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GMS 522 Chapter Notes -Experience Curve Effects, Marketing Mix, Overproduction


Department
Global Management Studies
Course Code
GMS 522
Professor
Helene Moore

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GMS 522
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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.
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GMS 522
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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 in the
foreign country
5. Foreign Production: full-fledged manufacturing operations in a foreign country
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