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Export Management - Hans Veldman - Chapter 5 Summary
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MAREX Week 5Chapter 5 – Choosing An Entry Strategy
Learning Objectives:
How can companies enter foreign markets?
5.1 Methods of Exporting & Entry Strategies
When a company exports it must decide how to approach the target market via:
1. Direct Export – Do export itself
2. Indirect Export – use an intermediary
3. Cooperative Export – Cooperate with another company?
3 Sales Channel Principles
1. Naive principle – Same strategy for all markets
2. Pragmatic principle – Choose a workable entry strategy for each market. Choose distribution
channel with least risk, only if not enough business they change strategy
3. Strategic – Strategies are compared and a choice is made based upon that the sales channel
should fit the company’s market objectives
o Foreign market approach can be divided into
1. Sales Approach
2. Entry Strategy Approach
Choosing an Entry Strategy
Entry strategy a.k.a. distribution policy
Internal and external factors influence the entry strategy choice
Internal Factors include:
1. Size of company
2. Nature/Type of company
3. Experience of company
4. Nature/Type of the product
External Factors include:
1. Socio-cultural
2. Market size and growth
3. Situation in the foreign market
4. Marketing objective
5.2 Indirect Export
Most SME’s do user indirect export to enter foreign market
Indirect export means one makes use of an intermediary, it requires the least commitment
1. Indirect Export (Individual)
a. The Agent
Agent – An independent intermediary (person or firm) who mediates between selling and
buying parties and receives commission. He does not own the goods/services, thus risk is
limited.
An agent should be familiar with the products and the sector, have financial scope and sales
experience within this scope
He can work for more than one company
, MAREX Week 5
Organizes day–to–day running of a business
b. Importer (re-seller and/or wholesale dealer)
An importing reseller or wholesaler buys on his own account at his own risk. They are a fully
independent intermediary and are familiar with products and the sector. They also usually
work for many principals, sometimes on an exclusivity basis. The importer resells to local
distributors
The exporting company has little to no control, thus agreements between exporter and
importer can be concluded
4 possible types of agreements (exporter concludes with importer):
Distribution agreement
Exclusive re-selling agreement (sole distributorship)
Exclusive purchase agreement
Selective distribution agreement
c. The Trading Company
The trading company provides export services to its clients (market research, developing a
strategy, contacting wholesalers etc.).
They are a fully independent intermediary, should be familiar with products and sector, resell
to local distributors and buys on their own account (full risk)
d. Piggy Backing
Piggybacking - an arrangement whereby a foreign company (carrier) markets and sells a
(complementary) product for a company (rider) in the foreign market.
In order to be in a position to piggy back:
no competition, should usually be a complementary product
you need to be going after the same target audience
you must be able to provide some benefit to the other company or organization
e. Joint Selling
Arrangement where a foreign company markets and sells product for another company in
foreign market and vice versa
Advantages include:
Extending your product range enlarge your market share
access market quickly
Drawback can be that the exporter has no influence on the way the foreign market is worked
2. Indirect Export (Collaborative)
a. Joint Venture
Joint Venture – a strategic alliance between two or more companies who remain independent
Companies complement and reinforce each other
Advantages include:
Synergies (1+1=3)
Fast market access
Easy compliance with Government requirements (avoid legal/trade barriers)
Cost reductions (R&D)
b. Export management company (EMC) / The Export Combination
Export management company (EMC) - acts as an export department for one or several
producers of goods and services; usually specialized either by product or foreign market
Advantages include:
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