Joint VenturesTransfer of companies or assets of two or more mothercompanies to a newly founded unit which is jointly owned by the mother companies.Merger and Acquisition 收购兼并=mergerReasons for M&A•Liberalization and Deregulation of Markets (e.g. China), Tariffs and non-tariff obstacles to market entry are decreased•Convergence of technologies/market constellations increase intensity of competition•Sharp rise in …fix costs“, e.g. R&D, shifts cost structure, high volume necessary•Necessity of local adaptation (culture, sales systems)•Shortening of product cycles, Time as an increasingly important competitive factor•Rise in risks•Search for promising investments for high cash flowsConsolidation pressure in industries and services is risingM&A-Transactions are adaptations to changing competitive conditionscomplete acquisitionup to blocking minority (which varies from country to country between 25%, 26% or 33%)above blocking minority,but below 50%around 50%above 50%, but blocking minority of partnerbelow 100%, but no blockingminority of partner100% ownershipminorityparitymajorityAcquirerForms of M&A and Participants in the M&A-ProcessSource: from MecklCharacteristics of international M&AFeatures of overseas M&A:Different political and economic environmentCultural differencesForms and extend of influence in the market: change of market share and competitive capabilitiesMore barriers and risksForms of M&A: Hostile Take OverDefinition:Acquisition of a (normally listed) company against the will of the management Reasons for hostile take over:•underpriced stock hypothesis (asset stripping!)•strategic reasons (acquisition of competitor, technology)•empire building hypothesis (influence, power of managers)Procedure of hostile take over:•highly regulated (when which offer, information may published etc.)•Germany: new “Übernahmegesetz” is intended to strengthen the position of the management•USA / UK: strong position of shareholders, “true and fair information” is essential Hostile take over clearly show the Principal-Agent-Problem betweenshareholders and managers.Stakeholders and participants in M&A-Projects: Internal GroupsAcquirer Target companyShareholders, OwnersTop ManagementMiddle / Lower ManagementSupport Staff(Department of M&A, -of StrategicPlanning, -of Law,-of Human Resources ... )Employees, Representative groups(unions, co-determination)Conflicts of interest within the internal groups of both the acquirer and the target company pose important risks for M&A-Projects.44779101418212427475719190102030405060% of sample see the respective factor as essential for the success of an M&A-TransactionPercentageCultural workshopsAdditional R&D-ActivitiesIntegration/coordination of customerstructures New organizational structuresEstablishing of Post Merger Audit Systems Employment of instruments for knowledgemanagementInvolvement of important customers andsuppliersHarmonization of compensation/incentivestructureNew product scope and -programs Fast decision and implementation of management/leadership structureNew market segmentation and pricingpoliciesIntegration of the reporting systems Explicit communication strategy Use of integration-and project-teams Explicit ex ante integration planning Success-Factors of M&A-TransactionsSource: adopted from MecklMarket expansion strategiesStrategy 1: concentrates on a few segments in a few countries.Strategy 2: country concentration and segment diversification,多样化；变化a company serves many markets in a few countries.Strategy 3: country diversification and market segment concentration.Strategy 4: country and segment diversificationCompetitive advantageFactors influencing the choice and importance of market entrymodeFinancial, physical and human resources Previous experience and existing expertise Workforce attitudeNature of marketLevel of involvementTime horizon of paybackUnique skillsInvestment and market costsLevels of risk and control Corporate and market objectivesAdministrative requirementsTerms of entryTiming ‐international life cycleEntry mode flexibilityEase of exitComparison of the various entry modesUp-front investmentSpeed of entry Penetration of market Market control Political riskCompetitive exposure Managerial complexity PotentialROI Wholly owned Agent/DistributorRepresentative Acquisition Joint Venture Licensing Greenfield I nternetSource: After Lasserre (2003)High Lowlow/medium High Medium Low High MediumSlow Possiblyquick low Quick Quick Medium Slow QuickMedium Medium/ Low low High Medium/ HighMedium/ Low Potentially high QuickHigh Low/Nil low High MediumNil High HighHigh Low low High Medium Low Medium LowLow Low low Low High/Medium High Low HighHigh Low Medium High High Low Medium LowHigh Potentially High/Low Potentially High/Low High Medium Low /High Low/High HighEntry modes and different marketing strategiesDefensive strategy Wholly owned,i.e. branchesandsubsidiariesShared owned,i.e. mergers &acquisition &Joint venturesContractual,i.e. licensing,franchisingand alliancesMarketingoriented, i.e.direct or indirectexportingBusiness intelligence Customer services Customer complaints Management AikidoFree telephone lines Differentiation FocusCost leadership XXXXXXXXSource: Abdel‐Maquid Lotayif (2003.371).Marketing strategy alternativesOwnership C o n t r o l 100%100%Source: Keagan 2007:253Market expansion strategies1. Narrow focus 3. Country diversification2. Country focus4. Global diversificationMarketConcentrationDiversificationConcentration DiversificationC o u n t r ySource: Keagan 2007:254E.P.R.G Model of Perlmutter ethnocentric polycentric Regional centric GeocentricOrganization complex in homecountry, simple bysubsidiary Different, indepen-dent with each otherHigh dependence onthe regional levelIncreasing complex,world-widedependenceDecision Strongconcentrated inmother company few by mothercompanyBig regional head-quarters, tied relation-ship between regionalsubsidiariesCooperation betweenmother companies a.global subsidiariesControl Using criterionsfrom mo. companyfor perform. evalua.Local regulations Regional regulations Global and localcriterionsCommunication More instructionsto subsidiariesFew with mothercompany and subsi.Few with mothercompany, much withregi.headq. and othercountries.Intensive withmother company andsubsidiaries.Geogr. Identifica.Nationality ofmother companyNationality of hostcountryRegional enterprise Worldwide companyfor national interestManagem. & employm.Training staffsfrom mothercompany for globalTraining staffs fromhost country forlocal key positionsTraining staffs fromhost country for localkey positionsTraining the beststaffs worldwide forglobal key positionsOrientation of management and companiesHome country is superior; sees similarities in foreign countriesEach host country is unique; sees differences in foreigncountriesSees similarities and differences in a world region; is ethnocentric or polycentric in its view of the rest of the worldWorldview;Sees similarities and differences in home andhost countriesEthnocentricPolycentricRegiocentric Geocentric 种族优越感的；民族中⼼心主义的多中⼼心的regiocentric orientation 区域中⼼心导向以地球为中⼼心的；由地⼼心开始测量的?Cooperative strategies and global strategicpartnerships联盟，同盟；盟国（alliance的复数形式）；联姻The nature of global strategic partnershipsAlliances between manufacturers and marketersEstablish of international partnershipsUnderstanding of CooperationCoopere and co-operationCooperation means that two or more persons or groups carry on activities to achieve the pre-concerted goal.Carrying on the activities could be the intention of a firm or the motives of individuals.The precondition for such cooperation is the trust of the partners which is the positive reaction to the cooperation.Communication or interaction between two and more individuals or groups.This relationship consists not only the common aims,but also the cognitive aspects of the partners like perception,empathy,positive attitude,trust etc.The cooperation between firms is the interaction between two or more firms to implement common business objectives.Motives for Cooperation between FirmsResource and capabilities：acquiring technology, human resource, capitalFactors of time: the life cycle of products becomes shorter (product, market, R&D）Cost factors: surplus of capability, economies of scale, share the fixed costsMarket factors: Globalization, implementation of industrial norms, reaction of customers, exploitation of new markets, market entry barriers.Risk control: share risks (R&D), improve ability of adaptationInternational Strategic AllianceInternational Strategic Alliance is an informal or formal agreement between two or more companies with a common business objective in order to achieve success and improving core competence.The alliance can take forms ranging from informal cooperation to joint ownership of worldwide operations.The partners have special advantage and ability to share risks.Strategic alliances are partnerships between two or more firms that decide they can better pursue their mutual goals by combining their resources –financial,managerial,technological –as well as their existing distinctive competitive advantages.Alliances –often called cooperative strategies-are transition mechanism that propel the partners’strategies forward in a turbulent environment faster than would be possible for each company alone.(Heresky 2007:243)The nature of global strategic partnershipsThe participants remain independent subsequent to the formation of the alliance.The participants share the benefits of the alliance as well as control over the performance of assigned tasks.The participants make ongoing contributions in technology, products, and other key strategic areas.Theories about international strategic allianceTransaction cost theory: reduce cost and riskResource dependent theory: the other companies have the resources which one company do not have. Acquiring this resource is only possible through strategic allianceOrganization learning theory: Acquiring knowledge and technology from the other companiesRelationship marketing theory: Improve customer value, enhance the relationship with the costumersStrategic behavior theory: implement the corporate strategy through strategic allianceReasons for global allianceTo avoid import barriers, licensing requirements, and other protectionist legislation;To share the costs and risks of the research and development of new products and process;To gain access to specific markets, such as the EU, where regulations favor domestic companies;To reduce political risk while making inroads into a new market; To gain rapid entry into a new or consolidating industry and to take advantage of synergies.Source: Deresky 2007:245-246Different cooperation forms of IBMPartner Content ObjectiveFerranti Install IBM PC inFerranti computer Entry in the market of PS/2Toshiba Development ofLCD Share cost for R&DDEC,Appolo, HP Development ofdrive system forwork stationFirming com-petitive advantagedirected againstSUN and AT&TSiemens Development of65Mb DRAM Share cost for R&DMicrosoft Development ofsoftware Improve com-petition situationIBMThe dual role of strategic alliancesCooperativeEconomies of scale in tangible assets (e.g., plant and equipment)CompetitiveOpportunity to learn new intangible skills from partner, often tacit or organization embedded.Upstream-downstream division of labor among partners.Accelerate diffusion of industry standards and new technologies to erect barriers to entry.Fill out product line with components orend products provided by supplier.Deny technological and learning initiative to partner via outsourcing and long-term supply arrangements.Limit investment risk when entering new markets or uncertain technological fields via shared resources. Encircle exiting competitors and preempt the rise of new competitors with alliance partners in “proxy wars” to control market access,distribution, and access to new technologies.Create a “critical mass” to learn and develop new technologies to protect domestic, strategic industries. Form clusters of learning among suppliers and related firms to avoid or reduce foreign dependence for critical inputs and skills. Assist short-term corporate restructurings by lowering exit barriers in mature or declining industries. Alliances serve as experiential platforms to “demature” and transform existing mature industries via new components, technologies, skills to enhance the value of future growthoptions. Source: David Lei 1997Risks of international strategic allianceFactors unknown HighRiskLowHighR e s o u r c e i n p u tUnknown factors in allianceEconomic environment: policy, industrial infrastructure, macro-economic situation;Reaction in market: reaction of customers, suppliers and competitors can not be forecasted;Governmental invention: governmental ratification;Objectives: The expectation of the companies on the alliance and the role of alliance are not clear;Capabilities of partner: the one partner does not have the advantage which the other one needs;Potential conflict: partner can not discuss and coordinate the important matter completely, or the partners can not agree with each other in the case of changes after alliance;Not comprehensive Plan: the important matters and their complexity are not descript very clearly;Decision making: no clear description about the decision making regarding important matters;Cooperation: cooperation is not satisfied;Performance:the expected benefit is not realized;Responsibility: Amount of investment, period, extend of operation and right are not clearly defined;Opportunism: One partner exploits the otherSuccess factors for global strategic partnership (GSPs)Mission. Successful GSPs create win-win situations, in which participants pursue objectives on the basis of mutual need or advantage.Strategy. A company may establish separate GSPs with different partners;strategy must be thought out up front to avoid conflicts.Governance. Discussion and consensus must be the norms. Partners must be viewed as equals.Culture. Personal chemistry is important, as is the successful development of a shared set of values. The failure of partnership between Britain’sGeneral Electric Company and Siemens AG was blamed in part on the fact that the former was run by finance-oriented executives and the latter bengineers.Organization. Innovative structures and designs may be needed to offset the complexity of multicountry management.Management. GSPs invariably involve a different type of decision making.Potentially divisive issues must be identified in advance and clear, unitary lines of authority established that will result in commitment by all partners.Four principles for successful collaboratorsDespite the fact that partners are pursuing mutual goals in some areas,partners must remember that they are competitors in others. Harmony is not the most important measure of success;some conflict is to be expected.All employees,engineers,and managers must understand where cooperation ends and competitive compromise begins.Learning from partners is critically importantManagement problems of allianceSelecting partnerMutual trust of the partnersEnthusiasm for participationTeam for cooperationCommunicationControl and coordination mechanismCultural adaptationChoose a partner with compatible strategic goals and objectives and with whom the alliance will result in synergies through the combined markets, technologies, and management cadre.Seek alliances where complementary skills, products, and markets will result. If each partner brings distinctive skills and assets to the venture, there will be reduced potential for direct competition in end products and markets. In addition, eachpartner will begin the alliance in a balanced relationship.Source: Deresky 2007:247-248Work out with the partner how you will each deal with proprietary technology or competitively sensitive information–what will be shared and what will not,and how shared technology will be handled.Trust is an essential ingredient of an alliance,particularly in these areas;but this must be backed up by contractual agreements.Recognize that most alliance last only a few years and will probably break up once a partner feels if has incorporated the skills and information it needs to go it alone.With this in mind, managers need to“learn thoroughly and rapidly about a partner’s technology and management:transfer valuable ideas and practices promptly into one’s own operations.”Source: Deresky 2007:247-248。