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Market Entry

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6. Evaluating new markets

6.1

Criteria for evaluating new markets
Criteria for evaluating the geographical market in general

Criteria for evaluating industry markets inside the geographical market

Key figures

Key figures

 Development of population
 Development of GDP
 Development of GDP per capita

 Development of quantities in total and per sub-market
 Development of prices in total and per sub-market
 Development of market volume in total and per sub-

market

Legal restrictions for economic activities
 Possible legal forms
 Conditions for profit repatriation
 Conditions for sales (e.g. local production)
 Operations risks

Society

 Political system
 Ethnic and religious groups
 Languages
 Demographic structure
 Cultural distance
 Political risks

Market system
 Players

 Flows of products and services
 Flows of information

Producers and traders
 Sub-markets

 National and international competitors
 Wholesalers and retailers
 Competitive intensity

Infrastructure

Customers

 Telecommunications infrastructure
 Health care system

 Link between customer segments and sub-markets; industry segments
 Demand similarity

 Traffic infrastructure

 Customer segments

© 2012 R. Grünig/D. Morschett

6. Evaluating new markets

6.2

Process for evaluating new markets
1. Producing an initial list of potential new markets

2. Eliminating the less attractive markets

= usual sequence of steps
= most important possible loops 3. Selecting the most attractive markets

© 2012 R. Grünig/D. Morschett

6. Evaluating new markets

6.3

China's BERI ratings 2001 to 2007
Year

Combined score Political risk index Operations risk index

Remittance and repatriation factor 2001

57

56

49

66

2002

58

56

50

67

2003

58

56

50

69

2004

59

56

51

70

2005

60

56

52

71

2006

61

57

53

72

2007

61

57

53

73

(BERI, 2009)
© 2012 R. Grünig/D. Morschett

6. Evaluating new markets

6.4

Capacity shares of Holcim, Lafarge and Cemex in selected markets in 1999
Country

Holcim

Lafarge

Cemex

Total

Argentina

38%

11%

0%

49%

Canada

19%

33%

0%

52%

France

13%

34%

0%

47%

Indonesia

0%

3%

44%

47%

Mexico

19%

4%

65%

88%

Philippines

38%

21%

22%

81%

South Africa

36%

26%

0%

62%

Spain

10%

19%

27%

56%

Venezuela

25%

24%

41%

90%

(adapted from Bartlett/Beamish, 2011)
© 2012 R. Grünig/D. Morschett

6. Evaluating new markets

6.5

Initial list of potential new markets
Geographical market

Industries Industry market I

Industry market II

Industry market III

Country A
Country B
Region C1 in country C
Rest of country C
Country D
Country group E, F and G
Country H
= potential new markets

= no potential new market

© 2012 R. Grünig/D. Morschett

6. Evaluating new markets

6.6

Summary of market data
Industries General information for geographical market
Geographical market

GDP per Real capita annual
GDP
growth

Political Operarisk tional Index risk Index

Industry market I
Profit
… repatriation factor

Industry market II

Industry market III

Market size Market size Market size Size of … relevant submarket

Size of … relevant submarket

Size of … relevant submarket

Country A
Country B
Region C1 in country C
Rest of country C
Country D
Country group
E, F and G
Country H
= potential new markets

= no potential new market

© 2012 R. Grünig/D. Morschett

6. Evaluating new markets

6.7

Comparison of three car part markets
Number
of cars

Country A

Country C
Country B

Average age of cars

= current situation
= expected position in five years

© 2012 R. Grünig/D. Morschett

6. Evaluating new markets

6.8

Remaining markets after the first round
Industries General information for geographical Industry market I market Geographical market

GDP per Real capita annual
GDP
growth

Political OperaRisk tional Index risk Index

Profit

repatriation factor Market size Size of … relevant submarket

Industry market II

Industry market III

Market size Market size Size of … relevant submarket

Size of … relevant submarket

Country A
Country B
Region C1 in country C
Rest of country
C
Country D
Country group
E, F and G
Country H

= potential new markets

= no potential new market

= eliminated in the first round

© 2012 R. Grünig/D. Morschett

6. Evaluating new markets

6.9

Managing the cultural barrier in international market research Company

Agency

Company

Agency

Customers, traders, competitors

Option A

Option B

Company
Option C

Local branches Customers, traders, competitors

Foreign agencies Customers, traders, competitors

Cultural barrier (adapted from Cateora/Gilly/Graham, 2009)

© 2012 R. Grünig/D. Morschett

6. Evaluating new markets

6.10

Uncertainty avoidance index

Long term orientation index

French - speaking
Switzerland

70

64

58

70

40

German - speaking
Switzerland

26

69

72

56

40

Germany

35

67

66

65

31

France

68

71

43

86

39

China

80

20

66

30

118

Countries

Power distance index

Masculinity index Indices

Individualism index The five cultural indices of Hofstede for Switzerland,
Germany, France and China

(Hofstede/Hofstede, 2005)
© 2012 R. Grünig/D. Morschett

6. Evaluating new markets

6.11

Differences in uncertainty avoidance Differences in long term orientation Total differences German - French
Switzerland
German Switzerland Germany
French Switzerland Germany
German Switzerland France
French Switzerland France
German Switzerland China
French Switzerland China

Differences in masculinity

Countries
Differences

Differences in individualism

Indices differences Differences in power distance Cultural differences between regions of Switzerland,
Germany, France and China

44

5

14

14

0

77

9

2

6

9

9

35

35

3

8

5

9

60

42

2

29

30

1

104

2

7

15

16

1

41

54

49

6

26

78

213

10

44

8

40

78

180

© 2012 R. Grünig/D. Morschett

6. Evaluating new markets

6.12

Industry segments in the European market for low budget cars Customer Families
Young
Purchasers Retired group with low people of a 2nd car persons income buying
Product
their first group car X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

Micro cars
Subcompacts
Compacts
4-wheel
sub-comp.
4-wheel
compacts
Cheap
minivans
Cheap
cabriolets
Second
hand cars

Companies Crafts-men Car rental + Farmers providing etc. car sharing company companies cars X

X
X

X
X

X

X = important in terms of volume

X

X

X

X
X

= industry segments

(Grünig, 2012)
© 2012 R. Grünig/D. Morschett

6. Evaluating new markets

6.13

The largest retailers for food and near food
Company

Country of origin Revenue from food and near food 2004

Revenue from food and near food 2009

Wal-Mart

USA

288

405

Carrefour

France

99

120

Tesco

UK

65

90

Total for top ten

-

839

1,087

Total world market -

3,500

4,800

Figures in billion USD
(Deloitte, 2011; ETC group, 2005)

© 2012 R. Grünig/D. Morschett

6. Evaluating new markets

6.14

Scoring model for selecting the most attractive markets
Option
Geographical market Criteria
Industry
market

Cultural distance Overall evaluation
Size of the Growth of Competitarget sub- the target tive intensity markets submarkets Access to Industry market distribution channel Geographical market Importance of the criteria
2

3

2

2

3

I

2

4

3

4

3

39

III

2

2

2

3

3

25

I

3

2

2

1

2

26

II

3

3

1

2

1

24

III

3

1

3

2

1

22

Rest of C

III

3

2

2

3

1

25

E, F + G

I

2

4

2

4

3

37

II

2

3

3

3

3

34

I

2

1

2

2

2

21

II

2

4

3

2

4

38

A
C1

H

32

24
25
35.5
29.5

Scores: 4 = very positive, 3 = positive, 2 = negative, 1 = very negative
Importance of the criteria: 3 = high, 2 = medium, 1 = low
© 2012 R. Grünig/D. Morschett

7. Evaluating market entry modes

7.1

Different alternatives within exporting
Manufacturer

Export firm

Buyer

Manufacturer

Buyer
Agent

Manufacturer

Buyer

Manufacturer

Distributor
Sales
representative

Manufacturer

Sales branch/ subsidiary Manufacturer

Buyer

Buyer

Buyer

Border
= Company

= Partners/customers
© 2012 R. Grünig/D. Morschett

7. Evaluating market entry modes

7.2

Process for evaluating market entry modes
1. Eliminate the less suitable entry modes based on external and internal conditions
2. Select the best suitable entry modes based on a detailed evaluation © 2012 R. Grünig/D. Morschett

7. Evaluating market entry modes

7.3

Matching market attributes, internal attributes and entry modes Market attractiveness Market attractiveness high

low

Production subsidiary Joint venture (Direct) export Licensing

low
(Zentes, 1993)

high

Market barriers high

low

Joint venture Production subsidiary Indirect export Direct export/
Licensing

low

high

Competitive strengths © 2012 R. Grünig/D. Morschett

7. Evaluating market entry modes

7.4

Scoring model for selecting the market entry mode
Criteria

Importance of the criteria

Options
Export via distributor Export via sales subsidiary Licensing

Control over marketing

2

1

4

2

Control over after-sales service

2

2

4

2

Required financial resources

3

4

2

4

Requires management resources

1

4

2

3

Production costs

3

1

1

4

Custom duties to be paid

2

1

1

4

Flexibility to switch entry modes

1

2

3

2

Access to distribution channels

3

4

2

4

Risk of knowledge dissemination

2

2

4

1

45

46

59

Overall evaluation
Scores: 4 = very positive, 3 = positive, 2 = negative, 1 = very negative
Importance of the criteria: 3 = high,
2 = medium, 1 = low
(adapted from Mühlbacher/Dahringer/Leihs, 2006)

© 2012 R. Grünig/D. Morschett

8. Developing an internationalization strategy for new markets

8.1

Process for developing an internationalization strategy for new markets
0. Preparing the strategy planning project

1. Evaluating potential markets and selecting the most attractive ones

= usual sequence of steps
= most important possible loops 2. Determining the market entry modes for the attractive markets

3. Developing feasibility studies for entering the attractive country markets
3. Developing feasibility studies for entering the attractive country markets
4. Developing the internationalization strategy 3. needed: Signing agreements with partners
5. IfDeveloping feasibility studies for entering the attractive country markets

3. Developing feasibility entry programs
6. Developing the market studies for entering the attractive country markets

© 2012 R. Grünig/D. Morschett

8. Developing an internationalization strategy for new markets

8.2

Market - entry mode combinations as result of Step 2
Most attractive markets
Geographical
markets
A

Entry modes

Industry markets Production subsidiary I

Sales
Distributor
subsidiary

III
E, F + G

I
II

H

II
= selected entry mode
= entry mode which would fit best

© 2012 R. Grünig/D. Morschett

8. Developing an internationalization strategy for new markets

8.3

Table of contents of a feasibility study for entering a country market
1.
2.
3.
4.

Served industry markets
Market entry mode(s)
If needed: Partner(s)
Marketing plans for the served industry markets
4.1 Industry market A
4.2 Industry market B
5. Resources needed
5.1 Human resources
5.2 Assets
5.3 Working capital
6. Quantitative objectives
6.1 Industry market A
6.2 Industry market B
7. Measures
7.1 Order of entering the industry markets
7.2 Steps and time needed for building up activities in industry market A
7.3 Steps and time needed for building up activities in industry market B
8. Responsibilities
9. Budget
9.1 Expenses including investments
9.2 Revenues
10. Economic evaluation
© 2012 R. Grünig/D. Morschett

8. Developing an internationalization strategy for new markets

8.4

Net present values of market entry options
Market entry options Free cash flows
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

Market A with wholly owned production subsidiary

-1,500 +150 +200 +250 +250 +250 +250 +250 +750

Dis- NPV count rate

10%

-58

Market E, F + G with sales
-600
subsidiary

+90

+120 +150 +150 +150 +150 +150 +150

9%

+160

Market H with
-400
sales subsidiary

+60

+80

8%

+131

+100 +100 +100 +100 +100 +100

Figures in 1,000 EUR
NPV = net present value

© 2012 R. Grünig/D. Morschett

8. Developing an internationalization strategy for new markets

8.5

Table of contents of an internationalization strategy for new markets 1. Country and industry markets to build up
2. Entry modes and, if needed, partners
3. Quantitative market objectives
4. Timetable
5. Responsibilities
6. Investment budgets and free cash flow targets

© 2012 R. Grünig/D. Morschett

http://www.springer.com/978-3-642-24724-8

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...The concept of ‘internationalization’ is strongly related to a process of involvement and accurate decision making regarding the entry or expansion into new or existing markets taking into consideration dynamic factors and limitations that could influence the entrepreneur. As Buckley J. and Ghauri N. (1999:85, 86) state, the meaning is used to describe how growth of international businesses is mainly dependant on the ‘inward-outward interlink’, thus acquiring foreign commitment over time through a six dimension pattern. The framework suggests that the success of international companies is linked to foreign operation methods and the change tendency as well as sales objects and targeted markets, organizational structure and personnel together with finance and technology. Therefore, in terms of analysing the start-up for a new venture, entrepreneurs should focus on developing and integrating the abovementioned and as Oviatt and McDougall (2004:31) indicate, gain the competitive advantage through resource utilisation and output sale in multiple countries. In order to achieve that, proactive strategies such as alliances, manufacturing capacity or marketing expertise should be taken into consideration as suggested by Buckley and Casson (1976:4) and consistent with a value added approach rather than asset owned. Therefore, the strategy is more concerned with small and medium size firms which start up locally and then mature to become consistent with the MNE theory and foreign direct...

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Market Entry Strategy

...A market entry strategy is to plan the a method of delivering goods or services to a target market and distributing them there. when importing or exporting services, it refers to establishing and managing contracts in a foreign country.Market entry is more than examining a set of economic data. Successful market entry begins with assessing feasibility, factors such as the trends, the culture, the nature of the competition and the opportunity. There are a variety of ways in which organizations can enter foreign markets. The three main ways are by direct or indirect export or production in a foreign country. Exporting methods include direct or indirect export. In direct exporting the organization may use an agent, distributor, or overseas subsidiary, or act via a Government agency. In effect, the Grain Marketing Board in Zimbabwe, being commercialized but still having Government control, is a Government agency. The Government, via the Board, are the only permitted maize exporters. Bodies like the Horticultural Crops Development Authority (HCDA) in Kenya may be merely a promotional body, dealing with advertising, information flows and so on, or it may be active in exporting itself, particularly giving approval (like HCDA does) to all export documents. In direct exporting the major problem is that of market information. The exporter's task is to choose a market, find a representative or agent, set up the physical distribution and documentation, promote and price the product. Control...

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Market Entry Strategy

...Market entry Strategy Glitter is a local company which is currently dealing with fashion accessories, wedding planning and advertising. The company wants increasing its sales by introducing new and modified products on the market. Executives constantly look at new market entry opportunities as a way to generating rapid growth, diversifying their portfolios, and preempting competition—and, occasionally, secretly satisfying their entrepreneurial spirit. There are various ways in which a company can enter in to market. No one market strategy works for all markets. In the case of Glitter, I suggest following strategies are the main entry options open to them. Organic Growth Organic growth strategy involves strengthening your company using its own energy and resources. This is the process of business expansion due to increasing overall customer base, increased output per customer or representative, new sales, or any combination of the above, as opposed to mergers and acquisitions. This approach to company growth is slower than others, but it has relatively low up-front costs, making it an attractive option for small-business owners as Glitter who want to expand their companies but don’t have large amounts of liquid capital. Developing your company’s strengths through organic growth can make you a stronger competitor in your industry. For instance, a company that continually devotes its profits to improving its quality-control department offers increasing value to its...

Words: 3610 - Pages: 15