Entry to the Indian Market by the Automobile Company - Coursework Example

Entry to Indian market Introduction Entering into a new market can be quite a challenge especially for international companies. There are many factors that the company entering the market has to consider to ensure success. This letter will look at critical factors that the CEO should consider before an entry to Indian market. Entry into a new market is considered almost as difficult as developing a new product and trying to penetrate an already competitive market. Other industry players might already posses a large market share and hold loyal customers. Making an entry into the existing automobile Indian market should be carefully approached. For example, a company should consider whether to enter into the market through a joint venture, or opening up a subsidiary of the organization as part of the mother branch. The company should be aware of the pros and cons of all the available options and how much they would cost. Entry Modes into the market Foreign direct Investment One of the advantages of a foreign direct investment mode of operation is that the organization would have a large proportion of direct control of the firm that it sets up in India. A foreign direct investment would allow the American company to gain a high tax exemption. The Government of India is bound to view the foreign direct investment as an opportunity that will increase the country’s income through labor provision to its nationals.. A foreign direct investment often includes transferring labor, funds and new technology to the target market (Iyer 272). A foreign direct investment might involve purchasing of an already existing organization or starting up of a new one. A foreign direct investment into India will require an input of large resources by the automobile company. The resources will go into putting up the organization and marketing services. However, the organization would gain a better understanding of the customer needs and how to reach their target market audience. Joint Venture The organization might also consider a joint venture entry into the Indian market. A joint venture with an automobile company would be strategic if the CEO decides to invest a minimal amount of money into the venture in India. The American automobile company would ideally invest half the money while the India co-venture investor would invest the other half. Both investors would learn from each other for the good of the organization. The Indian investor would guide the American automobile investor on issues such as Indian tax system, best labor sources, best location, cultural awareness and distribution lines. A joint venture would be highly recommended when the two merging companies have the same kinds of business strategies that they would want to achieve. In order for the joint venture to succeed, both the organizations should be clear on their strategic goals and objectives, and the timelines within which they hope to achieve them. The joint venture organizations should also clarify on the duties and responsibilities of the different personnel that they both bring in to the organization. There are critical issues that might arise in the running of joint ventures (Tsang 218). The companies might have proprietary information that they might be afraid of sharing. Secret business ideas take a lot of resources to develop. Therefore, none of the organizations would take the resources invested lightly. One or both of the organizations’ employees might also develop apathy at the expense of the other joint venture partner’s employees. If the duration of the organization was unclear, disputes might arise on how and when the company should be closed down. There might also be cultural disputes between the two companies in the joint venture. Each of the companies in the automobile joint venture might want to get the best of the partnership while what they put in is not equal to what they want to gain. Licensing Licensing for the automobile organization would require the organization to license an organization in India to carry out its business. An organization that is set up in India would pay money for business rights and designs of the parent company in America. The parent company offers it technical expertise assistance to the new company in an international country. If the set up organization is successful, the parent company might get high returns on their investments. However, this may take a lot of time (Sinckovics & Ghauri 89). The new organization has to spend a lot of money on the physical setting up of the firm, hiring and marketing of its products and services. Exporting Exporting involves selling goods that have been produced in the parent company country to international countries. The company therefore incurs all the cost of production and marketing. The company also has to pay custom duties and tariffs for its exports. The country importing its products to the target company might not get all the necessary information such as tastes and preferences of the target market. The parent company also has minimal or no control over how the assets of the organization are used. The company in the international country that is licensed might feel as if they have shared too much proprietary information about their organization. Unfortunately, the business information might be used by the new organization as a form of competition to earn money (Sinkovics & Ghauri 67). The license period for the organization in the international company is limited to a specified period of time. The parent automobile organization in America should come up with a solid contract to ensure maximum benefits of the business agreement. The American automobile company should choose the joint venture option to enter into the Indian market. The Foreign Direct Investment policy and the Foreign Exchange management Act (1999) guide foreign investors in choosing suitable market entry modes. The Foreign Direct Investment agency gives potential investors genuine information about the market that they would like to invest in, and other government information such as taxes applicable to international business investments. There are several other factors that the American automobile company needs to consider before entering into the India market. International franchising This mode of market entry involves product or service replication in another country. This mode of entering into the market is mostly used by fast food restaurants that want to venture into new international markets. This form of market entry might not be suitable for the automobile industry. It is difficult to customize their products such as vehicles when they have already been manufactured into an international brand. Legal and Political stability in India India offers a politically stable environment that creates a favourable business environment for international investors. The Indian government is largely committed into ensuring that international organizations that want to invest in India have the necessary information and they feel welcomed to make their investments into the organization. The country also offers competitive tax rates in comparison to other international countries that international investors would want to conduct business (PWC 7). The stable government in India empowers the legal system to support both domestic and foreign businesses. Therefore, the automotive American company can rest assured that they would get the necessary legal information and help that they need, and on time. India has experienced sustained economic growth and stability over the last few years. Technical expertise of the existing labor force India has a large pool of talented and highly skilled workforce. Therefore, the American automobile company would not have to worry about availability of a pool of labor that they would want to hire for the company. The parent company should bring in a few employees on the respective fields that they would need in the company. These are the personnel that would supervise the hired employees. The organization should source as many local employees as possible for the available positions. This would go a long way into creating a cultural connection with the target market audience. The hired labor force should reflect the diversity in the Indian population such as gender and different ethnic groups. Diversity in the workplace fosters creativity (Zekiri & Angelova 93). Creativity promotes productivity which has a positive effect on the revenue that is generated in an organization. India has also been cited as having a hardworking, loyal and committed workforce. This can be attributed to the high competition for the available opportunities in the country. Investment incentives India has trade agreements with various countries including the United States of America. The automobile company that wants to invest in the country should seek assist assistance from an American chamber of commerce government agency. The government agency would offer the necessary guidance to the international company on the liaison office in India for available tax exemptions (Price Water House Coopers 2). India would make initial tax exemptions for the international company because of the potential income and employment opportunities it takes to India. The identity and levels of competition It is imperative for the international company to identify the existing competition already in the market. The automobile company should identify and assess any possible gaps that exist and try and fill them out. When Hyundai first started doing business in India, they had to modify their cars to increase fuel efficiency. Most Indians view a vehicle as a long term investment, and they are not likely to spend money on it if they feel that it will not serve them for long. The sizes of market share The company should also identify the market and the competitors that have taken up the different target markets. Such market information would guide the international automobile company on the strategy that they should develop so as to compete effectively with other industry players. Product line pricing The automobile company should use updated market research information to decide on the pricing of their product lines. The company should also decide on their target market population. This would help the organization curve out a niche in the market. Creating a unique market niche would ease advertising and marketing efforts of the organization (PWC 2). Since the company would be trying to penetrate an already existing market, the prices should be set according to already existing market prices. Vehicles are expensive to produce, and pricing strategies such as predatory and skimming might not work. Distribution strategies Exclusive distribution strategy should be utilized to make the automobiles available in the market. Vehicles are highly technical in nature in comparison to other household and common products that are available in the market. The ability of distributors to stock vehicles in the market is also low (Iyer 6). The automobile company should ensure that the available dealers have solid funds to support the business opportunity. A direct distribution strategy would also ease solving of any problems that might occur such as vehicle technical problems. Relative strength and weaknesses The automobile company might derive economies of scale from entering into an international market. India offers a cheaper form of labor in comparison to other developed countries. Therefore, the company might be able to cut on costs and maximize on their revenue more effectively. The organization might encounter difficulty with cultural barriers in the country. Traditional beliefs and values in India differ from those in the United States of America. This might be one of the areas that cause problems for the organization. Conclusion The letter to the CEO has looked at the factors to consider before making an entry into the Indian market. The letter has looked at business ventures, foreign direct investments, franchising, licensing and exporting. The CEO of the automobile company should select joint venture and not other entry modes. Joint venture will offer maximum returns and minimal costs. The disadvantage with exporting might be the lack of knowhow about the existing trade laws and ways of taking advantage of the local market (Zekiri & Angelova 93). On the other hand, a joint venture would allow an organization to take advantage of local labor and knowhow about local laws and valuable target market information. Individuals hold shared beliefs and attitudes towards different aspects of the economy. For example, the attitude that individuals hold about owning a car is different from the one held by Americans or Africans. The automobile company must therefore consider these factors before entering the Indian market. Bibliography Iyer, Rajesh. MBA Fundamentals International Business. New York. Kaplan. 2009. Print. Price water house coopers. Doing Business in India. 2010. Retrieved on 23rd November 2012 fromhttp://www.hsbc.com/1/content/assets/business_banking/110329_hsbc_doing_busin ess_in_india.pdf Sinkovics, Rudolf & Ghauri, Pervez. New Challenges to International Marketing. Bingley. Emerald group. 2009. Print. Tsang, E. Transaction, Cost and resource based Explanations of Joint ventures: A Comparison and synthesis. Organization studies. 21 (1): 215- 245. http://www.library.ln.edu.hk/eresources/etext/hkibs/hkws_0052.pdf Zekiri, Jusuf & Angelova, Biljana. Factors that Influence Entry mode Choice in Foreign markets. European Journal of social sciences. 22. 2011. Print. http://www.eurojournals.com/EJSS_22_4_12.pdf Read More