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Market Entry Strategies Paper

Words: 4928, Paragraphs: 35, Pages: 17

Paper type: Essay , Subject: Foreign Exchange Market

When an organisation has made a decision to enter an overseas market, there are a variety of options open to it. These options vary with cost, risk and the degree of control which can be exercised over them. The simplest form of entry strategy is exporting using either a direct or indirect method such as an agent, in the case of the former, or countertrade, in the case of the latter. More complex forms include truly global operations which may involve joint ventures, or export processing zones.

Having decided on the form of export strategy, decisions have to be made on the specific channels. Many agricultural products of a raw or commodity nature use agents, distributors or involve Government, whereas processed materials, whilst not excluding these, rely more heavily on more sophisticated forms of access. These will be expanded on later. Structure Of The Chapter The chapter begins by looking at the concept of market entry strategies within the control of a chosen marketing mix.

It then goes on to describe the different forms of entry strategy, both direct and indirect exporting and foreign production, and the advantages and disadvantages connected with each method. The chapter gives specific details on “countertrade”, which is very prevalent in global marketing, and then concludes by looking at the special features of commodity trading with its “close coupling” between production and marketing.

A sound market-entry strategy gives an operator greater control over its market introduction and launch expectations, thereby ensuring financial targets are met * A well-founded market-entry strategy minimises the uncertainties faced by new entrants * Analysys Mason has developed a systematic approach to market-entry strategies, allowing us to create well-supported and objective plans that extract maximum value from internal assets and investment, and ultimately increased competitiveness and secured revenue * We have used this approach to: decrease the financial uncertainty that derives from lack of comprehensive market analysis and a structured strategic plan * enable usiness plan collaboration and financial planning * initial business case assumptions need to be revisited to better correspond with market conditions and chosen market position * create launch efficiency by delivering a framework for subsequent planning of tactical launch activities, coordinating and prioritising tasks for launch team * enable risk management and market perception control through contingency planning * Launch organisations face immense pressures on market entry, created by internal and external expectations: * some of these pressures can be eased by developing a clear and structured market-entry strategy and effective functional plans Pressures faced by new entrants Internal constraints and expectations

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Time constraints: rapid deployment is crucial to avoid rise in market share cost and to deliver predicted financial results Resource limitations: * core launch teams are often rapidly assembled, and specialist expansion is done gradually, creating a large resource gap during the implementation phase Financial pressure: * as financial targets and expectations have been set prior to launch, any unpredicted market activity and launch delays will disturb initial customer take-up and revenue generation External constraints and expectations Market data: * in many instances organisations lack in-depth understanding of market drivers or have limited access to market data Competition: competitors will plan pre-emptive, disruptive action to improve their own positions and secure their customer base prior to new entry Analysys Mason’s structured approach to developing an entry strategy begins with a comprehensive analysis of the market, based on market data or tailored research * Our approach to developing a market-entry strategy follows a proven and structured process, based on extensive industry experience and in-depth understanding of all aspects that feed into a commercial launch * A comprehensive analysis, using market data and tailored market research, allows us to assess all areas affecting the operator’s strategic direction: * market dynamics: detailed consumer and business market segmentation and analysis of market drivers will be undertaken to identify the most valuable target segments and underlying reasons for market growth.

Specific target areas are evaluated to provide key inputs: retail structures, financial transactions systems and Internet usage provide input to sales and distribution planning * competitive landscape: extensive competitive profiling in areas such as positioning, brand, target segments, value proposition, market offer, pricing, customer care, sales & distribution, coverage, network & support systems enable assessment of competitors’ strengths and weaknesses * macro-economic outlook: analysis of relevant macroeconomic data determine market and segment growth * legislation and regulatory framework: description of limitations or possibilities within the current regulatory environment that affect market and segment growth * internal assets/technology: analysis of all internal assets including technology, brand, partnerships will be done to clarify which sustainable competitive advantages the company holds * An internal SWOT highlight areas of valid advantages and disadvantages, providing input to market entry positioning and value proposition * Identification of strategic risk areas at an early stage enables preparation of mitigating actions prior to market entry * Conclusions from the market analysis together with internal SWOT and identified strategic risk areas form the basis for describing the market opportunity

Analysys Mason’s overall market entry strategy statement and market position clearly demonstrates which main directions are necessary to reach market objectives * A description of the company’s vision and mission statements as well as financial objectives form the starting point for the market entry strategy as they set the framework in which a new entrant will function * Short-term objectives, sales targets, market share and brand awareness, will be set against the market opportunity and supplied as input to the business planning team * Analysys Mason will develop an overall market entry strategy statement, clearly demonstrating which main directions are necessary to reach stated objectives * The positioning statement visibly escribes the company’s strategy in relation to competition and the value proposition captures the company’s differentiating advantages and their benefits to potential customers * The brand strategy explains which values are important to communicate in order to enhance the company’s relationship with its customers * Targeted customer segments that need be addressed in order to deliver desired objectives will be specified and prioritised * Strategic directions in all functional areas; products & services, pricing, brand & communication, sales & distribution and customer service further detail the overall entry strategy. Finally, the launch phasing section explores the various viable market entry options, their pro’s, con’s and pre-conditions Detailed tactical launch plans enable efficient and controlled implementation, leading to rapid market introduction * Strategic directions are further detailed into a tactical launch plan, covering all functional areas. This provides the launch team and vendors with necessary specifications for implementation and ensures that all launch activities support the overall market entry strategy * A product & service roadmap will be developed by matching technical capabilities and benefits with customer needs.

The roadmap includes detailed set of individual services or product packages at and post-launch * Pricing launch packages and separate services includes development of complex price modelling and deployment of conjoint research to assist in the choice of, from customer perspective, the most valuable pricing option * Brand and communication plan for market entry includes development of brand wheel (attributes, benefits, values) and full launch campaign planning * The development of a sales and distribution channel plan involves creation of a tailor made sales and commission model, detailing of the company’s sales and distribution channel structure and analysis and recommendation on commission structure and levels * The customer service plan includes high level customer service processes and customer centre dimensioning * Clear contingency planning enables the company to pre-empt the occurrence of situations that affect the planned activities and prepare plans to remedy those, resulting in shortened reaction time. Both internal and external factors will be analysed * Internal – e. g. technical and organisational issues * External – e. g. competitive market activities and regulatory actions Structured and comprehensive planning and interaction with business planning and technical teams enables coordinated effort, bringing market entry success * The commercial market entry strategy must work in unison with business planning and technical team to ensure a coordinated market entry approach Business planning unit requires market input when developing business plan and budgets *

Positioning, price strategy, marketing investment and coverage (in relation to competition) affect potential market size and share * Segment uptake assumptions serve as input to market share calculations * Development and deployment of network and support systems need take commercial requirements into consideration and vice versa * Technical possibilities and limitations are taken into consideration when developing the market entry strategy * Market offer and customer approach produce requirements for support system configuration Market entry strategy and tactical launch plan Business plan and budget Technical roadmap and roll-out plan In addition to market entry strategy development, Analysys Mason can provide complete launch support and coordination of connected business functions Key issues| * The overall project management office (PMO) coordinates the roles of different teams to ensure that the management is fully updated of progress and potential bottlenecks for action * The individual functions can be undertaken by the Analysys Mason consortium or by client entities, with the objective of handing over the running of the business to the client.

Approach to overcome challenges * Launch support covers a range of activities that will enable the successful launch of the business in an aggressive timescale * Determining the exact role of different entities needs to be undertaken in an implementation planning phase that will balance the cost of external resources with the speed of launch, based on intensive, short-term external team effortCase study: Fourth entrant market entry strategy and detailed launch planBusiness challenge * Our client had acquired a mobile license for Afghanistan, entering as the fourth operator in an extremely difficult market with regards to economic and social structures, security issues, geographical accessibility and lack of reliable market information. Furthermore, our client did not have a separate Programme Management Office (PMO) to oversee launch implementation, increasing the demand for a clear and structured market entry strategy and subsequent tactical plans Analysys Mason was hired to undertake development of a market entry strategy and detailed launch plan to steer the launch team and contracted suppliers towards a successful market introduction. In parallel, Analysys Mason developed a long-term business plan and detailed operating model / budget.

Approach * Conducted a comprehensive market analysis * Developed a robust market entry strategy * Setting attainable sales objective, in liaison with the business plan * Determining durable positioning and value proposition * Developed detailed tactical plans for each functional area * Recommended segmented market offers for launch and post-launch, having evaluated various options * Build a comprehensive price model and initiated market research to evaluate tariff options * Developed complete sales and distribution channel structure including modelling of commission structure and levels * Created a brand adapted to local market conditions and developed a communication planBenefits and results * Analysys Mason produced a complete market entry strategy and detailed tactical launch plans, allowing our client to formulate a clear and differentiated market position with aligned market offering, pricing, communication, customer service and sales & distribution structure. This enabled complete stakeholder buy-in and efficient launch plan executionAnalysys Mason has assisted several new entrants worldwide in developing their market entry strategies Project focus| Client type| Key project results|

Development of a mobile strategy (including UMTS, CDMA 2000 and WiMAX technologies)| North African alternative fixed and mobile operator| Analysys Mason developed a robust strategy for entering the mobile market by developing alternative service propositions and marketing strategies and analysing different technology options (UMTS, CDMA 2000 and WiMAX), roll-out approaches and handset strategies. Analysys Mason has also developed high level financials for the various options in order to make a detailed recommendation. Our conclusions were accepted by the Board and we were praised for our clear reasoning and innovative approach| Launch support| Asian wireless operator| Analysys Mason worked as part of a wider team to support the launch of a new mobile operator in a developing Asian country.

The task consisted of business planning, international connectivity assessment and program management support| Assessment of a mobile entry strategy offering limited mobility services | North African fixed operator| Analysys Mason provided insight into successful market entry strategies employed by late mobile entrants and examined markets and operator performances where spectrum obtained initially or permanently constrained to offer limited mobility services| Development of a mobile business strategy for a new entrant| Western European fixed operator| Analysys Mason worked as part of a wider team which included the client’s senior bid team, a technology vendor and other parties. The client recognised that coming late into the market as a 3G operator, and being one of numerous infrastructure-based operators in that country required an innovative approach to the market.

Analysys Mason produced a credible bid, financial model as well as a solid mobile business strategy taking into account 3G technology, network planning, local planning and network build issues, the local mobile market, product propositions and channels to market| Development of a strategy for the smaller mobile operator in a market of four operators as part of an acquisition process| Investment bank| Analysys Mason carried out a comprehensive market and technical due diligence, covering all elements of the core business of the operator, including operations, technology, sales and marketing, information technology systems and human resources.

Analysys Mason developed a growth strategy for the acquisition target, using the outputs of its due diligence, as well as those from the financial and legal ones. On this basis, Analysys Mason built a business plan and subsequently contributed to the preparation of the bid book| | BASIC ISSUES : An organization wishing to “go international” faces three major issues: i) Marketing – which countries, which segments, how to manage and implement marketing effort, how to enter – with intermediaries or directly, with what information? ii) Sourcing – whether to obtain products, make or buy? iii) Investment and control – joint venture, global partner, acquisition? Decisions in the marketing area focus on the value chain.

The strategy or entry alternatives must ensure that the necessary value chain activities are performed and integrated. THE VALUE CHAIN -MARKETING FUNCTION DETAIL In making international marketing decisions on the marketing mix more attention to detail is required than in domestic marketing. Table 7. 1 lists the detail required1. Table 7. 1 Examples of elements included in the export marketing mix 1. Product support – Product sourcing – Match existing products to markets – air, sea, rail, road, freight – New products – Product management – Product testing – Manufacturing specifications – Labelling – Packaging – Production control – Market information 2. Price support Establishment of prices – Discounts – Distribution and maintenance of pricelists – Competitive information – Training of agents/customers 3. Promotion/selling support – Advertising – Promotion – literature – Direct mail – Exhibitions, trade shows – Printing – Selling (direct) – Sales force – Agents commissions – Sale or returns . 4 Inventory support – Inventory management – Warehousing – Distribution – Parts supply – Credit authorization 5. Distribution support – Funds provision – Raising of capital – Order processing – Export preparation and documentation – Freight forwarding – Insurance – Arbitration – Merchandising – Sales reports, catalogues literature Customer care – Budgets – Data processing systems – Insurance – Tax services – Legal services – Translation 7. Financial support – Billing, collecting invoices – Hire, rentals – Planning, scheduling budget data – Auditing Details on the sourcing element have already been covered in the chapter on competitive analysis and strategy. Concerning investment and control, the question really is how far the company wishes to control its own fate. The degree of risk involved, attitudes and the ability to achieve objectives in the target markets are important facets in the decision on whether to license, joint venture or get involved in direct investment.

Cunningham1 (1986) identified five strategies used by firms for entry into new foreign markets: i) Technical innovation strategy – perceived and demonstrable superior products ii) Product adaptation strategy – modifications to existing products iii) Availability and security strategy – overcome transport risks by countering perceived risks iv) Low price strategy – penetration price and, v) Total adaptation and conformity strategy – foreign producer gives a straight copy. In marketing products from less developed countries to developed countries point iii) poses major problems. Buyers in the interested foreign country are usually very careful as they perceive transport, currency, quality and quantity problems. This is true, say, in the export of cotton and other commodities.

Because, in most agricultural commodities, production and marketing are interlinked, the infrastructure, information and other resources required for building market entry can be enormous. Sometimes this is way beyond the scope of private organisations, so Government may get involved. It may get involved not just to support a specific commodity, but also to help the “public good”. Whilst the building of a new road may assist the speedy and expeditious transport of vegetables, for example, and thus aid in their marketing, the road can be put to other uses, in the drive for public good utilities. Moreover, entry strategies are often marked by “lumpy investments”. Huge investments may have to be undertaken, with the investor paying a high risk price, long before the full utilisation of the investment comes.

Good examples of this include the building of port facilities or food processing or freezing facilities. Moreover, the equipment may not be able to be used for other processes, so the asset specific equipment, locked into a specific use, may make the owner very vulnerable to the bargaining power of raw material suppliers and product buyers who process alternative production or trading options. Zimfreeze, Zimbabwe is experiencing such problems. It built a large freezing plant for vegetables but found itself without a contract. It has been forced, at the moment, to accept sub optional volume product materials just in order to keep the plant ticking over. In building a market entry strategy, time is a crucial factor.

The building of an intelligence system and creating an image through promotion takes time, effort and money. Brand names do not appear overnight. Large investments in promotion campaigns are needed. Transaction costs also are a critical factor in building up a market entry strategy and can become a high barrier to international trade. Costs include search and bargaining costs. Physical distance, language barriers, logistics costs and risk limit the direct monitoring of trade partners. Enforcement of contracts may be costly and weak legal integration between countries makes things difficult. Also, these factors are important when considering a market entry strategy.

In fact these factors may be so costly and risky that Governments, rather than private individuals, often get involved in commodity systems. This can be seen in the case of the Citrus Marketing Board of Israel. With a monopoly export marketing board, the entire system can behave like a single firm, regulating the mix and quality of products going to different markets and negotiating with transporters and buyers. Whilst these Boards can experience economies of scale and absorb many of the risks listed above, they can shield producers from information about, and from. buyers. They can also become the “fiefdoms” of vested interests and become political in nature.

They then result in giving reduced production incentives and cease to be demand or market orientated, which is detrimental to producers. Normal ways of expanding the markets are by expansion of product line, geographical development or both. It is important to note that the more the product line and/or the geographic area is expanded the greater will be the managerial complexity. New market opportunities may be made available by expansion but the risks may outweigh the advantages, in fact it may be better to concentrate on a few geographic areas and do things well. This is typical of the horticultural industry of Kenya and Zimbabwe. Traditionally these have concentrated on European markets where the markets are well known.

Ways to concentrate include concentrating on geographic areas, reducing operational variety (more standard products) or making the organisational form more appropriate. In the latter the attempt is made to “globalise” the offering and the organisation to match it. This is true of organisations like Coca Cola and MacDonald’s. Global strategies include “country centred” strategies (highly decentralised and limited international coordination), “local market approaches” (the marketing mix developed with the specific local (foreign) market in mind) or the “lead market approach” (develop a market which will be a best predictor of other markets). Global approaches give economies of scale and the sharing of costs and risks between markets. ENTRY STRATEGIES

There are a variety of ways in which organisations can enter foreign markets. The three main ways are by direct or indirect export or production in a foreign country (see figure 7. 2). Exporting Exporting is the most traditional and well established form of operating in foreign markets. Exporting can be defined as the marketing of goods produced in one country into another. Whilst no direct manufacturing is required in an overseas country, significant investments in marketing are required. The tendency may be not to obtain as much detailed marketing information as compared to manufacturing in marketing country; however, this does not negate the need for a detailed marketing strategy.

Figure 7. 2 Methods of foreign market entry The advantages of exporting are: ? manufacturing is home based thus, it is less risky than overseas based ? gives an opportunity to “learn” overseas markets before investing in bricks and mortar ? reduces the potential risks of operating overseas. The disadvantage is mainly that one can be at the “mercy” of overseas agents and so the lack of control has to be weighed against the advantages. For example, in the exporting of African horticultural products, the agents and Dutch flower auctions are in a position to dictate to producers. A distinction has to be drawn between passive and aggressive exporting.

A passive exporter awaits orders or comes across them by chance; an aggressive exporter develops marketing strategies which provide a broad and clear picture of what the firm intends to do in the foreign market. Pavord and Bogart2 (1975) found significant differences with regard to the severity of exporting problems in motivating pressures between seekers and non-seekers of export opportunities. They distinguished between firms whose marketing efforts were characterized by no activity, minor activity and aggressive activity. Those firms who are aggressive have clearly defined plans and strategy, including product, price, promotion, distribution and research elements. Passiveness versus aggressiveness depends on the motivation to export.

In countries like Tanzania and Zambia, which have embarked on structural adjustment programmes, organisations are being encouraged to export, motivated by foreign exchange earnings potential, saturated domestic markets, growth and expansion objectives, and the need to repay debts incurred by the borrowings to finance the programmes. The type of export response is dependent on how the pressures are perceived by the decision maker. Piercy (1982)3 highlights the fact that the degree of involvement in foreign operations depends on “endogenous versus exogenous” motivating factors, that is, whether the motivations were as a result of active or aggressive behaviour based on the firm’s internal situation (endogenous) or as a result of reactive environmental changes (exogenous). If the firm achieves initial success at exporting quickly all to the good, but the risks of failure in the early stages are high.

The “learning effect” in exporting is usually very quick. The key is to learn how to minimise risks associated with the initial stages of market entry and commitment – this process of incremental involvement is called “creeping commitment”. Figure 7. 3 Aggressive and passive export paths Exporting methods include direct or indirect export. In direct exporting the organisation may use an agent, distributor, or overseas subsidiary, or act via a Government agency. In effect, the Grain Marketing Board in Zimbabwe, being commercialised 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, or the lack of it, is a major problem which often results in decisions on pricing, certification and promotion being in the hands of others. Certainly, the phytosanitary requirements in Europe for horticultural produce sourced in Africa are getting very demanding.

Similarly, exporters are price takers as produce is sourced also from the Caribbean and Eastern countries. In the months June to September, Europe is “on season” because it can grow its own produce, so prices are low. As such, producers are better supplying to local food processors. In the European winter prices are much better, but product competition remains. According to Collett4 (1991)) exporting requires a partnership between exporter, importer, government and transport. Without these four coordinating activities the risk of failure is increased. Contracts between buyer and seller are a must. Forwarders and agents can play a vital role in the logistics procedures such as booking air space and arranging documentation.

A typical coordinated marketing channel for the export of Kenyan horticultural produce is given in figure 7. 4. In this case the exporters can also be growers and in the low season both these and other exporters may send produce to food processors which is also exported. Figure 7. 4 The export marketing channel for Kenyan horticultural products. Exporting can be very lucrative, especially ‘if it is of high value added produce. For example in 1992/93 Zimbabwe exported 5 338,38 tonnes of flowers, 4 678,18 tonnes of horticultural produce and 12 000 tonnes of citrus at a total value of about US$ 22 016,56 million. In some cases a mixture of direct and indirect exporting may be achieved with mixed results.

For example, the Grain Marketing Board of Zimbabwe may export grain directly to Zambia, or may sell it to a relief agency like the United Nations, for feeding the Mozambican refugees in Malawi. Payment arrangements may be different for the two transactions. Nali products of Malawi gives an interesting example of a “passive to active” exporting mode. CASE 7. 1 Nali Producers – Malawi Nali group, has, since the early 1970s, been engaged in the growing and exporting of spices. Spices are also used in the production of a variety of sauces for both the local and export market. Its major success has been the growing and exporting of Birdseye chilies. In the early days knowledge of the market was scanty and thus the company was obtaining ridiculously low prices.

Towards the end of 1978 Nali chilies were in great demand, yet still the company, in its passive mode, did not fully appreciate the competitive implications of the business until a number of firms, including Lonrho and Press Farming, started to grow and export. Again, due to the lack of information, a product of its passivity, the firm did not realise that Uganda, with their superior product, and Papua New Guinea were major exporters, However, the full potential of these countries was hampered by internal difficulties. Nali was able to grow into a successful commercial enterprise. However, with the end of the internal problems, Uganda in particular, began an aggressive exporting policy, using their overseas legations as commercial propagandists. Nali had to respond with a more formal and active marketing operation. However it is being now hampered by a number of important “exogenous” factors.

The entry of a number of new Malawian growers, with inferior products, has damaged the Malawian chili reputation, so has the lack of a clear Government policy and the lack of financing for traders, growers and exporters. The latter only serves to emphasise the point made by Collett, not only do organisations need to be aggressive, they also need to enlist the support of Government and importers. It is interesting to note that Korey (1986) warns that direct modes of market entry may be less and less available in the future. Growing trading blocs like the EU or EFTA means that the establishing of subsidiaries may be one of the only means forward in future. It is interesting to note that Korey5 1986 warned that direct modes of market entry may be less and less available in the future. Growing trading blocks like the EU or EFTA means that the establishment of subsidiaries may be one of the only ways forward in future. Indirect methods of exporting include the use of trading companies (very much used for commodities like cotton, soya, cocoa), export management companies, piggybacking and countertrade. Indirect methods offer a number of advantages including: ? Contracts – in the operating market or worldwide ? Commission sates give high motivation (not necessarily loyalty) ? Manufacturer/exporter needs little expertise ? Credit acceptance takes burden from manufacturer. Piggybacking

Piggybacking is an interesting development. The method means that organisations with little exporting skill may use the services of one that has. Another form is the consolidation of orders by a number of companies in order to take advantage of bulk buying. Normally these would be geographically adjacent or able to be served, say, on an air route. The fertilizer manufacturers of Zimbabwe, for example, could piggyback with the South Africans who both import potassium from outside their respective countries. Countertrade By far the largest indirect method

About the author

This academic paper is composed by Samuel. He studies Biological Sciences at Ohio State University. All the content of this work reflects his personal knowledge about Market Entry Strategies and can be used only as a source for writing a similar paper.

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