Chapter 3 International Expansion Strategies

Chapter 3 International Expansion Strategies

International development phases Phase 1: Initial market entry Phase 2: Local market expansion Phase 3: Globalization

Choosing which markets to enter Opportunities and threats are assessed at two different levels: General business climate of a country Specific product market

Country/Market Choice Market information Competitor information Internal information

Market information Market potential: measure current demand, forecast future growth, new product launches Market access: “openness”, cost and delays, legal and customs obstacles, marketing infrastructure (distribution channels, ad agencies, etc ) Market receptiveness: perception of firm, “made in” effect of country of origin Market stability: economic, legal, political, cultural risks

Competitor information Who are the competitors? – Inventory of competition – Direct/indirect – Local/global How many? – Market share?

Internal Information Production capacities: product adaptation, quality control, packing, stocking, transport Marketing and sales situation: current strategy, distribution channels, brand image, quality advantages, relationships General strategic situation: situation in domestic market, new product development, innovation, competitive advantage Business goals: short term and long term goals Financial resources: costs of canvassing, capital budgeting orientation, available cash, export subsidies Human resources: staff and management motivation, availability, training required, expatriates Internal export audit, “diagnostic export”

Criteria for ranking export markets General attractiveness of the market Competitive advantage Risk Global strategic importance Possible synergies Market-Portfolio Matrix

Market-Portfolio Matrix High INVEST Country Attractiveness SELECTIVITY DIVEST Low Low Internal strengths High

Market selection strategies (Ayal and Zif) Choice of target markets is based on two different alternatives: Market penetration (concentration) vs. market skimming (diversification): a limited number of markets or large number of markets – Market penetration: rather low expansion rate in a few markets for intensive development. The goal is to obtain high market share in each country before expanding into others. – Market skimming: high rate of return while maintaining a low level of resource commitment. The firm selects more easily available market targets while minimizing risk and investment. Segment penetration (concentration) vs. segment skimming (diversification): similar or dissimilar market segments – Segment penetration: focus on a small number of segments in which the firms seeks a dominant position – Segment skimming: brand and product diversity, specific launches for some markets

Timing of entry Simultaneous entry vs. sequential entry Simultaneous entry: preempt competition be establishing presences in all major markets, limit opportunities for imitation, potential scale economies may lead to lower unit costs Sequential entry: build on knowledge and experience, generally preferred if substantial financial, managerial or other resources are required