She owns her own content marketing agency, Wordsmyth Creative Content Marketing, and she works with a number of small businesses to develop B2B content for their websites, social media accounts, and marketing materials. 10. This often occurs when the home company reaches out to an existing company in the foreign region and offers a new opportunity. To be successful, licensing depends mainly on an exchange of proprietary and confidential information, which can put the companys strategic advantages at risk, but agreements can be adapted to protect both parties. Every approach requires careful attention to marketing, risk, matters of control and management. Most arrangements include some form of vertical integration between producers and downstream activities. Journal of Marketing, Vol. Once a company is well established in its domestic market, it makes sense to start looking at foreign markets and considering market entry overseas. If the company does not want to make an investment in overseas production facilities, its choice is then to export its goods from existing plants. Students should give a definition and expand on each of these methods. 12, 1984, pp 257-270. Keegan, W.J. This propelled McDonald's from being a middling market player to big success. Piercy, N. "Company Internationalisation: Active and Reactive Exporting". Direct - Agent, distributor, Government, overseas subsidiary, Indirect - Trading company, export management company, piggyback, countertrade, A zone within a country, exempt from tax and duties, for the processing or reprocessing of goods for export. Direct exchange of one good for another. This involves considering whether to bring in local advisers and in what forms. Zimbabwe's imports of Namibian mackerel were the result of such a Government negotiated deal. Franchising is offering a potentially independent business owner the rights to operate a franchise using the companys strategies, business format and technology. Devise a market entry strategy for the product, clearly showing which you would use and justify your choice indicating why the method chosen would give benefits to your country and the intended importing country(s). The most common entry modes into international markets are: Exporting is directly selling goods from one country into others. Argentina beef. It consciously guarded against the creation of an unwieldy bureaucratic structure. 12. 11. In some countries, in order to enter the market, a foreign company must form a partnership or joint venture with an existing company in that country to avoid foreign businesses holding 100% of ownership in certain markets. Each method has its peculiar advantages and disadvantages which the marketer must carefully consider before making a choice. In S. Carter (ed.) She has been writing on business-related topics for nearly 10 years. Indirect exporting carries lower risk to the company in general, but direct exporting is recommended for companies that expect international marketing to become a significant part of their operational strategy. Exporting can be a good test run to explore foreign markets, and moving business transactions online can help streamline the process, but it will require preparation by the sales and marketing teams to ensure success. vi) Building of relationships and infrastructural developments "correct formats". By presenting itself as the bearer of fully finishable projects and providing guidelines on how a home should be furnished, IKEA appealed to the middle-class segment and was able to have success. The acquisition of a competitor, supplier or related business already located internationally can be an ideal way to introduce the companys products to the new market. Starbucks faced a major hurdle when entering Chinas markets, as Chinese culture distinctly favors tea over any other beverage. Table 7.413 gives examples of linkages between exporters and foreign buyers/agents. Having done all the preparatory planning work (no mean task in itself! Basche, J.R. Jr. "Export Marketing Services and Costs". 3, 1982, pp 26-40. 2022 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. However, transitioning from a domestic business to an international one can be complicated, and companies that dont understand the details involved are likely to struggle when entering the international market. Whether you are starting your first company or you are a dedicated entrepreneur diving into a new venture, Bizfluent is here to equip you with the tactics, tools and information to establish and run your ventures. 51. Citgo formed a strategic alliance with Fujitsu (a Japanese company) to help grow its Japanese market share. The first point is sourcing: The company needs to decide whether it plans on directly exporting goods from its existing facilities into the foreign markets or if it intends to have some kind of production physically within the new region. Croom Helm 1986, p 9. The physical distances involved are also very significant. 7, 1986, pp 34-42. If the company is open to foreign production of its usual products, most of the other options are available. These linkages have been very important in maintaining market excess, penetrating expanding markets and in obtaining market and product change information, thus reducing considerably the risks of doing business. In Successful African Development", EDI Development Policy Case Series, No. Often processors enter into contracted outgrower arrangements or supply raw inputs. "Horticultural Marketing". Table 7.4 Linkages between exporters and foreign buyers/agents. Export Procedures Network and Centre for Agricultural Marketing Training in Eastern and Southern Africa, August 1991. The downside is a loss of control over both operations and intellectual property. New York: The Conference Board, 1971, p4. This allows the investors involved to pool their resources both financially and in terms of R&D, critical information and existing experience. 1, 1989, pp 97-127. A systematic assessment of the different entry methods can be achieved through the use of a matrix (see table 7.2). Entry from a foreign base includes licensing, joint ventures, contract manufacture, ownership and export processing zones. In D.W. Turnbull and J.P. Valla (eds.) Each one has to be carefully weighed in order to make the most appropriate choice. 1. Bheenich, R. and Shapiro, M.O. Partnering can be difficult if the firms involved end up wanting to move in different directions or if the agreement dissolves and leaves the foreign company as a new competitor. The advantages lie in the acquisitions knowledge of regional cultures, markets and strategies as well as its already-established management and corporate structure. Foreign - Licensing, joint venture, contract manufacture, ownership, export processing zone. Acquisition of a local business is one of the fastest ways to enter an international market. Shipley, D.D. Certain characteristics can be identified in market entry strategies which are different from the marketing of say cars or television sets. This gives the home company a physical point of entry into the foreign market and gives the partner company a new opportunity in its existing markets. What Is a Primary Goal of a Multinational Danielle Smyth is a writer and content marketer from upstate New York. "International Transport and Handling of Horticultural Produce" in S. Carter (ed.) Journal of Business Research, Vol. Its incredibly important to get to know the regional laws, regulations and rules as well as the work culture and new customer base that any new department or subsidiary will be required to handle. ), the prospective global marketer has then to decide on a market entry strategy and a marketing mix. Norwich University: International Business Strategies in a Globalizing World, BC Campus: Types of International Strategies, Michigan State University: Creating a Successful Global Business Strategy, Bubbles Translation Services: 8 Strategies to Enter a New Foreign Market. The new middle class in China did not have that knowledge at the time. This type of agreement benefits both parties and gave Citgo an opportunity to build brand recognition in Japan for other products it might introduce at a later date. These are two main ways of foreign market entryeither by entering from a home market base, via direct or indirect exporting, or by foreign based production. Licensing agreements allow a company the logistical advantage of having physical operations in a new region without having to build production facilities from the bottom up. and Neale, C.W. Collett, W.E. European Journal of Marketing, Vol. By improving strict hygiene standards a marketing chain can be broken, however strong the link, by say, Government. Within these two possibilities, marketers can adopt an "aggressive" or "passive" export path. 3. Once again, it can not be over-emphasized that the smooth flow between producers, marketers and end users is essential. Starbucks focused on marketing its stores as a comfortable place to come and be social, unrelated to work or home. Take a major non-traditional crop or agricultural product which your country produces with sales potential overseas. 13. Khoromana, A.P. They act as a contact point between suppliers and buyers, obtain vital market information, liaise with Governments over quotas etc. "Global Marketing Management", 4th ed. Whilst many of the details vary, most contracts contain the supply of credit/production inputs, specifications regarding quantity, quality and timing of producer deliveries and a formula or price mechanism. This can be the fastest way to enter an international market, and it protects the companys intellectual property, but the logistics and shipping may add additional cost to the product and complications to the process. In addition to this content, she has written business-related articles for sites like Sweet Frivolity, Alliance Worldwide Investigative Group, Bloom Co and Spent. Businesses looking to enter certain national markets like China or Saudi Arabia will need to look for a business partner to form a joint venture, strategic alliance or partnership because these countries, among others, do not allow any international business to be 100% owned by a foreign country. 26, No. 5. One of the most important factors is contract coordination. "The Experience and Problems in Exporting Spices". "Successful Countertrading. Some products are handled by multinationals, others by formal integration by processors, building up import/distribution firms. Method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, processing, trademark, knowhow or some other skill by the licensor. Such arrangements have improved the flow of money, information and technologies, and very importantly, shared the risk between producers and exporters. An enterprise in which two or more investors share ownership and control over property rights and operation. Exporting can be direct (there is no intermediary; goods are sold from the company headquarters directly) or indirect (goods are sold to an intermediary who then is responsible for the sale of these goods in the foreign market). Some are very active, witness the Horticultural Crops Development Authority (HCDA) of Kenya and the Citrus Marketing Board (CMD) of Israel, the latter being a Government agency which specifically got involved in supply quotas. 1. Review the general problems encountered when building market entry strategies for agricultural commodities. 2. 9. The licensee provides some of the capital, absorbs some of the risk and should provide an independent income stream, as it pays the fees associated with the license itself. An example of the institutional arrangements13 involved is given in table 7.3. Give examples. 7. Licensing, franchising, partnerships and acquisitions can help the marketing transition because theyre likely to have an existing management structure and sales or marketing teams that are already integrated with the local cultures and customs. Pavord and Bogart. Table 7.3 Institutional arrangements linking producers with processors/exporters, Institutional links between exporters and foreign buyers/agents. "Strategies for International Industrial Marketing". What are the advantages and disadvantages of barter, countertrade, licensing, joint venture and export processing zones as market entry strategies? Marketing is key when entering international business. 8. An acquisition can also provide new opportunities for development of new products and expansion of the companys portfolio, especially if the strategy is to lean into goods tailored to each market. There can be issues involving governments, regulations and other legal issues when operating overseas. It can be difficult to integrate business cultures, and transitioning an acquisitions production to align with the company's strategy can take time. As has been pointed out time and again in this text, the international marketing of agricultural products is a "close coupled" affair between production and marketing and end user. Most contracts are of a seasonal, annual or other nature. "World Bank Discussion Paper" pp 198, 1993. 20, No. When choosing an international entry method, it all comes back to the three decisions the company has to make about how it wants to approach its expansion. Cunningham, M.T. The company needs to determine exactly which international markets it intends to enter and the important aspects of those markets. Entry from the home base (direct) includes the use of agents, distributors, Government and overseas subsidiaries and (indirect) includes the use of trading companies, export management companies, piggybacking or countertrade. Mauritius: "A Case Study of the Export Processing Zone. In the case of Kenyan fresh vegetables familial ties are very important between exporters and importers. This institutional arrangement has now, incidentally, spilled over into the domestic market where firms are wishing to target higher quality, higher priced segments. Partnering can also be called a joint venture or a strategic alliance and occurs when two or more companies agree to invest in a new opportunity in a foreign market. Jaffee S. "Exporting High Value Food Commodities". Acquisition involves purchasing an existing company in the new region and integrating it as a subsidiary within the parent company. Khoury, S.J "Countertrade: Forms, Motives, Pitfalls and Negotiation Requisites". When entering the Chinese household market, IKEA managed success, whereas Home Depot did not do well. Describe briefly the different methods of foreign market entry. iv) Transaction costs - logistics, market information, regulatory enforcement. The company also needs to consider the international markets that are being targeted as well as capital available, and much of this particular decision comes from the final point of decision: marketing. The franchisee comes to the table with capital to invest, but the home company gives up a portion of control over the international franchise. It decided to co-brand certain products in order to leverage Fujitsus excellent reputation in IT services with Citgos broader resource pool and global reputation. Producer trade associations, boards or cooperatives have played a significant part in the entry strategies of many exporting countries. Franchising allows the home company to share the risk with the semi-independent business owner and can better protect trade secrets, but the success of the franchise will heavily depend on the decisions made by the franchise team. (may be straight or closed or clearing account method), Customer agrees to buy goods on condition that the seller buys some of the customer's own products in return (may be time, method of financing, balance of compensation or pertinence of compensating product based). 6. Management Decision", Vol. 15, No. Table 7.2 Matrix for comparing alternative methods of market entry. In this case, very little capital investment is required, as there will be no production in the new region, but significant investment in marketing is a must in order for exporting to be successful. These are either "direct", "indirect" or "foreign" based. These refer specifically to the institutional arrangements linking producers and processors/exporters and those between exporters and foreign buyers/agents. Network and Centre for Agricultural Marketing Training in Eastern and Southern Africa, 1991. Prentice Hall International Editions, 1989. January 1987, pp 71-82. Home Depot is a do-it-yourself hardware store and requires that consumers know how to do home improvement projects already. A company thats willing to share control in order to mitigate risk will look at licensing, franchising and partnering as agreeable options. European Journal of Marketing, Vol. 4. A company looking to expand into foreign markets needs to consider three things as part of its entry strategy: These three key pieces all combine into a set of entry modes: the various ways a company can enter a foreign market. For example, in France, McDonald's incorporated baguettes on its menu and marketed itself as a coffee-shop-type venue, where the French could continue to have multiple small meals and socialize. As a companys business grows and expands, it can reach a point where the executive board has to decide whether or not to enter new markets. iii) Time - processing, transport and storage - so credit is needed e.g. In some cases, Government gets involved in negotiating deals with foreign countries, either through trade agreements or other mechanisms. Its best to examine each nations laws when deciding how to move into international markets. The next point of decision is ownership: The company needs to decide the level of control it wants over these international pieces. Companies that desire more control over operations will look at acquisition or direct exporting as the more favorable choices. Franchising is similar to licensing, although a franchise usually offers the entire package of a companys standard operations, while a licensee may have its own business methods. Organisations are faced with a number of strategy alternatives when deciding to enter foreign markets. Korey, G. "Multilateral Perspectives in International Marketing Dynamics". 1, pp 49-52. However it must also be noted that unless strong relationships or contracts are built up and product qualities maintained, the smooth flow can be interrupted should a more competitive supplier enter the market. 3. Anderson, E. and Coughlan, A.T. "International Market Entry and Expansion via Independent or Integrated Channels of Distribution". The entry mode strategy encompasses the way an organization plans to enter a new market. Linkages between exporters and foreign buyers are often dominated by open market trade or spot market sales or sales on consignment. Licensing allows a foreign company to operate using the home companys strategies, technology and/or trademarks to produce the home companys product under specific terms. 2. Institutional links between producers and processors/exporters. This also can occur by Government decree, or by the erection of non-tariff barriers to trade. This, however, should not occur, if the link involves the close monitoring and action by the various players in the system, who are aware, through market intelligence, of any possible changes. "Quoted in The Export Marketing Decision" S.A. Hara in S. Carter (Ed) "Export Procedures", Network and Centre for Agricultural Marketing Training in Eastern and Southern Africa 1991. and provide information, or even get involved in quality standards. McDonald's offers franchising options in many countries and has learned that making small changes that appeal to new international customers can have a large effect on success. This concept resonated with the Chinese market, and Starbucks has expanded successfully into this tea-soaked market.
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