A Discussion of Market Entry Strategies for Emerging Markets

Scientific Essay, 2014

13 Pages


Table of contents

List of tables

List of abbreviations

1. Introduction

2. Emerging markets

3. Market entry strategies for emerging markets
3.1 Trade-Related Market Entry
3.2 Transfer-Related Market Entry
3.3 Foreign Direct Investment Market Entry

4. Special challenges of emerging markets

5. Conclusion


List of tables

Table 1: Entry Modcs for Foreign Markets (Steers and Nardon, 2014, p. 208)

List Of Abbrevation

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1. Introduction

The world is transforming constantly with regard to political and economic development. Especially globalization is pushed forwards. Many ‘third world’ economies were facing large growing processes within the last few years and have entered the stage of so called emerging markets. It has to be expected that the main growth within the next decades will take place in emerging markets. The adoption of new production techniques and technologies, but also liberalization processes and cultural changes makes them attractive locations for further production and investments. In contrast to developing countries risks of market entry become more and more manageable. Thus, emerging markets offer great opportunities, for example to reduce costs, launch innovative products or establish new industries. Furthermore, the demand for western products and goods will grow in these countries in the near future (Cavusgil et al., 2002, p. 2).

Therefore, more attention has to be paid to emerging markets. One important issue is the question of an appropriate and suitable entering technique. This question has been frequently discussed since emerging markets started their rapid process of growth. The selection of the entry strategy can be the critical factor of success. Therefore entry strategies should be chosen very carefully. In the following common entry strategies will be presented and their and their advantages and disadvantages discussed. Also specific challenges enterprises have to tackle when they are entering emerging markets will be pointed out.

2. Emerging markets

Emerging markets are those markets that have shown a significant growth during the last decades. They are slowly approximating the so called western markets. Emerging markets are all markets and countries expect from the US, Canada, Western Europe, Japan, Australia and New Zealand, that show an increasing growth and are already very close to the threshold of being an industrial market or industrial nation. A definition says: “Emerging economies are low-income, rapid-growth countries using economic liberalization as their primary engine of growth.” (Hoskisson et al., 2000, p. 249; in: Sauvant, 2009, p. 333). This definition includes 51 developing countries in Latin America, Asia and the Middle East that show a rapid growth as well as 13 transition economies (Sauvant, 2009, p. 333).

The World Bank defined emerging markets as those with a GDP per capita income below $8,000 per annum but which are yet “potentially dynamic and rapidly growing economies” (Luo, 2002, p. 4). Emerging markets show some typical characteristics. First of all they can be called dynamic economies. Most of them experienced a political shock in the 1990s followed by a process of privatization, liberalization and deregulation. Also most of them have weak or no market-based institutions, they miss a legal infrastructure and property rights (Sauvant, 2009, p. 333f.).

Especially the economic and financial crises in the last years accelerated the growth of emerging markets. The so called BRICs (Brazil, Russia, India, and China) have made great advances. China for example is already the world’s greatest exporter and has become the second largest economy. Brazil is the largest economy in South America. India has become an attractive target for business outsourcing and Russia shows a stable growth. Also many other developing countries provide a growing economy and have become attractive markets, such as Vietnam, Turkey, Indonesia, Argentina or Thailand (Zou and Fu, 2011,p.xi).

3. Market entry strategies for emerging markets

The market entry is the process a company is carrying out during international expansion in a foreign territory. The market entry strategy is dependent on time (when to entry the market), location (where to entry the market) and entry mode (how to entry the market) (Luo, 2002, p. 181). For market entry, first of all, an appropriate market has to be found. The next step is to select a suitable market entry method. The entry strategy has to be chosen very carefully since it will determine the investment environment, the operation treatment, the resource commitment as well as the evolutionary path of a company (Luo, 2002, p. 181).

Common market entry strategies normally can be divided into those with a focus on inland activities and those with a focus on foreign activities. Inland market entry strategies comprise direct or indirect export or compensation transactions. Market entry strategies focusing on foreign activities are much more complex and divers. Since this work is dealing with emerging markets, only market entry strategies relevant to this topic should be taken into consideration.

Entry modes in foreign markets can be divided into trade-related, transfer-related and foreign direct investment (FDI)-related strategies. The level of resource commitment or involvement, organizational control, risk, as well as the return to be expected on investment usually increases while moving from trade-related to foreign direct investment-related strategies (Steers andNardon, 2014, p. 208). Both transfer-related and foreign direct investment-related strategies are investment-related and can be subsumed under this term (Luo, 2002, p. 198).

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In literature also other categories of market entry strategies exist, for example export entry modes (direct and indirect export), contractual entry modes (licensing, franchising, turnkey projects and others) and investment entry modes (joint ventures, foreign direct investment) (Cavusgil et al., 2002, p. 90). In this study the focus will lie on trade-, transfer- and FDI-related entry strategies. There is also a whole string of different entry modes but in this context only the most common will be discussed.

3.1 Trade-Related Market Entry

Two basic forms of trade-related market entry can be distinguished. These are exporting and subcontracting. Export may be the simplest way to internationalize a domestic business and it is also one of the most common. Export is a very common entry strategy for small- and medium-sized firms since they often don’t have too much capital and organizational resources and are not able to build up their foreign subsidiaries. Furthermore they can reach more countries (Klug, 2007, p. 36).


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A Discussion of Market Entry Strategies for Emerging Markets
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entry strategies, market entry, emerging markets, start ups
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Timo Majchrzak (Author), 2014, A Discussion of Market Entry Strategies for Emerging Markets, Munich, GRIN Verlag, https://www.grin.com/document/345703


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