A Discussion of Market Entry Strategies in Emerging Markets


Seminar Paper, 2016
17 Pages, Grade: 1,3
Anonymous

Excerpt

Table of Contents

Table of Contents

List of Abbreviations

List of Figures

1. Introduction

2. Foreign Market Entry
2.1 Definition of Market Entry
2.2 Motives for Foreign Market Entry

3. Elements of International Market Entry Strategies
3.1 Choosing the Target Market
3.2 Setting Objectives and Goals
3.3 Choosing the Entry Mode
3.3.1 Export Modes
3.3.2 Intermediate Modes
3.3.3 Hierarchical Modes
3.4 Designing the Marketing Plan

4. Emerging Markets
4.1 Definition
4.2 Characteristics

5. Conclusion and Outlook

Bibliography

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Figures

Figure 1: The Elements of an International Market Entry Strategy

Figure 2: Market Entry Modes

1. Introduction

The impact of an increasing economic complexity as well as of the trend of internationalization is growing steadily and influences our every-day lives.1 This process which has begun in the time shortly after the Second World War is often also referred to as globalization and is mostly driven by multinational companies.2 The ability to access international markets more easily and trade goods and services globally goes along with numerous opportunities for companies.3 However, designing and implementing a comprehensive entry strategy for international markets sometimes still pose a big challenge. Even if companies are experienced in doing business in foreign markets, the ever changing environment regarding economic, political as well as social factors in the targeted market puts a strain on the circumstances of the foreign business activity.4 In case a company plans to enter a market they are not familiar with and broad knowledge on the market is non-existent, e.g. emerging markets, the process gains in complexity.5 Thus, one of the fundamental issues of managers of international operating companies is to assess the appropriate strategy for international markets in order to ensure a smooth and, of course, successful market entry.6

The Seminar Paper at hand aims at contributing to the controversial issue of pursuing an appropriate market entry strategy for companies in emerging markets. In order to do so, it sets off with a definition of the term “Market Entry”, followed by outlining the basic motives that push companies to enter foreign markets. Thereafter, in Chapter 3 as the main part of the Paper, the four key elements of a comprehensive market entry strategy are pointed out at first, to be then described and analyzed more detailed in the following sub-chapters. Chapter 4 puts emphasis on the topic of emerging markets as it is the chosen target market to be analyzed in the context of this Paper. After giving a definition of the term itself the basic characteristics and specifics of emerging markets are illustrated. The last chapter finally sums up all findings of the Seminar Paper and provides approaches on how to choose the right entry strategy whilst paying special attention to the appropriate market entry mode. To top off the Paper an outlook on detailed analysis that should be in the focus of further investigations is given.

2. Foreign Market Entry

2.1 Definition of Market Entry

The term ‘market entry’ basically describes a company’s approach to enter a new market that has not been targeted by the company before.7 The process basically aims at bringing a product or service to a targeted market8 and further includes the entry of related business activities, such as technology, human resources, management and other resources to the new market.9 In case of foreign market entry, respectively internationalization, the targeted market differs from the domestic market and can be, for example, an emerging market. It is important to consider that there are several ways of entering a market.10 However, the evaluation of these approaches will be in the focus of work in the chapters to come.

2.2 Motives for Foreign Market Entry

The motives for a foreign market entry can be very diverse.11 Often there are not only one, but several motivations that push a company to go international.12 Basically, a differentiation between economic and meta-economic motives can be made. Whilst economic motives often aim at improving the economic state of a company, meta-economic motives are influenced by different, non-economic factors. It is to assume that the strongest motives for market participants to enter a foreign market arise from the goal to increase profit and sales (or to avoid a decline due to the fact that a product has reached its end of the product life cycle in the domestic market13 ), the will to operate a full capacity, and the ambition to increase market shares as well as to lower the risks of doing business.14 Moreover, due to the increasing complexity of world economies, it becomes almost unavoidable for companies to adapt to the changing environmental conditions and thus, to go international and enter foreign markets.15

3. Elements of International Market Entry Strategies

A market entry strategy for international markets is a comprehensive plan. It is used in order to give guidance to companies that are planning to enter foreign markets and frames the objectives, goals, resources and policies that will be taken into account in order to successfully manage the market entry.16 The illustration below reveals the essential steps that must be passed within a company’s market entry strategy.

Figure 1 : The Elements of an International Market Entry Strategy Abbildung in dieser Leseprobe nicht enthalten

Own illustration; referring to: Root, F.R. (1987), p. 4.

A consecutive market entry strategy requires decisions on several levels: the choice of a target product, respectively target market, the setting of objectives and goals, the choice of the appropriate entry mode and the design of the marketing plan in order to penetrate the target market as thoroughly as possible.17 Putting a market entry strategy into account demands a time horizon from three to five years.18 If, however, a company does not pursue a strategy, but focuses on immediate successes on the short-run, it is commonly referred to as ‘sales approach” in contrast to a constituent market entry strategy.19 A more detailed analysis of these steps that frame the market entry strategy of a company will be done in the following chapters whilst paying special attention to the different market entry modes.

3.1 Choosing the Target Market

The fundamental step within the strategy is to analyze and decide which foreign market is suitable for the company’s business plan. In order to do so, a detailed examination of possible target markets is necessary.20 The following three key factors are considered to be relevant selection criteria:21

- Market attractiveness: describes the potential profitability within a market, while paying special attention to market volumes, market growth, the supply situation, the pattern of demand, achievable product prices and further environmental factors.
- Market barriers: describe the entity of requirements that need to be fulfilled in order to be able to enter a foreign market. They comprise for example a certain capital demand, general preferences of consumers, as well as benefits in cost savings due to the size of an enterprise.
- Market risks: can turn out to be a market barrier and significantly influence the market attractiveness. A distinction is drawn between political risks and economic risks. Whilst political risks arise from changes in the political environment, such as safety risks, the risk of expropriation, etc., economic risks arise from changes of economic variables, such as exchange rate risks, transportation risks, etc.22 Due to the fact that these risks can hardly be predicted, numerous concepts for the assessment of market risks exist and are applied when analyzing a target market.23

By facing these three factors one arrives at a ranking of the potential target markets according to their overall attractiveness. As a result, a company is then able to make a selection of markets which need to be analyzed more detailed.24

3.2 Setting Objectives and Goals

By setting objectives and goals that shall be achieved in the target market a company is able to measure its success and to point out deviations from the plan.25 When entering a foreign market a company can assess its performance along two dimensions: Strategic objectives, such as gaining competitive advantage, building brand awareness or increasing market share help to enhance the strategy market position and can be considered as long term goals. In contrast to that, financial objectives, such as increasing sales figures, increasing profits or reducing costs, aim at improving the financial performance of the company.26 However, due to the fact that the process of implementing an international market entry strategy can be subject to changes, objectives and goals that are to be achieved might be adapted as well.27

3.3 Choosing the Entry Mode

After having chosen the right target market and having set objectives and goals that are to be achieved in this market the appropriate market entry mode needs to be chosen. Considering the fact that numerous internal and external factors can potentially influence a company’s choice of entry mode, this process is one of the most complex steps when building up a consecutive market entry strategy.28 Whilst internal factors are taking company and product factors as well as company resources into account, external factors make allowance for factors of the target market, such as economic, environmental or production factors.29 It is common that a company pursues different modes of market entry in different target markets.30 The market entry modes can basically be classified into three different categories: export modes, intermediate modes and hierarchical modes.31

Figure 2 : Market Entry Modes

Abbildung in dieser Leseprobe nicht enthalten

Own illustration; referring to: Kotler, P., Bliemel, F. (2006), pp. 627.

Depending on the company’s requirements, the idea of the market entry and the favored scope of engagement, risk, control and profit chance, companies choose from these market entry modes which, of course, all combine different benefit and cost features.32

3.3.1 Export Modes

Export modes can occur in the form of direct as well as indirect exports. In case of an indirect export alternative the business case of a company does not significantly change because it sells the product as a domestic sale and the product, respectively service, reaches its recipient in the foreign market via an intermediary. This can be, for example, an export agent, a broker or a trading company that buys the product and then in turn resells it in the foreign target market. Especially for companies that are short on experience with foreign trade and that have only limited expansion objectives this approach is suitable. In contrast to that the direct export mode aims at selling directly to an intermediary that is located in the target market. This intermediary can either resell the product on behalf of the exporting company or independently.33

3.3.2 Intermediate Modes

The second organization of international trade relations can be referred to as an intermediate mode of market entry. However, the term “intermediate mode” is only broadly defined and can stand for several approaches to enter a foreign market: Contract manufacturing, licensing, franchising, strategic alliances and joint ventures. In case of the first three approaches the manufacturing company does not participate on the foreign target market itself but through intermediaries. Contractual agreements (e.g. a licensing agreement) secure a certain profit, respectively share of the profit to the manufacturer. If a company decides to build a strategic alliance or a joint venture with one or several partners the company will likely have to actively participate in the target market as well. However, due to the fact that it is a cooperation of companies, risks and activities, but also profits are being split according to the agreement.34

3.3.3 Hierarchical Modes

This entry mode refers to the scenario in which a company fully owns and operates a foreign entity.35 The sales and distribution in a foreign country can be carried out in three different ways:36

- Sales representatives: can be domestic based or located in the foreign country. In most cases the entity remains a part of the holding company and is not an incorporated enterprise.
- Region centres: can often be considered as the precursor of subsidiaries. They have a key role in coordination and managing business activities in the time of commencement.
- Subsidiaries: allow the highest grade of participation in a foreign market and are set up as incorporated enterprises. Due to the huge extent of the related arrangements, this approach is one of the most expensive ones.

However, all of these approaches constitute an active entry to the foreign market and further combine the need to directly invest in the target market.37

[...]


1 Cf. Perlitz, M. (2004), pp. 1.

2 Cf. Bundeszentrale für politische Bildung (2013a).

3 Cf. Kulhavy, E. (1986), p. 31.

4 Cf. Perlitz, M. (2004), pp. 1.

5 Cf. Cravens, D.W., Piercy, N.F. (2013), pp. 166.

6 Cf. Weiss, C.A. (1996), pp. 1.

7 Cf. Business Dictionary (n.y.g.).

8 Cf. Kutschker, M., Schmid, S. (2010), p. 848.

9 Cf. Root, F.R. (1987), p. 5.

10 Ibid., p. 6.

11 Cf. Kulhavy, E. (1986), p. 33.

12 Cf. Aaker, D.A. (1992), pp. 306.

13 Cf. Paliwoda, S.J. (1986), p. 10.

14 Cf. Kulhavy, E. (1986), pp. 33.

15 Ibid., pp.31.

16 Cf. Root, F.R. (1987), p. 2.

17 Cf. Root, F.R. (1988), p. 2.

18 Cf. Root, F.R. (1987), p. 3.

19 Ibid., p. 5.

20 Cf. Kotler, P., Bliemel, F. (2006), pp. 624.

21 Cf. Berndt, R. et al. (2003), pp. 98.

22 Cf. Meffert, H., Bolz, J. (1998), pp. 69.

23 Cf. Berndt, R. et al. (2003), pp. 101.

24 Cf. Kotler, P., Bliemel, F. (2006), p. 626.

25 Cf. Root, F.R. (1987), p. 3.

26 Cf. Zou, S. et al. (2009), p. 3.

27 Cf. Root, F.R. (1987), p. 3.

28 Cf. Ibid., p. 8.

29 Cf. Paliwoda, S.J. (1986), pp. 56.

30 Cf. John, R., Gillies, G.I. (1996), pp. 266.

31 Cf. Cavusgil, S.T. et al. (2002), p. 89.

32 Cf. McDonald, F. et al. (2002), p. 207.

33 Cf. Perlitz, M. (2004), pp. 182.

34 Cf. Weiss, C.A. (1995), pp. 9.

35 Cf. Terpstra, V. et al. (2002), pp. 810.

36 Cf. Kulhavy, E. (1986), pp. 18.

37 Cf. Root, F.R. (1987), pp. 123.

Excerpt out of 17 pages

Details

Title
A Discussion of Market Entry Strategies in Emerging Markets
College
University of Applied Sciences Essen
Grade
1,3
Year
2016
Pages
17
Catalog Number
V492124
ISBN (eBook)
9783668964464
ISBN (Book)
9783668964471
Language
English
Tags
Markteintritt, Markteintrittsstrategie, Emerging Markets, Strategisches Management
Quote paper
Anonymous, 2016, A Discussion of Market Entry Strategies in Emerging Markets, Munich, GRIN Verlag, https://www.grin.com/document/492124

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