Transcript ch09 Hollensen - Warsaw School of Economics

Svend Hollensen
GLOBAL MARKETING
4th Edition
Lecture by Ewa Baranowska-Prokop, Ph.D.
Some approaches to the choice
of entry mode
Mac Baren Tobacco Company:
Internationalizing the water pipe business
 Is it a wise decision for MBTC to enter the
water pipe market?
 Which screening criteria would you
suggest for MBTC’s IMS (International
Market Selection) process?
 Which specific markets would you
suggest MBTC enter?
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Learning objectives
 Identify and classify different market entry
modes
 Explore different approaches to the choice of
entry mode
 Explain how opportunistic behaviour affects the
manufacturer/intermediary relationship
 Identify the factors to consider when choosing a
market entry strategy
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What is this?
An institutional arrangement necessary
for the entry of a company’s products
into a new foreign market is known as
an ______.
Entry mode
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Types of entry modes
Export
Intermediate
Hierarchical
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Rules for choosing
mode of entry
Naive rule
Pragmatic rule
Strategy rules
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What is this?
Which rule for choosing a mode of entry
is based upon selecting the mode that
maximizes the profit contribution over
the strategic planning period subject to
(a) the availability of company
resources, (b) risk and (c) non-profit
objectives?
Strategy rule
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Transaction cost approach
Opportunistic
behaviour of
export intermediary
VS
Opportunistic
behaviour of
producer
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Export intermediary
responses to opportunistic
behaviour of producer
Establish personal relations with
producer’s key employees
Create an independent identity in
connection with selling producer’s
products
Add further value to the product
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All factors affecting decision
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Internal factors affecting
market entry mode decision
Product
Product
differentiation
advantage
Product
complexity
+
International
experience
Entry mode
decision
+
Firm
size
+
+
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Desired mode
characteristics affecting
market entry mode decision
Risk
averse
-
+
Control
-
Entry mode
decision
Flexibility
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Transaction-specific factors
affecting
market entry mode decision
Tacit nature of
know-how
+
Entry mode
decision
Opportunistic
behaviour
+
+
Transaction
costs
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External factors affecting
market entry mode decision
-
Sociocultural
distance
Country risk/
demand
uncertainty
Market size/
growth
Entry mode
decision
+
-
+
+
Direct/
indirect
trade barriers
-
Number of
export
intermediaries
Intensity of
competition
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For discussion
 Do you agree with the view that LSEs use a
‘rational analytic’ approach to the entry mode
decision, while SMEs use a more
pragmatic/opportunistic approach?
 Identify the most important factors affecting the
choice of foreign entry mode. Prioritize the
factors.
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Major Types of Exporting
Indirect export
Direct export
Cooperative export
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What is this?
The measurement of the strength of a
relationship between manufacturer and
export-partner in terms of trust,
commitment, and cooperation is known
as ______.
Partner mindshare
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Drivers of mindshare
Commitment
and trust
Collaboration
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Mutuality
of interest
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Export modes
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What is this?
Which mode of export refers to a
manufacturer’s use of independent
export organizations located in its own
country (or a third country)?
Indirect export modes
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Indirect export modes
Sale is like a domestic sale
Most appropriate for firms with limited
international expansion objectives
Appropriate for firms using international
sales as a means of disposing of surplus
production
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Indirect entry modes
Export buying agent
Broker
Export management company
Trading company
Piggyback
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What is this?
What term refers to a representative of
foreign buyers who is located in the
exporter’s home country and provides
services such as identifying potential
sellers and negotiating prices?
Export buying agent
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What is this?
What term refers to an agent, based in
the home country, who is a specialist in
performing contractual functions but
does not actually handle the products
sold or bought?
Broker
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Export management
company/export house
Specialist companies that act as the export
department
EMCs spread selling, administrative, and
transport costs because of economies
involved making large shipments of goods
from a number of companies
EMCs offer far wider exposure for client
products at a lower cost
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Disadvantages of
using EMCs
EMC specialization may not correspond to
supplier objectives
EMCs are paid commission and may focus on
opportunities that enhance returns quickly
EMCs may represent too many clients to provide
outstanding service to any single one
EMCs may carry competing products
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What is this?
What term refers to an indirect mode of
export which entails an inexperienced
SME ‘riding’ on the capabilities of a
larger company already experienced in
foreign markets?
Piggyback
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Piggyback considerations
for the carrier
Advantages
Disadvantages
Enables use of
Quality control
excess export capacity
concerns
May fill gap in product Continuity of supply
line
issues
Broadens product
range without
development and
manufacturing costs
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Piggyback considerations
for the rider
Advantages
No need for
distribution system
Opportunity to learn
from carrier
Disadvantages
Loss of control over
marketing of products
Potential lack of
commitment from
carrier
Carrier may wish to
acquire rider
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Direct entry modes
Export via distributors
Export via agents
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What is this?
An independent company that stocks
the manufacturer’s product, but has
substantial freedom to choose its own
customers and price is known as
a(n)______.
Distributor
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What is this?
An independent company that sells on
to customers on behalf of the
manufacturer, does not stock the
product, and earns profits from
commission paid by the manufacturers
is known as a(n)______.
Agent
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Finding an intermediary
 Ask potential customers to suggest a suitable
agent
 Obtain recommendations from institutions such
as trade associations, chambers of commerce,
and government trade departments
 Use commercial agencies
 Poach a competitor’s agent
 Advertise in suitable trade papers
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Matchmaking
between manufacturer
and two potential partners
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What to look for
in an intermediary
Size of firm
Physical facilities
Willingness to carry
inventories
Knowledge/use of
promotion
Reputation with supplier,
customers, and banks
 Sales performance record
 Cost of operations
 Overall experience
 Knowledge of English or
other relevant languages
 Knowledge of business
methods in
manufacturer’s country
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Contracts
with intermediaries
General provisions
Rights and obligations
of manufacturer
Rights and obligations
of distributor
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Principles of
the law of agency
An agent cannot take delivery of the principal’s
goods at an agreed price and resell them for a
higher amount without the principal’s knowledge
and permission
Agents must maintain strict confidentiality
regarding their principal’s affairs and must pass
on all relevant information
Principal is liable for damages to third parties for
wrongs committed by an agent
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Agent entitlements
upon contract termination
Full payment for any deal resulting from its
work
A lump sum of up to one year’s past
average commission
Compensation for damages to agent’s
commercial reputation caused by
unwarranted termination
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Functions of
export marketing groups
 Exporting in the name of
the association
 Consolidating freight,
negotiating rates, and
chartering ships
 Performing market
research
 Appointing selling agents
abroad
 Obtaining credit
information and collecting
debts
 Setting prices for export
 Allowing uniform
contracts and terms of
sale
 Allowing cooperative bids
and sales negotiation
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Lysholm’s Linie Aquavit
is exported to Sweden,
Norway, Denmark,
Germany,
and the US
Source: http://linie-aquavit.com
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Lysholm Linie Aquavit:
A case study
 What are the advantages for Arcus of
having distributors as part-owners?
 What should be Arcus’ main criteria for
selecting new distributors or cooperation
partners, for Linie Aquavit in new market?
 Would it be possible to pursue an
international branding strategy for Linie
Aquavit?
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For discussion (1)
 Why is exporting frequently considered the
simplest way of entering foreign markets and is
thus favoured by SMEs?
 Why is it difficult – financially and legally – to
terminate a relationship with overseas
intermediaries? What should be done to prevent
or minimize such difficulties?
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For discussion (2)
 How can the carrier and the rider both benefit
from a piggyback arrangement?
 When a firm begins direct exporting, what tasks
must it perform?
 The international marketer and the intermediary
will have different expectations concerning the
relationship. Why should these expectations be
spelled out and clarfied in the contract?
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