MarketingManagement.pdf

Although many countries in central Europe possess an eager, hungry-to-learn labor

pool, their infrastructures create difficulties. The team evaluating a new market must

determine whether the company could earn enough on its investment to cover the

risk factors or other negatives.^12

ECIDING HOW TO ENTER THE MARKET

Once a company decides to target a particular country, it has to determine the best

mode of entry. Its broad choices are indirect exporting, direct exporting, licensing, joint

ventures, anddirect investment. These five market-entry strategies are shown in Figure

6-2. Each succeeding strategy involves more commitment, risk, control, and profit po-

tential.

INDIRECT EXPORT

The normal way to get involved in a foreign market is through export. Occasional ex-

portingis a passive level of involvement in which the company exports from time to

time, either on its own initiative or in response to unsolicited orders from abroad. Ac-

tive exportingtakes place when the company makes a commitment to expand its ex-

ports to a particular market. In either case, the company produces its goods in the

home country and might or might not adapt them to the foreign market.

Companies typically start with indirect exporting—that is, they work through in-

dependent intermediaries to export their product. There are four types of intermedi-

aries:Domestic-based export merchants buy the manufacturer’s products and then sell

them abroad. Domestic-based export agentsseek and negotiate foreign purchases and

are paid a commission. Included in this group are trading companies. Cooperative or-

ganizationscarry on exporting activities on behalf of several producers and are partly

under their administrative control. They are often used by producers of primary prod-

ucts such as fruits or nuts. Export-management companiesagree to manage a company’s

export activities for a fee. Indirect export has two advantages. First, it involves less in-

vestment. The firm does not have to develop an export department, an overseas sales

force, or a set of foreign contacts. Second, it involves less risk. Because international-

marketing intermediaries bring know-how and services to the relationship, the seller

will normally make fewer mistakes.

DIRECT EXPORT

Companies eventually may decide to handle their own exports. The investment and

risk are somewhat greater, but so is the potential return. University Games of

Burlingame, California, has blossomed into a $50-million-per-year international com-

pany through careful entry into overseas ventures.

■ University Games Bob Moog, president and founder of University Games,

says that his company’s international sales strategy relies heavily on third-

party distributors and has a fair degree of flexibility. “We identify the foreign

markets we want to penetrate,” says Moog, “and then form a business ven-

ture with a local distributor that will give us a large degree of control. In Aus-

tralia, we expect to run a print of 5,000 board games. These we will

manufacture in the United States. If we reach a run of 25,000 games, how-

ever, we would then establish a sub-contracting venture with a local manu-

facturer in Australia or New Zealand to print the games.”^13

A company can carry on direct exporting in several ways:

■ Domestic-based export department or division:Might evolve into a self-contained

export department operating as a profit center.

part three

Developing

Marketing

(^374) Strategies
D
Joint
ventures
Direct
investment
Indirect
exporting
Licensing
Amount of commitment, risk, control, and profit potential
Direct
exporting
FIGURE 6-2
Five Modes of Entry into Foreign
Markets