Global Marketing

Tenth Edition, Global Edition

Chapter 9

Global Market-Entry
Strategies: Licensing,
Investment, and Strategic
Alliances

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Learning Objectives (1 of 2)
9.1 Explain the advantages and disadvantages of using
licensing as a market-entry strategy.
9.2 Compare and contrast the different forms that a
company’s foreign investments can take.
9.3 Discuss the factors that contribute to the successful
launch of a global strategic partnership.
9.4 Identify some of the challenges associated with
partnerships in developing countries.
9.5 Describe the special forms of cooperative strategies
found in Asia.

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Learning Objectives (2 of 2)
9.6 Explain the evolution of cooperative strategies in the 21st
century.
9.7 Use the market expansion strategies matrix to explain the
strategies used by the world’s biggest global companies.

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Investment Cost of Marketing Entry
Strategies

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Which Strategy Should Be Used?
• It depends on:
– Vision
– Attitude toward risk
– Available investment
capital
– How much control is
desired SAB was a local company that used joint
ventures and acquisitions to become the
world’s largest brewer: S AB Miller’s
merger with Anheuser-Busch In Bev.

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Licensing
• A contractual agreement whereby one company (the
licensor) makes an asset available to another company
(the licensee) in exchange for royalties, license fees, or
some other form of compensation
– Patent
– Trade secret
– Brand name
– Product formulations
• Worldwide sales of licensed goods totaled $263 billion in
2016

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Advantages to Licensing
• Provides additional profitability with little initial investment
• Provides method of circumventing tariffs, quotas, and
other export barriers
• Attractive ROI
• Low costs to implement
• Licensees have autonomy to adapt products to local
tastes

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Disadvantages to Licensing
• Limited market control
• Returns may be lost
• The agreement may be short-lived
• Licensee may become competitor
• Licensee may exploit company resources

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Special Licensing Arrangements
• Contract manufacturing
– Company provides technical specifications to a subcontractor or
local manufacturer
– Allows company to specialize in product design while contractors
accept responsibility for manufacturing facilities
– May open the firm to criticism if manufacturers operate with harsh
working conditions or have low wages
• Franchising
– Contract between a parent company-franchisor and a franchisee
that allows the franchisee to operate a business developed by the
franchisor in return for a fee and adherence to franchise-wide
policies
– Used by the specialty retailing & fast-food industries

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Franchising Questions
• Will local consumers buy your product?
• How tough is the local competition?
• Does the government respect trademark and franchiser
rights?
• Can your profits be easily repatriated?
• Can you buy all the supplies you need locally?
• Is commercial space available and are rents affordable?
• Are your local partners financially sound and do they
understand the basics of franchising?

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Investment
• Partial or full ownership of
operations outside of home
country
– Foreign Direct
Investment (FDI)
• Forms
– Joint ventures
– Minority or majority
equity stakes
– Outright acquisition Fiskars acquired WWRD, including Waterford
and Wedgewood, via investment.

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Joint Ventures (1 of 2)
• Entry strategy for a single target country in which the
partners share ownership of a newly-created business
entity
• Builds upon each partner’s strengths
• Examples: GM and Toyota, GM and Daewoo in S. Korea,
Ford and Mazda, Chrysler and BMW

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Joint Ventures (2 of 2)
• Advantages • Disadvantages
– Allows for risk sharing- – Requires more investment
financial and political than a licensing agreement
– Provides opportunity to – Must share rewards as well
learn new environment as risks
– Provides opportunity to – Requires strong coordination
achieve synergy by – Potential for conflict among
combining strengths of partners
partners
– Partner may become a
– May be the only way to competitor
enter market given barriers
to entry

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Investment via Equity Stake or Full
Ownership
• Equity stakes is an investment
– Minority ˂ 50%, Majority˃ 50%
– Full ownership =100%
• Start-up of new operations
– Greenfield operations or
– Greenfield investment
• Merger with an existing enterprise
• Acquisition of an existing enterprise
– Examples: Roche acquired Genentech in 2008 for $43
billion

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Examples of Market Entry & Expansion
by Joint Venture (1 of 2)
Table 9-1 Market Entry and Expansion by Joint Venture
Companies Involved Purpose of Joint Venture
GM (USA), Toyota (Japan) NUMMI, a jointly operated plant in
Freemont, California (venture was
terminated in 2009).
GM (USA), Shanghai Automotive Industry A 50-50 joint venture to build an assembly
(China) plant to produce 100,000 mid-sized sedans
for the Chinese market beginning in 1997
(total investment of $1 billion).
GM (USA), Hindustan Motors (India) A joint venture to build as many as 20,000
Opel Astras annually (GM’s investment was
$100 million).

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Examples of Market Entry & Expansion
by Joint Venture (2 of 2)
Table 9-1 [continued]
Companies Involved Purpose of Joint Venture
GM (USA), governments of Russia and A 25-75 joint venture to assemble Blazers
Tatarstan from imported parts and, by 1998, to build a
full assembly line for 45,000 vehicles (total
investment of $250 million).
Ford (USA), Mazda (Japan) AutoAlliance International 50-50 joint
operation of a plant in Flat Rock, Michigan.
Ford (USA), Mahindra & Mahindra Ltd. A 50-50 joint venture to build Ford Fiestas
(India) in the Indian state of Tamil Nadu (total
investment of $800 million).
Chrysler (USA), BMW (Germany) A 50-50 joint venture to build a plant in
South America to produce small-
displacement, 4-cylinder engines (total
investment of $500 million).

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Examples of Equity Stake (1 of 2)
Table 9-2 Investment in Equity Stake
Investing Company (Home Country) Investment (Share, Amount, Date)
Fiat (Italy) Chrysler (United States, initial 20% stake,
2009; Fiat took Chrysler out of bankruptcy)
General Motors (USA) Fuji Heavy Industries (Japan, 20% stake,
$1.4 billion, 1999); Saab Automobiles A B
(Sweden, 50% stake, $500 million, 1990;
remaining 50%, 2000; following bankruptcy
filing, sold Saab to Swedish consortium in
2009)

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Examples of Equity Stake (2 of 2)
Table 9-2 [continued]
Investing Company (Home Country) Investment (Share, Amount, Date)
Volkswagen AG (Germany) Skoda (Czech Republic, 31% stake, $6
billion, 1991; increased to 50.5%, 1994;
currently owns 70% stake)
Ford (USA) Mazda Motor Corp. (Japan, 25% stake,
1979; increased to 33.4%, $408 million,
1996; decreased stake to 13%, 2008;
reduced to 3.5%, 2010)
Renault SA (France) AvtoVAZ (Russia, 25% stake, $1.3 billion,
2008); Nissan Motors (Japan, 35% stake,
$5 billion, 2000)

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Issues in Acquisitions
• Globalization is driving acquisitions; smaller firms cannot
expand without a partner
– “It was very clear to us that Helene Curtis did not have
the capacity to project itself in emerging markets around
the world. As markets get larger, that forces the smaller
players to take action.”
Ronald Gidwitz, CEO Unilever, on acquiring Helene Curtis
• Ownership circumvents tariffs & quota barriers, gets new
markets, allows technology transfers and gain new
manufacturing methods.

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Alternatives for Market Entry
• Licensing, joint ventures, minority or majority equity stake,
and ownership-are points along a continuum of alternative
strategies for global market entry and expansion.
• Companies may use a combination
– Ex. Borden Foods stopped licensing for branded food
products in Japan and set up its own production,
distribution, & marketing but kept JVs in non-food
products

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Global Strategic Partnerships
• Possible terms:
– Collaborative
agreements
– Strategic alliances
– Strategic international
alliances
– Global strategic
partnerships
Oneworld is a GSP made up of American
Airlines and other airlines around the world.

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The Nature of Global Strategic
Partnerships

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Characteristics of Global Strategic
Partnerships
• Participants remain independent following formation of the
alliance
• Participants share benefits of alliance as well as control
over performance of assigned tasks
• Participants make ongoing contributions in technology,
products, and other key strategic areas

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Five Attributes of True Global Strategic
Partnerships
• Two or more companies develop a joint long-term strategy
• Relationship is reciprocal
• Partners’ vision and efforts are global
• Relationship is organized along horizontal lines (not
vertical)
• When competing in markets not covered by alliance,
participants retain national and ideological identities

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Success Factors of Alliances (1 of 2)
• Mission: Successful GSPs create win-win situations,
where participants pursue objectives on the basis of
mutual need or advantage.
• Strategy: A company may establish separate GSPs with
different partners; strategy must be thought out up front to
avoid conflicts.
• Governance: Discussion and consensus must be the
norms. Partners must be viewed as equals.

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Success Factors of Alliances (2 of 2)
• Culture: Personal chemistry is important, as is the
successful development of a shared set of values.
• Organization: Innovative structures and designs may be
needed to offset the complexity of multi-country
management.
• Management: Potentially divisive issues must be identified
in advance and clear, unitary lines of authority established
that will result in commitment by all partners.

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Alliances with Asian Competitors
• Western companies must learn from Asian firms’
excellence in manufacturing, overcome NIH syndrome,
become students, not teachers
• Four common problem areas
– Each partner had a different dream
– Each must contribute to the alliance, and each must
depend on the other to a degree that justifies the
alliance
– Differences in management philosophy, expectations,
and approaches
– No corporate memory

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Cooperative Alliance in Japan: Keiretsu
• Inter-business alliance or enterprise groups in which
business families join together to fight for market share
• Often cemented by bank ownership of large blocks of stock
and by cross-ownership of stock between a company and its
buyers and non-financial suppliers
• Keiretsu executives can legally sit on each other’s boards,
share information, and coordinate prices

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Horizontal Keiretsu
• Big Six: Mitsui, Mitsubishi, Sumitomo, Fuyo, Sanwa, DKB
Groups
• Horizontal keiretsu: intragroup relationships involve shared
stock holdings and trading relations
• Large, powerful with revenues in hundreds of billions
• Can block foreign suppliers causing higher prices
• Promotes corporate stability, risk sharing, long-term
employment

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Keiretsu
• Vertical keiretsu: Hierarchical alliances between
manufacturers and retailers
– Matshusita sells its products through its chain of
National stores; 50-80% of products are Matshusita
brands Panasonic, Technics, and Quasar
• Manufacturing keiretsu: Vertical hierarchical alliances
between automakers, suppliers, and component
manufacturers

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Cooperative Strategies in South Korea:
Chaebol
• Composed of dozens of companies, centered around a
bank or holding company, and dominated by a founding
family
– Samsung
– LG
– Hyundai
– Daewoo

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21st Century Cooperative Strategies
• Semantech: Consortium of 14 tech companies tasked with
saving the U.S. chip-making industry
• Relationship enterprise: groupings of firms from different
industries and countries with common goals and act as
one entity
• Next stage of evolution of the strategic alliance
– Super-alliance
– Virtual corporation

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Table 9-6 Market Expansion Strategies

Blank Blank Market Concentration Market Diversification

Country Concentration 1. Narrow focus 2. Country focus
Country Diversification 3. Country diversification 4. Global diversification

• Companies must decide to expand by:

– Seeking new markets in existing countries
– Seeking new country markets for already identified and
served market segments

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