5 Int Market Expansion

• Consumers’ attitudes, perceptions and purchasing decision are influenced by the country-of-origin of a product.

• Key factors: brand image, cultural stereotypes

• Strategic implications: can be leveraged by companies through branding and positioning.

• Example: perceived quality of Swiss watchmakers → not necessarily better than dutch.

• Foreign firms face challenges and risks when operating in a new markets.

• Key factors: cultural differences, lack of knowledge about local market and need for international coordination.

• Implications: reduced performance, increased costs, decreased market share for foreign firms.

  -> Can be mitigated through foreign market analysis.

• Foreign Market Analysis helps firms select individual markets

  factors for entry market selection:

• (1) Market potential

  market growth, market size, success factors, future market changes

• (2) Levels of competition number of competitors, their capabilities, entry barriers, strengths/weaknesses of competitors

• (3) Institutional environment

  trade barriers, political conflicts, corruption, property protection

• (4) Sociocultural influences (compatibility with home culture, demographics, country-of-origin effects, education; often difficult to quantify).

Foreign market analysis should consider:

• Costs Direct (costs to establish), Opportunity (could have earned …),

• Benefits sales/profit, lower costs, economies of scale

• Risks exchange rate fluctuations, operating complexity, direct financial losses

• Timing of entry depends on

  (1) uncertainty & learning potential about a new market and

  (2) the trade-off between cost of pioneering and risk of being too late.

  
  

• Chronological order is affected by market size, competition, regulatory environment, and cultural differences.

• Waterfall (gradual market entry): enter new markets one at a time in a sequential order.

• Sprinkler (simultaneous market entry): enter multiple foreign markets at the same time.

• Hybrid: enter one or a few key markets using waterfall and use experience to enter additional markets simultaneously.

• Sequential accumulation of market knowledge / reducing uncertainty.

• Most appropriate for products with extended lifecycles (or maturity phase)

• Extended period for establishing and growing a customer base

• extensive market research / more room for adaptation.

  Advantages: minimized risk, accumulating knowledge

  Disadvantages: time-consuming, little room for failure.

• Spread risk across multiple markets / create economies of scale.

• Harnessing potentials by having greater risks (high risk–high reward).

• Consider factors like cultural differences, regulations, competition.

• Risk of poor performance in all markets because resources are spread too thin.

  Advantages: get market share quickly, spread risk, opportunity to learn from multiple sources.

  Disadvantages: need of many resources, increased complexity, lack of focus

• Benefit from waterfall and sprinkler.

• Choose first waterfall countries carefully (bridgehead countries) as they are the foundation.

• Effective way to balance risk and reward.

  Advantages: gain deep understanding of markets and build foundation, flexibility.

  Disadvantages: complexity, increased risk if waterfall unsuccessful.

• Timing can significantly impact success in a new market (e.g., ability to gain market share).

• There is no one-size-fits-all timing strategy.

• It’s important to understand pros/cons

• Being first company to enter a new market.

  
  

  Advantages: first-mover advantages: establish strong market power, brand presence, create entry barriers; head start on experience curve; establishment of customer contacts.

  
  

  Disadvantages:significant costs; higher risks due to market uncertainty; operational risks; market development costs; cost of attracting customers.

  
  

  Example: Starbucks in Japan.

• Entering new market after a pioneer has already established themselves.

  Advantages: lower risk & lower costs, learn from pioneer’s experience and mistakes

  Disadvantages: weaker brand recognition; fewer available resources; need for differentiation; entry barriers of pioneer;

• Example: booking.com.

• Entering a market after it has been established by a pioneer and one or more early followers.

• Benefits from experiences and resources → can result in lower risks and costs.

  Main subtypes:

• Me-too strategy similar product/service;

  advantages: lower R&D costs, less uncertainty

  disadvantages: established competitors, price wars

• Niche strategy specialized/unique offering filling a specific gap

  advantages: opportunity in highly competitive markets, free price structuring,

  disadvantages: entry barriers of established providers, risk of attracting larger competitors.

  example: Ryanair.

Firms enter foreign markets in small steps to reduce uncertainty/risk.

Why step-by-step?

• Learning by doing

• Start with low commitment, then increase investment as knowledge grows

Typical stages: Export → Agent/distributor → Sales subsidiary → Production/foreign subsidiary

Idea: Some firms internationalize very fast, instead of slowly step-by-step (like in the Uppsala model).

• They go abroad early

• They can enter many foreign markets quickly

  Criticism

  It can ignore institutional/cultural factors (laws, norms, culture differences) that can slow firms down.

A Born Global is a company that is international from the start (or very early).

Typical Born Global characteristics:

• Usually small, entrepreneurial

• Often in knowledge-intensive industries (tech, specialized B2B, digital products)

Relationship between them

• INV theory = the explanation/framework

• Born Global = an example/type of firm the theory describes