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BU 612 Market and Mode of Entry (Week 5)

Legal/Regulatory Influences (contd) Foreign Market Selection Mode of Entry an overview


Readings?

Ch 7 and 8; Czinkota et al. 2009 Ch 9; Calantone and Zhou 2001

Next class?

Main Legal Systems


Common Law
UK, Canada, the USA, many of the former colonies of the UK

Code Law (aka civil law)


Found where common law is not used Based on an all-inclusive system of written rules of law (civil, commercial and

criminal)

Islamic Law
Encompasses religious duties and obligations and the secular aspect of the law

regarding human rights Often applied with code or common law

Islamic law
Koran is the basis for Shariah (Islamic law) It encompasses:
religious duties and obligations patterns of social and economic behavior for all individuals property rights, economic decision making and types of economic freedom

The overriding objective of the Islamic system is social justice Advocates risk sharing Prohibits the payment of interest Prohibits investment in activities that violate the Shariah, e.g., the

business of alcohol, gambling, casinos

Also Marxist-Socialist Tenets


Govern Eastern European countries commercial legal system
Czech and Poland revised and re-instituted preWorld War II commercial legal

codes

USSR and China need an entire commercial legal system with respect to

private ownership, contracts, due process, and other legal mechanisms


Russia is moving toward a democratic system China is attempting to activate a private sector within a multi-component

economy, but their legal systems are still nascent

Tourism Australia
Please read the pdf file labeled Tourism Australia on D2L.

Also, check out this link: http://www.youtube.com/watch?v=rn0lwGk4u9o

How does the law impact marketing?


Product
Physical and chemical aspects Safety standards

Price
Government price controls

Sales, Service and Distribution


Shipping and rights of carriage

Communications
Deceptive, misleading or fraudulent practices Propriety and taste Promoting certain products to certain markets

IP, Counterfeiting and Piracy


Millions of dollars to establish brand names, designs, trademarks etc. Inadequate protection from products being counterfeited or pirated as

many countries do not recognize trademarks and patents registered in other countries.
McDonald had to buy its trademark back in Japan

In a common-law country, ownership of intellectual property rights is

established by prior use.


In many code-law countries, ownership is established by registration.
A trademark in Jordan belongs to whoever registers it first in Jordan so there

are McDonalds restaurants, Microsoft software, and Safeway groceries all legally belonging to a Jordanian

Country differences (e.g.)


USA
Operates under the first to

Japan
Operates under the first to

invent rule Protects individual inventors Patents Applications secret Granted in up to 24 mos. Valid for 17 years after approval

register policy Promotes technology sharing Patents Applications public Granted in 4-6 years Valid for 20 years from time of application

Cyber-law
Existing internet law does not completely cover the protection of domain

names, taxes, jurisdiction in cross-border transactions and contractual issues clearly addressed by current law

Countries are drafting legislation to address the myriad legal questions not Examples of unresolved issues
Cyber squatters register descriptive nouns, geographic names, ethnic groups,

pharmaceutical substances and other similar descriptors and hold them until they are sold at an inflated price they should be collected, and by whom

The collection of taxes on sale of products, i.e., when taxes should be collected, where

Foreign market selection:


potential determinants

Viewing market selection as a process of segmentation

Entering foreign markets


Understand what markets are appropriate Understand whether you want to:
Enter

Take a

Country clustering (see Cavusgil et al. 2004 in Industrial Marketing


Management for more details)

Countries are clustered by market size, growth, intensity, infrastructure, receptivity, free market structure, risk from the perspective of the US Cluster 1:
Mozambique, Senegal, Bangladesh, Yemen, Nepal, Kenya

Cluster 2:
South Africa, Egypt, Honduras, Morocco, Ghana, Indonesia, Algeria, Nigeria,

Pakistan

Cluster 3:
Malaysia, Slovak Republic, Dominican Republic, Tunisia, Vietnam, Syria

More..
Cluster 4:
Mexico, Thailand, Georgia, Turkey, Philippines, Peru, Jordan, Albania, Armenia,

Ukraine, Azerbaijan, Sri Lanka, Moldova, Belarus, Mongolia

Cluster 5:
Russia, Brazil, Argentina, Uruguay, Kuwait, Croatia, Bolivia, Saudi Arabia, El

Salvador, Venezuela, Colombia, Bulgaria, Guatemala, Paraguay, Ecuador, Romania

Cluster 6:
Singapore, Ireland, S Korea, Spain, Chile, Portugal, Estonia, Slovenia, UAE,

Greece, Czech Republic, Hungary, Poland, Costa Rica, Latvia, Lithuania, Panama

More
Cluster 7:
Japan, Germany, UK, Belgium, Netherlands, Hong Kong, France, Denmark,

Switzerland, Austria, Italy, Israel

Cluster 8:
Canada, Australia, Finland, Sweden, Norway, New Zealand

Cluster 9:
China, India

All from the perspective of:


USA

Market screening one example


The Business Environment Risk Index (BERI) Focus? Political risk

Screening a 2nd example


Identify socioeconomic and political indicators you (the

management team) consider critical


These usually reflect wider strategic objectives

Determine the importance of the indicators to your firm

Rate the countries in your consideration pool on each

indicator Calculate overall score for each country Prioritize

E.g.
Country Country A Country B Country C Country D Weight Per capita Income 50 20 60 20 25 Population 25 50 30 20 40 Competition Political Risk 30 40 10 70 25 40 10 70 80 10 Score 3400 3600 3650 3850

Screening a 3rd example


Collect historical data on your current export market(s)
Use the indicators you plan to use for the new market(s) Xic (score of country c on indicator i)

Evaluate your post-entry performance in each of those markets


E.g. success score on a 1-10 scale (Sc is success of country c)

Derive weights for each of the country indicators


Use regression with past data (or Delphi approach)

Rate the new/potential countries on each indicator Predict performance in prospective markets
Plug into earlier regression

Prioritize

Screening a 4th example


1
Domestic (home) regulations? What do they suggest? Management preferences? Economic, political and legal risk? Market culture, nature and potential size? Competitive barriers? Entrenched competition?

Market fit? Market responsiveness?


Resourcing requirements? Meet strategic objectives and support competitive advantage?

Screening a 5th example


Building a Market Attractiveness/Competitive Strength

Matrix Involves a combination of:


the management teams experience-based opinions research

The market attractiveness/ competitive strength matrix

E.g. of underlying questionnaire for placing countries on a market attractiveness/ competitive strength matrix

Discussion Question
Read the Tata Nano case on pp 198-99 of your text. Ignore the questions on p. 199 but answer this
Using any two examples of the market screening

approaches in these notes (as well as your text), identify logical countries for Tata Nano to enter.

Note you will need to identify a potentially relevant pool of countries to consider, justify your screening criteria and work through the two market screening approaches.

The international market segmentation/screening process: an example of the proactive and systematic approach

Timing of entry
Tricky area
Easy to get burned

Very idiosyncratic Applies to both initial market entry as well as product launches

E.g. early into China?


If you have lots of international experience, are big, have a broad scope

of products, competitors are already there, willing to use non-equity modes (Gaba et al. 2002)

The waterfall approach to market entry


High Gross national product per capita Low

Time

The shower approach to market selection

Advanced countries

Developing countries

Less developed countries

A guerilla approach:

Appropriate global marketing strategies for SMEs (according


to the text)

Factors influencing the decision to concentrate vs. diversify across countries


Company Factors
E.g. growth through market development vs. penetration E.g. accepting of risk vs. risk averse

Product Factors
Market Factors Marketing Factors

E.g. low volume vs. high volume business E.g. standardized vs. customized offer

E.g. small niche vs. large markets E.g. low vs. high loyalty

E.g. low vs. high costs to target/support markets E.g. standardized vs. customized communications

Examples of entry mode options?

Examples of different B2C entry modes

Insights from Czinkota et al. (2009)

Underlying everything?
Cooperative relationships
aka strategic alliances

a coalition of 2 or more organizations to achieve strategically significant goals that are mutually beneficial

Key characteristics
Each party has something the other values The partnership is autonomous and is flexible Have commitment and support of top management Parties are complementary and not too different Start narrow grow over time

Rules for choosing mode of entry (Root 1994)

Factors affecting the foreign market entry mode decision

Important Note:
Why would you exit (de-internationalize)?

Exit considerations
Barriers to exit?
Fixed costs of exit Getting rid of assets Signals to your other markets Long-term opportunities

Guidelines
Salvage what you can, if you

can
But be aware of escalation bias

Make an incremental exit Migrate customers

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