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Bu111 Final Review F2020 (Int'l Business, Strategic Expansion)
Terms in this set (71)
List the 6 different entry strategies in Int'l business
1. Indirect Export
2. Sales Agent or Distributor
4. Alliances/Joint Ventures
5. Local Sales Office
6. Foreign Subsidiary
What is the most costly entry strategy and why?
Foreign subsidiary is the most costly because you have to setup a new plant in a different country
What is Indirect Export?
Indirect export is when you sell to an third party exporter, they identify where to sell and takes care of shipping and obtaining payment
What capabilities do you need for indirect export?
What are the risks/costs associated with indirect export? (3 main risks)
1. No customer contact
2. No control over the destination
3. No control over pricing, promotion or foreign distribution strategy
Why would you choose to go with Indirect export? (3 reasons)
1. No additional cost
2. No knowledge of the market
3. No risk from foreign market political volatility
Under what conditions should you choose an Indirect Export strategy?
You're a smaller business who doesnt have a lot of resources nor knowledge of a foreign market and dont mind losing the control on the product.
Name a KPI that would be negatively affected by choosing to go with an Indirect Export strategy?
Net Promoter Score if your export partner does not respond to customer service or anything at all
What is a sales agent or distributor?
Hire an agent or distributor to sell your product using their local network and YOU MANUFACTURE DOMESTICALLY and ship abroad
What is the key difference between sales agent/distributor and indirect export?
With sales agent / distributor, you have to handle the logistics of shipping the product, indirect exporters handle that for you
What capabilities and resources will you need for a sales agent/distributor strategy?
1. Manufacture in sufficient quantity to satisfy the agent
2. The ability to adjust the product
3. some understanding of exporting and foreign markets
What factors should you consider when evaluating which country to go into? (7 Reasons)
Acronym: CARL PSD
A: Administrative Barriers
R: Reachability of Customers
L: Liability of Foreignness
S: Spending (Average Spending)
What are the steps of deciding to go international and what frameworks would you use at each step?
1. Can we? (Diamond-E Internal)
2. Should We? (Diamond-E External)
3. Where? (PEST and Porter's Five Forces)
4. How? (Ansoff Matrix and Porter's Generic Strategies)
Why choose to go with a Sales Agent/Distributor (2 reasons)
1. You don't have the resources to easily enter the foreign market
2. Limited understanding of the foreign market.
What are some of the risks/costs associated with a sales agent/distributor strategy? (3 risk)
1. Share attention with other organizations
2. Limited Marketing Control
3. Subject to Trade Barriers
If you had a country with high trade barriers, what entry strategy would you avoid using and why?
Sales Agent / Distributor Strategy because you would be responsible for those costs of shipping
What is a licensing/franchising entry strategy?
Giving a local organization the right to use your IP in exchange for royalties
What is the main risk associated with licensing/franchising
Damage to your brand name
Name a KPI that could be directly affected by a licensing/franchising strategy? Explain why
Net Promoter Score because the local manufacturer could tarnish your brand reputation and thereby decrease your net promoter score
What main resource do you need to execute a licensing/franchising strategy?
Need intellectual property that has value.
Why go with a licensing/franchising strategy?
1. Faster and larger expansion with fewer financial resources.
2. No need to understand the market, export, produce or even distribute.
3. No need to overcome trade barriers or acquire additional resources.
Belus îs a hot new clothing brand in Canada right now. The owner of Belus, Imaad is trying to figure out what country to enter in and how he should go about doing so. Imaad knows absolutely nothing about the U.K. but Belus is extremely popular there already. Imaad was born in the U.S. so he understands the US market pretty well. Unfortunately though, the U.K and U.S. both have really high trade barriers with Canada right now and American consumers dont seem to care about Belus at all. What should Imaad do? (pick a country, a strategy and explain 2 reasons why Imaad should go with your strategy/country)
1. Licensing strategies bypass trade barriers and do not require knowledge of the foreign market.
2. His IP is of great value to U.K. customers.
What is the key difference between Licensing/Franchising and Sales Agent/Distributor
In Sales Agent/Distributor, the company has to manufacture their own goods AND ship it across borders.
What is a Joint Venture strategy?
Partner with a local firm for mutual benefit.
Can take different forms, including mutual distribution, sharing of knowledge and investment.
What are some of the risks associated with a joint venture strategy?
1. Time, Personnel, Money
2. the Partnership doesnt work out
3. Partner does not deliver as expected
What capabilities and resources do you need for a Joint Venture strategy?
1. Something of value for the partner
2. Capability to negotiate
3. Supervise and work in partnership
Why choose to go with a Joint venture strategy?
1. Overcome political or trade barriers
2. Overcome market barriers
3. Overcome production constraints
What is a sales office entry strategy?
Establish your own sales office but manufacture in your domestic market and ship abroad OR contract with a local manufacturer.
What are some of the risks associated with a sales office strategy?
1. Trade Barriers
2. Market knowledge
3. Investment to establish foreign sales capabilities
Whats the difference between a Sales Agent vs a Local Sales Office and what key resource/capability do you need to have one vs the other.
A local sales office is owned by you and so you need market knowledge and a knowledgable sales team in order to be able to sell.
What entry strategies require you to handle foreign exporting costs?
1. Sales Agent
2. Sales Office
If you were entering a country that had high tariffs, which entry strategies would you be sure to avoid?
1. Sales Agent and Sales Office
Why would you use a local sales office? (5 reasons)
1. Retain marketing control
2. Insufficient volume to justify a facility
3. Excess capacity
4. Don't have resources to build foreign facility
5. Don't want to take the risk of building another facility
Name a KPI and an entry strategy and explain how one affects the other
Increase in defects if you go with a licensing/franchising strategy because they could not make ur product too gud
What is a Foreign Subsidiary entry strategy?
Manufacture and sell INSIDE the foreign market
What are some of the risks and costs with a foreign subsidiary strategy
1. Cost of facility and establishment of operations
2. Need permission of foreign government sometimes
What capabilities/resources do you need to execute a foreign subsidiary entry strategy?
1. Very high sales volume to justify the investment
2. Solid understanding of foreign market and access ; distribution capabilities.
When evaluating what kind of entry strategy you should go for, what other framework could you use to assess which is best for the company?
The Diamond-E hehe
What are some questions to ask when using the Diamond-E to determine the appropriate entry strategy?
1. Risk Tolerance
2. Foreign Trade Experience
3. Market Knowledge
4. Management Capability and Organizational Structure
5. Sales Volume
6. Intellectual Property
7. Financial and HR
Acronym? FIRMS TM
F: Financial and Human Resources
I: Intellectual Property
R: Risk Tolerance
M: Market Knowledge
S: Sales Volume
T: Trade Experience
M: Management Capability
What is the Ansoff Matrix used for?
The ansoff matrix is used to determine the different possible expansion strategies a business can go with
What part of the Diamond-E includes the Ansoff Matrix?
List the 4 expansion strategies from lowest risk to highest risk from the Ansoff Matrix
1. Market Penetration
2. Market Development
3. Product Development
What is Market Penetration and what goal is it trying to accomplish?
Sell more of existing products in existing markets to gain market share/ increase purchase frequency
Why choose a Market Penetration strategy? (2-3 reasons)
1. Builds on what you have and know
2. Achieve Economies of Scale
What challenges do you face with a market penetration strategy?
1. Competitor Reaction
2. Winning customers over (can you win them away from what they already have)
What example was given in lecture about market penetration?
Baking soda being advertised as being able to be used for more than just baking. They targeted housekeeper type people to get them to buy more of it .
What tactics are present in a Market Penetration strategy?
1. Cut Prices
2. Increase Advertising, Loyalty Schemes
3. Increase distribution channels
4. Volume incentives
5. Buy a competitor
Joe's Java implements a new reward program in order to expand the business and lock in customers. From the Ansoff Matrix's perspective, what strategy is this and support why you chose that
Sample Answers: Loyalty programs in order to increase purchase frequency
What kinds of Porters Five Forces Questions should you be asking when evaluating a Market Penetration strategy (list 2-3 forces alongside a specific factor within them)
1. Buyers: Propensity to Switch? Brand Loyalty? Purchase Significance? Lock in/switching costs?
2. Rivalry: Concentrated or Fragmented? Growing or Declining? Aggressive vs passive competitors?
3. Suppliers: Can my suppliers handle a larger volume?
Define Market Development.
Selling the same product to new markets
Why would you go with Market Development?
1. Capitalize on production capabilties
2. Economies of Scale
3. Pursue less contested or larger market
4. Diversification of customer base
What tactics are involved in the execution of a market development strategy
1. Create awareness in new market by pitching benefits to customers
2. Expand geographically
What's the key challenge with market development?
Customer access and awareness
What baking soda example was used to explain market development and why was it not market penetration?
Arm & Hammer advertising baking soda used to reduce odour in gym bags. it wasn't market penetration because thats a different market altogether (housekeepers aren't the musky bois uk)
What are the Diamond-E questions you should be asking with market penetration? (3 main ones)
1. Can I persuade customers to consume more of my product
2. Do I have to use new distribution channels? Should I? Can I?
3. Do I have the production capacity?
What are some of the Porter's Questions you should be asking when developing a Market Development strategy?
1. Can I accèss the right distribution channels
2. Barriers to Entry?
3. Buyer propensity to switch?
4. Rivalry: Fragmentation, aggression, growth? Are there market segments that are underserved?
What is a Product Development Expansion Strategy?
Develop related or unrelated products your customers value; product line extension
What big company uses product development all the time?
Apple! The e c o s y s t e m
What are some of the benefits of a product development strategy?
1. Build on customer knowledge & brand equity
2. Product complementarity, bundling
What are the two main challenges with a product development strategy?
2. Need to know how to develop new product
What KPI is product development mainly looking to achieve
Answers may vary
Share of Wallet because you are increasing the amount of different products that your customers buy
What kinds of Diamond-E questions should you be asking when designing a Market Development strategy?
1. Will this affect brand image? Should I use a different brand name?
2. Will the product need any adjustments? Can I make them?
3. Do I have the resources and knowledge?
4. Are there underserved segments?
5. How much do I know about this new customer?
What kinds of Diamond-E questions should you be asking when designing a Product Development strategy?
1. Can I leverage existing brand and/or distribution
2. Can my facilities manage or do I have to build new ones?
3. Can I produce & sell at a profitable scale?
4. How much new product expertise will I need?
What kinds of Porter's Five Forces questions should you be asking when designing a Product Development strategy?
1. Buyer propensity to switch
3. Barriers to Entry?
Define Diversification Expansion Strategy
Chasing new customers with new products
What are the three different kinds of Diversification? List and define them
Concentric/Horizontal: Products that are related to yours (Pepsi making Gatorade)
Vertical: Some form of backward/forward integration (Honda making tires)
Conglomerate: Completely different (Samsung making TVs phones from making Fridges)
What are the benefits of a diversification strategy?
1. Diversifies your business portfolio by building new businesses
2. Capitalize on Existing Capabilities in Higher growth areas
What is the main challenge of diversification strategies
Many activities and capabilities must be created or changed
What are the tactics in a product development strategy?
1. Extend Product
2. Repackage Existing Products
3. Creat bundles of complementary products
What are the tactics of a diversification strategy?
1. Acquire other buisnesses
2. Use joint ventures and alliances
What kinds of Diamond-E questions would you ask when developing a Diversification Strategy
1. What new capabilities and resources will I need? Can I build or buy them?
2. How much will I have to change operations?
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