Analysis and Evaluation of Market Entry Modes into the Asia-Pacific Region

Based on the Example of a German SME in the Industrial Goods Business


Diploma Thesis, 2006
168 Pages, Grade: Sehr Gut

Excerpt

Contents

Preface

Brief Contents

List of Figures

List of Tables

Abstract

Zusammenfassung

1 Part 1: General Introduction and Theoretical Context
1.1 Chapter I: The Discussed Topic
1.2 Chapter II: The Framework of the Thesis
1.2.1 Methodical Approach
1.2.2 Content Structure
1.2.3 The Boundaries of this Discourse
1.3 Chapter III: Introduction to the Case Study and the Writer’s Motivation

2 Part 2: Introduction to International Marketing
2.1 Chapter IV: The Trend Towards Internationalisation
2.1.1 Internationalisation of SMEs – Key Players in a Global Economy?
2.2 Chapter V: The Definition of International Marketing
2.3 Chapter VI: The Process of International Marketing
2.3.1 Market Entry Strategies - The Focus of this Thesis
2.3.2 International Marketing and its Link to International Strategy

3 Part 3: International Strategy - Market Entry Modes
3.1 Chapter VII: Incentives to Go Global
3.1.1 Company Internal Factors
3.1.2 Company External Factors
3.2 Chapter VIII: International Corporate-Level Strategy and its Correlation to Market Entry Strategy
3.2.1 Multidomestic Strategy
3.2.2 Global Strategy
3.2.3 Transnational Strategy
3.3 Chapter IX: International Market Entry – Overview
3.3.1 Key Decision 1: Where? – Country Choice
3.3.2 Key Decision 2: When? – Timing Strategy
3.3.3 Key Decision 3: How? – Market Entry Mode
3.4 Chapter X: Three Chosen Focuses
3.4.1 Geographical Focus: The Asia-Pacific Region
3.4.2 Focus on Company Characteristics: SMEs
3.4.3 Focus on the Business Type: Industrial Goods Business

4 Part 4: Feasibility Study of the Market Entry Modes
4.1 Chapter XI: Introduction to the Feasibility Study
4.2 Chapter XII: Feasibility Study of the Market Entry Modes in Consideration of the Three Chosen Focuses
4.2.1 Exporting
4.2.2 Licensing
4.2.3 Franchising
4.2.4 Foreign Contract Manufacturing Agreements
4.2.5 Strategic Alliances
4.2.6 Joint Ventures
4.2.7 Acquisitions
4.2.8 Greenfield Operations
4.3 Chapter XIII: The Result of the Feasibility Study
4.3.1 The Answer to Sub-Question 1 of the Research Problem
4.3.2 Additional Interpretation and Conclusion of the Feasibility Study

5 Part 5: The Asia-Pacific Market Entry of a German SME
5.1 Chapter XIV: The AdPhos Plc
5.1.1 Corporate History
5.1.2 Company Profile
5.2 Chapter XV: The Asian Coil-Coating Market – A Short Digression
5.2.1 Introduction to the Coil-Coating Industry
5.2.2 Comparison of the Global Coil Coating Markets
5.2.3 Conclusion
5.3 Chapter XVI: AdPhos’ Market Entry Into the Asia-Pacific Region
5.3.1 Incentives to Enter the Asia-Pacific Region
5.3.2 Chronology of the Asia-Pacific Market Entry
5.3.3 Analysis of AdPhos’ Market Entry Strategy
5.4 Chapter XVII: The AdPhos Plc. and Serwik Co., Ltd. in Bangkok, Thailand – A Strategic Alliance
5.4.1 Introduction
5.4.2 Characteristics of the Strategic Alliance

6 Part 6: Outlook, Evaluation and Resume
6.1 Chapter XVIII: Outlook
6.1.1 Future Market Trends in the Asia-Pacific
6.1.2 Future Developments of the Strategic Alliance
6.2 Chapter XIX: Evaluation of AdPhos’ Market Entry Mode Decision
6.2.1 Introduction to the Evaluation Model
6.2.2 The Result of the Scoring Model – Quantified Evaluation
6.2.3 The Answer to Sub-Question 2 of the Research Problem
6.2.4 Additional Interpretation
6.2.5 Derived Recommendations
6.3 Chapter XX: Resume – Final Statement

Bibliography

List of Acronyms

Appendix

Preface

To the subject. The apparent consequences of the rapidly proceeding economic globalisation are the tremendous rise of global - transnational business activities and the skyrocketing number of companies operating on an international or even global scale. This development, earmarked by a steadily increasing dynamism, leads to a rising pressure particularly to those firms, which have so far not taken an international expansion into consideration. Parallel to the general trend towards internationalisation, the marketing term has expanded with the term of internationality. In fact, the international marketing perspective has already been integrated as the state-of-the-art managerial thinking in a business world which equals more a worldwide market place than ever before. The fundamental topic of this thesis, and the probably most complex topic in the process of international marketing, is the question of the appropriate foreign market entry strategy. The compromised complexity arises mostly from both the wide range of alternative market entry modes and the complexity of the market entry mode decision as a whole - in the view of the situational context of the individual firm - for which no universal formula exists. Above all, the chosen market entry mode must ensure future sustainable competitive advantage, while transnational market penetration shows increased complexity and dissimilarity throughout geographical distances, cultural barriers and complexity of operations.

This thesis recognises that not only multinational companies are involved in the process of internationalisation, but also the so called SMEs - micro, small and medium-sized enterprises, which accumulate for the large majority of businesses in Europe and North America. Furthermore, this thesis considers the tremendous economic growth of many countries in the Asia-Pacific region, which are partly characterised by significant cultural differences and often restricting market regulations, which add additional difficulties to the market entry mode decision. Despite the broad range of publications to international market entry strategies, the attempt to systematically transfer the theory to an actual situational context of a company has been little practised until today. Therefore, the present thesis at hand aims in particular to establish a guideline for the answer of the question of how to incrementally - with the help of a feasibility study and a scoring model - move from the analysis of the general theory to the evaluation of a situational influenced case study, with a steadily increasing degree of focus.

In particular, this thesis is targeted for managers of SMEs who are actively pursuing international market opportunities and who are facing the difficult question of the appropriate market entry mode into countries of the Asia-Pacific region, hosting some of today’s most attractive economic areas. The primary theme is the need for managers to design and execute international market entry strategies with the highest possible degree of suitability to their individual situation. Concluding, this thesis demonstrates an alternative approach for SMEs, particularly in the industrial goods business, to deal with the difficulties to enter the Asia-Pacific region. It shows how to be able to gradually add several focused perspectives to finally succeed in the evaluation of an existing strategy. In doing so, this thesis aims to provide a guideline and motivation.

Acknowledgments. I would like to thank all those who have contributed to the development of this thesis. I am particularly indebted to Dr. Kai K.O. Baer and Dr. Rainer Gaus, the founders of the AdPhos Plc. in Germany as well as DI Wolfgang Nickl, the Managing Director of Serwik Co., Ltd. in Thailand for generously providing the necessary corporate information as the sole basis of this thesis. Moreover, I would like to thank Mag. Christian Stadlmann, my tutor at the University of Applied Sciences in Steyr, Austria, for the ongoing professional support and productive comments and feedback. I also would like to thank the University of Applied Sciences Steyr as an open-minded and inspiring education centre, which always provided me the necessary flexibility in the first place, in order to being able to make extraordinary international experiences. I would also like to thank Mr. Pascal Orzech for the countless productive discussions about stylistic questions. Above all I would like to thank my parents and brothers, who always supported and encouraged me on my way.

Bangkok, in August 2006

Thomas Andexer

Brief Contents

Part 1: General Introduction and Theoretical Context

Chapter I: The Discussed Topic

Chapter II: The Framework of the Thesis

Chapter III: The AdPhos Plc. and the Writer’s Motivation

Part 2: International Marketing – An Introduction

Chapter IV: The Trend Towards Internationalisation

Chapter V: The Definition of International Marketing

Chapter VI: The Process of International Marketing

Part 3: International Strategy - Market Entry Modes

Chapter VII: Incentives to Go Global

Chapter VIII: International Corporate-Level Strategy and its Correlation
to Market Entry Strategy

Chapter IX: International Market Entry – An Overview

Chapter X: Three Chosen Focuses

Part 4: Feasibility Study of the Market Entry Modes

Chapter XI: Introduction to the Feasibility Study

Chapter XII: Feasibility Study of the Market Entry Modes in Consideration
of the Three Chosen Focuses

Chapter XIII: The Result of the Feasibility Study and Resume

Part 5: The Asia-Pacific Market Entry of a German SME

Chapter XIV: The AdPhos Plc

Chapter XV: The Asian Coil-Coating Market – A Short Digression

Chapter XVI: AdPhos’ Market Entry into the Asia-Pacific Region

Chapter XVII: The AdPhos Plc. and Serwik Co., Ltd. in Bangkok, Thailand
– A Strategic Alliance

Part 6: Outlook, Evaluation & Resume

Chapter XVIII: Outlook

Chapter XIX: Evaluation of AdPhos’ Market Entry into the Asia-Pacific Region

Chapter XX: Resume – Final Statement

List of Figures

Figure 1: Content structure: Theoretical analysis (Part 1-4)

Figure 2: Content structure: Case-based evaluation (Part 5-6)

Figure 3: Share of companies involved in exporting based on different magnitudes

Figure 4: The environmental influences on international marketing
(SLEPT approach)

Figure 5: The International marketing (strategy) process

Figure 6: The market entry strategy decision as the focus of this thesis

Figure 7: Geographically dispersed vs. geographically concentrated strategy

Figure 8: The waterfall-strategy

Figure 9: The sprinkler-strategy

Figure 10: Market entry modes in a categorised overview

Figure 11: Example of the evolution of a manufacturer’s entry mode
decision

Figure 12: Countries of the Asia-Pacific region

Figure 13: Three criteria defining SMEs

Figure 14: The new thresholds for SMEs

Figure 15: Cross-border mergers and acquisitions in selected crisis
countries, 1995-2000 (in billion U.S. $)

Figure 16: The AdPhos Plc. – a medium-sized company

Figure 17: AdPhos - group of consolidated companies

Figure 18: Relative contribution of AdPhos’ business segments to total
sales

Figure 19: Shift in regional market shares of the coil coating production
for end-user markets, steel and aluminium - 2001-2004

Figure 20: Coil coating production output for end-user markets in
‘000 tonnes, steel and aluminium – 1999-2004

Figure 21: Indices of the coil coating production output of selected
Asia-Pacific countries, 1999-2004

Figure 22: Footprints in the Asia-Pacific region: Thailand, China,
South Korea and Japan

Figure 23: AdPhos’ worldwide footprints – a geographical dispersed
strategy

Figure 24: Entering the Asia-Pacific region with the NIR technology:
AdPhos waterfall strategy

Figure 25: Serwik’s territorial exclusivity: The ASEAN member countries

Figure 26: Scoring scale for the suitability of the entry mode to the current objective

List of Tables

Table 1: The top 15 transnational companies by foreign assets

Table 2: Linkages between the global corporate- and the global marketing strategy

Table 3: Initial systematisation of the market entry modes based on the chosen criteria

Table 4: Key Economic Figures of the Asia-Pacific Region

Table 5: Definition of the compatibility indices

Table 6: Regional correlation of manufacturing strategic alliances,
1990-1999

Table 7: Typical contribution in East-West partnerships in the early 1990s

Table 8: Explanation scheme: Quantification of the feasibility study’s
findings

Table 9: Quantified result of the feasibility study: Feasible market entry modes in the focused perspective

Table 10: Overview of the worldwide number and locations of coil-coating lines, 2004/2005

Table 11: Selected market entry and development objectives

Table 12: Scoring model: quantified evaluation of the feasible market
entry modes

Abstract

The business world at the beginning of the 21st century is characterised by a steadily increasing globalisation and the resulting growth of international business operations. The proceeding dynamism of the global markets creates new chances not only for multinational enterprises but also for small- and medium sized companies (SMEs) of all sizes. Particularly, the above-average economic potential of emerging markets, especially in many of the countries of the Asia-Pacific region, is amongst others the leading incentive for the increasing number of cross-border expansions. In this context, the decision for the appropriate market entry strategy is already one of the most difficult ones within the broad topic of international marketing, whereas the choice of target countries with tremendous cultural differences and the specifics of the industrial goods business respectively, lead to an even higher degree of complexity in the decision for the most suitable form of organisation for the international market entry.

The main task of this thesis was to break down the untargeted theory of the market entry modes to the evaluation of a situational context of a genuine company with the help of abstract focus areas in a step-by-step approach. Starting with a general theoretical overview to the topic area of international marketing and further the alternative market entry modes, the thesis introduces three focus areas with an anticipatory relation to the case study: ‘The Asia-Pacific region, small- and medium sized enterprises and the industrial goods business’ stand henceforth in the centre of the examination. The core of this thesis represents a feasibility study related to the focused perspective, in which every market entry mode is investigated in its compatibility with the three focus areas. The result of the study, in other words the identification of all feasible entry mode alternatives regarding the focus areas, establishes the basis for the implementation of the case study of the German AdPhos Plc., a medium sized company in the industrial goods business and its penetration of new markets in Asia. As the second core part of this thesis follows the quantified evaluation of AdPhos’ market entry decision with means of a scoring model, whereas AdPhos’ decision for a strategic alliance is confronted with all other – after the feasibility study remaining – market entry alternatives. The hereby extracted results deliver information to the suitability of the chosen organisation form regarding the individual situation of the company and finally enable the derivation of appropriate and useful recommendations.

Zusammenfassung

Die Wirtschaftswelt zu Beginn des 21. Jahrhunderts ist geprägt durch die ständig zunehmende Globalisierung und den daraus resultierenden Zuwachs der internationalen Geschäftstätigkeit. Die voranschreitende Dynamisierung der globalen Märkte schafft nicht nur für multinationale Konzerne, sondern auch für klein– und mittlere Unternehmen (KMUs) aller Größenordnungen neue Chancen. Besonders das überdurchschnittliche wirtschaftliche Potential heranwachsender Märkte, allen voran in vielen der Länder der Asien-Pazifik Region, schafft Anreiz für die steigende Zahl grenzüberschreitender Expansionen. In diesem Zusammenhang ist die Entscheidung für die geeignete Markteintrittsstrategie schon grundlegend eine der schwierigsten im internationalen Marketing, wobei die Auswahl von Zielländern mit erheblichen kulturellen Unterschieden respektive die Charakteristika des Industriegütergeschäfts hierbei zu einem noch höheren Grad an Komplexität der Fragestellung nach der passenden Organisationsform für den internationalen Markteintritt führen.

Zentrale Aufgabe dieser Arbeit war es, mittels abstrahierter Fokusbereiche, die ungezielte Theorie zu den Markteintrittsformen schrittweise an die Evaluierung eines situativen Kontexts einer realen Unternehmung heranzuführen. Zu Beginn wird der Themenbereich des internationalen Marketings und im weiteren Verlauf die alternativen Markteintrittsformen allgemeintheoretischen untersucht, um im Anschluss die Fokusbereiche mit vorgreifenden Bezug auf die Fallstudie einzuführen: „Die Asien-Pazifik Region, KMUs und das Industriegütergeschäft“ stehen daher fortan im Mittelpunkt der Betrachtung. Herzstück der Arbeit stellt die darauf basierende Machbarkeitsstudie, in welcher jeder Markteintrittsmodus auf die Kompatibilität mit den drei genannten Fokusbereichen untersucht wird, dar. Das Resultat der Studie, sprich die Eruierung aller praktikablen Eintrittsalternativen im Sinne der Fokussierung, bildet die Basis für die Implementierung der Fallstudie der Deutschen AdPhos AG, einer mittelständischen Firma im Industriegütergeschäft und deren Erschließung neuer Märkte in Asien. Den zweiten Kernteil der Arbeit bildet die quantifizierte Evaluierung der Markteintrittsentscheidung der AdPhos AG mit Hilfe eines Scoring-Modells, wobei die Wahl der AdPhos AG für eine strategische Allianz den übrigen - nach der Machbarkeitsstudie verbleibenden - Eintrittsalternativen gegenübergestellt wird. Die gewonnenen Ergebnisse geben Aufschluss über die Eignung der gewählten Organisationsform in Bezug auf die individuelle Situation des Unternehmens und lassen schlussendlich die Ableitung geeigneter und hilfreicher Empfehlungen zu.

1 Part 1: General Introduction and Theoretical Context

Part 1 of this thesis embraces a general introduction divided into three chapters. In Chapter I the topic of this document is introduced. In Chapter II the implemented approach, containing the definition of the research problem, the detailed content structure as well as the boundaries of the discourse, are explained. Chapter III finally provides a short overview of the company involved, for the purpose of establishing a sufficient starting basis for the implementation of the case study, followed by a brief closing of the writer’s motivation.

1.1 Chapter I: The Discussed Topic

In times of ever growing internationalisation of business activities around the globe, the flow of goods, investments and financial assets are getting more boundless than ever before. The so often cited ‘global village’ is literally becoming a global marketplace. Economic globalisation has proceeded substantially and in fact still takes place to an enormous degree in both the macroeconomic environment as well as on the level of the individual company. Therefore, almost every corporate sector is expanding with an international perspective – which includes the marketing operations as well. For many companies, especially large scale enterprises, an international marketing perspective has already become the state-of-the-art managerial thinking with the purpose of being able to penetrate new emerging or old evolving markets with – at times - enormous potentials, such as the markets in the Asia-Pacific region. Similar to the domestic marketing theory, the international marketing process presents a complex structure which consists of a wide range of process steps and sub-activities. It is here that we find the fundamental topic of the initial market entry.

The choice of the appropriate market entry mode into an emerging and promising market is a critical key decision in the process of international marketing and is thus crucial for the success of a company in markets beyond its domestic borders. In other words, the chosen market entry mode must ensure future sustainable competitive advantage to the company. Transnational market penetration shows increased complexity and dissimilarity through geographical distances, cultural barriers and complexity of operations and therefore uncertainty and risks are much higher than usual. The accurate decision preparation is therefore all the more important for choosing the right market entry mode and thus the need for a broad knowledge basis is of paramount importance.

Just as difficult as the choice of the adequate market entry mode is the analysis and evaluation of an existing solution a company has decided on. After realising the initial market entry, multiple company-, product- and market related factors, which are directly influencing the company’s foreign performance, can change at any time. That is to say that only the decision of the initial market entry mode is of a static character, whereas the future market penetration and its connected decisions show increased dynamics and it is therefore of fundamental importance to perform the right adaptations to an existing strategy at the right point of time. It is a fact that a minority of the smaller European ‘micro, small and medium-sized enterprises’ (SME), which are already involved in international business activities, follow a clearly defined international strategy and continually analyse and evaluate their foreign mode of operations in order to be able to implement the appropriate adaptations. This thesis analysis the essential part of the market entry mode theory in the context of the international marketing process. Furthermore it applies a practical example of a German SME entering one of the currently most prosperous but also culturally challenging business environments, the Asia-Pacific region. Both a sufficiently focused analysis of the possible market entry modes and the principles of the situational theory will be taken into account to ensure a case-based evaluation and resume.

The present thesis shows in particular how a focused analysis of the broad range of market entry modes can be performed and how the international strategy, based on the choice of the initial market entry mode, can be evaluated for an existing company. Moreover it should count as a guide, especially for SMEs, on how to critically review their foreign operations, in addition to finding out the necessary adaptations which need to be implemented.

1.2 Chapter II: The Framework of the Thesis

The present thesis delivers an answer to the following research question:

‘Which market entry modes, especially into the Asia-Pacific region, are feasible and how are they evaluated for a German SME in the industrial goods business?’

With the answering of this question and the provision of the corresponding explanations, this document seeks to present a scientific contribution and leads us to the following attempt to find a consolidated answer.

1.2.1 Methodical Approach

The raised research question is divided into two main parts; concurrently reflecting the logical divide of the whole thesis. In reference to the abovementioned definition of the research attempt, two sub-questions are defined:

Sub-question 1: ‘Which market entry modes, especially for SMEs in the industrial goods business, entering the Asia-Pacific region, are feasible?’

Sub-question 2: ‘How are these market entry modes evaluated for a German SME in the industrial goods business entering the Asia-Pacific
region?’

In order to answer these questions clearly and sequentially, the document is divided into six main parts, each incorporating three to four chapters dealing with individual subject areas. Parts 1 to 4 are assigned to answer sub-question 1, whereas Part 5 and Part 6 are assigned to answer sub-question 2. Each part is based on the previous one. To ensure a clear understanding of the structure and methodology of this paper and to answer the research problem, an alternative listing of contents follows subsequently. In an integrated question-answer framework each chapter is individually legitimised, as shown in following Figure 1 and 2.

1.2.2 Content Structure

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: Content structure: Theoretical analysis (Part 1-4)

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: Content structure: Case-based evaluation (Part 5-6)

1.2.3 The Boundaries of this Discourse

The primary endeavour of the following research is to analyse and evaluate a company’s choice for the appropriate market entry strategy into a foreign target country, rather than conducting a close up view on the entire topic of international marketing. Due to this chosen focus the thesis discusses neither other aspects of the international marketing process in detail, nor the so often and broadly discussed topic of the international marketing research and opportunity analysis. Nevertheless, a general and compact introduction to the overall topic of international marketing will prove necessary, as it is essential to understand the broad framework of which this thesis and its connected problem are an integral part of. Furthermore, a compact look at timing strategies and the country market choice will be implemented, in order to achieve the aimed target of an effectual analysis of the implemented case study as well as to ensure the referential integrity of the entire paper at hand. Above all, the decision for the most suitable market entry mode will be emphasised as the core focus throughout the entire document, with the intention to answer the given research problem to a satisfactory degree.

1.3 Chapter III: Introduction to the Case Study and the Writer’s Motivation

The AdPhos Plc. The Advanced Photonics Technologies Plc., a medium-sized German SME whose headquarters are located near the city of Munich, is a high-tech specialist in the use of light for industrial processes and products. The company was established in 1996 under the name of IndustrieSerVis Co., Ltd. During the following years the company experienced a remarkable success story including various technology breakthroughs and company expansions, in addition to the establishment of new co-operations. On several occasions the company and its management have been rewarded with highly repudiated German awards for its successful start-up; including the ‘Entrepreneur of the Year 1998’ award from Ernest & Young and the SAP Plc. in co-operation with the ‘Manager Magazine’. In 2001 the company acquired and integrated the Eltosch GmbH, a renowned company whose headquarters are located in northern Germany, specialised in the field of dryer systems for printing processes. Nowadays, the AdPhos Plc. employs approximately 115 people in 6 companies of the group and serves a wide range of industries, from the printing- over the steel- and aluminium- to the recently developed business segments of the packaging- and plastics industry.

The former Industrie SerVis GmbH made its first step into the Asia-Pacific region in 1998, with the establishment of the first sales and service partnership with a South Korean company. In 1999 the maturing firm conducted its first pilot projects in Malaysia and India. Over the following years, the company was able to successfully conduct further industrial projects throughout China, India and South Korea, before entering into a strategic alliance with Serwik Co., Ltd. in Bangkok, Thailand in the year 2002. The strategic alliance with Serwik has developed to AdPhos’ most important footprint in the Asia-Pacific region. In 2004, further sales and service agreements were established with partners in China and Japan and the company’s network in the Asia-Pacific region grew steadily. In 2005, The AdPhos Steel Co., Ltd. in alliance with Serwik Co., Ltd. in Bangkok successfully conducted their biggest industrial project so far with the Australian BlueScope Steel Corporation’s in China. Today, the AdPhos Plc. is directly presented in four countries of the Asia-Pacific region, while conducting industrial projects from Japan, China and India, over multiple countries of the South-East Asia as well as Australia and New Zealand. As a German medium-sized company serving global industrial niche markets, the AdPhos Plc. embodies the typical example of a firm facing the challenges of internationalisation and the difficulties of the first steps into several Asia-Pacific target countries. It is exactly this situational similarity to countless other small and medium sized companies throughout the European and North American continent, which makes the implemented case study multiple applicable and therefore greatly useful.

It should be mentioned beforehand, that all data and information concerning the history and company profile of the AdPhos Plc. was collected in several interviews with Dr. Rainer Gaus, CEO of the Advanced Photonics Technologies Plc. and Dr. Kai K.O. Baer, Managing Director of the AdPhos Steel GmbH between April and June 2006 as well as from the annual report 2005. All data and information concerning the history and company profile of Serwik Co., Ltd. in Bangkok, Thailand was collected in several interviews with DI Wolfgang Nickl, Managing Director of Serwik Co., Ltd. between May and June 2006. The addresses and further contact data to both companies can be found under Appendix A, page 150.

The writer’s motivation. As an exchange student at the Bangkok University International College (BUIC) and further with the first employment within a Thai logistics company in Bangkok, the writer’s interest in the Asian business environment grew steadily. The writer especially turned his eye on the way how European and North American companies conduct their businesses in the South East Asian region. Thus, it was a great chance for the writer to meet the Managing Director of Serwik Co., Ltd., AdPhos’ Technology Centre for South East Asia in Bangkok, and agreeing upon an employment, in which also this discourse at hand was establish. The writer’s main motivation to create this thesis was the fallowed opportunity to pick up a practical example of a company entering the Asia-Pacific region and to, by means of a scientific and critical examination of all involved factors, broadly analyse the complex process of the market entry into several of today’s most attractive markets.

2 Part 2: Introduction to International Marketing

In Part 2 the focus is on the broad understanding of the evolution of the international marketing perspective and its connected trends towards internationalisation. Further, the differences to the classical marketing definition are examined as well as the process of international marketing, concurrently highlighting the focused topic of this discourse. Part 2 closes in explaining the link between international marketing and international strategy.

In times of ever growing inter-dependencies and inter-connections between nation economies across the globe an increasing necessity to develop skills, aptitudes and fundamental knowledge, in order to stay competitive in international markets, is arising. Technological innovation nowadays enables information to be omnipresent on all continents around the world and thus traditional borders to marketplaces are diminishing constantly.[1] New competitors are challenging almost every kind of business and company throughout the economic world. Additionally, old competitors might grow substantially through acquisitions, mergers or alliances as the flow of capital and investments is virtually unlimited. With the enormous change of the business world in the 21st century the need to adapt traditional theories to an increasingly dynamic environment consequently follows. Therefore the marketing theory evolved accordingly and an international marketing orientation has already become an absolutely necessity in nowadays business world.[2] International marketing today is a critical function-spanning area, in which decisions and their linked actions decisively influence the success or non-success of a company boarding the ship of internationalisation.

2.1 Chapter IV: The Trend Towards Internationalisation

The term internationalisation can be subordinated to the term globalisation, which is probably the most common term to describe the forces shaping our present world. In fact, a huge number of different definitions for the term globalisation can be found, thus a selection of three different perspectives is provided subsequently:

- “It is a multi-dimensional process; it applies to the whole range of social relations – cultural, economic and political.”[3]
- “A set of processes leading to the integration of economic, cultural, political, and social systems across geographical boundaries.”[4]
- “Globalisation refers to the widening, deepening and speeding up of worldwide interconnectedness in all aspects of contemporary life.”[5]

Most of the available definitions share the notion that the impacts of globalisation take place in multiple spheres such as economy, culture, politics and social life etc. The verb internationalise is defined as the attempt “to make something become international”.[6] Consequently, we can describe a company’s thrust into international markets as the internationalisation of its business activities. The entirety of the worldwide moves of companies into international markets can therefore be described as economic globalisation, in other words, the sum of all internationalisation activities throughout the global business world. The world economic development after World War II is earmarked by a constant ascent of international linkages and integration between nation economies as well as cross-frontier business activities. The phenomenon of internationalisation therefore contains a:

- macro economical dimension as well as a
- micro economical (individual economic) perspective.[7]

The macro economical dimension deals with the increasing economic interconnectedness of nation states, whereas the micro economical perspective focuses on individual companies, which will be examined closer. The degree of internationalisation of companies can be verified through simple financial or non-financial ratios such as:[8]

- The proportion of foreign assets to total assets.
- The proportion of foreign sales to total sales.
- The proportion of foreign turnover/profit to total turnover/profit.
- The proportion of employees working in a foreign country to the total number of employees.
- The proportion of production sites in foreign countries to the total number of production sites.

Should an increase of these (or similar) ratios be ascertainable within a company, an increased state of internationality is the result, meaning that the degree of internationalisation of the company is rising.[9] To provide an example for the partially advanced state of internationalisation in today’s business world, it is worth having a look at the top 15 transnational companies, as shown in Table 1.

Abbildung in dieser Leseprobe nicht enthalten

Table 1: The top 15 transnational companies by foreign assets[10]

Looking back into the past the current trend towards economic globalisation and the emergence of global markets for goods and services can be attributed to four major developments, each spanning one of the last four decades of the 20th century:[11]

1) 1960s - The movement of U.S. companies abroad: In the early and mid 1960s, U.S. companies began their movement into overseas markets due to stagnating growth rates in domestic markets. During this decade, U.S. direct investment abroad more than doubled from 31 to 70 billion U.S. dollar.
2) 1970s - The Japanese Challenge: The 1970s can be described as the growth of the Japanese challenge. In response to the major shift of U.S. companies into world markets, Japanese companies became the main competitors to the U.S. dominance in multiple industries by double the world exports of manufactured goods from 6.5 percent in 1960 to 13 percent in 1973.
3) 1980s – The emergence of third world multinationals: In the following decade, multinationals from industrialising and developing countries became the third major player in the world market. With the main advantage of a better adapted business culture and technology fit, these companies often began operations in host countries with a comparable development to their home country. The main challenge arose from multinationals from Taiwan, South Korea, Singapore, Hong Kong etc. as well as from growing economies in Latin America.
4) 1990s – The global restructuring: In the ‘90s many of the big players which started moving into global markets over the past three decades faced loosely linked international operations resulting in minor global efficiencies. Therefore the ‘90s were characterised by most of the multinational companies reshaping their worldwide operations in order to remain competitive. Another characteristic of the last decade of the 20th century was the augmented appearance of regional trading blocks, such as the Association of South East Asian Nations (ASEAN) or the North American Free Trade Agreement (NAFTA), in addition to the formal integration of markets, especially the European Union. Further essential developments were the fragmentation of markets (specifically in countries of the former Soviet Union) and the emergence of new major forces in global markets, such as China or India.[12]

The beginning of the 21st century – Future tendencies: The global business world in the upcoming decade will be distinguished by an unprecedented level and depth of worldwide interaction. The wave of mergers and acquisitions (M&A) is cresting peaks reached only at the turn of the century, at enormous height - and it will continue. The overall value of European companies acquired in the first three month of 2006 was almost 130 percent higher than the value in the same period in 2005; likewise applicable for the United States.[13] The SME sector will become more and more important as a creator of wealth and employment as well. Furthermore, the economies of the Asia-Pacific region have come a very long way in a much shorter time than their European and North American counterparts and it is quite possible that the economic potential will be further released and converted in ways that will affect the business world globally.[14] The current overall development is still difficult to summarise, as we stand just at the beginning of the 21st century; but one development can be foreseen almost with certainty – the global internationalisation of both nation states and businesses will further proceed and entire continents will stronger grow together than ever before.

2.1.1 Internationalisation of SMEs – Key Players in a Global Economy?

Not only multinational combines are involved in the process of internationalisation, so too are the so called SMEs - Micro, small and medium-sized enterprises. In fact, SMEs make a major contribution to national economies; for example, the European Commission hereby declares:

“Micro, small and medium-sized enterprises (SMEs) play a central role in the European economy. They are a major source of entrepreneurial skills, innovation and employment. In the enlarged European Union of 25 countries, some 23 million SMEs provide around 75 million jobs and represent 99 percent of all enterprises.”[15]

But not only in Europe is the importance of SMEs beyond doubt. In Taiwan, for instance, SMEs make up 98.5 percent of the total number of companies, 75-80 percent of all employment and 47 percent of the total economy.[16] Furthermore, in countries as diverse as Australia and South Korea, SMEs are responsible for a significant and growing share of export activities, which is also true in the US and Japan.[17] Many observers expect that much of the global growth in business activities will be the result of small, innovative and flexible enterprises, which are formed and reformed by highly skilled people.[18] The future of SME internationalisation will be highly influenced by a new technology environment and new ways of doing business offering tremendous opportunities for innovative and ambitious SMEs. Hereby, Doole and Lowe (2001) postulate:

“SMEs have always been involved in international marketing but the opportunities for international development and the expectation of them to create wealth and employment have never been greater that they are at the beginning of the twenty-first century. It is the ability to access information and communicate instantly that has never been possible before that provides the opportunity for SMEs to exploit their inherent strengths of flexibly, adaptability and speed of response.”[19]

In contrast to previous perspective, the majority of SMEs still face a considerable need for internationalisation. In fact, a strong leverage between the size of a company and its degree of participation in international markets can be observed. The proportion between the amount of turnover and the involvement in export activities is obvious, as shown in Figure 3.

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Figure 3: Share of companies involved in exporting based on different magnitudes[20]

Another example turning out the necessity for SMEs to take the international challenge shows a study of 297 European SMEs from Italy, UK, Belgium, Denmark, Germany, Ireland and Sweden. It was found, that only three of the entire 297 SMEs (equalling 3 percent) reached world class standards. However, over half of the SMEs had the potential to compete internationally, based on the given growth, improvement and perseverance. In addition, these SMEs were rated to be customer-orientated, response focused and concerned with innovation and new products with an overall high competitive edge coming from speed, responsiveness and a close relation to the customers. Hence, it appears that the time is ripe for SMEs to play a more significant role in the global marketplace.[21]

2.2 Chapter V: The Definition of International Marketing

As the international marketing science arose from the existing (national) science, the definition is based on the conventional understanding of marketing. As there is still no common understanding of the marketing term, a variety of definitions in today’s marketing literature can be found. However, most of the definitions share the aspect that marketing is a function spanning activity, which is supposed to align all company operations to the demand of the market in a product specific way. In addition, marketing stands for the integrated coordination of company divisions (business area specific) such as procurement, production, sales and financing.[22] The key activities within the marketing management are thus:[23]

- Focusing on the needs and wants of the customers.
- Identifying the best method to satisfy those needs and wants.
- Aligning the company operations towards the process of providing a high degree of satisfaction of those needs and wants.
- Simultaneously meeting organisational objectives.

All of the above mentioned characteristics apply fully also to the international marketing process and thus raise the question as to how international marketing stands out from the basis theory. In citing Professor Steve Carter (2001) from the Chartered Institute of Marketing, a first rough idea to answer the introduced question can be imagined:

“There are a few complex things in life – and one of these is Global Marketing [Writer’s note: synonymously to ‘International Marketing’]. Change is a well-worn word, but never more apt when applied to today’s global markets. Change coupled with complexity is a heady combination requiring careful analysis, integrative action and appropriate monitoring. Planning and entering global markets or adjusting existing strategies requires up to date knowledge, special management skills and astute implementation, whatever the product or service.”[24]

The main difference between international- and domestic marketing is already reflected in this citation: complexity. Most of the known definitions of international marketing have in common the emphasis on transcending country borders.[25] The multi-dimensionality and complexity of many foreign country markets, combined with tremendous cultural differences and distinctions in ideologies of their potential customers in parts, together create an enhanced form of the marketing science. The knowledge and awareness of these complexities, and the implications they have for the international marketing management are of paramount importance for today’s marketing managers.[26] The complexity of foreign country markets can be reflected in the so called SLEPT (Social, Legal, Economic, Political and Technological) approach, a frequently used environmental analysis model. It allows an examination of the international marketing environment, as shown in Figure 4. This approach grants the summary of the critical (and to a certain degree uncontrollable) aspects of international business activities and the many fields the international marketing managers of the 21st century will have to be aware of.

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Figure 4: The environmental influences on international marketing (SLEPT approach)[27]

A company planning to enter and penetrate markets beyond its domestic borders must consider all of these aspects precisely as they are vital to every activity in international marketing. From Figure 4, the following particularities of the international view in marketing can be derived:[28]

- Additional information demand.
- Increased corporate risk.
- Substantial coordination demand.
- Complexity and extended management requirements.

The coverage of new country markets creates a tremendous additional demand for information regarding the environmental factors, influencing every international marketing activity. Closely linked to the increased information demand is the increase of the risk to fail in the market entry strategy, possibly resulting from a lack of appropriate information. As a matter of fact, a company often operates in different country markets which are interdependent to each other. For this reason a stern coordination of all activities, in addition to a well-planned resource allocation are critical. Finally, the increased complexity results in an extended requirement for the management. International marketing managers have therefore a dual responsibility:[29]

- Foreign marketing; standing for the marketing within foreign countries and
- Global marketing; standing for the co-ordination of marketing in multiple markets, facing a global competition.

So far, the complexity together with the derived difficulties and the broadened management requirements as the key characteristics of international marketing were mentioned. The dual understanding of today’s marketing management listed above provides a lead for another distinguishing feature of international marketing. Doole and Lowe (2001) postulate that:

“International marketing is defined and interpreted depending on the level of involvement of the company in the international marketplace.”[30]

Following this thought, another key difference of the international marketing perspective can be identified: there are various approaches, resulting from different levels of internationalisation. A differentiation can be made between export marketing as the simplest form preceding the classical international marketing or even global marketing. In export marketing the focus lies on the marketing of goods across national borders, whereas international marketing includes marketing activities in more than one country. Finally, global marketing focuses on, literally, global marketing opportunities by obtaining global synergies and efficiencies through the coordination and combination of operations in multiple foreign countries under one strategic scope. The superior aim in global marketing is to achieve global competitive advantage.[31] In the course of this thesis, however, the emphasis lies on the process of international marketing, which will be examined closer in upcoming Chapter VI.

Finally, Terpstra and Sarathy (1999) found that international marketing:

“… consists of finding and satisfying global customer needs better than the competition, both domestic and international, and of coordinating marketing activities within the constraints of the global environment.”[32]

Accordingly international marketing covers the identification of global customer needs by carrying out international marketing research and the satisfaction of these needs by adapting the company’s products and its marketing mix to each individual country or country segment. Moreover international operations require close monitoring of the global competition together with the appropriate responses, in addition to a sophisticated coordination of all activities as mentioned above. Ultimately, the constraints of the global environment[33] must be recognised in order to be successful in the international arena.[34]

2.3 Chapter VI: The Process of International Marketing

So far this thesis has discussed the general trend towards internationalisation and its impact on today’s business world, in addition to providing an overview of international marketing and its differences to the conventional marketing definition. Hence, it is now time to have a closer look at the process creating an international marketing strategy, in order to further narrowing down the document’s focused area.

Firms competing on the international marketplace show a common range of management skills and capabilities, which together create the basis of the international marketing process. Three fundamental issues can be differentiated:[35]

1) The identification, analysis and evaluation of global opportunities.
2) The continuous establishment of strategic perspectives and the development of an international marketing strategy based on those perspectives.
3) The creation of added-values through international marketing mix strategies.

These three statements circumscribe the aims of the international marketing process in its simplest form. Based on these elements, five consecutive steps can be differentiated. Together they build a simplified framework of the complex process. Each of these steps, shown in Figure 5, is briefly explained in the following paragraph.

In the first place stands the necessity of the broad understanding of the environmental influences on the company’s (potential) international markets. All aspects of the SLEPT approach must be carefully considered and every further effort must incorporate the existing restrictions and specific parameters of the target market(s). In second place the actual strategic marketing assignment is initiated with (often fairly intensive) international marketing research following the segmentation of the target market(s). In this step it is moreover critical to filter out the gained information of the research in order to be able to both identify and analyse valuable market opportunities.

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Figure 5: The International marketing (strategy) process[36]

Based on the gained market knowledge (including market characteristics such as accessibility or profitability; individual customer segments together with their sizes as well as the opportunities and their potentials etc.) the development of appropriate strategies which are adapted to both the analysed environmental influences and the gained market knowledge follows subsequently. Besides, as for every kind of strategic frame working, it is essential to establish the appropriate planning and control processes. The outcome of this third step is the international marketing plan, adapted organisational structures and specified control processes. The decision for the most fitting market entry mode and market entry strategy respectively, follows as the fourth fundamental step. Once a foreign market has been entered, the fundamental ‘4 P’s’[37] of the marketing science are applied on an international level. International product management, the management of international distribution and logistics, the pricing for international markets and international communication and internet marketing are the four fundamental corner stones building the international marketing mix, which should altogether promise a high level of added-value for the customers. Finally, it is necessary to assure continuous feedback from the final three process steps up to the initial effort of segmentation and marketing research to facilitate a continuous reassessment of existing and potential opportunities.

2.3.1 Market Entry Strategies - The Focus of this Thesis

As demonstrated above, the international marketing process is a complex structure, combining multiple activities under one common guideline. However, this thesis concentrates on one specific step in the entire process: The analysis and evaluation of varying known market entry strategies. To clearly evince the focus area of the discourse at hand, it is worth having a second look at the already presented process graph.

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Figure 6: The market entry strategy decision as the focus of this thesis[38]

2.3.2 International Marketing and its Link to International Strategy

To ensure a coherent link to the upcoming Part 3, the link between international marketing and the international strategy of any company should be clarified. Terpstra and Sarathy (1999) hypothesise that:

“Marketing does not take place in isolation but is inextricably linked to a firm’s overall strategy. International marketing is likewise linked to its global strategy.”[39]

The same perception is also valid for the international- or global level. Thus, the same linkage between marketing and a firm’s overall strategy can be applied on an international- or even global level. That is to say that international marketing shows a strong linkage to a company’s overall international and global strategy respectively and vice versa. In Table 2 a choice of five examples of the aforementioned linkages (at this on a global basis) are provided.

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Table 2: Linkages between the global corporate- and the global marketing strategy[40]

It is the aim of this thesis to follow the characteristic of the previous explained linkages - ergo this last note of Part 2 links from the introduction of international marketing to the next main part, covering the topic international strategy. Due to the interdependence of marketing and strategy aspects, a frequent overlapping of both topics will be obvious in the further development of this thesis.

3 Part 3: International Strategy - Market Entry Modes

Following is the third part of this discourse, which switches the focus from the observation of internationalisation tendencies and the international marketing theory to the actual strategic matters every firm is facing on its way to penetrate worldwide marketplaces; with the fundamental focus on market entry strategies. In Chapter VII a short excursion to the incentives to deploy an international strategy is undertaken. Once on the way to expand business operations over one or multiple countries, the company and its managers must define an overall strategic guideline to which every market entry strategy is ideally subordinated. Chapter VIII therefore encloses a brief analysis of international corporate-level strategies and thus finishes the attempt to establish an elementary framework to approach the targeted analysis of the market entry strategies. In that way, also a reference basis for the implemented case study in Part 5 is built. The subsequent detailed analysis of the market entry modes is initiated by Chapter IX, introducing three key decisions, which must be considered when entering one or multiple new country markets. Next, a compressed enumeration of the market entry modes, by classifying three clustered categories, as well as a general and systematised overview of the market entry modes, by confronting each mode with several chosen criteria, follows. In that way, the reader should gain a first overview of each entry mode’s attributes. Chapter IX closes with an annotation to the dynamics and evolution of the entry mode decision. Chapter X introduces three selected focuses on which the feasibility study of the market entry modes, following in Part 4, will highly be based on.

3.1 Chapter VII: Incentives to Go Global

In recalling previous elaboration to internationalisation tendencies towards both nation states and individual companies[41], it was found that the globalisation phenomenon principally reshapes the world’s present business landscape. It can be furthermore found, that economic globalisation consists, amongst others, of the cumulative efforts of all companies implementing an international strategy. In the following attempt the triggers for a firm’s individual decision to enter foreign markets will be examined in a broad view. It is to say, that the incentives to expand business to an international level are highly diverse and may considerably vary from market to market.[42] Principally, the appeals to go international can be categorised into company internal and company external factors.

3.1.1 Company Internal Factors

The company internal factors can be identified by four main aspects:[43]

1) Increased market size . By moving into international markets a company is able to – sometimes enormously – increase their potential market. Good ideas for products or services can be exploited on a broader geographic scale and an optimum composition of markets can be achieved, which creates bigger diversity and thus spreads the risk of fluctuating economic cycles or currency risks. In fact, domestic markets often show limited growth opportunities. Accordingly, the ubiquitous ambition to grow literally demands the development of markets beyond domestic borders – at the right moment in time.
2) Return on Investment (ROI). It is the aim of every entrepreneurial endeavour to generate above-average returns on investments. However, the current development shows a general increase of investment in assets and R&D[44] combined with the increase of the development pace for new technologies and shorter Product Life Cycles (PLCs). Moreover, in a world with a boundless flow of information and accessibility, the threat of technology imitation (and thus the imitation of a firm’s core competences) by competitors is steadily rising. This combination of developments forces a firm to regain its investments and product development costs far more rapidly. Therefore, a company is often imposed to penetrate new markets with the purpose of enhancing their PLCs and recouping increased expenditures in assets and R&D more quickly. Following is the example of the Ford Motor Company, which aims to further explain the before mentioned difficulties in remunerating essential investments and R&D costs:

”Ford, for example, designed a new two-litre engine with two valves per cylinder to be used as the base engine for a variety of cars built in factories around the world. The Japanese moved quickly, however, to develop and introduce a 16-valve, high-performance engine, which shortened the life (writer’s note: PLC respectively) of Ford’s new engine to only four years, too short to recover product-development costs satisfactorily or to earn a Return on Investment. Yet Ford had to match its competition by introducing a 16-valve engine on its own.”[45]

The given example illustrates today’s extraordinary motion of technology change and the growing necessity to create the structures to rapidly retain significant investments by striving into international markets.

3) Economies of Scale (EOS). To the expression ‘Economies of Scale’ Porter (1980) adhered:

“Economies of Scale refer to declines in unit costs of a product (or operation or function that goes into producing a product) as the absolute volume per period increases.”[46]

Hence, a company that achieves Economies of Scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods. A firm may therefore be able to profit from substantial EOS by expanding their markets, especially in their manufacturing operations, by an improved utilisation of its capacities. Commonly speaking, the more standardised products are offered on international markets and the more same or similar production facilities are used by a firm, the more it will be able to enjoy higher operational efficiencies and the effects of EOS. EOS inhere particular importance in the global automotive- as well as in the textile- and electronics industry.[47]

4) Location advantage s. The cost of labour and natural resources extensively differ from one country to another. In setting up operations in developing countries, firms are able to substantially decrease the basic costs of the goods or services they offer. In this connexion, the two common terms of ‘Global Scanning’ - the search for access opportunities to cheap resources such as labour, raw material of finances - and, based on previous, ‘Global Sourcing’ - to take advantage of the decline of costs for these resources - may be raised. Relatively high tax rates and other dues (e.g. environmental taxes) combined with generally high costs for labour in industrialised countries, are often the triggers which motivate a company to set up operations in foreign countries. Besides, new locations may grant access to new customer segments and critical resources. Once participating in international business, a firm must both configure and coordinate all value-added activities across country markets, in consideration of the central question of where to carry out which activities in order to fully benefit from various location advantages and to create an optimised global value-added chain.[48]

3.1.2 Company External Factors

The company independent, external factors occur due to the ongoing transformation of the international business environment and thus out of a changed infrastructure for doing business on a cosmopolitan scale. Consequently, new emerging markets offer unique market opportunities on a scale never sighted before. A choice of the main aspects will be summarised in the following passage.

Recent developments in communication technologies and electronic information-processing concurrently created the much-alleged information superhighway, which allows firm’s instant communication across country borders; thus enhanced coordination of multiple country operations. The emergence of global logistics and widely improved transportation systems increased the attractiveness of international manufacturing. As a matter of fact, the entire worldwide market infrastructure has changed tremendously as service companies have begun to follow their customers abroad. In that way, advertising agencies, accounting firms and market research companies have established branches in other countries so as to service their customers on a global basis. Additionally, banks and other financial institutes traditionally continue to offer their services in extensive international networks. Along with these developments the emergence of global market segments, such as teenagers or young adults, backpackers or business executives forming entirely new target groups, can be found.[49] Finally, regional groupings such as the EU, the NAFTA or the ASEAN, in addition to the economic rise of numerous developing countries, likewise give a contribution to make an involvement on international markets even more attractive for companies facing the challenges of the new century.

3.2 Chapter VIII: International Corporate-Level Strategy and its Correlation to Market Entry Strategy

In fact, the problem of finding the appropriate market entry strategy can appear in different dimensions to a firm. It can be the concern of either a domestic company initially entering its first foreign market or, e.g. a company already executing extensive international operations, entering another country or even continent. In other words, the fundamental decision for a market entry mode concerns every company entering a specific foreign country for the first time, independently from the previous level of international involvement. In this context Doole and Lowe (2001) theorise:

“For a firm at the start of internationalisation, this (Writer’s note: the individual decision for a market entry mode) can be regarded as a critical first step, which is vital not only for financial reasons, but also because it will set a pattern of future international involvement. For large established companies that already have extensive involvement in international markets, the market entry decision is taken against the background of an existing and substantial network of operations and a global strategy. The company’s competitive strategy is likely to require simultaneous decisions affecting its arrangements in a number of markets in order to improve its competitive position by entering untapped or emerging markets …”[50]

This citation helps to understand the correlation between the superior international corporate-level strategy and the (ideally subordinated) market entry mode decision of a firm. Before deciding how to move into any new country or region of the world, a company needs to develop a clear overall global strategy.[51] Thus, a company, theoretically, first selects its international corporate-level strategy together with the geographical decision of where to employ this strategy, and not until then the company starts dealing with the problem of the market entry mode.[52]

The following exertion has the intent to provide the reader with a brief knowledge upon the different corporate-level strategies in which the market entry mode decisions, in case of existing multinational operations, are part of. Basically, three different kinds of international strategies can be differentiated.

3.2.1 Multidomestic Strategy

A multidomestic strategy is characterised by the decentralisation of both strategic and operating decisions to autonomous strategic business units in each country. All marketing activities are tailored to local market demands, thus a multidomestic strategy concentrates on competition within each country, as consumer needs and desires as well as the environmental influences can highly differ by country.[53] This focus can lead to an expanded local market share since consumers usually appreciate customisation efforts.[54] Therefore, a firm following a multidomestic strategy strives for differentiation advantages and marketing effectiveness.[55] The disadvantages can be identified as the higher uncertainty for the whole corporation, as multiple strategies hardly create synergies and are difficult to coordinate across country units. Furthermore, the company can barely benefit from the effects of EOS and higher costs of operations are more likely. In a multidomestic strategy it is seen as essential to fully understand the foreign market dynamics and to employ managers who are highly entrepreneurial in responding to local customer needs, industry standards and different stages of economic development.[56]

3.2.2 Global Strategy

As counterpart to the multidomestic strategy, a global strategy is determined by standardisation across country boundaries with interdependent business units operating in each country. The competitive strategies and the marketing activities are centrally controlled and governed by the headquarters, which aims to achieve a high degree of integration and the full effects of EOS, in addition to a better utilisation of innovations developed at the corporate level.[57] A company following a global strategy strives for standardisation advantages and marketing efficiency.[58] Hitt, Ireland and Hoskisson claim that: “a global strategy produces lower risk …”[59], however, this argument could be criticised, as in case of a failure within a global strategy the whole corporation will have to face the consequences, whereas, e.g. in case of a multidomestic strategy, the negative results of a strategic misadventure will be restricted to a single country market. Certainly, companies implementing a global strategy might miss growth opportunities in local markets due to the possible lack of identifying those markets. Further, the difficulty lies in the coordination of marketing activities and operations across country borders. Concluding, a company which adopts a global strategy makes no distinction between domestic and foreign market opportunities. It far more tries to find highly identical markets in many countries around the world and setup their strategy in a way of being able to compete with other multinational companies.[60]

3.2.3 Transnational Strategy

The transnational strategy is a combination between the two precedent extreme types and thus contains elements of both the multidomestic and the global strategy. Hence, transnational companies strive for a reasonable balance between global efficiency and local responsiveness. The difficulty in realising a transnational strategy lies in the combination of global coordination with country individual flexibility; however, if implemented successfully, this combination type of international strategy may produce higher performance than any of the other strategic options. Thus, for a transnational strategy, the establishment of an integrated network, which enables the creation of a shared vision together with individual commitment, is indispensable.[61] As a sub type of the transnational strategy, the so called regional strategy can be identified as a fourth type of international corporate-level strategy. The regional strategy makes allowance for the rise of numerous regional trading blocks, such as the ASEAN or NAFTA. For many companies, regionalisation represents a more manageable compromise between the extremes of global standardisation or multidomestic strategies. Finding out what makes a region distinctive and in what ways the marketing strategy for one region should be differentiated from the others is the key issue in the regional strategy. [62]

3.3 Chapter IX: International Market Entry – Overview

The decision for the best suitable market entry mode is probably the most significant decision in international marketing with which every effort for the internationalisation of a business is likely to be confronted. All agreements made at the beginning of a business endeavour in a foreign country create a range of commitments, thus the chosen mode to enter into a host country’s markets sets a fundamental basis which directly affects future operations in a long-term perspective. In short, the arbitration for a specific market entry mode is about a macro decision.[63] Being confronted with the penetration of markets beyond domestic borders generates the following questions on three main dimensions; again accumulating three key decisions:

- Geographical dimension: Key decision 1: Where? – Country choice.
- Temporal dimension: Key decision 2: When? - Timing strategy.
- Dimension of the entry type: Key decision 3: How? – Market entry mode.

As indicated in the list above, the primary focus will be built upon key decision 3 and thus on the market entry modes. However, every market entry decision is covering all of the three dimensions above and for the purpose of accomplishing the aimed target of an effectual analysis and evaluation of the implemented case study; a compact look will also be conducted at key decision 1 and 2. Therefore, the topics of country choice and timing strategies are going to come briefly into focus, before going on to key decision 3, the market entry modes.

3.3.1 Key Decision 1: Where? – Country Choice

At the beginning of every country selection process stands an extensive international market research in order to build a satisfactory information base. Today, a vast number of company-internal and company-external information sources (e.g. international chambers of commerce, embassies, banks, trade associations, libraries etc.) as well as a huge quantity of methods for classification, which numeration would go beyond the scope of this thesis, can be identified. Thus, the actual evaluation of foreign country markets comes into focus at this stage. Genuinely, country markets can be evaluated by their opportunities and risks and thus, based on these but even more comprehensive, in using the indicators country market attractiveness and country market barriers.[64]

3.3.1.1 Country Market Attractiveness

The term attractiveness is closely linked to a certain degree of subjectivity. Hence, the country selection is always based on the relative attractiveness of each country to a company, dependent on the situational environment in terms of, for instance, industry or company size. The country market attractiveness can be seen as a function of three factors, as postulated by Lasserre and Schuette (1995):[65]

- The actual market attractiveness: Size, growth, segmentation, sophistication of demand, intensity and nature of competition.
- The resource attractiveness: availability, quality and cost of raw materials, labour cost, productivity and attitudes, supplier networks, quality of information, financing, buildings, general infrastructure and logistics.
- The Political/regulatory and operational attractiveness: Political stability, administrative practices, operational flexibility, price and exchange controls.

Here, the cumulated country market attractiveness describes the chances for economical return within the current market.[66]

In fact, there are numerous environmental analysis models, examining the various aspect and trends in the international marketing environment. One of these approaches was already introduced earlier. In reconsidering the SLEPT approach[67], a range of similarities to the above mentioned definition of influencing factors can be identified. Every company, therefore, has to conduct extensive information research on the variety of country factors, analyse and evaluate them in consideration of the individual needs and wants, based on the envisioned strategic thrust, and find out the market attractiveness of a foreign country. Additionally, it should be mentioned, that certain industry’s attractiveness may vary substantially within one country. Hence, it is always the situational context, which allows a firm to evaluate a country’s attractiveness for their own kinds of operations.

3.3.1.2 Market Entry Barriers

In contrast to the market attractiveness, various risks (in other words market barriers) can be identified for individual country markets. Market barriers are defined as the entirety of all conditions which must be fulfilled in order to enter the targeted market. Backhaus, Bueschken and Voeth (2003) differentiate three types of causes creating market entry barriers:[68]

- Economical causes,
- protective causes and
- causes arising from individual consumer behaviour.

As example for economical causes, Porter (1980) identifies major sources of barriers to entry, such as EOS, capital requirements or switching costs. EOS benefits of existing competitors force the entrant to enter the market in either large scale, risking strong competitive reaction or to enter in smaller scale by accepting a, partly significant, cost disadvantage.[69] Additionally, huge investments in order to compete may be necessary, likewise increasing the risk of entrance. Furthermore, the potential customers may face high switching cost (one-time costs facing the buyer of switching from one supplier’s product to another’s[70]). Protective causes for market entry barriers could for example be tariffs, trade quotas or import restrictions. Ultimately, entry barriers based on consumer behaviour, such as the buyer’s preference for domestic goods and services, may be existent as well.

After analysing and comparing the market attractiveness and market entry barriers of few or many country markets, the firm accomplishes the final selection by using an appropriate selection method. If a firm seeks to enter more than one country, a differentiation of the strategic scope can be further made.

3.3.1.3 Multiple Country Operations: Diversification versus Concentration

In case of multiple country operations and/or multiple targeted countries to enter, a distinction between a geographically dispersed and a geographically concentrated strategy can be made.

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Figure 7: Geographically dispersed vs. geographically concentrated strategy[71]

A company may decide to spread its international operations across independent countries, with highly diverse economical environments (cp. Figure 7 on the left: Mexico, Brazil, Spain, South Africa, Japan and Australia) in order to diversify risk; e.g. the risk of economic recession in one specific country by counterbalancing it by growth in another market. Furthermore, the company can modify its resources allocation to fight competition intensively, wherever most necessary. Alternatively, a firm may choose to expand its operations into neighbouring countries in a specific region, such as the European Union (cp. Figure 7 on the right: Germany, France, Spain, Italy, United Kingdom and Ireland) or another group of proximate countries, such as the Scandinavian countries or the States of the Middle East. The company therefore focuses on countries which are similar in terms of their economic environment and often highly similar to the firm’s domestic market.[72]

Assuming one or multiple targeted country markets have already been geographically selected by a company at this stage, the temporal dimension logically follows.

3.3.2 Key Decision 2: When? – Timing Strategy

After the firm has identified and selected its preferred countries to enter, it has to consider the right moment- and sequence of time respectively. The question of when is the right time to enter new country markets is interconnected with many of the previous elaborations. Various incentives to go global might induce a company to break into new grounds of internationalisation, such as the identification of a unique market opportunity. The firm will finally execute the significant step of market entry as soon as it sees enough potential fitting towards the strategic scope of the company within a certain market and industry.

In case of multiple target countries[73] the question gains complexity in that it transforms into a question of the sequence to enter two or more foreign countries. The following two kinds of basic strategies will be examined briefly.

3.3.2.1 Successive Entry

A company, implementing a successive entry strategy, first enters a single key market for the purpose of building up experience in international operations. Subsequently, the firm enters additional country markets one after the other. This applies especially to smaller firms with limited resources, trying to minimise the risk of failing in an international endeavour. Companies, which lack experience in foreign markets as well as most of the firms following a geographically concentrated strategy, choose an incremental basis to enter several country markets. A step-by-step approach might also be reasonable if an organisation is entering foreign markets relatively late and thus has to face deep-rooted local competition.[74] In regard to the step-by-step strategy, Backhaus, Bueschken and Voeth (2003) introduce the term of the so called ‘Waterfall-Strategy’ to illustrate the incremental approach:

Abbildung in dieser Leseprobe nicht enthalten

Figure 8: The waterfall-strategy[75]

A disadvantage of the successive approach could be the danger of cutting down internationalisation efforts by the management due to unsatisfactory results in the first foreign market, even though it might be totally undecided how consumers in other countries will respond to the products or services.

3.3.2.2 Simultaneous Entry

Alternatively, some companies either prefer or are forced to rapidly enter various country markets in a relative short period of time. This may result from either the emergence of sudden opportunities or from the strive to be the first mover in a fast strengthen competitive environment. The firm is enabled to build up experience at high speed and the benefits of EOS in production and marketing can therefore be early achieved. A simultaneous entry strategy in multiple markets is often seen in combination with highly innovative or even revolutionary products or services with shortened product life cycles. In regard to the simultaneous strategy, Backhaus, Bueschken and Voeth (2003) introduce the term of the so called ‘Sprinkler-Strategy’:

[...]


[1] Cp. Doole/Lowe, 2001, p. 5 f.

[2] Cp. Terpstra/Sarathy, 1999, p. vii.

[3] Held/The Open University, 2004, p. 15.

[4] Global Environmental Management Initiative (GEMI); URL: http://www.hsewebdepot.org/imstool/GEMI.nsf/WEBDocs/Glossary?OpenDocument [02.03.2006].

[5] Ripon College, Wisconsin/USA, 2006; URL: http://www.ripon.edu/academics/global/CONCEPTS.HTML [02.03.2006].

[6] Cambridge Online Dictionary; URL: http://dictionary.cambridge.org/define.asp?key=41516&dict=CALD [02.03.06].

[7] Cp. Backhaus/Bueschken/Voeth, 2003, p. 25.

[8] Cp. in the same place, 2003, p. 30.

[9] Cp. Backhaus/Bueschken/Voeth, 2003, p. 31.

[10] Source: modified adopted from Doole/Lowe, 2001, p. 215; Figure: The Economist – ‘At a location near you’, November 22nd 1997.

[11] Cp. Douglas/Craig, 1995, p. 4 f.

[12] Cp. Douglas/Craig, 1995, p. 6.

[13] Cp. The Economist – ‚Mergers and acquisitions: Riding a wave’, April 8th 2006, p. 16.

[14] Cp. Thompson, 2000, p. 382.

[15] European Commission, The new SME definition, 2004, p. 5. Note: More detailed information to the new SME definition of the European Commission is provided under Chapter X - 3.4.2, p. 54.

[16] Cp. McAuley, 2001, p. 111; taken from The Economist, 1998.

[17] Cp. McAuley, 2001, p. 108.

[18] Cp. McAuley, 2001, p. 130.

[19] Doole/Lowe, 2001, p. 212.

[20] Source: modified adopted from Backhaus/Bueschken/Voeth, 2003, p. 32; Figure: Mueller/Schmalholz, 2003.

[21] Cp. McAuley, 2001, p. 108.

[22] Cp. Backhaus/Bueschken/Voeth, 2003, p. 43.

[23] Cp. Doole/Lowe, 2001, p. 7.

[24] Doole/Lowe, 2001, Foreword, p. xiv.

[25] Cp. Backhaus/Bueschken/Voeth, 2003, p. 45.

[26] Cp. Doole/Lowe, 2001, p. 9.

[27] Source: modified adopted from Doole/Lowe, 2001, p. 10.

[28] Cp. Backhaus/Bueschken/Voeth, 2003, p. 50 f.

[29] Cp. Terpstra/Sarathy, 1999, p. 7.

[30] Doole/Lowe, 2001, p. 8.

[31] Cp. Doole/Lowe, 2001, p. 8 f.

[32] Terpstra/Sarathy, 1999, p. 4.

[33] Cp. SLEPT approach, Figure 4, p 18.

[34] Cp. in the same place, p. 4 f.

[35] Cp. Doole/Lowe, 2001, p. 29.

[36] Source: modified adopted from Doole/Lowe, 2001, p. 29.

[37] Note: Product-, Place- (Distribution), Price- and Promotion Management.

[38] Source: Cp. Figure 5, p. 22.

[39] Terpstra/Sarathy, 1999, p. 154.

[40] Source: modified adopted from Terpstra/Sarathy, 1999, p. 155.

[41] Cp. Chapter IV.

[42] Cp. Douglas/Craig, 1995, p. 9.

[43] Cp. Hitt/Ireland/Hoskisson, 2005, p. 237 f.

[44] Note: Research and Development.

[45] Terpstra/Sarathy, 1999, p. 327.

[46] Porter, 1980, p. 7.

[47] Cp. Douglas/Craig, 1995, p. 9.

[48] Cp. Terpstra/Sarathy, 1999, p. 162.

[49] Cp. Douglas/Craig, 1995, p. 10 f.

[50] Doole/Lowe, 2001, p. 277.

[51] Cp. Yip, 2000, p. 3.

[52] Cp. Hitt/Ireland/Hoskisson, 2005, p. 249.

[53] Cp. Chapter V, Figure 3.

[54] Cp. Hitt/Ireland/Hoskisson, 2005, p. 242.

[55] Cp. Backhaus/Bueschken/Voeth, 2003, p. 58.

[56] Cp. Doole/Lowe, 2001, p. 228.

[57] Cp. Hitt/Ireland/Hoskisson, 2005, p. 243.

[58] Cp. Backhaus/Bueschken/Voeth, 2003, p. 59.

[59] Cp. Hitt/Ireland/Hoskisson, 2005, p. 244.

[60] Cp. Doole/Lowe, 2001, p. 226.

[61] Cp. Hitt/Ireland/Hoskisson, 2005, p. 244.

[62] Cp. Doole/Lowe, 2001, p. 229.

[63] Cp. Terpstra/Sarathy, 1999, p. 374.

[64] Cp. Backhaus/Bueschken/Voeth, 2003, p. 124.

[65] Cp. Lasserre/Schuette, 1995, p. 33.

[66] Cp. Backhaus/Bueschken/Voeth, 2003, p. 126.

[67] Cp. Chapter V, Figure 3.

[68] Cp. Backhaus/Bueschken/Voeth, 2003, p. 129.

[69] Cp. Porter, 1980, p. 7 f.

[70] Cp. in the same place, p. 10.

[71] Source: modified adopted from Douglas/Craig, 1995, p. 138 f.

[72] Cp. Douglas/Craig, 1995, p. 137.

[73] Note: Correspondent to sub-chapter 3.3.1.3, p. 37.

[74] Cp. Douglas/Craig, 1995, p. 136 f.

[75] Source: modified adopted from Backhaus/Bueschken/Voeth, 2003, p. 164.

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Title
Analysis and Evaluation of Market Entry Modes into the Asia-Pacific Region
Subtitle
Based on the Example of a German SME in the Industrial Goods Business
Grade
Sehr Gut
Author
Year
2006
Pages
168
Catalog Number
V114088
ISBN (eBook)
9783640143962
ISBN (Book)
9783640144075
File size
1916 KB
Language
English
Notes
Verteidigung der Diplomarbeit und Diplomprüfung mit ausgezeichnetem Erfolg bestanden.Verteidigung der Diplomarbeit und Diplomprüfung mit ausgezeichnetem Erfolg bestanden.
Tags
Analysis, Market, Entry, Modes, Asia-Pacific, Region, Thailand, China, Risk, Intellectual Property, Scoring Model, FH Steyr, University of Applied Sciences Steyr, Risk Analysis, Barriers, Strategic Model, Evaluation, Marketing, Country Analysis, Strategic Management, Core competencies, Import, Export, Expert, Diploma, Asia, Trade, East, Emerging Markets, Advantage, SME, German, Plc., Organization, Unique, Exceptional, Profitable, Management, Strategy, Mission, Vision, Model, Thesis
Quote paper
Dipl.Ing.(FH) MSc. Thomas Andexer (Author), 2006, Analysis and Evaluation of Market Entry Modes into the Asia-Pacific Region, Munich, GRIN Verlag, https://www.grin.com/document/114088

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