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Global Management Studies
GMS 522
Helene Moore

GMS 522 GMS 522 Week 8 Chapter 8: Market Entry Motivations to Enter Foreign Markets: Proactive Motivations  The Profit Advantage: international sales perceived by firms to be a potential source of higher profit margins or of additional profits. However, actual profits and perceived profits are always different. Actual profits are usually quite lower as start-up costs are usually high. This can also be due to the firm’s inexperience in entering global markets.  Having a Unique Product: many firms believe that they may have a unique product or that they may have a technological advantage over their competition. If this is the case, many firms in this situation will have a major competitive advantage which will result in major business success abroad.  Technological Advantages: having this used to result in long lasting benefits for a firm but in today’s markets, this is not the case. This is due mainly to the fact that there are many competing technologies and that there is a frequent lack of intellectual property rights protection in some key markets.  Exclusive Market Information: knowledge about foreign customers, marketplaces or market situations obtained through extensive research, exclusive contacts or through being in the right place at the right time can all result in a major competitive advantage.  Managerial Urge: the motivation that reflects the desire, drive and enthusiasm of management towards global marketing activities.  Tax Benefits: act as major motivational techniques in many countries. Countries often offer tax reductions to their firms in order to encourage them to engage in export activities.  Economies of Scale: becoming involved in international markets may allow a firm to increase their outputs and slide down the experience curve faster. Increasing production can also help lower a firm’s production costs for domestic sales and make the firm more competitive domestically as well. Reactive Motivations:  Competitive Pressure: a firm may fear losing market share to a competitor that has benefitted from the effect of the economies of scale.  Overproduction: flooding global markets with excess units of production is a short term tactic typically used to stimulate sales with the introduction of a short term price cut. This is often used when a firm decides to not develop a global marketing perspective by adjusting the marketing mix to needs abroad. Often, this strategy is difficult to employ a second time because foreign customers are not interested in temporary and sporadic business relationships. Page 1 GMS 522  Declining Domestic Sales: when a product is at the end of its life cycle in the domestic market, a firm may choose to expand its product’s life by expanding the market itself. This tactic is extremely effective when introducing a product to a country that is not as technologically advanced as they will be able to find use for such technology that may be “out dated” in developed nations.  Excess Capacity: when a firm has the facilities and equipment for more production and notices that it is not being used, they may see expansion into international markets as an ideal possibility for achieving a broader distribution of their fixed costs. The opposite can be said for a company which has all of its fixed costs based on its domestic production, where they can penetrate foreign markets with a pricing scheme aimed at its variable costs. This however is only a short term solution.  Saturated Domestic Market: similar to Declining Domestic Sales, firms can enter foreign markets to prolong their product’s life cycle.  Tax Benefit: similar to the Tax Benefit in the Proactive Motivations  Proximity to Customers and Ports: being close to a distribution centre that is used for exporting goods can be monumental in allowing a firm to enter foreign markets. Being geographically close to another country (ex: Canada and the United States) allows a firm to enter another country without even perceiving it as entering a foreign market. Waterfall and Sprinkler Strategies: Waterfall Strategy  Gradual approach (close markets)  Other high-growth markets  Risky developing markets Sprinkler Strategy  Simultaneous market entry  Little attention paid to psychic distance (all about potential) Internationalization: the process in which firms become gradually more engaged in global markets Five Stages in Internationalization: 1. Indirect Exporter: marketing their products to domestic intermediaries that in turn export those products to foreign markets via a licensing agreement 2. Direct Exporter: when firms deal directly with intermediaries in foreign countries 3. Foreign Sales Subsidiary: hiring and setting up a team which will handle all of the all of the marketing operations in a foreign country 4. Local Assembly: sourcing components from home counter and assemble the final product
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