Ebook Global marketing (5/E): Part 2

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CASE STUDY II.4
Skagen Designs: becoming an international player in designed watches

Towards the end of 2006 Charlotte and Henrik Jorst
can look back at 15 hectic but successful years. Their
company was founded in an apartment in New York,
from where its first marketing efforts took place. The
two entrepreneurs started selling relatively expensive
watches bearing a logo that American companies
might use as company presents. During the Gulf Crisis
however it was very difficult to sell watches in that price
range. In 1990 Charlotte and Henrik visited a watch fair
in Basel in order to find a manufacturer who was able
to produce the watches at a lower cost price. They
found a Danish-owned company, Comtech Watches,
with headquarters in Aarhus and a clock and watch
factory in Hong Kong.
In 1992 Charlotte and Henrik had an annual turnover
of US$800,000, primarily through an advertisement on
the back page of a big mail-order catalogue for Father’s
Day. Since then events followed each other in quick

succession. In 1995 the chain store Bloomingdale’s
included the Skagen Design watches in its assortment
and other retail chains like Macy’s, Nordstrom and
Watch World have followed. In addition, the watches
are sold in big gift and design shops.
In 1998 Skagen Designs had an annual turnover of
almost US$30 million; in 2005 turnover had increased
to approximately US$70 million.

Skagen designs – the story in brief
1986 Party at Carlsberg. Even if Henrik Jorst has
brought his girlfriend, he manages to make Charlotte
Kjølbye his neighbour at dinner, and they fall head over
heels in love. Shortly after the party Carlsberg sends
Henrik to New York. From New York Henrik manages
Carlsberg’s USA sales. Charlotte stays on for a year
and a half in Denmark keeping in close contact with
Henrik on the phone.
1986 Charlotte joins Henrik in the United States
and reigns as Miss Carlsberg for the summer and
fall months. After a Danish colleague sends them
a few of his sample corporate watches to sell in
the United States, Charlotte and Henrik embark on
their dream of starting their own business and begin
working in the world of watches. They are married
in May.

Charlotte and Henrik Jorst
Skagen Designs.

1990 Henrik quits his job at Carlsberg. Charlotte
walks New York trying to sell the Danish Jacob Jensen
watches to watchmakers. They have hardly any money.
Charlotte gives birth to their daughter Christine.
1991 The Jorsts design a few sample corporate
watches and exhibit them at the New York Premium and
Incentive Show in the Spring. At this fair, several
retailers notice the watches and wonder why the two
Danes present them as corporate watches and not
branded goods. The retailers state that if the watches
were available without the corporate logos they would
purchase them for their stores. During the summer they
produce 800 copies of four different watches with the
name Skagen Denmark. A few months later all watches
are sold out and an additional amount was produced.
1992 Sitting at the dinner table Henrik and Charlotte
design 30 different models, all labelled ‘Skagen


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PART II DECIDING WHICH MARKETS TO ENTER

Denmark’. In a New York street Charlotte meets one of
the managers from the mail order giant ‘The Sharper
Image’. She takes a chance, and yes, he features the
Skagen watches on the back page of the Father’s Day
catalogue. Everything is sold out. From the apartment in
New York Henrik and Charlotte have a turnover of
US$800,000.
1993 There are not many states in the United States
where business taxes are almost equal to zero. In
Florida and Nevada this is, however, the case. One day
they fly to Incline Village at Lake Tahoe – one of the
world’s best ski resorts. They lose their hearts and
buy a house that is much too expensive, but big.
The company moves into every room from kitchen
cupboards to garage. They still do it all by themselves.
Charlotte gives birth to their daughter Camilla.
1995 Five years after starting the company. Now, it
becomes really big. Bloomingdale’s takes the watches
on trial. Sold out – on one single day. They engage
employees in a small, rented office not far from their
home at the lake. After a year the office is too small, and
after another year the same happens again.
1998 The magazine Inc. puts Skagen Designs on
the list of the 250 fastest growing, privately owned
companies. During five years the turnover has
increased by almost 1,200 per cent. Finally, the rest of
the company moves out of the villa at Lake Tahoe. New
headquarters are opened in Reno, Nevada. An office is

opened in Denmark to handle European distribution
and an additional 80 stores throughout Denmark begin
selling the Skagen Denmark line.
1999 The number of employees is approaching
100. Inc. magazine’s ‘Inc. 500’ lists the company as one
of the fastest-growing companies in the United States.
Henrik gives Charlotte a horse as present for their tenyear wedding anniversary. The family moves from Lake
Tahoe to a large house of 650 square metres on the
outskirts of Reno. It is situated on the top of a hill
with a beautiful view of the Sierra Nevada Mountains.
Skagen begins its ongoing presence in major magazines such as InStyle and GQ. Distribution begins in
the United Kingdom.
2000 Distribution begins in Germany and the
Netherlands.
2001 Skagen Designs exhibits for the first time at
BaselWorld – The Watch and Jewellery Show in Basel,
Switzerland.
2002 Distribution begins in additional countries
including Finland, Iceland, Ukraine and Kuwait.
2003 More countries join the Skagen Designs team
and distribution begins in Belgium, Serbia, Montenegro,
United Arab Emirates, Norway, France and Italy.
2004 To handle increasing growth, the European
HQ office in Copenhagen moves to a larger facility. The

European HQ targets large department stores in
Germany and France.
2005 The former Director of Sales and Product
Development, Scott Szybala is appointed as President.
Scott’s responsibilities are to oversee the daily operations as well as the strategic direction for Skagen

Designs, reporting directly to Charlotte and Henrik,
who continue to be closely involved in the company’s
product development and sales.
2006 Skagen Designs becomes an official sponsor
of Team CSC, one of the best teams in professional
cycling, with a record-breaking number of victories.
Today, Henrik and Charlotte still approve all products
that Skagen designs.
2009 Skagen continues its expansion into product
( jewellery and sunglasses) and geographical markets,
for example in Eastern Europe and the Far East.

Internal policies
Skagen Designs has its name from the Danish fishing
village of Skagen; a popular retreat for artists from
around the world. Many say this place has the perfect
source of natural light and those who visit find its
unique charm to be a mix between nature-given and
man-made romanticism. This region has inspired not
only the brand name, but also the Jorst design philosophy. The colours, shapes and simplicity inspire the
design team. The design team is on the pulse of current
fashions, with regular visits to design centres around
the world including Switzerland, Italy, France, New York
and Hong Kong. Skagen Designs tries to stay true to
its classic design philosophy and is never content to
follow established trends.
The Skagen Designs’ logo symbolizes the meeting
of the Skagerak and the Kattegat seas that surround
the village of Skagen.
Charlotte and Henrik have divided the work between

them. Charlotte is primarily in charge of sales and
marketing, while Henrik is in charge of the company’s
finance and administration.
In the United States the watches are sold at very
competitive prices compared with other design
watches: typically at a level of US$100–120.
The core competences of Skagen Designs are
assessed as follows:
Development of new watch concepts following the
fashion trend with ‘the finger on the pulse’.
Human resource policy – both Charlotte and Henrik
spend a lot of time walking around and communicating with employees and to let them feel that
Skagen Designs is one big team with the same
family-oriented values in all parts of the worldwide
organization.


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CASE STUDY II.4 SKAGEN DESIGNS

311

and phone kiosks to support peak selling periods such
as spring fashion, Mother’s Day, Father’s day, autumn
fashion and Christmas.
In 2006 Skagen Designs became an official sponsor
of the professional cycling team CSC. Skagen
Denmark’s Team CSC watch collection was comprised
of six new styles of performance-inspired, Swiss-made
watches featuring ultra lightweight and durable titanium
cases and water-resistant leather straps. The Skagen
sponsorship of the CSC team ended after the 2006
season.

Competitors
As a fashion company Skagen Designs is competing
with all the major international companies designing
watches – for example, Calvin Klein, Coach, Guess,
Gucci, Swatch, Alfex and Jacob Jensen. Most of these
companies possess a financial strength many times
larger than Skagen Designs.

QUESTIONS

The Skagen Royal Nights watch
Skagen Designs.

Quick and flexible management decisions.
New products are introduced five times a year
(November, January, March, May and August)
providing retailers with seasonal updates and giving
consumers the opportunity to update the style for

each season.
Well-developed partnerships with the ‘upstream’
specialists in the Far East who are in charge of the
production at competitive prices.

Marketing the watches
In the United States Skagen Design products are
launched through fashion papers like Vogue, InStyle
and Accessories. TV shows like Jeopardy and Wheel of
Fortune have been sponsored as well as actors in the
series Ally McBeal and The Practice.
The company’s national advertising is also placed in
major industry publications as well as out-of-home
advertising opportunities including billboards, buses

As an expert in international marketing Charlotte and
Henrik have called you in to get valuable input in
connection with the international expansion of Skagen
Designs. Therefore, you need to answer the following
questions. If necessary, make your own conditions and
remember to state the reasons for your answers.
1. What screening criteria should Skagen Designs use
in connection with its choice of new markets for its
watch collection?
2. Make a specific choice of new markets for Skagen
Designs. Table 1 and Table 2 can be used to support
your argument.
3. Which ‘market entry mode’ should Skagen Designs
use on the chosen markets?
4. Skagen Designs has launched other product lines

(e.g. sunglasses, branded items for the home) with
varying success. What should be the guidelines for
including other product lines in the Skagen Designs
collection?
5. Which criteria should Skagen Designs use for its
selection of future sponsor partners?
6. Skagen Designs is considering online sale of its
watches. What problems and possibilities do you
see for the company in this area? On this basis what
are your conclusions?


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PART II DECIDING WHICH MARKETS TO ENTER

Table 1

Volume of different watch markets, 2008
2003

2004

2005

2006

2007

2008

624.98

515.02

714.37

739.44

778.06

819.53

France

5,035.20

4,913.47

4,987.27

4,837.80

4,827.73

4,825.53

Germany

7,501.72

7,452.94

8,217.55

10,284.34

10,918.50

9,859.88

Italy

5,712.08

5,482.23

5,366.33

5,874.31

6,525.52

6,893.24

Retail volume in thousands of units
Belgium

Netherlands
Spain
Sweden

5,613.00

5,850.00

5,931.00

6,073.00

6,200.00

6,414.00

12,299.70

12,018.98

11,810.19

11,533.47

11,308.69

10,989.01

2,491.00

2,565.00

2,641.00

2,719.50

2,800.00

2,884.00

17,800.00

17,900.00

18,100.00

18,400.00

16,000.00

15,500.00

1,106.19

1,113.93

1,126.19

1,134.07

1,140.87

1,150.00

USA

63,954.47

55,441.04

50,370.68

48,500.85

51,593.56

53,037.50

Mexico

35,690.68

38,721.57

34,946.59

47,598.71

46,780.14

47,851.56

China

57,500.00

60,000.00

61,000.00

61,900.00

59,725.00

64,000.00

India

33,469.00

35,876.98

38,829.72

41,778.67

47,232.00

52,324.80

Japan

9,864.95

9,751.41

9,615.49

9,530.93

9,431.18

9,333.77

United Kingdom
Hungary

Australia
South Africa

3,189.74

3,505.84

3,604.25

3,817.23

3,920.20

4,001.79

23,117.73

21,081.80

26,000.23

15,925.30

18,117.89

16,348.31

Number of watches per 1,000 people
Belgium

61.04

50.18

69.29

71.41

74.86

78.62

France

85.71

83.22

84.04

81.09

80.49

80.04

Germany

91.30

90.60

99.68

124.59

132.13

119.21

Italy

99.03

94.78

92.51

101.03

112.03

118.17

Netherlands

353.82

365.92

368.26

375.06

380.97

392.24

Spain

309.56

299.56

292.26

284.13

277.52

268.82

Sweden

281.11

288.76

296.44

304.19

312.12

320.36

United Kingdom

303.53

303.13

305.59

309.62

268.40

259.19

Hungary

108.22

109.21

110.68

111.82

112.85

114.08

USA

232.45

199.78

180.02

171.95

181.46

185.06

Mexico

452.90

363.59

388.41

345.29

463.43

448.98

China

45.69

47.31

47.79

48.15

46.11

49.07

India

33.19

35.00

37.28

39.51

44.00

48.05

Japan

77.72

76.61

75.45

74.70

73.83

73.00

Australia

166.54

180.59

183.30

192.60

195.87

198.05

South Africa

527.18

470.37

569.51

343.00

381.02

336.62

Source: adapted from Euromonitor and trade sources/national statistics.


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CASE STUDY II.4 SKAGEN DESIGNS

Table 2

Value of different watch markets, 2008 (US$ million)
2003

Belgium
France
Germany

313

2004

2005

2006

2007

2008

23.91

17.06

20.50

26.20

29.51

30.34

934.22

910.42

945.84

1,097.25

1,205.66

1,205.42

1,429.95

1,519.96

1,762.75

2,699.99

2,846.60

2,954.50

Italy

951.62

918.02

934.11

1,103.06

1,215.72

1,311.61

Netherlands

189.50

191.64

204.00

250.15

275.03

284.86

Spain

804.77

792.48

849.75

1,027.89

1,141.35

1,155.92

Sweden

214.69

198.02

218.48

273.54

312.97

318.41

United Kingdom

960.77

942.91

1,064.11

1,225.10

1,328.51

1,359.78

19.56

19.50

21.98

25.40

28.33

29.09

7,477.65

6,486.85

6,321.98

6,426.05

7,118.52

7,206.49

Hungary
USA
Mexico

200.44

246.59

274.57

303.69

353.17

434.30

China

405.27

500.66

518.67

544.28

604.10

655.09

India

191.37

232.18

288.58

416.40

675.55

975.02

Japan

4,560.11

4,109.99

4,077.30

4,493.29

4,916.32

4,901.23

Australia

171.92

168.72

181.51

226.99

264.75

281.81

South Africa

245.67

221.85

235.62

228.68

323.93

451.58

US$ per capita
Belgium

2.34

1.66

1.99

2.53

2.84

2.91

France

15.90

15.42

15.94

18.39

20.10

19.99

Germany

17.40

18.48

21.38

32.71

34.45

35.72

Italy

16.50

15.87

16.10

18.97

20.87

22.49

Netherlands

11.95

11.99

12.67

15.45

16.90

17.42

Spain

20.25

19.75

21.03

25.32

28.01

28.28

Sweden

24.23

22.29

24.52

30.60

34.89

35.37

United Kingdom

16.38

15.97

17.97

20.62

22.29

22.74

Hungary

1.91

1.91

2.16

2.50

2.80

2.89

27.18

23.38

22.59

22.78

25.04

25.15

Mexico

2.04

2.47

2.71

2.96

3.39

4.11

China

0.32

0.39

0.41

0.42

0.47

0.50

India

0.19

0.23

0.28

0.39

0.63

0.90

Japan

35.93

32.29

32.00

35.22

38.49

38.33

Australia

8.98

8.69

9.23

11.45

13.23

13.95

South Africa

5.60

4.95

5.16

4.93

6.81

9.30

USA

Source: adapted from Euromonitor and trade sources/national statistics.


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PART IV

PART II
Deciding which
markets to enter
Chs 5–8

PART I

PART III

Designing the
global marketing
programme

The decision
whether to
internationalize

PART V

Chs 14–17

Market entry
strategies
Chs 9–13

Chs 1–4

Implementing and
coordinating the
global marketing
programme
Chs 18–19

Part III Contents
9 Some approaches to the choice of entry mode
10 Export modes
11 Intermediate entry modes
12 Hierarchical modes
13 International sourcing decisions and the role of the sub-supplier

Part III Case studies
III.1 Raleigh bicycles: does the iconic bicycle brand still have a chance on the
world market?

III.2 IKEA: expanding through franchising to the South American market?
III.3 Autoliv airbags: transforming Autoliv into a global company
III.4 IMAX Corporation: globalization of the film business


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PART III
Market entry strategies

Introduction to Part III
Once the firm has chosen target markets abroad (see Part II) the question arises as to
the best way to enter those markets. In Part III we will consider the major market entry
modes and criteria for selecting them. An international market entry mode is an institutional arrangement necessary for the entry of a company’s products, technology and
human capital into a foreign country or market.
To separate Part III from later chapters, look at Figure III.1, which shows the classical
distribution systems in a national consumer market.
In this context the chosen market entry mode (here, own sales subsidiary) can be
regarded as the first decision level in the vertical chain that will provide marketing and
distribution to the next actors in the vertical chain. In Chapter 17 we will take a closer
look at the choice between alternative distribution systems at the single national level.
Some firms have discovered that an ill-judged market entry selection in the initial

stages of its internationalization can threaten its future market entry and expansion
activities. Since it is common for firms to have their initial mode choice institutionalized
over time, as new products are sold through the same established channels and new
markets are entered using the same entry method, a problematic initial entry mode choice
can survive through the institutionalization of this mode. Inertia in the shift process of
entry modes delays the transition to a new entry mode. The reluctance of firms to
change entry modes once they are in place, and the difficulty involved in so doing, makes
the mode of entry decision a key strategic issue for firms operating in today’s rapidly
internationalizing marketplace (Hollensen, 1991).
For most SMEs the market entry represents a critical first step, but for established
companies the problem is not how to enter new emerging markets, rather how to exploit
opportunities more effectively within the context of their existing network of international
operations.


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PART III MARKET ENTRY STRATEGIES

Figure III.1

Examples of different market entry modes and the distribution decision

There is, however, no ideal market entry strategy, and different market entry methods
might be adopted by different firms entering the same market and/or by the same firm
in different markets. Petersen and Welch (2002) found that a firm often combines
modes to enter or develop a specific foreign market. Such ‘mode packages’ may take
the form of concerted use of several operation modes in an integrated, complementary
way. In some cases a firm uses a combination of modes that compete with each other.
Sometimes this occurs when a firm attempts a hostile takeover of an export market. The
existing local distributor might be able to resist giving up the market, depending on the
nature of existing obligations, but the exporter nevertheless may establish a wholly
owned sales subsidiary.
As shown in Figure III.2, three broad groupings emerge when one looks at the assortment of entry modes available to the firm when entering international markets. There are
different degrees of control, risk and flexibility associated with each of these different
market entry modes. For example, the use of hierarchical modes (investment modes)
gives the firm ownership and thereby high control, but committing heavy resources to
foreign markets also represents a higher potential risk. At the same time heavy resource
commitment creates exit barriers, which diminish the firm’s ability to change the chosen
entry mode in a quick and easy way. So the entry mode decision involves trade-offs, as
the firm cannot have both high control and high flexibility.
Figure III.3 shows three examples representing the main types of market entry mode.
By using hierarchical modes, transactions between independent actors are substituted
by intra-firm transactions, and market prices are substituted by internal transfer prices.
Many factors should be considered in deciding on the appropriate market entry
mode. These factors (criteria) vary with the market situation and the firm in question.
Chapter 9 will examine the different decision criteria and how they influence the
choice among the three main groupings of market entry modes. Chapter 10 (Export
modes), Chapter 11 (Intermediate modes) and Chapter 12 (Hierarchical modes) will
discuss in more detail the three main types of entry mode. A special issue for SMEs is

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PART III MARKET ENTRY STRATEGIES

Figure III.2

Classification of market entry modes

Figure III.3

Examples of the different market entry modes in the consumer market

317

how their internationalization process is related to their much bigger customers and
their sourcing and entry mode decisions. This will be discussed further in Chapter 13.
The simple version of the value chain (see Figure 1.10) will be used to structure the
different entry modes in Chapters 10, 11 and 12.

References
Hollensen, S. (1991) ‘Shift of market servicing organization in international markets: a Danish case study’, in
Vestergaard, H. (ed.), An Enlarged Europe in the Global Economy, EIBA’s 17th Annual Conference,

Copenhagen, EIBA.
Petersen, B. and Welch, L.S. (2002), ‘Foreign operation mode combinations and internationalization’, Journal
of Business Research, 55, pp. 157–162.


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CHAPTER 9
Some approaches to the choice of
entry mode

Contents
9.1
9.2
9.3
9.4

Introduction
The transaction cost approach
Factors influencing the choice of entry mode
Summary

Case studies
9.1 Jarlsberg
9.2 Ansell condoms
9.3 Video case study: understanding entry modes into the Chinese market

Learning objectives
After studying this chapter you should be able to:
Identify and classify different market entry modes.
Explore different approaches to the choice of entry mode.
Explain how opportunistic behaviour affects the manufacturer/intermediary
relationship.
Identify the factors to consider when choosing a market entry strategy.


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PART III MARKET ENTRY STRATEGIES

9.1

Introduction

Entry mode
An institutional
arrangement for the
entry of a company’s
products and services
into a new foreign
market. The main types
are export, intermediate
and hierarchical modes.

We have seen the main groupings of entry modes available to companies that wish to take
advantage of foreign market opportunities. At this point we are concerned with the question:
what kind of strategy should be used for the entry mode selection?
According to Root (1994) there are three different rules:
1. Naive rule. The decision-maker uses the same entry mode for all foreign markets. This rule

ignores the heterogeneity of the individual foreign markets.
2. Pragmatic rule. The decision-maker uses a workable entry mode for each foreign market.

In the early stages of exporting the firm typically starts doing business with a low-risk
entry mode. Only if the particular initial mode is not feasible or profitable will the firm
look for another workable entry mode. In this case not all potential alternatives are
investigated, and the workable entry may not be the ‘best’ entry mode.
3. Strategy rules. This approach requires that all alternative entry modes are systematically
compared and evaluated before any choice is made. An application of this decision rule
would be to choose the entry mode that maximizes the profit contribution over the
strategic planning period subject to (a) the availability of company resources, (b) risk and
(c) non-profit objectives.
Although many SMEs probably use the pragmatic or even the naive rule, this chapter is
inspired mainly by an analytical approach, which is the main principle behind the strategy rule.

9.2

The transaction cost approach
The principles of transaction cost analysis have already been presented in Chapter 3 (section
3.3). This chapter will go into further details about ‘friction’ and opportunism.
The unit of analysis is the transaction rather than the firm. The basic idea behind this
approach is that in the real world there is always some friction between the buyer and seller
in connection with market transactions. This friction is mainly caused by opportunistic
behaviour in the relation between a producer and an export intermediary.
In the case of an agent, the producer specifies sales-promoting tasks that the export intermediary is to solve in order to receive a reward in the shape of commission.
In the case of an importer, the export intermediary has a higher degree of freedom as the
intermediary itself, to a certain extent, can fix sales prices and thus base its earnings on the
profit between the producer’s sales price (the importer’s buying price) and the importer’s
sales price.
No matter who the export intermediary may be, there will be some recurrent elements that
may result in conflicts and opportunistic actions:
stock size of the export intermediary;

extent of technical and commercial service that the export intermediary is to carry out for
its customers;
division of marketing costs (advertising, exhibition activities, etc.) between producer and
export intermediary;
fixing of prices: from producer to export intermediary, and from the export intermediary
to its customers;
fixing of commission to agents.

Opportunistic behaviour from the export intermediary
In this connection the export intermediary’s opportunistic behaviour may be reflected in two
activities:


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1. In most producer–export intermediary relations a split of the sales promoting costs

has been fixed. Thus statements by the export intermediary of too high sales promotion
activities (e.g. by manipulating invoices) may form the basis of a higher payment from

producer to export intermediary.
2. The export intermediary may manipulate information on market size and competitor
prices in order to obtain lower ex-works prices from the producer. Of course, this kind of
opportunism can be avoided if the export intermediary is paid a commission of realized
turnover (the agency case).

Opportunistic behaviour from the producer
In this chapter we have so far presumed that the export intermediary is the one who has
behaved opportunistically. The producer may, however, also behave in an opportunistic way,
as the export intermediary must also use resources (time and money) on building up the
market for the producer’s product programme. This is especially the case if the producer
wants to sell expensive and technically complicated products.
Thus the export intermediary carries a great part of the economic risk, and will always
have the threat of the producer’s change of entry mode hanging over its head. If the export
intermediary does not live up to the producer’s expectations it risks being replaced by
another export intermediary, or the producer may change to its own export organization
(sales subsidiary), as the increased transaction frequency (market size) can obviously bear the
increased costs.
The last case may also be part of a deliberate strategy from the producer: namely, to tap
the export intermediary for market knowledge and customer contacts in order to establish a
sales organization itself.

What can the export intermediary do to meet this situation?
Heide and John (1988) suggest that the agent should make a number of further ‘offsetting’
investments in order to counterbalance the relationship between the two parties. These
investments create bonds that make it costly for the producer to leave the relationship: that
is, the agent creates ‘exit barriers’ for the producer (the principal). Examples of such investments
are as follows:
Establish personal relations with the producer’s key employees.
Create an independent identity (image) in connection with selling the producer’s products.

Add further value to the product, such as a BDA (before–during–after) service, which
creates bonds in the agent’s customer relations.
If it is impossible to make such offsetting investments Heide and John (1988) suggest that
the agent reduces its risk by representing more producers.
These are the conditions that the producer is up against, and when several of these factors
appear at the same time the theory recommends that the company (the producer) internalizes
rather than externalizes.

9.3

Factors influencing the choice of entry mode
A firm’s choice of its entry mode for a given product/target country is the net result of several,
often conflicting forces. The need to anticipate the strength and direction of these forces
makes the entry mode decision a complex process with numerous trade-offs among alternative entry modes.


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Figure 9.1

Factors affecting the foreign market entry mode decision

Generally speaking the choice of entry mode should be based on the expected contribution to profit. This may be easier said than done, particularly for those foreign markets where
relevant data are lacking. Most of the selection criteria are qualitative in nature, and
quantification is very difficult.
As shown in Figure 9.1, four groups of factors are believed to influence the entry mode
decision:
1.
2.
3.
4.

internal factors
external factors
desired mode characteristics
transaction-specific behaviour.

In what follows a proposition is formulated for each factor: how is each factor supposed
to affect the choice of foreign entry mode? The direction of influence is also indicated
both in the text and in Figure 9.1. Because of the complexity of the entry mode decision the
propositions are made under the condition of other factors being equal.

Internal factors
Firm size
Size is an indicator of the firm’s resource availability; increasing resource availability provides
the basis for increased international involvement over time. Although SMEs may desire a
high level of control over international operations and wish to make heavy resource commitments to foreign markets, they are more likely to enter foreign markets using export modes
because they do not have the resources necessary to achieve a high degree of control or to

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make these resource commitments. Export entry modes (market modes), with their lower
resource commitment, may therefore be more suitable for SMEs. As the firm grows it will
increasingly use the hierarchical model.

International experience
Another firm-specific factor influencing mode choice is the international experience of
managers and thus of the firm. Experience, which refers to the extent to which a firm has
been involved in operating internationally, can be gained from operating either in a particular country or in the general international environment. International experience reduces
the cost and uncertainty of serving a market, and in turn increases the probability of firms
committing resources to foreign markets, which favours direct investment in form of wholly
owned subsidiaries (hierarchical modes).
Dow and Larimo (2009) conclude from their survey that practitioners should be aware
that not all forms of experience are equal. International experience from similar countries
(with low perceived psychic distance) is positively associated with the choice of a highcontrol entry mode (i.e. entry by wholly owned subsidiary). This indicates that exploiting
each geographic region in succession may be advisable, instead of ‘jumping’ from region to
region. This would maximize the benefits of within-cluster experience.

In developing their theory of internationalization Johanson and Vahlne (1977) assert that
uncertainty in international markets is reduced through actual operations in foreign markets
(experiential knowledge) rather than through the acquisition of objective knowledge. They
suggest that it is direct experience with international markets that increases the likelihood of
committing extra resources to foreign markets.

Product/service
The physical characteristics of the product or service, such as its value/weight ratio, perishability and composition, are important in determining where production is located.
Products with high value/weight ratios, such as expensive watches, are typically used for
direct exporting, especially where there are significant production economies of scale, or if management wishes to retain control over production. Conversely, in the soft drinks and beer
industry, companies typically establish licensing agreements, or invest in local bottling or
production facilities, because shipment costs, particularly to distant markets, are prohibitive.
The nature of the product affects channel selection because products vary so widely in
their characteristics and use, and because the selling job may also vary markedly. For instance,
the technical nature of a product (high complexity) may require service both before and after
sale. In many foreign market areas marketing intermediaries may not be able to handle such
work. Instead firms will use one of the hierarchical modes.
Blomstermo et al. (2006) distinguish between hard and soft services. Hard services are
those where production and consumption can be decoupled. For example software services
can be transferred into a CD, or some other tangible medium, which can be mass-produced,
making standardization possible. With soft services, where production and consumption
occur simultaneously, the customer acts as a co-producer and decoupling is not viable. The
soft-service provider must be present abroad from their first day of foreign operations.
Blomstermo et al. (2006) conclude that there are significant differences between hard- and
soft-service suppliers regarding choice of foreign market entry mode. Managers in soft services are much more likely to choose a high control entry mode (hierarchical mode) than hard
services. It is important for soft-service suppliers to interact with their foreign customers, thus
they should opt for a high degree of control, enabling them to monitor the co-production
of the services.
Products distinguished by physical variations, brand name, advertising and after-sales
service (e.g. warranties, repair and replacement policies) that promote preference for one

product over another may allow a firm to absorb the higher costs of being in a foreign
market. Product differentiation advantages give firms a certain amount of impulse in raising


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prices to exceed costs by more than normal profits (quasi rent). They also allow firms to
limit competition through the development of entry barriers, which are fundamental in
the competitive strategy of the firm, as well as serving customer needs better and thereby
strengthening the competitive position of the firm compared to other firms. Because these
product differentiation advantages represent a ‘natural monopoly’ firms seek to protect their
competitive advantages from dissemination through the use of hierarchical modes of entry.

External factors
Sociocultural distance between home country and host country
Socioculturally similar countries are those that have similar business and industrial practices, a
common or similar language, and comparable educational levels and cultural characteristics.
Sociocultural differences between a firm’s home country and its host country can create
internal uncertainty for the firm, which influences the mode of entry desired by that firm.

The greater the perceived distance between the home and host country in terms of culture,
economic systems and business practices, the more likely it is that the firm will shy away from
direct investment in favour of joint venture agreements or even low-risk entry modes like
agents or an importer. This is because the latter institutional modes enhance firms’ flexibility
to withdraw from the host market, if they should be unable to acclimatize themselves
comfortably to the unfamiliar setting. To summarize, other things being equal, when the
perceived distance between the home and host country is great, firms will favour entry modes
that involve relatively low resource commitments and high flexibility. Dow and Larimo
(2009) found that the perceived cultural distance (psychic distance) is much more than
Hofstede’s cultural dimensions. In particular, language difference seems to be one of the
least important factors. Other issues, such as differences in religion, degree of democracy,
industrial development and so on, have a much greater impact on entry mode choice.

Country risk/demand uncertainty
Foreign markets are usually perceived as riskier than the domestic market. The amount of
risk the firm faces is a function not only of the market itself but also of its method of involvement there. In addition to its investment the firm risks inventories and receivables. When
planning its method of entry the firm must do a risk analysis of both the market and its method
of entry. Exchange rate risk is another variable. Moreover, risks are not only economic; there
are also political risks.
When country risk is high a firm would do well to limit its exposure to such risk by
restricting its resource commitments in that particular national domain. That is, other things
being equal, when country risk is high, firms will favour entry modes that involve relatively
low resource commitments (export modes).
Unpredictability in the political and economic environment of the host market increases
the perceived risk and demand uncertainty experienced by the firm. This in turn disinclines
firms to enter the market with entry modes requiring heavy resource commitments; on the
other hand, flexibility is highly desired.

Market size and growth
Country size and rate of market growth are key parameters in determining the mode of

entry. The larger the country and the size of its market, and the higher the growth rate, the
more likely management will be to commit resources to its development, and to consider
establishing a wholly owned sales subsidiary or to participate in a majority-owned joint
venture. Retaining control over operations provides management with direct contact and
allows it to plan and direct market development more effectively.
Small markets, on the other hand, especially if they are geographically isolated and cannot
be serviced efficiently from a neighbouring country, may not warrant significant attention or
resources. Consequently they may be best supplied via exporting or a licensing agreement.


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While unlikely to stimulate market development or maximize market penetration this
approach enables the firm to enter the market with minimal resource commitment, and
frees resources for potentially more lucrative markets.

Direct and indirect trade barriers
Tariffs or quotas on the import of foreign goods and components favour the establishment
of local production or assembly operations (hierarchical modes).

Product or trade regulations and standards, as well as preferences for local suppliers, also
have an impact on mode of entry and operation decisions. Preferences for local suppliers, or
tendencies to ‘buy national’, often encourage a company to consider a joint venture or other
contractual arrangements with a local company (intermediate modes). The local partner
helps in developing local contacts, negotiating sales and establishing distribution channels, as
well as in diffusing the foreign image.
Product and trade regulations and customs formalities similarly encourage modes involving
local companies, which can provide information about and contacts in local markets and can
ease access. In some instances, where product regulations and standards necessitate significant
adaptation and modification, the firm may establish local production, assembly or finishing
facilities (hierarchical modes).
The net impact of both direct and indirect trade barriers is thus likely to be a shift towards
performing various functions such as sourcing, production and developing marketing tactics
in the local market.

Intensity of competition
When the intensity of competition is high in a host market firms will do well to avoid internalization, as such markets tend to be less profitable and therefore do not justify heavy
resource commitments. Hence, other things being equal, the greater the intensity of competition in the host market the more the firm will favour entry modes that involve low resource
commitments (export modes).

Small number of relevant intermediaries available
In such a case the market field is subject to the opportunistic behaviour of the few export
intermediaries, and this will favour the use of hierarchical modes in order to reduce the scope
for opportunistic behaviour.

EXHIBIT 9.1 Zara is modifying their preferred choice of entry mode,
depending on the psychic distance to new markets

Zara (www.inditex.com) is a fashion retail chain of Inditex Group owned by Spanish tycoon Amancio Ortega.
Zara’s preferred entry mode is the hierarchical mode (direct investment), which is used in most European

countries, resulting in full ownership of the stores. In 2008, 87 per cent of the Zara stores were own managed.
Those markets where the hierarchical model is used, are characterized by high growth potential and relative
low sociocultural distance (low country risk) between Spain and target market.
The intermediate modes (usually joint venture and franchising) are mainly used in countries where the
sociocultural distance is relatively high.

Joint ventures
This is a cooperative strategy in which facilities and know-how of the local company are combined with the
international fashion expertise of Zara. This particular mode is used in large, competitive markets where it is


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difficult to acquire property to set up retail outlets or where there are other kinds of obstacles that require
cooperation with a local company. For example, in 1999 Zara entered into a 50-50 joint venture with the
German firm Otto Versand, which had experience in the distribution sector and market knowledge in one of
Europe’s largest markets, Germany.

Franchising

Zara is choosing this mode for high-risk countries which are socioculturally distant or have small markets with
a low sales forecast such as Kuwait, Andorra, Puerto Rico, Panama or the Philippines.
Whatever entry mode Zara is using, the main characteristic of their franchise model is the total integration
of franchised stores with own-managed stores in terms of product, human resources, training, windowdressing, interior design, logistical optimization and so on. This ensures uniformity in store management
criteria and a global image in the eyes of customer around the world.
Source: adapted from the Zara case study and different public media.

Desired mode characteristics
Risk-averse
If the decision-maker is risk-averse they will prefer export modes (e.g. indirect and direct
exporting) or licensing (an intermediate mode) because they typically entail low levels of
financial and management resource commitment. A joint venture provides a way of sharing
risk, financial exposure and the cost of establishing local distribution networks and hiring
local personnel, although negotiating and managing joint ventures often absorbs considerable management time and effort. However, modes of entry that entail minimal levels of
resource commitment and hence minimal risks are unlikely to foster the development of
international operations and may result in significant loss of opportunity.

Control
Mode of entry decisions also need to consider the degree of control that management requires
over operations in international markets. Control is often closely linked to the level of resource
commitment. Modes of entry with minimal resource commitment, such as indirect exporting,
provide little or no control over the conditions under which the product or service is marketed
abroad. In the case of licensing and contract manufacturing management needs to ensure that
production meets its quality standards. Joint ventures also limit the degree of management
control over international operations and can be a source of considerable conflict where the
goals and objectives of partners diverge. Wholly owned subsidiaries (hierarchical mode) provide
the most control, but also require a substantial commitment of resources.

Flexibility
Equity

Some investment of a
defined financial value.

Management must also weigh up the flexibility associated with a given mode of entry. The
hierarchical modes (involving substantial equity investment) are typically the most costly
but the least flexible and most difficult to change in the short run. Intermediate modes (contractual agreements and joint ventures) limit the firm’s ability to adapt or change strategy
when market conditions are changing rapidly.

Transaction-specific factors
The transaction cost analysis approach was discussed in Chapter 3 (section 3.3) and earlier
in this chapter. We will therefore refer to only one of the factors here.


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Tacit nature of know-how
Tacit
Difficult to articulate and
express in words – tacit

knowledge has often to
do with complex products
and services, where
functionality is very
hard to express.

9.4

When the nature of the firm-specific know-how transferred is tacit it is by definition difficult
to articulate. This makes the drafting of a contract (to transfer such complex know-how) very
problematic. The difficulties and costs involved in transferring tacit know-how provide an
incentive for firms to use hierarchical modes. Investment modes are better able to facilitate
the intra-organizational transfer of tacit know-how. By using a hierarchical mode the firm
can utilize human capital, drawing upon its organizational routines to structure the transfer
problem. Hence, the greater the tacit component of firm-specific know-how, the more a firm
will favour hierarchical modes.

Summary
Seen from the perspective of the manufacturer (international marketer), market entry modes
can be classified into three groups:

Intermediate modes
Somewhere between
using export modes
(external partners) and
hierarchical modes
(internal modes).

1. export modes: low control, low risk, high flexibility
2. intermediate modes (contractual modes): shared control and risk, split ownership

3. hierarchical modes (investment modes): high control, high risk, low flexibility.

It cannot be stated categorically which alternative is the best. There are many internal and
external conditions which affect this choice and it should be emphasized that a manufacturer
wanting to engage in global marketing may use more than one of these methods at the same
time. There may be different product lines, each requiring a different entry mode.

CASE STUDY 9.1
Jarlsberg: the king of Norwegian cheeses is deciding about entry modes in
new markets

Jarlsberg cheese (www.jarlsberg.com) has been
well received in the US market. Nearly 50 years after
entering the United States it is now the imported
cheese with the biggest market share of its category
in the competitive US supermarkets.
However, following the quota which the WTO has
set up between Norway and the United States,
Jarlsberg can only sell a limited amount of cheese
from Norway to the US. The quota on Jarlsberg to
the US is approximately 7,000 tons. To increase
sales, a licenced production was set up in Ohio in
2000, with an annual production of approximately
5,000 tons. Quality control is maintained by using a
cheese culture produced in Norway (based on a
secret recipe from 1956), premium quality milk only,
tailor-made production lines and key people educated
within dairy technology/science.

The total export of Norwegian cheese to the United

States in 2008 was approximately 8,000 tonnes, of
which the majority was Jarlsberg. This means that the
quota which the WTO set up between Norway and
the United States was full: Jarlsberg had to find other
ways of selling cheese in the United States.

The story
Professor Ole M. Ystgaard and his employees at the
Norwegian Agricultural School developed Jarlsberg
in the 1950s. The cheese is based on traditions from
Swiss cheese makers, who developed cheese with
holes in the 1830s.
Jarlsberg cheese arrived in the United States in
1963. In the beginning, the Jarlsberg management
team travelled around the country to demonstrate


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how the cheese could be used for everyday meals
and at parties. After just two years Jarlsberg had a
sales volume of 450,000 kg in the market, and the
managers understood they had a ‘hot’ product.
Jarlsberg has become a high-status product,
served by celebrities at high-society parties.

Philadelphia. The second-largest cheese producer
for the US market is ConAgra Foods, which had total
sales of US$13 billion in 2008.
In general, the tendency to consume cheese is
higher in the eastern part of the United States,
whereas ‘healthy’ food products are focused on
more in the western part of the country. There is a
tendency to eat more imported cheese as personal
income increases.

Jarlsberg’s customers and marketing

Tine.

Norseland Inc.
Norseland Inc. was founded in 1978. The purpose of
the company was to market and distribute Jarlsberg
and other Norwegian cheese in the United States.
The company is a wholly owned subsidiary of TINE
Norwegian Dairies, which has the main responsibility
for the production and marketing of Jarlsberg
cheese. In 2002 Norseland had net sales of
US$130 million, about half of this derived from

imported Norwegian Jarlsberg, 25 per cent from
Jarlsberg produced in Ohio and the remainder
from sales of products from other companies, among
them French Unilever Boursin. Norseland’s strategy
is to sell exclusive cheeses only, and the company
commands respect in the US retail trade where a
90 per cent distribution coverage has been achieved.
Norseland has a regional office in Montreal, Canada,
where an additional 1,350 tonnes of Jarlsberg were
sold in 2008.

The US cheese market
The total US market for hard cheese is approximately
400,000 tons, but the market also consumes a lot
of soft cheese. Though Jarlsberg only has a small
market share in the total hard cheese market (in
2008 Jarlsberg sold 12,600 tons to the US market)
this represents the largest market share in the Swisslike cheese category.
The largest producer of cheese for the US market
is Philip Morris, including the company Nabisco
which Philip Morris bought in December 2000. The
most well-known brands from Philip Morris come
from Kraft, which markets the popular soft cheese,

Jarlsberg cheese has some snob appeal. Customers
want to show they have good taste and they accept
the higher price of Jarlsberg compared to other
competitive products without complaining. The mild
and creamy taste appeals to Americans, and many
think that the taste of the traditional Swiss cheese,

Emmenthal, is too sharp.
Characteristics of the typical Jarlsberg buyer are:
female
earning more than US$90,000 per year
over 40 years old.
It is important to buyers that it is an imported
cheese. The fact that it is a Norwegian cheese plays
a minor role and Norseland does not use this in its
marketing.
Norseland’s objective is to attract new and
younger consumers for its Jarlsberg cheese. To
achieve this objective it wants to make contracts and
deals with retail chains like 7-Eleven, which also sells
sandwiches, etc.
Besides its own sales force of about 25 sales
people, Norseland uses nearly 500 ‘cheese brokers’
(distributors), who sell all over the United States.
These are external sales representatives who visit
shops, retail chains and restaurants in order to sell
and market products, among them Jarlsberg.
Five years from now Jarlsberg aims to be present
in at least five new countries, either sourced through
the existing production units (e.g. in USA or Ireland)
or supplied from Norway.

QUESTIONS
1. Which kind of market entry mode would you
generally suggest for Jarlsberg
(a) in Scandinavia?
(b) in Asia?

2. What are the general motives for choosing a
hierarchical mode (own subsidiary) in the United
States?


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CASE STUDY 9.2
Ansell condoms: is acquisition the right way to gain market shares in the European
condom market?

Ansell Limited is the new name of the company
formerly known as Pacific Dunlop Limited.
The company’s name was changed in April 2002
as a result of its strategic repositioning to concentrate on its core business, protective products and
services in a broad health care context, and following
the disposition of a series of other business units
that did not fit within the strategy. Ansell Limited is an
Australian publicly listed company with its corporate

head office located in Richmond, Australia.
In 1905 Eric Ansell, a former Dunlop employee,
took the machinery and set up his own company,
The Ansell Rubber Company, in Melbourne, Australia,
manufacturing toy balloons and condoms. The rest
is history: Ansell made strategic acquisitions and
expansions and invested in the research and development necessary to bring a number of products to
the world market.
Today Ansell Limited is a global leader in barrier
protective products. With operations in the Americas,
Europe and Asia, Ansell employs more than 11,000
people worldwide and holds leading positions in the
natural latex and synthetic polymer glove and condom
markets.
Ansell Condom brands are marketed globally
through the Personal Healthcare division of Ansell
Healthcare, and their main office in Red Bank, NJ,
USA. This 100-year-old company has fostered some
innovations in latex condoms and gloves. It manufactures and markets a variety of condoms with flavours,
colours, spermicide, studded and ribbed features.
Ansell markets branded condoms worldwide, each

with its own unique marketing strategy that has been
tailored to the particular country or region. A quick list
of their brands around the globe includes: LifeStyles
(for the US market), Mates (for the UK market),
KamaSutra (for the Indian market), Contempo, Manix,
Primex, Pleasure and Chekmate.
Additionally, the company participates in the
public sector market where condoms are supplied

through health and social welfare programmes and
agencies, mainly in developing countries around the
world. Ansell also participates in a broad range of
studies and educational activities and continues to
expand their market presence with the introduction
of new products. Lifestyle Ultra Sensitive condoms
with spermicide, for instance, were developed to meet
demand for a thinner condom that includes a spermicide to maximize protection from sexually transmitted
diseases (STDs).

Global manufacturing
Estimated worldwide condom production is around
15 billion pieces annually (2008). Currently there are
about 100 manufacturing plants operating globally.
The majority of these plants manufacture only condoms made from natural rubber latex, and some
also produce other latex products such as gloves,
finger cots and catheters. The majority of the plants
are therefore in locations where natural rubber latex
plantations reside, and where labour costs are
competitive.
The production of condoms is much more labourintensive than that of glove manufacturing, because
of more stringent testing needs, more complicated
packaging and significant product differentiation.
An estimate of condom production per country in
2008 is shown in Table 1.

World market for male condoms

Ansell Healthcare.

Condoms offer protection against both unwanted
pregnancies (contraception) and STDs (prophylaxis).
The latter property is unique to condoms. Although
there is considerable superficial variation in the types
of condoms available (e.g. ribbed, thin and thick)


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Table 1
Country

Estimated 2008 condom production
by country
Annual production
in billions of pieces

India

3.3

Thailand

2.8

China

2.5

Japan

2.0

Malaysia

1.5

USA

1.0

Europe

1.0

South Korea

0.5

Indonesia

0.3

South America

0.2

Vietnam

0.2

Other

0.1

Total

15.4

there has been little fundamental change in the latex
condom over the years.
Organizations that comprise the global public
health sector currently distribute approximately 10 billion male condoms, generally free of charge or at a
nominal cost, to sexually active people throughout
the world, mostly in developing nations. It is estimated that another 5 billion male condoms are
distributed through commercial channels, mostly in
developed countries such as the United States,
Japan and European nations. The size of the world
market for male condoms and how it is made up is

shown in Table 2.
In 2008, 35 per cent of condoms were purchased
by the United Nations Population Fund. The World
Health Organization (WHO) is also a buyer.
Besides the direct competitors, described in
Table 3, it is essential to emphasize the role of the
indirect competitors, which are those with a product of substitution. According to the Durex Sex

Table 2

Survey, the male condom is globally the most popular
form of contraception (41 per cent of people use it).
Among the 59 per cent non-condom users, 19 per
cent of the population uses the pill, 8 per cent
natural methods and the rest (75 per cent) use no
contraception.
With 14 per cent of the global market share for
condoms, Ansell is the second largest manufacturer
of condoms. The company has 50 per cent of the
Polish market, 8 per cent in Germany, 20 per cent in
Brazil (third largest), number 1 in Australia, and is the
fastest-growing brand in Canada.
In the distribution of male condoms in the commercial sector, there has been a movement from the
pharmacies toward the retail chains (supermarkets).
For example, in the early 1990s supermarkets
accounted for around 25 per cent of the UK retail
sales of condoms while pharmacies accounted for
over a half. Today, the supermarkets account for
around 40 per cent of retail sales, a share mostly
drawn from the pharmacies, which have seen their

share fall to 30 per cent. Therefore, national retailing
chains (supermarkets, Boots and Superdrug) now
account for at least 65 per cent of condom sales in
the United Kingdom.

Key competitors (manufacturers) in
the world male condom market
SSL International
In 1929 the London Rubber Company (LRC) registered the DUREX condom trademark, whose
name was derived from Durability, Reliability and
Excellence. The next important steps as a global
condom’s provider were in 1951 with the introduction of the first fully automated production process
and two years later with the development of the first
electronic testing machines.
In the UK home market, during the 1980s, Durex
condoms began to be sold in public areas (e.g.
supermarkets, pubs), due to the AIDS fear. That
decade showed a sharp development in marketing

World market for male condoms (2008)
Per year (billions)

Global public health sector (UN, WHO and local governments)
Commercial channels (mainly in the US, Japan and European nations)
World market
Source: adapted from different public sources.

10
5
15

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CHAPTER 9 SOME APPROACHES TO THE CHOICE OF ENTRY MODE

Table 3

331

Company shares on the world market for male condoms (2008)
Market share
(%)

Company

Nationality

Major brands

Key strategies
(MS = market share)

Seton Scholl
London (SSL)

UK

Durex, Durex Avanti,
Durex Pleasure,
Durex Fetherlite,
Durex Extra
Sensitive, etc.

A true global brand with
strong positions in all
main markets, except US
(15 per cent MS) and Japan
(5 per cent MS). In UK the
Durex MS is 85 per cent

25

Ansell Limited

Australia/US

LifeStyles, Mates,
Contempo, Manix,
Primex, KamaSutra,
Pleasure and
Chekmate

Semi-global company with
relatively strong market
positions in US, UK, Asian
and AUS/NZ markets.
Local/regional brands, e.g.
LifeStyles for US and Mates
for UK

14

Church & Dwight Co

US

Trojan, Trojan
Magnum, Trojan
Pleasure, Trojan Enz

Market leader in US market,
minor position in UK

8

Okamoto Industries

Japan

Beyond Seven,
Skinless Skin

Home market-oriented:
60 per cent MS of the
Japanese market, but with
little exports, mainly to US

10

Domestic-and regionaloriented companies with
strong positions in local
markets

43

Others: Sagami Rubber
Industries (JP), Fuji Latex
Co (JP), DKT Indonesia
(Indonesia), Mayer
Laboratories (JP)
and about 70 other
manufacturers
around the world
Total

100

Source: estimations based on different public sources.

with the first Durex poster campaign in 1982, as
well as the first condom advertising on television
(1987).

Finally, in the 1990s, Durex has followed a
marketing policy aimed at increasing the awareness
of the brand with the installation of free-standing
outdoor Durex vending machines (1992); the sponsorship of MTV’s events (1995); the first Durex Sex
Survey (1995); the launch of the first selection of
coloured, flavoured and ribbed condoms in the same
pack (1996); and in 1997 the launch of the first nonlatex protection called Avanti.
At the beginning of the twenty-first century, Durex
launched www.Durex.com over 30 countries. These
websites, featuring localized pages, in particular the

use of local language, provide sexual information,
allow people to question specialists, give details of
Durex condoms and any sponsored events.
Durex is nowadays part of SSL International Plc,
which was formed in 1999 from the merger of the
Seton-Scholl Group and London International, the
former owner of LRC. It is a worldwide company
producing a range of branded products such a
Scholl and Marigold gloves, sold to medical and
consumer health care markets.
With a market share of approximately 25 per cent,
Durex’s position can be defined as the world market
leader of the sector. Obviously, at different national
levels, rankings can be slightly different with, for
example, 80–85 per cent of market share in the United


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PART III MARKET ENTRY STRATEGIES

Kingdom, 55–60 per cent in Italy, 10–15 per cent in
the United States and around 5 per cent in Japan.
Durex condoms are manufactured in 17 factories
worldwide.

Church & Dwight Company Inc
Armkel, LLC, Church & Dwight’s 50/50 joint venture
with the private equity group, Kelso & Company,
acquired in 2001 the remainder of the Carter-Wallace
consumer products businesses, including Trojan
Condoms.
The Trojan brand accounts for the largest proportion of condom supplies in the United States with
around 60–70 per cent market share.
The company markets condoms under the Trojan
brand name in Canada, Mexico and recently, in limited distribution, in the United Kingdom. In Canada,
the Trojan brand has a leading market share. It entered
the UK condom market in 2003, but at present has
only a small share. The company markets its condoms
through distribution channels similar to those of its

domestic condom business.

In late 1988, Okamoto introduced it condoms to
the US market, but without great success until recently.

Latest development – possible
acquisition of an European key
condom player
Following financial problems at some European
condom manufacturers with relatively strong local
brands, Ansell is now considering acquiring one of
these manufacturers.
Sources: www.ansell.com; www.durex.com; rchdwight.
com/conprods/personal/; />‘Polish condom producer acquires condomi’, Polish News Bulletin,
21 January 2005; Office of Fair Trading (2006) Condoms – Review
of the undertakings given by LRC Products Limited, OFT837, HMSO;
/>
QUESTIONS
1. What are the differences between the global strategies of Ansell and the other three competitors?

Okamoto

2. Which entry mode would you recommend for
Ansell’s sourcing (purchasing or production) of
condoms?

Okamoto has been in existence since 1934. It holds a
remarkable 60 per cent market share in Japan, where
condoms are the preferred method of birth control.

3. What are the pros and cons for Ansell acquiring a
European competitor? In your opinion, is it a good
idea?

VIDEO CASE STUDY 9.3 Understanding entry modes into the Chinese market
download from www.pearsoned.co.uk /hollensen

China became a member of the World Trade Organization (WTO) on 11 December, 2001 and, overall, the
Chinese economy has shown exceptional economic growth over the last five years, closely associated with
China’s increased integration with the global economy. With a population exceeding 1.3 billion, continued
economic growth and a large supply of inexpensive and productive labour, China lures businesses from
around the world. Most global firms agree that companies can not be globally successful if they ignore this
huge emerging market.

Questions
1. What factors do companies consider when determining the best form of operation to use when entering
the Chinese market?
2. What have been the challenges and opportunities for foreign companies in establishing collaborative
arrangements in China?
3. How have Chinese government policies and attitudes towards foreign businesses evolved? How have
these changes affected foreign companies’ forms of operations in China?
For further exercises and cases, see this book’s website at www.pearsoned.co.uk/hollensen


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CHAPTER 9 SOME APPROACHES TO THE CHOICE OF ENTRY MODE

333

Questions for discussion
1. Why is choosing the most appropriate market entry and development strategy one of the

most difficult decisions for the international marketer?
2. Do you agree with the view that LSEs use a rational analytic approach (strategy rule) to

the entry mode decision, while SMEs use a more pragmatic/opportunistic approach?
3. Use Figure 9.1 to identify the most important factors affecting the choice of foreign entry
mode. Prioritize the factors.

References
Blomstermo, A., Sharma, D.D. and Sallis, J. (2006) ‘Choice of foreign market entry mode in service
firms’, International Marketing Review, 23(2), pp. 211–229.
Dow, D. and Larimo, J. (2009) ‘Challenging the conceptualization and measurement of distance and
international experience in entry mode choice research’, Journal of International Marketing, 17(2),
pp. 74–98.
Heide, J.B. and John, G. (1988) ‘The role of dependence balancing in safeguarding transaction-specific
assets in conventional channels’, Journal of Marketing, 52(January), pp. 20–35.
Johanson, J. and Vahlne, J.E. (1977) ‘The internationalization process of the firm – a model of
knowledge’, Journal of International Business Studies, 8(1), pp. 23–32.
Root, F.R. (1994) Entry Strategies for International Markets, revised and expanded edition. The New
Lexington Press, Lexington, MA.