GLOBAL

STRATEGIES &
ENTRY
STRATEGIES

PRESSURES FOR COST REDUCTION AND LOCAL

RESPONSIVENESS

Pressures for cost reductions

Global competitors seek to minimize unit costs through

location economies .
In commodity-type product industries, intense price
competition.

Pressures for local responsiveness arise from:

Differences in local consumer tastes and preferences.

Differences in infrastructure and traditional practices.
Differences in distribution channels among countries.
Host government economic and political demands.

FOUR BASIC STRATEGIES

STRATEGIC CHOICE

International strategy

Multidomestic strategy

Maximize local responsiveness (taste&

preference)by customizing products and
marketing strategy for local markets.

Global strategy

Create value by transferring skills and products

abroad.

Pursue low-cost status, offer standardized global

products.

Transnational strategy

Use global learning to achieve low-cost status,

differentiation, and local responsiveness
simultaneously.

THE ADVANTAGES AND DISADVANTAGES OF

DIFFERENT STRATEGIES FOR COMPETING GLOBALLY
Strategy

Advantages

International

Transfer of distinctive Lack of local

competencies
to responsiveness
Inability to realize location
foreign markets

Multidomestic

Disadvantages

economies
Failure to exploit
experience-curve effects
Ability
to
customize Inability to realize location
product offerings and economies
marketing in accordance Failure to exploit
with local responsiveness
experience-curve effects
Failure to transfer
distinctive competencies
to foreign markets

THE ADVANTAGES AND DISADVANTAGES OF

DIFFERENT STRATEGIES FOR COMPETING GLOBALLY
Strategy

Advantages

Disadvantages

Global

Ability to exploit
experience-curve effects
Ability to exploit location
economies

Lack of local
responsiveness

Transnational

Ability to exploit experiencecurve effects

Ability to exploit location
economies
Ability to customize product
offerings and marketing in
accordance with local
responsiveness
Reaping benefits of global
learning

Difficulties in
implementation because of
organizational problems

ENTRY STRATEGIES

WHERE ARE WE IN THE STRATEGY?

Uncontrollable

Cultur
e

Political &
Legal

Environment

Marketing
Research

Economic

Controllable
Segmentation
and positioning

Planning

Competitive Analysis

We are here!
Organising/
Restructuring

Promotio
ns

Market Entry
Strategy

Logistics
and
Distribution

Products
&
Services

Pricin
g

BASIC ENTRY DECISIONS

Which foreign markets?

Timing of entry

Politically and financially stable

Developed and developing nations
Free market systems
Pioneering costs versus
first-mover advantages.

Scale of entry and strategic commitments

Scale of entry affects the nature of competition

in the national market. Implications of risks
and benefits must be weighed carefully.

SELECTING MARKET ENTRY

Overview

Must decide what country to enter

Must allocate the right resources
Decide what to sell
Decide where to sell
Select the criteria for decision making
Seek an acceptable equity share
Acquire the right fit
Design an exit strategy

DETERMINANTS OF ENTRY STRATEGY

Degree of contact with foreign market

desired

no contact - export intermediary

some contact - foreign import intermediary
high contact - subsidiary, FDI, etc.

Determined by:

market potential
firms capabilities and experience
managerial commitment to export, market
and risk tolerance

BASIC ENTRY DECISIONS

Which foreign markets?

Timing of entry

Politically and financially stable

Developed and developing nations
Free market systems
Pioneering costs versus
first-mover advantages.

Scale of entry and strategic commitments

Scale of entry affects the nature of competition in

the national market. Implications of risks and
benefits must be weighed carefully.

THE CHOICE OF ENTRY MODE

Exporting
Licensing
Franchising
Joint Ventures
Wholly Owned Subsidiaries

CHOICE OF INTERNATIONAL ENTRY MODE

Exporting

Common way to enter new international

markets.
No need to establish operations in other
nations.
Establish distribution channels through
contractual relationships.
May have high transportation costs.
May encounter high import tariffs.
May have less control on marketing and
distribution.
Difficult to customize product.

FOREIGN PRODUCTION

Licensing

no physical asset exposure

though IP risk remains

License

Licensor

Licensee

(domestic manufacturer)

(O/S Manufacturer)

Owns IP
Qualcomm

Manufacture & sell

Royalties & fees
1 to 15%

Ericsson
uses
CDMA
technolog
y in
headphon
es

 2006 by Nelson, a division of Thomson

Canada Limited.

Choice of International Entry

Mode
LICENSING
Firm authorizes another firm to
manufacture & sell its products Licensing firm is paid a royalty on each unit
produced and sold.
Licensee takes risks in manufacturing
investments.
Least risky way to enter a foreign market.
Licensing firm loses control over product
quality & distribution.
Relatively low profit potential.
9-16

FRANCHISING
Franchisee

Franchisor

(Country B)

(Country A)
Owns IP
Royalties & fees
Master
Franchisor
Local
entrepreneurs
Examples

Trade name
Trade mark
Business Models
(marketing plan)
Operating manuals
Standards
Training
Quality monitoring

Subway
World Gym Fitness

Limited
Limited time
time

Mailboxes etc.

Limited
Limited territory
territory

Franchising

A specialized form of licensing where the

franchiser sells intangible property (usually
a brand or trademark).
The franchisee agrees to follow the strict
rules and business plans of the company

JOINT VENTURES
Firm C
Firm A

Home country

50% 50%
New entity
in host country - both
have equity

Firm B

Host
country

Contribution

Contribution

Technology
Manufacturing expertise

Distribution network
Labour
Finance
Local market knowledge
E.g. McDonalds

Joint Venture

Separate corporations come together to

form a new corporate entity
Two or more companies have an
ownership stake, but combine resources
for mutual benefit
Sharing knowledge can be dangerous for
the companies involved

PROBLEMS WITH JOINT VENTURES

lack of legal structure

lack of trust

e.g. PRC, no accounting standards

poor proprietary rights
mutual conflicts
resource allocation

access to technology
profit sharing problems

 2006 by Nelson, a division of Thomson

Canada Limited.

Choice of International Entry Mode

ACQUISITIONS

Enable firms to make most rapid

international
expansion.
Can be very costly.
Legal and regulatory requirements may
present barriers to foreign ownership.
Usually require complex and costly
negotiations.
Potentially disparate corporate culture.
9-22

Choice of International Entry Mode

NEW WHOLLY-OWNED SUBSIDIARY

Greenfield Venture

Most costly & complex of entry alternatives.

Achieves greatest degree of control.
Potentially most profitable, if successful.
Maintain control over technology,
marketing and distribution.

May need to acquire expertise & knowledge

that
is Could
relevant
to host
require
hiringcountry.
host country nationals
or consultants at high cost.

STRATEGIC COMPETITIVENESS OUTCOMES

International diversification
facilitates innovation in the firm.
Provides larger market to gain more and
faster returns form investments in
innovation.
May generate resources necessary to
sustain a large-scale R&D program.
Generally related to above-average
returns, assuming effective
implementation and management of
international operations.
International
diversification provides
greater economies of scope and learning.

EXIT AND RE-ENTRY STRATEGIES

Consolidate operations

reduce plant, close operations

consolidate operations

Ford: Closing plant in UK

GM: closed plant in UK
Sterile : closed plant in tuticorin

Re-entry

acquisition:

e.g., Coke acquired Parle (repurchased of Indian

bottler/distributor)