This is a summary of international supply chain management 2. The chapters 5,6 and 7 of the book export management are summarized which is the second book needed for the exam. important things are incuded and keywords are explained.
Export management – a
European perspective
Chapter 5 choosing an entry strategy
5.1 methods of exporting and entry strategies
There are many ways of entering a foreign market. The question is which entry
strategy suits he company and target market best. 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. Such a principle does not allow for the heterogeneous
character of foreign markets.
2. Pragmatic principle: the company chooses a workable entry strategy for
each foreign market. In the first phases of the export process the export
company chooses a distribution channel with which it will run very little
risk. Only if the distribution channel does not bring in enough business
will a different policy be contemplated.
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 objectives.
The ways in which companies approach foreign markets can be divided into 2
basic approaches: a sales approach and an entry strategy approach.
Success in a foreign market is strongly dependent on the choice of the type of
entry strategy. The entry strategy is sometimes called the distribution policy, as
it determines in what way the product is distributed through the sales outlet
abroad or, rather, via which channel the product will be sold.
, Distribution channel can be described as a system of marketing organizations which links
the producer with the end user abroad. Sometimes such a channel is short and goes directly
from the producer to the foreign customer, but often it is complex and a product has to pass
through many intermediate stages before arriving at the foreign customer. Factors which
influence the choice of direct, indirect or cooperative export can be divided into internal and
external factors.
Internal factors:
1. The size of the company
the size of the company, style of management and knowledge of international
entrepreneurship are to a large extent responsible for the choice of the distribution
channel.
2. The nature of the company
the nature and the organization of the company are partly responsible for the way in
which the entry to foreign markets is undertaken.
3. The experience of the company
many entrepreneurs have experience of a specific form of entry in that case the
organization is geared to this, even if it involves working with importers or agents
only.
4. The nature of the product
the physical characteristics of the product or service, such as the value/weight ratio,
decide where production will take place.
External factors
1. Socio-cultural aspects
a company may regard a foreign market as. Ery different from the home market from
a socio-cultural point if view and may consider it a risk.
2. Market size and growth
the bigger the market and the market potential, the more a company will be inclined to
market the product themselves or through a subsidiary. Control oveer production and
sales requires contact with the market, making it possible for the company to control
the growth strategy of market development.
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 the changing
market demands this. An important consideration in choosing the distribution channel
is the possibility of obtaining a competitive advantage in the foreign market.
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. In an export policy plan the
market share has been prognosticated for the first few years. On the basis of tis
prognosis, it is decided to appoint a distributor.
Which of the three ways of exporting is chosen depends on the internal and external factors.
Obviously, the size and growth possibilities of the foreign markets are largely responsible for
the choice.
The extent to which a company is willing to tie itself to the foreign market depends on the
attractiveness of the location. These determinants allow us to develop the following scenario:
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