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International Supply Chain Management (Export book) summary
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Chapter 5 – Choosing an entry strategy5.1 Methods of exporting and entry strategies
When a company has decided to enter a foreign market, it must then decide how best to approach
the new target market. In selecting sales channels, companies that operate internationally are usually
led by one of three principles:
1. naïve principle – the company uses the same entry strategy for all markets worldwide. This
does not allow for the heterogeneous character of foreign markets
2. pragmatic principle – the company chooses a workable entry strategy for each foreign market.
3. Strategic principle – the various entry strategies are compared, and a choice is made on the
basis that a sales channel should fit in with the company’s market objective.
The ways in which companies approach foreign markets can be divided into two approaches: sales
approach and an entry strategy approach. Companies which choose an entry strategy approach have
gone through a more structured process of internationalization.
The entry strategy is sometimes called the distribution policy, as it determines in what way the
product is distributed through the sales outlets abroad or, rather, via which channel the product will
be sold.
Distribution channel – a system of marketing organizations which links the producer with the end user
abroad.
If the company is going to import, we speak of direct export, if it will use an intermediary it is indirect
export if they try to enter the export in cooperation with another company it is cooperative export.
Factors which influence the choice of direct, indirect or cooperative export may be divided into
internal and external factors.
Internal factors
1. The size of the company – size, style and knowledge are to a large extent responsible for the
choice of a distribution channel.
2. The nature of the company – e.g. a company which has a culture of delegating and de-
centralizing will be open to third parties.
3. The experience of the company – experience with a specific form of entry.
4. The nature of the product – such as the value/weight ratio decides where the production will
take place.
External factors
1. Socio-cultural aspects – the company may consider the foreign market as very different from
the home market and considers it as a risk.
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.
3. The situation in the foreign market – when competition in a foreign market is intense, a
company will consider choosing an entry strategy which is flexible or which can be changed,
because of the changing market demands.
4. The marketing objective – many companies choose to use an agent or distributor on the basis
of the prospects this can offer in terms of turnover and market growth.
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