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Entry Strategies


Entry Strategies

Choosing a mode of entry in international markets:

Choice for an appropriate mode of entry into international markets would depend on a host of factors.
The key factors are given as follows:
• Nature of business
• Size of the company
• Resource availability to the firm
• Firm’s international strategy
• Need for control over business and brands
• Ownership advantages
A firm holds unique competitive advantage that overcomes problems of competing in foreign
countries i.e. brand names, technology, economies of scale etc.
• Location advantages for the firm
• Internationalization advantages for the firm
a firm must benefit more from controlling the foreign business activity than hiring another
company to conduct the business
• Market size & growth
6. Risk of operating in the foreign market
7. Government regulation
8. Competitive environment in the country
9. Local infrastructure
All these factors combined determine the overall market attractiveness of the countries being considered

Classification of countries for entry mode selection:

• Markets can be classifies in five types of countries based on their respective attractiveness
Countries that can be used to gather intelligence and establish a network- i.e Dubai
i.e Vietnam, Philippines – companies should build up an initial presence, i.e. via a liaison
Early mover advantages often allows companies to build up a significant presence in order to
capitalize on future market opportunities
Mature & Established
These countries have far fewer growth prospects than other types of markets – often times,
local competitors are well entrenched

Entry modes and foreign market development:

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Depending on the nature of foreign markets the suggested modes for entry are as follows;

Platform countries

– Establish a base to learn, collect information and set up contacts – an office perhaps

Emerging markets

– Agents – representative office

Growth markets

– Joint venture – local subsidiary

Maturing markets

– Joint venture – local operations

Established markets

– Joint venture – acquisition

Entry strategies into international markets:
Selecting and changing entry modes

– in a specific country, market attractiveness and the pressure to produce locally are often the most
important criteria for selecting entry modes
– by and large governments of developing countries prefer foreign firms to manufacture locally, or
at least to assemble imported parts and components within the country
– due to lack of information decisions on entry modes are therefore have to be made under great
uncertainty even though they may affect the well-being of the firm for many years to come

Distribution agreements

– presently there is an increasing trend towards more direct involvement in world markets,
especially among larger and more experienced firms - especially in larger markets
– distribution agreements, however remain crucial for smaller, less experienced firms and for
markets or market segments which are presently of secondary importance
– in many countries there are also restrictions on foreign firms regarding certain activities - where
they need to join with local partners
– traditional Chinese distributors, dominating most of the South & East Asian markets, tend to look
at distribution as a cash management business
– successful partnerships require a fit in strategies, resources, culture and organization
– some Western distributors have been in Asia since colonial times - Diethelm, East Asiatic,
Hagemeyer, Liebermann, Inchcape, Jardine and Swire
– Japanese sogo shosha, with dominant role in Japan have often failed to come up to the
expectations of foreign firms with limited sales

Choice of location

– the choice of location for the firm within a country / region has to be made at a very early stage of
market entry and carries far-reaching consequences
– the choice of location is influenced by location of joint venture partner, location of customer/s,
close to supplier/s, costs, availability of operational infrastructure / supporting industries

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Critical mass & optimism traps

– any entry decision is connected with the question of how many resources should be deployed in
the country
– the theoretical answer is easy: enough to make an impact on the market, but not so much as to
waste capital or human resources which could be used more efficiently elsewhere
– in practice the problem lies in the identification of the critical mass threshold where any
additional input of resources results in a disproportionately high growth in output
– this can normally be found by taking the most successful (often the largest) competitor in the
market as the benchmark

Competitive moves for entry into international markets:

First mover advantage

– Unilever still dominates Indonesian and Pakistani markets, P&G those of Philippines - neither of
them have been able to make large inroads into the other’s territory
– more recently, Japanese firms have opened up new markets for themselves ahead of Western
firms and shaped them to their standards - in Vietnam motorcycles are already called Hondas -
and repair shops Hon-Da service station

Late entry strategies

– the things that work in favor of the first mover represent entry barriers to firms which enter a
market later than competitors
– a frontal attack requires superior resources
– a late entry is advisable when competition is in turmoil because of technological change in the
industry or changes in the marketplace - or due to changes in distribution systems

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