Topic 5 — International Market Entry Strategy

1 . Introduction
Expanding into international markets is one of the most critical strategic decisions for any firm
pursuing growth beyond domestic borders. After identifying attractive markets through segmentation
and targeting, managers must decide how to enter those markets.
This decision—called the international market entry strategy—determines the firm’s level of
resource commitment, degree of control, risk exposure, and long-term performance.

According to Kotabe and Helsen (2022), an entry strategy defines the institutional arrangements and
marketing policies a firm adopts to deliver products or services to foreign markets.
It encompasses a spectrum from low-commitment export modes to high-commitment wholly-owned
subsidiaries.

Well-designed entry strategies are essential because they:

 Translate strategic opportunity into actionable market presence.

 Align organizational resources with market conditions.
 Establish the foundation for sustainable competitive advantage.

(Keegan & Green, 2020; Hollensen, 2020)

2 . Concept, Role and Objectives of International Market Entry

Strategy
2 . 1 Concept

An international market entry strategy is the plan that specifies how a company delivers its
products or services to a foreign market, including the choice of entry mode, timing, scale, and
partners (Johansson, 2021).

Entry strategies reflect trade-offs among:

 Control – the firm’s ability to influence decisions in the host market.

 Risk – exposure to political, economic, and operational uncertainty.
 Resource commitment – capital, technology, and managerial time invested.
 Return potential – profit, learning, and long-term growth.

2 . 2 Role in Global Strategy

1. Implementation of international marketing plan

Entry mode is the vehicle through which the chosen target market is reached.
2. Link between analysis and performance
Segmentation and positioning identify opportunities; entry strategy converts them into results.
3. Resource allocation tool
Determines how financial, technological, and human resources are distributed across markets.
4. Risk-management mechanism
Allows balancing of high-risk, high-return markets with safer ones through portfolio planning.
2 . 3 Objectives

A sound entry strategy seeks to:

 Maximize market potential while minimizing risk.

 Secure sustainable competitive position.
 Ensure efficient coordination between headquarters and local operations.
 Facilitate knowledge transfer and local learning.
 Support long-term brand and relationship development (Cavusgil et al., 2022).

3 . Factors Affecting the Penetration Strategy

Once a firm has chosen a foreign market, it must determine its penetration strategy—how deeply and
rapidly to enter, and at what level of commitment.
Penetration strategy refers to the speed, scope, and intensity of market entry.

3 . 1 External Environmental Factors

Category Key Variables Implications for Penetration

Market size, growth rate, customer Rapid penetration feasible in high-
Market environment
readiness growth, open markets
Strong competition may require gradual
Competitive intensity Number of local/global rivals
or niche entry
Regulations, FDI laws, trade May limit ownership or speed of market
Political–legal context
barriers entry
Economic Currency stability, inflation, Volatile economies discourage heavy
environment income levels investment
Differences in language, values, Greater distance → slower, partnership-
Cultural distance
business norms based penetration
Technological Digital readiness enables faster e-
Infrastructure, digital maturity
environment commerce entry

(Adapted from Hollensen, 2020; Kotabe & Helsen, 2022)

3 . 2 Internal (Firm-Specific) Factors

Firm Variable Effect on Penetration Strategy

International
More experience → faster, deeper entry. New exporters proceed cautiously.
experience
Resource availability Capital and managerial capacity determine feasible scale.
Product characteristics Perishability, customization, and technology intensity affect control needs.
Firms seeking rapid market share vs. those seeking learning or risk
Strategic objectives
diversification.
Risk tolerance Conservative firms prefer low-commitment modes; risk-takers invest directly.
Brand strength Global brands may leverage reputation for rapid penetration.

3 . 3 Timing of Entry

First mover vs. follower strategy:

 First movers gain brand recognition, distribution access, and learning advantages.
  Late entrants can observe others, avoid mistakes, and leverage established infrastructure.
Decision depends on industry dynamics, innovation cycles, and firm readiness (Johansson,
2021).

4 . Factors to Consider When Choosing Entry Strategies

Before selecting a specific mode of entry, managers must evaluate multiple decision dimensions.

4 . 1 Market Factors

 Demand conditions: size, elasticity, purchasing power.

 Consumer behavior: brand loyalty, willingness to switch, cultural perceptions.
 Industry structure: monopoly, oligopoly, fragmented competition.
 Channel availability: existence of intermediaries or digital platforms.

4 . 2 Country Risk Factors

 Political risk: expropriation, nationalization, civil unrest.

 Economic risk: currency fluctuations, economic downturns.
 Legal risk: contract enforcement, IP protection, tax systems.
 Cultural risk: miscommunication, ethnocentrism, management conflict.

Mitigation tools: political-risk insurance, joint ventures, and government relations programs.

4 . 3 Firm-Level Factors

 Strategic intent: global market leadership vs. niche specialization.

 Size and resources: SMEs may prefer exporting or alliances.
 Control preference: desire for autonomy vs. willingness to share control.
 Technology and know-how sensitivity: high-tech firms may avoid licensing to prevent
imitation.
 Human capital: availability of international managers.
 Experience curve: accumulated know-how lowers risk of high-commitment modes (Keegan
& Green, 2020).

4 . 4 Transaction-Cost Economics Perspective

According to Williamson’s transaction-cost theory, the optimal entry mode minimizes the sum of
production + transaction costs.
Firms internalize (invest directly) when:

 External partners may behave opportunistically.

 Knowledge is tacit and hard to transfer.
They externalize (license or export) when:
 Scale economies or local partner networks dominate.

4 . 5 Institutional and Cultural Considerations

 Institutional distance: regulatory differences between home and host countries affect
governance choice.
 Cultural distance: affects communication, negotiation, and managerial coordination.
 Network relationships: existing alliances or diaspora ties facilitate entry.
Part 2 – International Market Entry Strategies
5. Overview of Entry-Mode Categories
Firms can enter international markets through four broad strategic modes that differ in ownership,
control, risk, and resource commitment (Kotabe & Helsen, 2022):

Ownership / Resource Risk

Category Typical Modes
Control Commitment Level
Export-based Direct exporting, indirect exporting None / low Low Low
Licensing, franchising, management
Contractual Shared / low Medium Medium
contracts, turnkey projects
Investment- Joint venture, acquisition, wholly-
High / full High High
based owned subsidiary (greenfield)
Hybrid & Strategic alliances, piggybacking, e-
Shared Flexible Moderate
digital commerce platforms

Selecting among these depends on the firm’s objectives, product type, and host-country conditions.

6. Export-Based Entry Modes

Exporting is often the first step in internationalization because it allows market testing with limited
risk.

6.1 Indirect Exporting

The firm sells to domestic intermediaries (export houses, trading companies) who then sell abroad.

Advantages

 Low cost and minimal expertise required.

 Quick access to international markets.
 Limited risk exposure.

Disadvantages

 Little control over marketing and pricing.

 No direct customer contact → limited market learning.
 Risk of dependency on intermediaries.

Example: Many Vietnamese agricultural SMEs export via state-owned trading corporations.

6.2 Direct Exporting

The firm sells directly to foreign distributors, retailers, or end users.

Advantages

 Greater control over pricing, brand, and customer relationships.

 Better feedback and learning.
  Possibility to build long-term distribution networks.

Disadvantages

 Higher administrative costs (documentation, logistics, compliance).

 Requires export marketing skills and international contacts.

Example: Samsung initially exported televisions from Korea directly to U.S. retailers before
establishing subsidiaries.

6.3 Cooperative Exporting (Piggybacking)

A smaller company uses another firm’s distribution network in the target country.

Advantages: Shared costs, easier market access.

Disadvantages: Dependence on partner’s performance and priorities.

Example: Cosmetic start-ups often piggyback on Amazon’s or Sephora’s online systems.

7. Contractual Entry Modes

Contractual modes involve transferring technology, know-how, or brand rights to foreign partners
in return for royalties or fees.
They offer more local adaptation than exporting but less risk than equity investment (Hollensen,
2020).

7.1 Licensing

The licensor grants a foreign licensee rights to use patents, trademarks, or production technology.

Advantages

 Low investment and quick market access.

 Income through royalties.
 Ideal when host country restricts FDI.

Disadvantages

 Loss of control over manufacturing and quality.

 Risk of creating future competitors.
 Limited profit potential.

Example: Disney licenses its characters to toy manufacturers worldwide.

7.2 Franchising

A franchisor provides a business model, brand, and continuous support, while the franchisee
invests locally.

Advantages

 Rapid expansion with limited capital.

  Strong brand consistency.
 Local adaptation via franchisee knowledge.

Disadvantages

 Control challenges over service quality.

 Potential brand dilution.
 Cultural conflicts with franchisees.

Example: McDonald’s and Starbucks rely heavily on international franchising.

7.3 Management Contracts

A firm supplies managerial expertise to operate facilities owned by a foreign partner (common in
hotels, airports).

Advantages

 Low capital exposure.

 Transfer of skills builds reputation.
 Host partner provides local capital.

Disadvantages

 Revenue limited to management fees.

 Dependence on partner’s investment and compliance.

Example: Marriott International manages properties owned by local investors under contract.

7.4 Turnkey Projects

The contractor designs, constructs, and equips a facility, then hands it over to the client when
operational.

Advantages: Useful for infrastructure, oil, and power projects; earns large one-time fees.
Disadvantages: No long-term market presence; political risk until project completion.

Example: Siemens building power plants in the Middle East.

8. Investment-Based Entry Modes

Investment modes provide maximum control and commitment but also involve the highest cost and
risk (Johansson, 2021).

8.1 Joint Ventures (JVs)

A new, jointly owned entity formed between a foreign and a local partner.

Advantages

 Shared investment and risk.

 Access to local knowledge, distribution, and legitimacy.
  Facilitates technology or resource exchange.
 Satisfies host-country ownership laws.

Disadvantages

 Potential for partner conflict.

 Control and profit sharing issues.
 Difficult exit.

Example: Sony–Ericsson JV (Japan–Sweden) combined electronics and telecom expertise.

8.2 Mergers and Acquisitions (M&A)

Acquiring an existing firm abroad to gain instant market access.

Advantages

 Speed: immediate presence and customer base.

 Access to local brand equity, employees, and supply chains.
 Potential synergies.

Disadvantages

 High cost and integration difficulties.

 Cultural clashes between organizations.
 Hidden liabilities.

Example: Unilever’s acquisition of Vietnam’s P/S toothpaste brand for rapid market entry.

8.3 Wholly-Owned Subsidiary (WOS)

A foreign subsidiary 100 % owned by the parent company.

Two main routes:

1. Greenfield investment – build operations from scratch.

2. Acquisition – purchase an existing local firm.

Advantages

 Full control and profit retention.

 Protects proprietary technology and brand.
 Enables unified global strategy.

Disadvantages

 High financial exposure.

 Requires deep knowledge of host environment.
 Political and cultural integration risks.

Example: Toyota’s manufacturing plants in the U.S. (greenfield) and Tata’s acquisition of Jaguar
Land Rover (acquisition).
9. Hybrid and Emerging Entry Modes
With globalization and digitalization, firms increasingly adopt hybrid or flexible entry structures.

9.1 Strategic Alliances

Two or more firms collaborate for mutual advantage without forming a separate legal entity.

Forms: R&D alliances, co-marketing agreements, technology partnerships.

Advantages: Shared resources, market learning, flexibility.
Disadvantages: Opportunism, leakage of know-how, coordination costs.

Example: Renault–Nissan alliance sharing production platforms while retaining brand independence.

9.2 Consortia

A consortium is a large, often temporary, cooperative project among several firms and governments—
common in infrastructure and aerospace.

Example: Airbus formed by European partners (France, Germany, Spain, U.K.) to compete with
Boeing.

9.3 E-Commerce and Digital Platforms

Digitalization has created low-cost, borderless entry paths:

 Online marketplaces (Amazon, Alibaba).

 Direct-to-consumer websites with global shipping.
 App-store ecosystems.

Advantages

 Minimal physical investment.

 Real-time customer analytics.
 Scalable reach.

Challenges

 Payment systems, taxation, cybersecurity, and cross-border logistics.

 Compliance with data-protection laws (GDPR).

Example: Shopify merchants serving international buyers without physical presence.

9.4 Born-Global and Digital-Native Firms

Some ventures internationalize almost from inception (“born globals”).

Their entry strategy is network-based rather than sequential—leveraging digital channels, niche
expertise, and global social media (Cavusgil et al., 2022).

Example: Canva (Australia) achieved global reach through online platform distribution without local
subsidiaries in early years.
10. Comparative Evaluation of Entry Modes
Resource Learning
Mode Control Risk Typical Users
Commitment Potential
SMEs new to
Indirect Export Very Low Very Low Very Low Minimal
exporting
Low– Experienced
Direct Export Low Low Moderate
Medium exporters
Licensing Low Low Medium Limited Tech or IP-rich firms
Service & retail
Franchising Medium Medium Medium Moderate
chains
Medium– Firms needing local
JV Shared High High
High partner
Wholly-Owned
Full Very High High Very High Large multinationals
Subsidiary
Alliance / Hybrid Shared Flexible Variable High Global innovators
Low– SMEs & born
Digital Platforms Flexible Low High
Medium globals

10.1 Strategic Fit and Control Trade-Off

 Control vs. Risk: Higher control brings higher exposure.

 Short-term vs. Long-term: Exporting suits testing; ownership suits permanence.
 Knowledge vs. Speed: Contractual modes transfer know-how slowly; acquisitions accelerate
but at cost.

Strategically, firms often combine modes—beginning with exporting or alliances, then evolving
toward full ownership as market knowledge grows. This progression is called the Uppsala
internationalization model (Johanson & Vahlne, 1977).

Part 3 – Managerial Frameworks, Timing,

Cases & Summary
11 . Managerial Frameworks for Entry-Mode Decision
Selecting an entry strategy is rarely a one-off choice.
Managers evaluate several analytical frameworks to align entry mode with corporate goals and
external realities.

11 . 1 The Eclectic (OLI) Paradigm – Dunning (1980)

John Dunning’s Ownership–Location–Internalization (OLI) model explains why and how firms
engage in foreign production:

OLI Element Key Question Strategic Implication

Ownership What firm-specific assets or Brand, technology, or management
advantages (O) capabilities justify going abroad? know-how must yield advantage.
Location advantages Why operate in this specific Market potential, resource endowment,
(L) country? or proximity to customers.
 OLI Element Key Question Strategic Implication
Internalization Reduce transaction costs, protect IP,
Why internalize rather than license?
advantages (I) maintain quality.

When O + L + I advantages all exist, a firm is likely to choose foreign direct investment (FDI); if
only some conditions hold, it may export or license instead.

11 . 2 Uppsala Model of Incremental Internationalization

The Uppsala model (Johanson & Vahlne, 1977) views internationalization as a learning process:

1. Firms start with markets psychically close (low cultural distance).

2. They enter gradually—first exporting, then establishing sales subsidiaries, then production.
3. Market commitment grows with experience.

This model explains the staged evolution from low- to high-commitment modes, aligning with
experiential knowledge accumulation.

11 . 3 Network Theory

Modern firms internationalize through networks of partners, suppliers, and distributors.

Rather than sequential expansion, they leverage existing relationships to enter new markets quickly
(Johansson, 2021).
Born-global and digital firms rely heavily on network effects and online ecosystems instead of
physical subsidiaries.

11 . 4 Real-Options Perspective

Real-options theory views entry as a series of investment options under uncertainty (Hollensen,
2020).
Initial low-commitment modes (e.g., exporting) are options to expand once conditions become
favorable.
Managers thus retain flexibility while learning from market feedback.

12 . Timing and Sequencing of Entry

12 . 1 First-Mover vs. Follower Advantage

First-Mover Benefits Follower Advantages

Brand recognition, switching costs for customers Learn from pioneers’ mistakes
Pre-empt key resources and distribution channels Lower R&D and market education cost
Shape consumer preferences Exploit advanced technology or marketing tools

Decision depends on market dynamism, innovation speed, and firm capabilities.

Example: Uber’s first-mover advantage in many cities was later challenged by local players (Grab,
Gojek) who adapted faster to regulations.

12 . 2 Entry Scale Decisions

Firms must also decide how large an initial commitment to make.

  Large-scale entry signals commitment, deters rivals, but increases risk.
 Small-scale entry allows learning but may forfeit early advantages.

Combining timing + scale decisions yields four archetypes:

Timing Scale Example

Early + Large Tesla’s Gigafactory in China
Early + Small Netflix’s initial pilot launches in few countries
Late + Large Walmart’s major acquisition of Flipkart in India
Late + Small Start-ups using e-commerce exports

12 . 3 Dynamic Entry Strategies

Globalization today favors dynamic portfolios rather than fixed modes.

Firms may start with alliances, then move to joint ventures, and eventually acquire full ownership.
This progression—the establishment chain—balances learning with risk control (Kotabe & Helsen,
2022).

13 . Case Studies
13 . 1 IKEA: Balancing Standardization and Adaptation

Context
IKEA expanded from Sweden to 50 + countries using a standardized retail concept: self-service
warehouses and flat-pack furniture.

Entry Strategy Evolution

 Initial exporting from Swedish factories.

 Then joint ventures in politically or culturally distant markets (e.g., China, Russia).
 Gradually wholly-owned stores where regulation permitted.

Success Factors

 Strong ownership advantages: design capability and cost leadership.

 Adaptation to local tastes (smaller apartments → smaller furniture).
 Building local supplier networks to reduce logistics cost.

Lesson: Combining ownership control with local adaptation ensures consistency and responsiveness.

13 . 2 Netflix: Digital Platform Expansion

Strategy
Netflix used a digital entry mode leveraging streaming infrastructure.

Phases

1. Exporting digital content from the U.S. (low investment).

2. Local licensing for language dubbing and rights.
3. Investment in original local productions → quasi-subsidiary commitment.

Key Drivers
  Technological advantage (proprietary algorithm).
 Cultural adaptation via local storytelling.
 Strategic alliances with telecom operators for distribution.

Lesson: In digital industries, market entry is iterative—platform first, localization later.

13 . 3 Vietnamese SMEs Going Global

Vietnamese small firms increasingly join regional value chains via OEM exports or online
marketplaces.
Typical path:

1. Indirect export → 2. Direct export → 3. Strategic alliance or licensing.

Challenges include limited capital, lack of brand recognition, and regulatory complexity.
Support from government trade promotion programs can accelerate capability building.

14 . Managerial Implications
1. No universal mode fits all situations. Firms must weigh control, risk, and resources.
2. Hybridization (combining modes) is common; partnerships reduce risk while building
presence.
3. Learning orientation is critical—firms that institutionalize feedback from early markets
succeed longer.
4. Digitalization allows low-cost experimentation; online channels can precede physical entry.
5. CSR and sustainability expectations increasingly influence FDI attractiveness and partner
choice.
6. Flexibility > commitment in volatile markets: treat entry as a portfolio of evolving options.

15 . Review and Discussion

Key Terms

International market entry strategy – penetration strategy – OLI paradigm – Uppsala model –
transaction cost – joint venture – franchising – greenfield investment – digital entry – first-mover
advantage – hybrid mode.

Discussion Questions

1. Compare OLI and Uppsala theories. Which better explains digital-native firms?
2. How do political risk and cultural distance interact to influence entry-mode choice?
3. Evaluate IKEA’s and Netflix’s strategies using the Attractiveness–Strength matrix.
4. For a Vietnamese SME in cosmetics, what entry path into the ASEAN market would you
recommend?
5. How can born-global firms manage control without physical subsidiaries?

Mini Project

Choose a real firm entering a foreign market (e.g., VinFast in the U.S., Shopee in Brazil).
Prepare a 3-page report analyzing:

 External and internal factors influencing its entry mode.

  The role of partnerships or acquisitions.
 Risks encountered and mitigation strategies.
 Strategic lessons for Vietnamese internationalization.

16 . Summary of Key Learning Points

 Entry strategy operationalizes international market selection.
 Firms choose among export, contractual, investment, and hybrid modes based on control-risk-
resource trade-offs.
 External (market, institutional) and internal (resources, experience) factors jointly determine
penetration strategy.
 The OLI paradigm and Uppsala model provide theoretical foundations for explaining FDI and
learning processes.
 Timing (first vs. follower) and scale decisions shape success trajectories.
 Digital technologies blur traditional boundaries, enabling asset-light internationalization.
 Dynamic, multi-stage entry paths often yield better long-term adaptation and performance.

17 . References (APA 7th Edition)

Cavusgil, S. T., Knight, G., Riesenberger, J. R., & Yaprak, A. (2022). International Business: The
New Realities (6th ed.). Pearson.

Dunning, J. H. (1980). Toward an eclectic theory of international production: Some empirical tests.
Journal of International Business Studies, 11(1), 9–31. [Link]

Ghemawat, P. (2001). Distance still matters: The hard reality of global expansion. Harvard Business
Review, 79(8), 137–147.

Hollensen, S. (2020). Global Marketing (8th ed.). Pearson.

Johanson, J., & Vahlne, J.-E. (1977). The internationalization process of the firm: A model of
knowledge development and increasing foreign market commitments. Journal of International
Business Studies, 8(1), 23–32.

Johansson, J. K. (2021). Global Marketing: Foreign Entry, Local Marketing, and Global Management
(8th ed.). McGraw-Hill.

Keegan, W. J., & Green, M. C. (2020). Global Marketing (10th ed.). Pearson.

Kotabe, M., & Helsen, K. (2022). Global Marketing Management (9th ed.). Wiley.