Foreign Market Service Strategies Based on the Premier Inn Hotel in Mauritius - Case Study Example

Opening Premier Inn hotel in Mauritius Foreign Market Service Strategies There are two principal ways of entry into a foreign market, the equity modes, and non-equity modes. The equity model entail wholly owned subsidiaries and joint ventures, while the non-equity modes include exports, contractual agreements and through portfolio investments. Premier in hotel can consider exporting as an entry model if it wants to avoid financial risk or it consider licensing a form of contractual agreement if it wishes to reduce political risk since the license is usually 100% owned locally. The disadvantage of licensing is that there is lower income generated compared to other modes of entry. There is also the strategy of wholly owned subsidiaries a form of foreign direct investment that includes acquisitions and the Greenfield investment. The Greenfield investment is preferable if there are no competitors in Mauritius and it is a high-risk strategy. In addition, the hotel can consider acquisitions since it is a technique that can help to actualize higher human potential. It also contributes to lower risk than most of the entry models (Hill, 2014). Foreign Direct Investment and OLI model The best design for the hotel is Foreign Direct Investment by procuring land, plant, and workforce in the host country. The hotel can set up a subsidiary that is wholly owned in the country by establishing a branch from the ground. In doing so, the hotel will be using the Greenfield strategy; on the other hand, it can also acquire a plant in the target foreign market (Hill, 2014). The hotel will experience significant benefits in the acquisitions. Firstly, purchases are quick to execute. The hotel should acquire an already established enterprise in Mauritius, by doing so it can quickly build its presence in a foreign target market. Therefore, the Premier inn hotel should do the same (Razin and Sadika, 2007). Secondly, the hotel should make acquisitions as a tool to pre-empt competitors since in Mauritius there are many investors in the hotel industry. The need for the pre-emption is especially prominent in markets that are rapidly globalizing. Thirdly, managers of the Premier inn hotel may view acquisitions as less risky than a Greenfield venture. Practically when the hotel purchases another hotel in Mauritius, it buys a number of assets that generate a known profit stream and revenue. On the contrary, the profit stream and income produced by a Greenfield venture is indeed uncertain simply because it does not yet exist. Acquisition made at the Premier Inn hotel in Mauritius; it does not only acquire a number of tangible assets. For example, it will receive customer service systems, logistic systems, and factories. It will also buy the intangible property that is valuable some of which include; managers’ knowledge of Mauritius business environment and a local brand name. If the hotel has such knowledge, it can minimize the risk of mistakes brought about by the ignorance of the national culture (Weigel, 1997). Ownership advantages Companies and investment firms own assets required for production. Apart from tangible assets, intangible assets are also at the heart of the investment and production. Ownership advantages are intangible assets that a company possesses and can be transferred to companies at a reduced cost leading to higher income. They include trademarks, patents, production and managerial techniques and returns to scale. Administrative and production techniques could be as a result of technological advancement and might of the company. Unique technologies assisting in matters production, management, supervision, and data collection may give an investing company an edge over the competitors. The ownership advantages mean that the new entrant company possesses competitiveness advantage over the other competitors. It is a competitive advantage for the new entrant company that makes it possible for the enterprise seeking to invest directly in a foreign direct venture to obtain the bases for the market. On the issue of trademarks, the Premier Inn Hotel must possess traditional and registered trademarks to enable it have a brand in its products and without the risk of passing off without a legal remedy. It is, therefore, important that the Hotel do register it products name and also register it name. This will ensure it can successfully get an injunction against any infringing party. Managerial technical in as far as, the ownership advantage is may involve the managers of the Hotel being able to communicate with the local language of Mauritius people. This would ensure that there are no barriers of communication to the customer. A manager who responds well to a complaint by a client in a language that the client understands an important tool towards penetrating a foreign market. Premier Hotel Inn may, therefore, opt to train its management staff and other personnel in the primary language of Mauritius people to preempt the language barrier problem. To successfully enter a foreign market, the Premier Inn hotel must possess certain characteristics that would outweigh operating costs in Mauritius. In terms of patent ownership, this is important as it may help create a monopoly of the patented product. The ownership advantages that is unique to the nationality and nature of the Premier inn hotel. For example; asset details like brand name and financial capital, transaction specifics like multi-nationality benefits and the capacity to minimize the comparative transaction costs in Mauritius. There is also the advantage of technology and knowledge which is broadly defined to include all forms of innovation activities. The Premier Inn hotel will also benefit from economies of large scale such as the economies of scale, economies of learning, and economies of scope. The company may be in able to buy raw materials in large scale and at a reduce price and sell them at a higher price (Weigel, 1997). Their hotel will also benefit from advantages of monopoly in the form of access to markets in the kind of ownership of trademarks, patents, and limited natural resources. The monopoly power may enable the company to charge premium prices which inturn increases the organization profitability. This may be possible because there are less or no competitors in the market (Weigel, 1997). Internalization advantages The other aspect of foreign Direct Investment is the internalization advantages. It involves a foreign enterprise doing all or most commercial activities instead of collaborating with parent firm or company. It also required avoiding joining other established enterprises in the foreign country. However, the company must conduct a cost-benefit analysis and see whether the cost of production on its own rather than engaging in partnership with either the parent company or a company in a foreign country. It must also look into the cost of producing on its own. It ought to look into the licenses of the parent enterprises or franchises and whether they were granted to the parent company including assigns, subsidiaries, and successors in title. For instance, if there is a license with respect to use of patent or franchise in selling or manufacturing particular product that is not assignable or that can be utilized by the licence holder only, then the company must partner with the parent company. This may help the business to produce the product otherwise, violation of intellectual property claims may be made against it.. This has the advantage as a local company has a good grasp of the market trends in the country. The risks are minimized, and market research may not be highly concentrated because it will involve internalized production. There could be tax advantages especially when the local partners has performed well and in is good books of the tax administration institution of Mauritius. The advantages could originate from the transfer of ownership advantages to a different location but within the parent Premier inn hotel. In internalization advantage, the foreign investment company can engage in what it can be like a ‘sole mission’ in all the activities from production to marketing. The benefits arise if by allowing another company to use the assets. This could improve the probability that the other company gaining control over the utilization of the assets would lower the value of the property to the MNC. For example, the Premier Inn hotel could copy the technology of the home company, and then terminate the agreement and commence producing the same product in competition with the enterprise. In addition, employees would do the same; therefore, it will be difficult for employees than for an independent firm to do that if the argument is to apply successfully (Weigel, 1997). Internalization may be the cause for lack of trust between Premium Inn Hotel and the local firm it may choose to collaborate with. The local partner choose inform the investing company knowledge and skills the market due to the fear that the trust either knowledge or knowledge but it have little protection The vice versa is also true with respect to the investment company. The trust fear is well founded and will, therefore, lead to the internalized strategy by premium Inn hotel. This is because it is hard to have a legally enforceable contract limiting the use of any superior knowledge of either of the parties that are being involved (Norman, 2001). Location advantages In addition, there are the location advantages which are the key factors to decide who will be the host countries for the activities of the transnational corporations. The advantages also ensure through regulations, institutions, and resources that affect the cost of production and revenue of the hotel. The economic benefits include the qualitative and quantitative factors of production, market size, telecommunication and transport costs (Weigel, 1997). Mauritius can also have a number of benefits when the Premier inn hotel undertakes foreign direct investment in the country. The primary advantages for the host country will arise from employment effects, balance of payment effects, resource transfer effects, economic growth and competition effects. The foreign direct investment by premier inn hotel will also benefit the home country in a number of ways. Firstly, the balance of payments of the home country will take advantage of the inward flow of foreign earnings from Mauritius. Foreign direct investment can also help the home country’s balance of payments. If the subsidiary creates demand for exports like intermediate goods, capital equipment and complimentary products of the home country to Mauritius (Keillor, 2013). Secondly, there will be benefits to the home country from outward foreign direct investment arising from employment effects. The balance of payments can improve if positive employment effects appear when the subsidiary creates a demand for exports from the home country. The Premier inn hotel should consider certain specific factors of Mauritius. The factors include; political, economic and cultural conditions. The government of Mauritius attitude towards foreign direct investment should be an imperative variable in making judgment regarding where to position international manufacturing facilities. Mauritius is a country that permits foreign direct investment. . Therefore, Premier inn hotel should have a negotiated agreement and have a relative bargaining power. In addition, political ideology is an imperative for government policy towards foreign direct investment. For efficient foreign direct investment, the hotel should also be aware of cultural differences between Mauritius and its home country. Countries do differ in along very vast dimensions, including education, language, religion, and social structure. Mauritius is inhabited by Creole, French, Chinese and Indian people. The cultural differences will have a lot of impact on the marketing strategy of the hotel. The other aspect of cultural differences is tradition. Since premier inn is a hotel, it should be aware of the traditions of Mauritius since culture is imperative for beverages and food. For example, the people of Mauritius do like traditional foods like dholl Pori, curry, and bois Cheri; therefore, the hotel should ensure these foods are available in plenty. In addition, tastes and preferences differ from one country to another (Chen, 2011). The other thing that Premier in hotel should put into consideration is the economic condition of Mauritius. There is a difference in the economic development of Mauritius and the hotel’s home country. Consumer behavior is by the country’s economic development. Therefore, foreign direct investment will be favorable in Mauritius since it has a relatively highly developed economy which will contribute to many extra performances attributes to the hotel’s products (Markusen, 2004). Comparison of FDI and other strategies Apart from the FDI there could be other forms of investing in a foreign country. One such method is portfolio investment where the companies invest in securities of another country this is a form of contractual investment. The investing company may not be in the day-to-day managements of the company from which it has purchased securities. This is different from the acquisition, mergers, or joint ventures. It is, therefore, an easier route to investing in a foreign country as it does not involve in terms management. The investing company must however carry out extensive market research to avoid investing in a business that is struggling, or that cannot offer returns equivalent or equivalent to the investment made. It is imperative in that the investing company need not be licensed or engages in another bureaucratic requirement that may be in the case of an FDI. Further, the portfolio investment does not require a lot of capital to initiate. There is no acquisition of assets, employees and other factors of production and only the capital to purchase securities are. It is, therefore, advantageous to the capital that could be for acquisition of all factors of production could be used in buying more securities or better still purchase the securities in different companies. It is, therefore, faster as bureaucratic red tapes are. There is the exporting as an entry strategy if it wants to avoid financial risk. Nevertheless, portfolio investment is not without serious disadvantage. First, the investment company skills and knowledge in the market may not be put to work when the investment company has no management rights such as appointment of a director. It leaves its capital to be invested by other persons. In addition, different countries may have protectionist quota policies restricting the number of securities a foreign company can own either by itself or through a trustee. The premium Inn Hotel would, therefore, identify publicly listed company in Mauritius and purchase shares. Premium Inn Hotel however should try to buy securities and ensure that it has been given a management position where its views can be sought in the management of the company. Another strategy is exporting strategy. Disadvantage with exporting strategy is having the wrong choice of distributor thus leading to inadequate feedback and eventually affecting the success of the hotel. The hotel can consider licensing a form of contractual agreement if it wants to reduce political risk since the license is usually 100% owned locally. The disadvantage of permitting entry strategy is that there is lower income generated compared to other procedures for entry. There is also the policy of wholly owned subsidiaries a form of foreign direct investment that includes acquisitions and the Greenfield investment. The Greenfield investment is preferable if there are no competitors in Mauritius and it is a high-risk strategy. In addition, the hotel can consider acquisitions because it is an approach that may be utilized to realize high human potential. It can also help to lower risk than most of the entry strategies (Hill, 2014). Conclusion In conclusion, the Premier inn hotel should undertake the foreign direct investment as an entry strategy into Mauritius. The approach will make the hotel experience many advantages such as; it can quickly establish its presence in a foreign market. In addition, the hotel can pre-empt its competitors and acquisitions a form of fdi is less risky compared to the Greenfield ventures (Zamborsky, 2008). References List Chen, C. (2011). Foreign Direct Investment in China: Location Determinants, Investor. George, C. (2013). Emerging Business Opportunities in Africa: Market Entry, Competitive Strategy, and the Promotion of Foreign Direct Investments. Graham, E. and Krugman, R. (1995). Foreign Direct Investment in the United States. Graham, E. and Yoshitomi, M. (1996). Foreign Direct Investment in Japan. Hill, C. (2014). International Business. Competing In the Global Marketplace. McGraw Hill/Irwin. Jensen, J. Rutherford, T. and Tarr, G. (2004). The Impact of Liberalizing Barriers to Foreign Direct Investment in Services. The case of Russian Accession in the World Trade Organization. Keillor, B. (2013). Understanding the Global Market: Navigating the International Business. Lipsey, R. and Herrman, H. (2000). Foreign Direct Investment in the Real and Financial Sector of Industrial Companies. Markusen, R. (2004). Multinational Firms and the Theory of International Trade. Moran, T. ‎ Graham, E.and ‎ Blomström, M. (2005). Does Foreign Direct investment Promote Development? Razin, A. and Sadika, E. (2007). Foreign Direct Investment: Analysis of Aggregate Flows. Princeton University Press. Sagggi, K. (2000). Trade, Foreign Direct Investment, and International Technology Transfer Weigel, D. (1997).Foreign Direct Investment. Zamborsky, P. (2008). Foreign Direct Investment, Performance and Competitive Advantage. Zhang, K. and Fung, H. (2002). Financial Markets and Foreign Direct Investment in Greater China. Read More