Entry Mode Dynamics

International Business Networking

"Entry Mode Dynamics"

(Foreign Distributirs)

By:

Eka Darmadi Lim 3094802

Aditya Lukmanjaya 3094815

Class: Y

University of Surabaya

Faculty of Business and Economics

International Business Networking

2012

Entry Mode Dynamics (Foreign Distributors)

This chapter tells us, about the idea, when we selling in foreign market, MNEs should maintain relationship with local distributors over the long term even after establishing their own local network to handle major clients. Because the local distributor provide knowledge about the local market, knowledge of local regulation, and business practice.

Significance:

The role of external actors, specifically foreign distributors, in international strategy. Arnold focused on the evolving role of local distributors when MNEs first establish themselves in new markets and then try to grow these markets. He observes that many MNEs initially establish relationships with local distributors in order to reduce costs and minimize risks.

Typically, the MNE then responds by calling into question the effectiveness of the local partner and its ability to make good on performance commitments and expectations. Arnold's research included a two-year field study of the international distribution strategies of eight MNEs active in the consumer, industrial and service sectors as they entered nearly 250 new host country markets. Arnold observed, perhaps surprisingly, that MNEs often select new countries for market seeking purposes in a largely unplanned or reactive way. the location advantages of the host country in which they operate and their own capabilities to help the MNE serve that market.

The MNE then aligns itself with an independent local distributor in order to minimize up-front risk and to tap existing knowledge about the local market and potential major customers at low cost.

Typically, the MNE invests very little in marketing and business development, as it assumes that the local distributor will take care of these areas critical to foreign market penetration.

Behind this hands-off 'beachhead' approach may be the MNE's longer-term intent to eventually take direct control of local operations and to integrate these into the MNE's existing international network after some initial market penetration has been achieved.

Typically, the MNE laments that the local distributor 'didn't know how to grow the market, didn't invest in business growth, the local partner counters that the MNE did not provide enough support to match its overly high expectations.

According to Arnold, senior MNE managers usually deserve the main burden of responsibility, as they should realize that: 'distributors are implementers of marketing strategy, rather than marketing departments in the country-market'.

What is the solution to these common problems between MNEs and their international distributors, especially in developing countries? According to Arnold, 'The key to solving the problems of international distribution in developing countries is to recognize that the phases are predictable and that multinationals can plan for them from the start in a way that is less disruptive and costly than the doomed beachhead strategy.

A list of seven guidelines for MNEs when dealing with local distributors

1. Proactively select locations and only then suitable distributors.

2. Focus on distributors' market development capabilities.

3. Manage distributors as long-term partners.

4. Provide resources (managerial, financial and knowledge-based) to support distributors for market development purposes.

5. Do not delegate marketing strategy to distributors.

6. Secure shared access to the distributors' critical market and financial intelligence.

7. Link national distributors with each other, especially at the regional level (spanning several countries).

Questions:

1. What are Dell's FSAs? What are the macro-level requirements for the direct sales model to be successful? What are the major advantages of the direct model, compared with the traditional channel strategy in the computer business?

A. Internet coupled with Direct Business Model

B. Virtual Integration.

C. Selling Points.

D. Do not just sell Products - sell Values.

E. Dell was much less mature compare to IBM and HP at time when Internet took off.

F. IBM and HP's core competency was product innovation and development, Dell's expertise was in assembling and catering to business needs.

2. How did Dell treat its distributors in China during its re-entry into China in 1995? Was there a vicious cycle of bounded reliability involved? Who should be blamed for Dell's initial failure?

In the beginning dell choose their own distributor in china, in this case Dell choose "Star Advertising Corporation" and give them the authority to set up a network of four sellers. But the result is bad; Dell only can sell 20.000 units only, and took only 1% of share,

The failure caused by: small market size and the lack of effort from both Dell and its distributors. Dell was waiting for the right time to apply its direct sales model, with no intention of keeping a long-term relationship with the distributors. And also the distributor don't want to invest much in developing the market.

3. According to Arnold's seven guidelines, discussed in Chapter 11, what mistakes