International Business: Market Entry and Strategy

Posted on Feb 3, 2025 in Business Administration and Management (BAM)

Proactive Motives for Internationalization

  • Profit and Growth Goals: Companies seek to increase profits and achieve growth by expanding into international markets.
  • Managerial Urge: Managers’ motivation reflects the desire and enthusiasm to drive internationalization forward.
  • Technological Competence/Unique Product: Possessing a unique product or technological advantage can create opportunities in foreign markets.
  • Foreign Market Opportunities/Market Information: Identifying and capitalizing on opportunities in foreign markets based on thorough market research.
  • Economies of Scale: Expanding internationally can lead to economies of scale, reducing per-unit production costs.
  • Tax Benefits: Some countries offer tax incentives to attract foreign investment.

Reactive Motives for Internationalization

  • Competitive Pressures: Companies may be forced to internationalize due to increasing competition in their domestic market.
  • Domestic Market: Small and Saturated: Limited growth potential in a small or saturated domestic market can drive companies to seek opportunities abroad.
  • Overproduction/Excess Capacity: Companies with excess production capacity may look to foreign markets to sell their surplus.
  • Unsolicited Foreign Orders: Receiving orders from foreign customers can be a catalyst for internationalization.
  • Extend Sales of Seasonal Products: Internationalization can help companies extend the sales period of seasonal products by targeting markets with different seasons.
  • Proximity to International Customers/Psychological Distance: Being close to international customers can facilitate market entry. Shock effects occur when managers realize they don’t know enough about the local market, especially when they perceive it as having a close psychic distance.

Blue Ocean Strategy (Kim and Mauborgne)

Red Oceans

Refers to the frequently accessed market spaces where products are well-defined, competitors are known, and competition is based on price, product quality, and service. Red oceans represent the existing industries today.

Blue Oceans

Denote an environment where products are not yet well-defined, competitors are not structured, and the market is relatively unknown. Companies that sail in the blue oceans beat the competition by developing compelling value innovations that create uncontested market space.

Value Innovation

Leading companies will succeed not by battling competitors but by making strategic moves, which they call value innovation. Offering a tremendous leap in value, overshooting what buyers are ready to accept and pay for. Instead of focusing on the differences between customers, value innovation builds on powerful commonalities in the features that customers value.

Three Rules for Entry Mode Strategy (According to Root)

  1. Naïve Rule: The decision-maker uses the same entry mode for all foreign markets.
  2. Pragmatic Rule: The decision-maker uses a workable entry mode for each foreign market.
  3. Strategy Rule: This approach requires that all alternative entry modes are systematically compared and evaluated before any choice is made. It maximizes the profit contribution over the strategic planning period, subject to the availability of company resources, risk, and non-profit objectives.

Desired Mode Characteristics

  • Risk Aversion: Risk-averse companies prefer export modes or licensing because they typically entail low levels of financial and management resource commitment and low risk. However, these modes are unlikely to foster the development of international operations and may result in a significant loss of opportunity.
  • Control: Modes with minimal resource commitment, such as indirect exporting, provide little or no control over the conditions under which the product is marketed. Wholly-owned subsidiaries (hierarchical mode) provide the most control but also require a substantial commitment of resources.
  • Flexibility: Hierarchical modes are the most costly but the least flexible and most difficult to change in the short run. Intermediate modes (contractual, joint ventures) limit the firm’s ability to change strategy when market conditions are changing rapidly.

Characteristics of Services

  • Intangibility: Services cannot be touched or tested.
  • Perishability: Services cannot be stored for future use.
  • Heterogeneity: Services are rarely the same because they involve interaction between people. Furthermore, there is high customer involvement in the production of services.
  • Inseparability: The time of production is very close to or even simultaneous with the time of consumption.