Modes of Entry into a New Market - Coursework Example

Modes of entry into a new market Any decision made by a company on how enter a foreign market can be achieved through the following: joint venture, exporting licensing, direct investment among others. Joint venture have five objectives which include market entry, sharing of reward or risk, sharing of technology and joint product development as well as conforming to the regulations imposed by the government. Others objectives include access of distribution channel and political connection that may rely on relationships. Joint ventures are favourable when: The strategic goals of the partners converge while their competitive goals diverge The market power, size and the resources of the partners are small in comparison to the industry leaders. The partners are able to learn from one another while t the same time, limiting access to in regard to their own proprietary skills The key issues to be considered in this mode are control, ownership, pricing, length of agreement, transfer of technology, resources and capabilities of local firm, and the intentions of the government. There are potential problems associated to this mode which include mistrust over proprietary knowledge, conflict over new investments that are asymmetric, lack of support from the parent firm, clashes in culture, ambiguity in performance (how the pie should be split), and if, or how, or when the relationship should be terminated. Conditions that favour the mode include import barriers, high potential of sales, some political risk, large cultural distance, government restrictions in regard to foreign ownership, lack of fair pricing of assets, and the company can provide resources, brand name, skills and distribution network among others. Advantages include potential for learning, overcoming of restrictions on ownership and cultural distance, viewed as insider, combination of 2 company resources, and requirement of less investment. Disadvantages include difficulty in management; spill over of knowledge, dilution of control, partner may end up as a competitor, and greater risks as compared to licensing and exporting. Exporting involves marketing and direct sale of goods produced domestically to another country. Most costs from exporting usually result from marketing expenses. The common four players required in exporting include exporter, importer, and government as well as transport provider. The conditions favouring this mode include closeness of distribution channels to plants, liberal import policies, and high political risk, high production costs in target country as well as limited sales potential in the target country thus, little adaptation of the product is required. Its advantages include speed of entry, minimisation of risk and investment, maximisation of sales that is, due to use existing facility. Disadvantages include trade tariffs and barriers which add to costs, cost of transportation, limited access to local information and the company is usually viewed as an outsider. Licensing occurs where a company in the target country is allowed to the licensor’s property. Such type of property is usually intangible and includes patents, trademarks and production techniques. In this case, the licensee will pay some fee in order to exchange the right to use the property or technical assistance. It has a higher potential of providing large ROI because the licensor has a little investment. On the other hand, given that the licensee is responsible for production and marketing of the product, the potential returns from marketing and manufacturing activities may be lost. Conditions favouring this mode include barriers on import and investment, possible legal protection in the target environment, low potential of sales in target country, large cultural distance as well as lack of the ability of the licensee to become a competitor. Advantages include minimisation of risks and investment, high ROI, ability to circumvent trade barriers, and speed of entry. Disadvantages include limited license period, spill over of the knowledge, lack of control on the use of assets, and the licensee may end up being a competitor. Example of licensing mode of entry is Coca-Cola Company. Foreign direct investment (FDI) involves direct ownership of facilities within the target country. The resources, technology, capital and personnel are transferred. It may be through establishment of a new venture or acquisition. Advantages include high degree of control the firms operations and the ability to know the competitive environment and the consumers better, better application of specialised skills. Disadvantages include higher risks, more resources and commitment, and difficulty in management of local resources. Different modes of entry may be suitable for a company but under different circumstances. For instance, Walt Disney mode of entry into Europe is direct investment but in order to reduce expenses, its mode of entry into Japan is licensing. It is worth noting that the main determinants of suitability of the mode of entry are the government restrictions and availability of resources such as raw materials, skills and money among others. For instance, Coca-Cola Company is one of the most successful multinational companies in the world and it could not have enough resources to erect facilities in every country, hence it preferred licensing. Market opportunity analysis Factors to consider include economic conditions, government policy and regulations, demographic patterns, customer attitudes and values, technology, competitors, market size and segmentation, political stability, distribution channels, security and alternative methods of marketing. Economies usually experience fluctuations such as from boom to contraction, recession, and expansion. This will influence the capacity to invest. Government policies and regulations will have both direct and indirect impact on the business. Taxes and tariffs will affect the competitive advantage of the business. Customers’ attitudes and values influence the type of products that the business want to provide. In particular, beliefs, social values and customs of the society determine the type of products to offer. Competitors must also be studied to ensure that the business is aware of the competitors and the type of competition existing before entering into a business. One market becomes more attractive than another due to factors such as better economic conditions, lack of stiff competition, fair government policies and regulations among others. Thus factors that will ensure fair grounds for competition, better economic conditions and understanding of the culture in the host country will make a market more attractive than the other. The target markets to be focused consider the competitive advantages of your product to the customer, social-cultural characteristics of your customers, the end user as well as your immediate customers. In addition, the focus should be on the target markets that ensure high profitability which all the factors are considered. Competitor analysis A potential problem with competitive intelligence is generation of huge data but little usable information. Thus, it is important to analyse data. Competitor analysis can be structures in three methods; comparison of competitors to one another and to your company, use techniques to determine the next move of the competitors, and creation of competitor profiles. It is very essential to do a comparison of competitors with one another in order to determine their relative positions in regard to the market. One of the most effective ways is swot analysis where you identify the opportunities, threats, strengths and weaknesses in a particular market segment. Upon comparing the competitors, it is also essential to analyse the competitors’ previous strategies and behaviour. This involves anticipating what steps your competitors are likely to take and how to react to such situations to always keep ahead. It is also important to create competitor profile as a way of analysing information about your competitors. This will be important for managers to refer to in case of reacting to particular business decisions. The most important thing in competitor analysis is to outline key areas where the strengths and strategies of the competitors lie. This will alert you where your firm may require developing in order to outdo competition, and the areas that need not to be basis for the firm’s competitive marketing strategies. Government assist its county to maintain a competitive edge by protecting the companies in form of taxation, tariffs, and subsidy. Such protection ensures that these companies produce their products at lower prices. Lower taxation will decrease the cost of production thus, the host country’s companies are able to sell at lower prices and maintain a competitive advantage. Important of resource management Various types of resources that a company requires in entering international marketplace include capital, human resource, technology and time among others. Technology is a major force in globalisation. The more technological your company is, the more the competitive advantage due to presence of quality products. Capital is also an essential factor as it determines the method of entry into international marketplace. For instance, direct investment may require more capital as compared to licensing or export since there is a need for development of facilities in host country. Human resource is also an important type of resource as the company needs to consider expatriates as well as the host employees in order to maintain continuity and address cultural issues as well as improve the performance of the company. Timing is also important as it allows getting into the markets when the company is at the best position of being successful. Importance of culture Challenges for employees working overseas Religious issues Religion is a big challenge especially when an employee works in a host country with a different religion. As a result, one must be very cautious over actions on local employees in the workplace. Thus, understanding of religious matters is essential to avoid conflicts. For instance, in a Muslim country delegating responsibilities to men on Friday may lead to conflicts as all of them go out for Friday prayers. Local customs The customs of the locals are very important and lack of understanding of practicing of some customs may be a challenge to the expatriates. For instance, there are dressing codes in various countries especially the females in the place of work. Attitude Understanding of the behaviour of the host country in the places of work may also pose a challenge especially the way people express their opinions. For instance, in Malaysia the locals usually use an indirect as well as a non-confrontational behaviour while they express their personal opinions towards others. Addressing social status Some host countries view social formalities as very important in their daily interaction. This may be different from the home country where the norm may be direct way interaction and informality. These may act as a barrier in communication between expatriates and local employees. For instance, some countries prefer addressing in terms of the title of the person such as professor, etc. Gender issues Understanding the issues of gender is important as they greatly vary in different countries according to factors such as religion. Some countries limit opportunities that they offer to women. For instance, in Muslim countries, women are not allowed to engage in business activities and men in such countries have low opinion on women. For instance, sending a woman expatriate in Saudi Arabia is not acceptable and if it is a must, she must be accompanied by a man. While designing or promoting products, it is essential for market people to do a thorough research on cultural background of buyers of the products such as beliefs and language among others. For instance, selling goods which contains beef in India or selling pork products in Muslim countries would be against their religion. The managers and sales people working with partners and customers overseas should not assume that customs and religious issues are the same with those of the home country. For instance, expatriates working in Muslim countries should not assume that Saturdays and Sundays are days that employees will not be working because Friday is their most important day for prayers. Women expatriates in Muslim countries should be very cautious when delegating duties because of low opinion that men have on them. Expatriates should always respect the local culture and practices in host countries in order to integrate with local population. Read More