Market entry strategy

from Wikipedia, the free encyclopedia

The market entry strategy is a term used in international marketing and management and includes measures with which a company tries to overcome market entry barriers. Planning a corresponding strategy is necessary if a product or service is to be launched in a new market . It is also important to choose the right national or international timing strategy . The counterpart to the market entry strategies are the market exit strategies .

Reasons for internationalization

Large as well as small and medium-sized companies are entering new markets and opening production sites, sales offices or others abroad. One important reason for this is the profit expectations that go hand in hand with internationalization . Furthermore, costs can be reduced in various cases, e.g. B. through cheap transport routes, low taxes or low wages abroad. Deresky (2014) differentiates between reactive and proactive reasons. Reactive reasons are defensive; H. the company follows other companies and reacts to developments within the economy and the competition. Once a competing company has secured a foreign market for itself, it is difficult to enter it later or to compete there with established companies. In addition, the competitor can produce more cheaply abroad if necessary and can thus offer a lower price or achieve a higher profit margin on the home market due to lower costs. Therefore, the company has to follow the competition in order to remain competitive. Another reason are trade barriers , which have gradually been reduced through free trade agreements and efforts by the World Trade Organization in recent years. These trade barriers can make exports expensive and disadvantageous, which is why a company has to resort to other marketing strategies , e.g. B. on joint ventures or licensing. It is similar with regulations on the home market. For research-intensive companies in particular, it is problematic when the local government enacts new laws that, for example, want to prohibit or make certain research areas more difficult by z. B. Certificates are required. In addition, customers expect direct contact with the company on site and in the respective national language. If the company receives additional inquiries and orders from abroad, it makes sense to build up a stronger presence abroad. Often there is also a buyer who opens a new production site abroad and expects his supplier to also set up a branch near the site.

There are also proactive reasons, i.e. offensive reasons. These include economies of scale . These are achieved through an increased production volume so that the capital-intensive production equipment can be fully utilized. If, for example, the factor input is doubled, then the production volume more than doubles. Often the high costs for research and development can only be amortized through additional sales abroad. Furthermore, the global expansion offers enormous growth potential. In addition, a company that is represented in several countries can compensate for fluctuations in sales and profits in its home market and thus minimize risks. As a result, the company is no longer solely dependent on domestic customers. Another reason can be the faster and better access to certain resources. The proximity to resources that are required for production also saves transport costs . In addition, government organizations in different countries often offer investment incentives in order to access capital, economic growth, know-how or technology and infrastructure. Such incentives include tax exemptions , subsidies , cheap loans, and more. It also creates new jobs. In addition, the company can also secure jobs in Germany through increasing competitiveness. Some countries also set up foreign trade zones in which no customs duties have to be paid.

International market entry and marketing strategies

Systematisation of the market entry and market cultivation strategies

export

Under Export sales of goods and services is understood abroad. A distinction is made between indirect and direct export. The risks of entering the market through export are low compared to other possible strategies. The investment required is low and getting out is easy. It should be noted that intra-firm trade economically Although export counts when doing country limits are exceeded, but from a business perspective it is not these are exported. Intra-company trading is e.g. B. a delivery of automobiles from Volkswagen in Germany to Volkswagen Japan.

Indirect export

Export through a foreign trade company

In the case of indirect export, a sales partner in the home country exports the company's products.

Advantages and motives of indirect export
  • No major increase in the number of employees is required. Otherwise, no further large investments have to be made for the purpose of export. This makes it the most cost-effective market entry strategy.
  • The export can be adjusted without problems in contrast to direct investments.
  • The company does not bear the exchange rate risk.
  • Foreign trade companies are mostly specialized and therefore know the market requirements.
Disadvantages and problems of indirect export
  • There are usually duties that increase the product price. Countries often also impose import quotas.
  • In the host country there may be various other non-tariff trade barriers , for example local content regulations and standards.
  • The company has no experience of its own with the host country.
  • There is no direct relationship with customers.

Direct export

Direct export abroad

In the case of direct export, no foreign trade company is used as a domestic intermediary. This creates a direct relationship between the exporting company and a foreign business partner. In the automotive industry, there are often general importers, especially in smaller markets .

Advantages and motives of direct export

  • Sales can be controlled more strongly than with indirect export. This enables the company to intervene better.
  • Without a commercial intermediary, the profit potential can be fully exploited.
  • Much can be done online using IT systems. In this respect, an on-site presence is not always necessary.
  • Through direct contact with other countries, the company acquires knowledge about the country and thus offers a basis for a possible change in the marketing strategy.
  • The risk is very low, and market exit is easy compared to capital-intensive market entry strategies.

Disadvantages and problems of direct export

  • The company fully bears the exchange rate risk. This can lead to a loss of competitiveness in foreign currency markets.
  • It is possible to communicate via the Internet or by telephone, but no direct customer relationship on site is possible, which can be a hindrance, especially when repairs are being carried out.
  • Since the company is not on site, it may only be able to react to market requirements and changes with a delay. Without being present in the host country, the company may face acceptance problems ( liability of foreignness ).
  • An export department is required to handle the export business.

Licensing

The licensing is an agreement between the domestic licensors , intangible assets to foreign licensees to provide. These are patents, utility models and designs, brands, copyrights and know-how. The licensee pays the licensor either a lump sum or a license fee per piece or both. In the case of licenses, there is the possibility of restricting them in terms of space, subject matter or time. As a rule, a license is granted to another company for the territory of a state, i.e. geographically. The time period is also usually limited. Depending on the restriction, licenses are divided into manufacturing , distribution and usage licenses . Coca-Cola and Heckler & Koch use licenses for international market cultivation, but the Japanese confectionery manufacturer Ezaki Glico also cultivates the European market by granting Mondelēz International a manufacturing and distribution license for the Pocky brand , which is known in Europe as Mikado.

Advantages and motives of licensing

  • A certain product can be manufactured in another country by another company for which the local company does not want to raise resources.
  • Only the license has to be provided so that no resource consumption is necessary in your own company. However, the licensee must also have the skills to adapt all the necessary production processes and technologies.
  • The company gains quick access to a foreign market. In addition, tariffs can be circumvented.
  • The licensee's market knowledge can be used.
  • There are no transport costs, which is advantageous compared to export.

Licensing disadvantages and problems

  • The company depends on its partner for market development. Therefore the right choice of partner is very important. Otherwise, the reputation of your own brand can suffer.
  • If necessary, the product is sold under a different brand name, so that your own company is not even noticed abroad.
  • A possible competitor is supported by the licensing. The licenses give the licensee a lot of know-how and can later become a competitor.

Franchising

Franchising is very similar to licensing and is often viewed as a special form of licensing. The franchisor sells an entire business format (franchise). The franchisee implements the rules and ideas of the franchisor. Franchisees can be different companies. These then appear uniformly under the franchise. The franchisor has the strategic management of the entire network and receives a franchise fee from the franchisees. For example, McDonald’s controls the supply chain of the franchise network and offers management training and financial support. Other well-known examples are Burger King , The Body Shop and The Hertz Corporation .

Advantages and Motives of Franchising

  • For the franchisor, only a small amount of capital is required, as the franchisee takes care of the financing of his branches.
  • The franchisor assumes no liability for mistakes made by the franchisee.
  • Nevertheless, the franchisor has extensive control rights with the franchisee regarding compliance with the rules of the franchise.
  • Franchises are popular with host governments as they create jobs.
  • Generating Economies of Scope as a Benefit for the Franchisee. These arise because each branch does not have to deal with procurement separately (e.g. for hamburgers ), but the franchise acts together and the franchisor takes care of the suppliers.

Drawbacks and Problems of Franchising

  • Franchising is only suitable for standardized formats.
  • “Wrong” partners can damage the image of the entire franchise. E.g. the franchise must guarantee uniform quality standards worldwide.
  • The profit potential is limited.
  • Controlling the franchisee is complex because of their size.

joint venture

In a joint venture, at least two independent partners set up a new company, which requires high investments. The distinguishing feature of a joint venture is the joint management. Joint ventures are mainly used for investment projects abroad. As a strategy to enter a new market, the joint venture is set up abroad, usually with a partner company from the host country. Joint ventures are primarily chosen if there are legal restrictions for the establishment of a subsidiary, if the country risk is high or the market and its growth are relatively small (cf. Morschett et al. 2010, p. 72). Joint ventures are often mentioned in the course of entering the market in China , as there, as in the past, for example in South Korea and other countries, some industries are particularly protected. However, joint ventures in China are becoming less important and more and more industries are being opened up to foreign investment. According to the China Chamber of Commerce (2014), subsidiaries are the dominant form among German companies in China with a 67.4% share. Joint ventures only have a share of 11.5%.

Advantages and motives of a joint venture

  • Joint ventures can circumvent import restrictions and comply with local content regulations.
  • By cooperating with another company, the capital requirement is reduced, as, for example, the R&D department can bundle its resources.
  • The risk can be shared, as the term “joint venture” makes clear.
  • Joint ventures are often set up to learn from the partner. Depending on your perspective, this can be an advantage or a disadvantage.
  • The local partner's market knowledge can be used. This is particularly advantageous when dealing with the local culture.

Disadvantages and problems of a joint venture

  • There is always a dependency on the partner, which restricts sovereign action. The coordination effort is relatively large and compromises often have to be made. Added to this is the distance and the resulting difference in time zones.
  • A large number of highly qualified employees are required to be assigned to the joint venture. However, these are then missing in your own company. In addition, the employees may need to be trained in language and culture in order to be able to deal successfully with the employees of the other company.
  • There is a risk that the other company will acquire the know-how of the employees and that a later competitor will be brought up.
  • The goals of the partners can change over time, which can lead to problems or conflicts in management.

Acquisition

In the case of an international acquisition, for example, a domestic company takes over the majority of a foreign company. In the area of ​​market entry, it would be a horizontal takeover, i.e. the domestic company acquires a foreign company in the same branch. The acquired company thus becomes a subsidiary. The transition between acquisition and merger is mostly fluid, which is why the term mergers & acquisitions is used in English . In a merger, one company often prevails so that it looks like an acquisition. Examples of acquisitions are Lenovo through the takeover of the PC division from IBM or Wal-Mart , which took over Interspar and Wertkauf in Germany , but later failed to enter the market.

Advantages and motives of an acquisition

  • By taking over an already existing company, there is a quick market entry and a quick market penetration.
  • The staff is already in place. That is why there is no need to search for new, qualified employees. In addition, the employees are already familiar with the local culture.
  • The product portfolio will be expanded through a takeover and the company may also receive patent rights through the takeover.
  • By taking over competing companies, you can secure your own independence.

Disadvantages and problems of an acquisition

  • A different (corporate) culture and habits prevail in the acquired company.
  • Acquisitions often have a low profile with the population and the government, especially when it comes to foreign companies. There is a fear of foreign infiltration.
  • Employees can fear changes, restructuring and layoffs that may occur as a result of an acquisition.
  • If the takeover involves a company from a foreign culture, misunderstandings often arise. This is another reason why some acquisitions “fail”, or the acquired company will not become profitable and a spin-off is the result. Good preparation is therefore necessary.

subsidiary

The market entry strategy that carries the biggest risk is the re-establishment of a subsidiary abroad and is a greenfield investment referred. The market entry happens through the establishment of a branch or a production facility. The goods or services produced there are aimed primarily at customers in the host country, but are often also intended for export. In the 1980s, Japanese automobile manufacturers such as Honda , Nissan and Toyota successfully implemented the strategy in the USA to circumvent import quotas.

Advantages and motives for founding a subsidiary

  • The company has an independent presence abroad and thus creates customer proximity.
  • The company is independent and can consistently pursue its own goals and implement the local corporate culture .
  • The company appears uniform and thus supports the corporate identity .
  • The employees' knowledge remains in the company, which can be an advantage over the joint venture, especially in core areas.
  • If necessary, requirements of the host country are met, e.g. B. Local content clauses.

Disadvantages and problems of starting a subsidiary

  • As mentioned before, the establishment of a subsidiary entails great risk due to high investments.
  • As a rule, managers in high positions must also be assigned to the subsidiary. As a result, they are not available to the “core company”.
  • Furthermore, more or less large cultural barriers can arise when setting up abroad, depending on how great the cultural difference is. Language barriers are also associated with this. Misunderstandings are the result.

Direct market entry strategy

With the direct market entry strategy, the company enters the targeted market and appears under its own name.

This method of entry is usually chosen by large corporations, as they usually have enough resources and experience available for such actions. Because of the size and inertia of such institutions, especially small competitors in this market often have the opportunity to take on a pioneering role with quick targeted attacks and thus keep the new competitor at a distance.

Indirect market entry strategy

Here the product is sold through a sales partner . For this purpose, a company is selected that is familiar with the market, i.e. knows the factors that determine the market and has the necessary contacts. Especially in markets with different structures, it can be important to have a local partner, e.g. B. to take into account local peculiarities such as B. to be prepared for religious rituals, national regulations etc.

This strategy is suitable for small companies that can offer their products in new markets without having to build up an appropriate infrastructure themselves. However, large corporations also frequently use this strategy. Possible indirect market entry strategies for larger companies are acquisitions, joint ventures and mergers.

Individual evidence

  1. ↑ Anne Canabal, George O. White: Entry Mode Research: Past and Future . In: International Business Review . tape 17 , no. 3 , 2008, p. 268 , doi : 10.1016 / j.ibusrev.2008.01.003 .
  2. ↑ Helen Deresky: International Management. Managing across borders and cultures . 8th edition. Pearson Education Limited, Harlow 2014, ISBN 978-0-13-306212-0 , pp. 196-200 .
  3. ↑ Helen Deresky: International Management. Managing across borders and cultures . 8th edition. Pearson Education Limited, Harlow 2014, ISBN 978-0-13-306212-0 , pp. 196-197 .
  4. ↑ a b c Helen Deresky: International Management. Managing across borders and cultures . 8th edition. Pearson Education Limited, Harlow 2014, ISBN 978-0-13-306212-0 , pp. 197 .
  5. ↑ John D. Daniel, Lee H. Radebaugh: International Business. Environments and Operations . 8th edition. Addison-Wesley, Reading, Massachusetts 1998, p. 350 .
  6. ↑ Helen Deresky: International Management. Managing across borders and cultures . 8th edition. Pearson Education Limited, Harlow 2014, ISBN 978-0-13-306212-0 , pp. 198 .
  7. ↑ Helen Deresky: International Management. Managing across borders and cultures . 8th edition. Pearson Education Limited, Harlow 2014, ISBN 978-0-13-306212-0 , pp. 199-200 .
  8. ^ Robert J. Carbaugh: Global Economics . 13th edition. South-Western Cengage Learning, Mason, Ohio, Andover 2011, pp. 134-136 .
  9. ^ Michael Kutschker , Stefan Schmid: International Management . 7th edition. Oldenbourg , Munich 2011, ISBN 978-3-486-59713-4 , pp. 861 .
  10. ^ Charles WL Hill, Peter Hwang, W. Chan Kim: An eclectic theory of the choice of international entry mode . In: Strategic Management Journal . tape 11 , no. 2 , 1990, p. 118 , doi : 10.1002 / smj.4250110204 .
  11. ^ Michael Kutschker , Stefan Schmid: International Management . 7th edition. Oldenbourg , Munich 2011, ISBN 978-3-486-59713-4 , pp. 866-870 .
  12. ^ Robert J. Carbaugh: Global Economics . 13th edition. South-Western Cengage Learning, Mason, Ohio, Andover 2011, pp. 346 .
  13. ↑ Helen Deresky: International Management. Managing across borders and cultures . 8th edition. Pearson Education Limited, Harlow 2014, ISBN 978-0-13-306212-0 , pp. 216 .
  14. ^ Michael Kutschker , Stefan Schmid: International Management . 7th edition. Oldenbourg , Munich 2011, ISBN 978-3-486-59713-4 , pp. 872 f .
  15. ^ Charles WL Hill, Peter Hwang, W. Chan Kim: An eclectic theory of the choice of international entry mode . In: Strategic Management Journal . tape 11 , no. 2 , 1990, p. 119 , doi : 10.1002 / smj.4250110204 .
  16. ^ A b Charles WL Hill: International Business. Competing in the Global Marketplace . 10th edition. McGraw-Hill / Irwin, New York 2014, ISBN 978-0-07-811277-5 , pp. 457 .
  17. ^ Michael Kutschker , Stefan Schmid: International Management . 7th edition. Oldenbourg , Munich 2011, ISBN 978-3-486-59713-4 , pp. 888 .
  18. ^ Robert J. Carbaugh: Global Economics . 13th edition. South-Western Cengage Learning, Mason, Ohio, Andover 2011, pp. 351-353 .
  19. ^ Michael Kutschker , Stefan Schmid: International Management . 7th edition. Oldenbourg , Munich 2011, ISBN 978-3-486-59713-4 , pp. 888 f .
  20. ↑ Dirk Morschett, Hanna Schramm-Klein, Bernhard Swoboda: Decades of research on market entry modes: What do we really know about external antecedents of entry mode choice? In: Journal of International Management . tape 16 , no. 1 , 2010, p. 72 , doi : 10.1016 / j.intman.2009.09.002 .
  21. ↑ Wolfgang Hirn: The death of the joint venture in China. In: Manager Magazin . December 10, 2014, accessed June 24, 2015 .
  22. ↑ German Chamber of Commerce in China (ed.): Business Climate Index 2014 . German companies in China. Shanghai 2014 ( ahk.de [PDF; accessed June 24, 2015]). Business Climate Index 2014 ( Memento of the original from June 24, 2015 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.  @1@ 2Template: Webachiv / IABot / china.ahk.de
  23. ^ Alan Griffiths, Stuart Wall: Applied Economics . 12th edition. Pearson Financial Times, Harlow, Essex, New York, NY 2012, pp. 81 f .
  24. ^ Michael Kutschker , Stefan Schmid: International Management . 7th edition. Oldenbourg , Munich 2011, ISBN 978-3-486-59713-4 , pp. 924 .
  25. ↑ a b c d e f g h Michael Kutschker , Stefan Schmid: International Management . 7th edition. Oldenbourg , Munich 2011, ISBN 978-3-486-59713-4 , pp. 918-923 .
  26. ^ Robert J. Carbaugh: Global Economics . 13th edition. South-Western Cengage Learning, Mason, Ohio, Andover 2011, pp. 350 .
  27. ↑ John D. Daniel, Lee H. Radebaugh: International Business. Environments and Operations . 8th edition. Addison-Wesley, Reading, Massachusetts 1998, p. 234-237 .
  28. ↑ Helen Deresky: International Management. Managing across borders and cultures . 8th edition. Pearson Education Limited, Harlow 2014, ISBN 978-0-13-306212-0 , pp. 220 .