Internationalization of The Indian Market - Essay Example

Lecturer: Introduction Internationalization is an important aspect that allows a business to utilize opportunities in the global market. It is possible to acquire new customers and hence increasing turnover. Expanding to foreign markets helps to diversify market risk and is also important for businesses to benefit from economies of scale. The process of internationalization has been enhanced by free trade agreements, increased deregulation and transformation of the world economy resulting in greater investment and expansion opportunities in global markets. Contemporary internationalization involves small and medium enterprises (SMEs) as opposed to the traditional approach whereby only large corporates expanded investments beyond political boundaries. This paper discusses the Uppsala model to be applied in the internationalization of a London based textile SME, including internationalization methods such as exports, distribution and setting up facilities. The Indian Market The market for consumer goods in India has been on an upward trend since the amendment of the Consumer Protection Act 1986 giving consumers an upper hand in deciding what they want (Tiwari and Herstatt, 2012). According to Bruche (2009), consumption trends in India indicate an inclination towards satisfaction of wants rather than the traditional focus on needs. Consumer culture has favoured the development of textile industry as people tend to replace their clothing with new ones every now and then and discarding the ones that are out of fashion. Repair of clothes has become a thing of the past among the working and business class and is only in the rural neighbourhoods that people are likely to repair worn-out clothes. This is an indication that consumers have more money to buy new clothes. According to Beise (2004), a successful consumer society is characterized by an increased rate of production of goods and services, increased purchases and consumption. The Indian society can be considered to be progressing as all these aspects are evident in the market (Bruche, 2009). It is therefore necessary to consider India as a perfect foreign market for the SME’s internationalization strategy. Uppsala Model The Uppsala model described by Johanson and Vahlne (2013) will be most appropriate in the expansion of the textile business in the Indian market. As proposed in the model, it will be necessary to understand and gain experience in the UK market which is the home country where the SME is established. This experience will be necessary while developing strategies for entry in to the foreign country. Even though the two markets are different with regards to consumer purchasing power, there is a significant similarity in consumer buying behaviour especially among the high income consumers (Eyring, Johnson and Nair, 2011). According to Vahlne, Schweizer and Johanson (2012), the Uppsala model underscores the need for expansion by successive stages that allow barriers to be dealt with as they emerge. It also helps to safeguard the business against the high risk of uncertainties as resources are invested in bits. McNaughton (2003) notes that businesses applying the Uppsala model usually commence with small commitments in the foreign subsidiaries and increase as more experience is acquired. According to Hermel and Khayat (2011), the commitment of resources by firms applying the Uppsala model can increase or decrease depending on the success of a firm in meeting its expectations. It may also stop if there are no foreseeable prospects in the new market and hence the gradual increment of resources to the internalization process. The core objective of the model is to avoid high initial investment in a foreign market before acquiring proper footing. The incremental success of business significantly depends on accurate beginning (Hadjikhani and Thilenius, 2014). Setting up Facilities The London based SME will begin its foreign market expansion by establishing outlets within the UK region such as Wales, Scotland and Northern Ireland. This will be an important strategy to begin with as these markets have a common culture and are geographically linked. It will help in understanding consumer behaviour in a broader perspective and testing communication effectiveness between the different subsidiaries and the head office in London (Hisrich, 2009). Wild and Wild (2014) argue that the speed of knowledge acquisition regarding the new markets can be maintained through enhanced communication between various branches and the head office, for this case in London. Knowledge transfer will be promoted by encouraging the three subsidiaries to share information amongst them while the head office will facilitate them with resources and important links to information based on past experience. It is expected that the communication strategy will be replicated once the Indian subsidiary is established. The head office will play a significant role of observing the possibility of success or failure in the actions undertaken by the subsidiaries to prevent mistakes from occurring as they may be expensive for the business. The geographic closeness of the subsidiaries in the UK market makes it possible to test the capacity of the firm to engage in progressive investment before venturing a far-off market. The systematic knowledge acquisition is significant in promoting high commitment as it lowers the probability of errors and therefore the investor progresses with confidence (Barringer and Ireland, 2008). After identifying the market characteristics outside London, the firm will be ready to apply the same entry strategy in the Indian market. When the brand acquires consumer loyalty, it will be possible to establish an independent sales outlet with minimal risks. One outlet will be established in a city away from the franchisees chain stores to avoid competition. The promotion strategy will be the same and it is expected that consumers will already have learned about the brand. With increased experience, the sales outlet will develop in to a fully-fledged subsidiary employing one sales expatriate from the UK and other sales’ staff from the Indian market. Distribution Distribution through franchising is a strategy applied by businesses that have different but complementary operating capacities with mutual benefits. The franchisor is the owner of products while the franchisee owns a chain of stores that are necessary for the products to reach consumers (Burt and Encinas, 2000). The franchisor is saved from the cost of developing chain stores. The franchisee’s triumph in the market has a significant implication on the franchisor’s turnover (Chakravarthy and Coughlan, 2011). There are several firms dealing in UK fashions in several retail chains in India and these will provide an important market entry channel as they will collaborate with the SME to sell its products in the short-run while promoting the new brand through franchise. This will be an important strategy to enter the market with minimal capital outlay and also to begin immediate sales in contrast to the establishment of a fully-fledged subsidiary in India. The new brand will help to promote already established brands sold by the franchisee as it is the latest trend in the UK and no other fashion shop is dealing with it in India. The franchisee will therefore be at a competitive advantage of being the only one selling the brand (Altshuler, 2010). Exports Casson et al. (2006) observe that beginning with traditional exports is a common strategy for firms applying the Uppsala approach. With time, the business gains confidence in the market and is able to engage in greater commitments such as establishing a complete foreign subsidiary. This strategy helps to control risk of unforeseen aspects of the foreign market such as government policies that are in the process of development. The franchisee will order on demand and therefore the exports will be occasional as proposed in the Uppsala model. This will continue as the firm continues to gain knowledge regarding the Indian market. The firm will have one sales person in each of the franchisee’s chain stores with a core objective of understanding consumer behaviour. They will also be necessary to track the brand success. The internationalization process progresses gradually while focusing on the host country regulations and promoting organizational learning. Greater experience in the new market leads to increased sales and more resources being committed for market expansion (Ruey and Kim, 2010). As consumers become aware of the new garment in the market, the firm will increase the export to ensure that consumer needs are met. The sales people will regularly communicate with the head office providing useful information regarding consumer needs. Consumer feedback will be important in developing future designs suitable for the various market segments (Ojala, 2009). According to Isai (2001), expatriate sales people are essential in enhancing communication between the head office and the subsidiary. They also ensure effective control of the head office as well as transfer of skills to the new staff. On the other hand, Schwens and Kabst (2009) observe that local sales people understand the host market culture and geography hence will provide useful information that is necessary in the enhancement of customer satisfaction as well as developing strategies for product distribution. The firm will proceed to acquire some of the chain stores owned by the franchisee if they will be willing to sell. It will also establish its own chain stores in strategic locations with significant confidence. This will promote its geographical presence in the Indian market. Conclusion India is a potential market for expansion of the textile firm as indicated by the increased production and consumption trends. The firm will adopt the Uppsala model in its internationalization objective as it will help in minimizing the risks associated with new market ventures. Expansion from London will begin by establishment of outlets in the UK region that shares culture and is geographically close. Communication effectiveness will be tested in the new outlets and will reflect the possible outcome when the firm enters the Indian market. Franchising will first be applied once the business begins operations in India and will increase progressively as experience is gained until the firm establishes independent chain stores. Reference List Altshuler.L, 2010. Branding capability of technology, Global Journal of Brand Management, 18(2), pp. 212–227. Barringer, B. and Ireland, D. 2008, Entrepreneurship: Successfully Launching New Ventures, International Edition: 2nd Ed., New York: Pearson Higher Education. Beise, M. 2004. Lead markets: country-specific success factors of the global diffusion of innovations, Research Policy, 33(6), pp. 997-1018. Bruche, G. 2009. The emergence of China and India as new competitors in MNCs innovation networks, Competition and Change, 13(3), pp. 267-88. Burt, S and Encinas, J. 2000. 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International Business: The Challenges of Globalization, 7th Ed. Upper Saddle River: Pearson Prentice Hall. Read More