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Summary Export Management: A European Perspective Chapter 5, 6, 7
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Summary of Export Management: A European Perspective (Veldman) Chapters 5, 6, 7
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Summary for International supplychain management 2
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Summary Export Management: A European Perspective, ISBN: 9789001700324 International Supply Chain Management (FBE_2000SCM219-BE-IB)
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Summary Export Management: A European Perspective, ISBN: 9789001700324 Export Management
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Export Management: A European Perspective. Chapters 5, 6, 7Chapter 5: Choosing an Entry Strategy
5.1 Methods of exporting and entry strategies
When a company enters a foreign market, a few questions about the export process are:
• Is the company itself going to export? (direct export)
• Will it use an intermediary? (indirect export)
• Will it try to enter the export market in cooperation with another company? (cooperative export)
5.1.1 Starting points for an entry strategy
In selecting sales channels when entering a new market, companies are led by one of three principles:
1. Naïve principle: company uses the same entry strategy for all markets worldwide (not for
heterogeneous character of foreign market)
2. Pragmatic principle: company chooses a strategy for each foreign market. In the first phases a low-risk
distribution channel is chosen, which will only be changed if it does not bring in enough business.
3. Strategic principle: various entry strategies are compared, choice is made based on a sales channel that
fits with company’s market objectives.
Two basic approaches to approach a foreign market:
5.1 Market Approach Sales approach Entry strategy approach
Short term Long term
Target markets No systematic selection Selection on basis of analysis of market potential
Main objective Direct sales Build-up of permanent market position
Entry strategy No systematic choice Weighing of various distribution possibilities
Distribution channels No attempt to control Attempts to cooperate with various links in the chain
Methods of exporting:
Indirect export Indirect export Direct export Cooperative export Cooperative export Cooperative export
Home market Home market Home market Home market Home market Home market
1 R&D, Production, 1 R&D, Production 1 R&D, Production, 1 R&D, Production 1 R&D, Production 1 R&D, Production
Marketing Marketing
2 Sales and service 2 Marketing, Sales and service
Border Border Border Border Border Border
Foreign market Foreign market Foreign market Foreign market Foreign market
3 Independent agents 3 International sales 3 Sales and service agent 3 Marketing, Sales by
organisations (piggy-backing) or distributor export marketing group
5.1.2 Choosing an entry strategy
An entry strategy is also referred to as the distribution policy, as it determines in what way the product is
distributed through sales outlets abroad or via which channel the product will be sold.
The distribution channel is a system of marketing organisations which links the producer with the end user.
Factors which influence the choice of direct, indirect or cooperative export can be internal and external.
Internal factors
1. The size of the company
Size of company, style of management and knowledge of international entrepreneurship are partly
responsible for choice of distribution (e.g. small company will leave marketing to third parties)
2. The nature of the company
Nature and organisation of the company are partially responsible for the way in which the entry to
foreign markets is undertaken.
3. The experience of the company
Entrepreneurs have experience of a specific form of entry, the organisation will gear to this.
4. The nature of the product
• Physical characteristics such as the value/weight ratio decide where production takes place.
• Products require different marketing approaches in different markets, motives are different
• Product differentiation and phase of life cycle are also reasons for different entry strategy
1
, External factors
1. Socio-cultural aspects
Foreign markets may be regarded differently from the home market from a social-cultural p.o.v.
2. Market size and growth
The bigger the market and market potential, the more a company will be inclined to market the product
themselves or through a subsidiary. Nature, size, geographic distribution of customers, needs of
customers and level of economic development of the market determine choice of channel.
3. The situation in the foreign market
With intense competition, flexible entry strategies might be considered. Also, possibilities of obtaining
a competitive advantage should be considered. Tariffs and quotas on import encourage production in
the foreign market.
4. The marketing objective
On the basis of an export policy plan, a distributor is appointed. If the aim is to make the product
available in as large a portion of the market as possible, and in the short term, he may use: market
share and share in turnover, distribution spread and market reach.
Which of the three ways of exporting is chosen depends on the internal and external factors. The size and growth
possibilities. How companies choose their entry strategy is explained how they wish to tie themselves to the
foreign market. This is to say that, when choosing the distribution channel, the desired commitment and
obligations that come with it are considered. The extent to which a company is willing to tie itself to the foreign
market depends on the attractiveness of the location, the company’s capacity and the risks.
5.2 Indirect export
The most common methods employed in indirect export are:
5.2.1 The agent
Most companies start working a new market with an agent.
Requirements when selecting an agent:
• Familiar with sector and methods of advertising, have
financial scope, have sales experience with product range
• Able to estimate annual turnover is made from package
offered and how large the reach and spread of activities are
• Have good contacts with customers
• Aware of competition and its sales+advertising activities
• Know specific clientele for export products on offer,
provide good service and have links with other agencies
In his turn the agent will select his principal on the basis of certain criteria. He will expect support by:
• Sending him catalogues and price lists
• Providing him with sufficient promotional material
• Participating actively in sales promotion and supporting him when he participates in trade fairs.
A contract with an agent must specify the goods to which it applies, the region, the conditions of exclusivity, the
clientele, agreement in restraint of trade, any possible secrecy, the action to be taken in case of insolvent
customers, the conditions of sale, the procedure for resolving conflicts in law, industrial property rights, etc.
An agent in the EU has to meet the following criteria:
• Receives commission on transactions in which he has mediated or which he has concluded
• Independent entrepreneur
• Listed in trade register and acts on behalf of his own
• Does own bookkeeping and income tax return is that of independent entrepreneur
• May work for more than one company at the same time
• He bears the company costs, unless entrepreneur grants him an allowance
• Bears own risk and is not a subordinate of the entrepreneur
• Subjects himself to relevant arbitration
The entry strategy of using an agency comes with commercial risks: the very limited extent to which the principal can
influence the wat in which the agent works the market. However, the risk is limited because of the small investment
the principal has to make
2
, 5.2.2 The importing re-seller and/or wholesale dealer
An importuning re-seller or wholesale dealer buys goods for his own account and at his own risk. He then
passes them on to a wholesale dealer in his own country. With this entry strategy the company has little to no
control, it is unknown who eventually buys its products or what is done with them.
Trading by re-seller is done in his own name and at his own risk, the relationship between exporter and his re-
seller is no different from that of an exporter and a permanent customer. Importer’s status differs from
country to country, the exporter may conclude any of four types of agreement with the importer:
1. Simple distribution agreement: neither parties is bound to observe obligations to limit competition
2. Exclusive re-selling agreement (sole distributorship): the exporter agrees with the re-seller that he
will sell only to this re-seller in a specific area.
3. Exclusive purchase agreement: the re-seller agrees with the exporter to buy certain products from
that exporter only.
4. Selective distribution agreement: selling the products is restricted to distributors who meet certain
standards/qualifications
5.2.3 The trading house/wholesale dealer
Trading houses are important entry strategies in Africa and the Far East. There are ‘general trading companies’
(sogo shosha), of which Mitsubishi and Mitsui are examples. Trading houses work at their own risk and on their
own accounts. Companies choose trading houses because:
• Turnover may be generated in markets that are otherwise difficult to access
• Compared to other entry strategies, appointing a trading house is easy marketing, with low costs
• It is simple to fit the turnover for the foreign market into the production process for the home market,
because the turnover shows a more or less stable pattern
• The trading house has expertise in the foreign market and anticipates developments there
There are also many senmonshosha active, these are small, specialised trading houses, which can be especially
important to internationalising SMEs with specialised product range.
In this entry strategy there are some drawbacks for exporting companies:
• Control over turnover and marketing in the foreign market is relinquished
• Trading houses have many products; exporter cannot expect extra attention to certain products
5.2.4 Piggy-backing
In this entry strategy, more than one exporting company is involved. This is a form of cooperation between two
companies in the home market in which one (the rider) uses distribution channels and the sales organisation of
the other (the carrier). Products between the rider and the carrier are often complementary, and the
combination has a strong position in respect of customers abroad.
The rider’s advantages include:
• His costs are lower than if he were to export on his own
• He may benefit at once from the carrier’s market expertise
• He takes care of his own marketing plan, so he has maximum control
For SMEs piggy-backing is a good entry strategy, because the needs of the foreign
market come first. Within the entry strategy, three distribution channels: three-step
distribution, two-step distribution and one-step distribution.
Piggy-backing is particularly suitable for
companies that are beginning to
internationalise. Companies do
relinquish part of their independence
with regard to the wat they want to
work the foreign market.
3
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