BUS615 Study Guide

Unit 6: Strategies for Entering International Markets

6a. Evaluate potential international markets to determine which market to enter 

  • What are some of the steps needed to enable a company to properly evaluate markets under consideration for global expansion?
  • How can a company determine if their product will create value in an international marketplace?
  • What are the implications of timing strategies for entering a foreign market?

In deciding which global markets to enter, companies should research other companies that sell similar products, evaluate the overall size of the market for that product, and consider the potential for additional entries. An important aspect of this process is to identify the unique selling proposition of your own product to see if there are sufficient differences for consumers to purchase your product over that of the competition.
 
Marketing and communication strategies should be considered, especially if the native language of a country differs from the home country of the company. It is also important to evaluate the local culture to see how the product might be perceived relative to local values and attitudes. Ensuring that labeling and packaging are consistent with local requirements is important, as are logistics and distribution factors. Overall, an evaluation of regulations, culture, and logistics will be essential when making global expansion decisions.
 
One of the factors a company should consider before entering a foreign market is to determine whether they will be creating value in that marketplace. This first step is to determine if the product is suitable for that market. This can relate to culture, competition, consumer needs, and other factors. As noted earlier, an evaluation of the competition is essential, especially as to how they meet consumer needs for the product category. A company will have a greater chance of success if there is limited competition and if the product will satisfy a need that has not yet been met. As a result, greater value will be created, making it possible for the company to offer their product at a higher price and build sales volume.
 
If an organization decides to be an early entry into a foreign marketplace, which means they are entering the market before any competitors, they can enjoy a first mover advantage and the benefits of pre-empting other brands while also having the chance to build the brand name. They can build sales volume and apply different pricing strategies to determine consumer thresholds. However, this strategy also comes with the high cost of being a pioneer in the marketplace. Many mistakes may be made. As the first entry, the company will need to understand how the country operates, how the brand is received, and what marketing messages are most effective in the marketplace.
 
To review, see Country Evaluation, Selection, and Basic Foreign Market Entry Decisions and Selecting International Markets.

 

6b. Assess the different strategies for entering a foreign market, such as exporting, licensing, joint venture, or direct foreign investment

  • What are the pros and cons of the most common modes of entry into a foreign market?
  • What is the difference between direct sales and indirect sales when expanding to international markets?
  • What is the difference between a partnership and a joint venture?

Exporting provides a company with quick entry into a marketplace with low risk. However, there is little control and low levels of knowledge about local customs and culture, and there is the potential to have a negative impact on the local environment.
 
Licensing and franchises also provide a company with quick entry, accompanied by low risk. However, it is important to understand local laws and regulations and that the licensee has the potential to become a competitor.
 
When a company forms a partnership or strategic alliance, they are able to share costs, reduce the overall investment required, reduce risk, and appear to be a local business, rather than a foreign player. However, this comes with a high cost, and there may be challenges when integrating different business cultures.
 
Acquisition enables a company to have a quick entry through an already established business within the foreign marketplace. However, there are high costs associated with this strategy, and it may be difficult to integrate the home country's operations with that of the host market.
 
Finally, companies can choose to launch a new, wholly-owned subsidiary. This will enable the company to learn about the local market and be viewed as a company that is taking a local perspective. However, many unknowns may exist, costs can be high, and it could take a long time to establish operations.
 
Direct sales when entering an international market means that the home country is responsible for all aspects of the process, including exporting, marketing, and getting the product directly to the ultimate user. Direct sales also take place through the use of a franchisee as well as by obtaining a government contract. Also, as previously discussed, the growth of technology has made it easier for companies to expand their reach, and e-commerce represents another form of direct selling. When customers make a purchase through a company's website or from their social media platforms, this is also a form of direct sales.
 
Indirect sales provide a greater number of options for an organization seeking to have a global presence. Companies can make use of knowledgeable and experienced agents, representatives, or distributors who will seek out buyers and accounts for a company's products and services. There is also the option to work with wholesalers, intermediaries, and other e-commerce platforms where the company can have a presence without making a large investment.
 
A joint venture is a form of partnership, but there are distinct differences. In a partnership, individuals come together for a combined business venture. In a joint venture, the parties come together to form a new entity. Generally, a joint venture is between two different businesses rather than individuals, as in a partnership. Earning a profit is the primary goal of a partnership, while a joint venture might have a variety of objectives, such as expansion, new product development, etc.
 
To review, see:


6c. Determine the external factors, such as market size and market growth, and the internal factors, such as company objectives and company resources, that influence market entry strategy choice

  • How do the internal factors of an organization enable the company to decide whether an internalization entry mode is best or if an externalization strategy is appropriate?
  • How do the external factors of an organization enable the company to decide whether an internalization entry mode is best or if an externalization strategy is appropriate?
  • When a company has limited resources and is unable to determine which foreign markets are best for expansion, what benefits can agents and representatives provide?

When evaluating market entry strategies, a company should take a close look at the size of the company, their experience in foreign markets, the complexity of their products, and whether or not they have an advantage over competitors in the marketplace. If a company is small, with limited international experience, it is more likely they will achieve success by adopting an externalization strategy and using an agent, distributor, or other business entity that has local knowledge and experience.
 
External factors a company should consider include sociocultural distance factors (as explored earlier), market demand, market size and growth, trade barriers, competition, and the number of available intermediaries. If these conditions exist at high levels, as with a company's internal factors, using outside agents would still benefit the company.
 
Agents and representatives can enable a company to enter into agreements with customers in foreign countries at a lower cost than if the company did this on their own. It is important to research these entities first to ensure that their goals are in line with the company's goals. Agents and representatives can conduct market research, provide information about transportation and logistics, assist with importing and customs regulations, offer legal advice on local laws and rules, as well as offer insight into local values and cultural factors.
 
To review, see Entry Mode Decision and Enter Your Market.


Unit 6 Vocabulary

This vocabulary list includes the terms that you will need to know to successfully complete the final exam.

  • acquisition
  • direct sales
  • early entry
  • exporting
  • first mover advantage
  • indirect sales
  • joint venture
  • licensing and franchises
  • marketing and communication strategies
  • partnership or strategic alliance
  • wholly-owned subsidiary