International Market Entry Strategies - Assignment Example

Name: Surname Instructor: Course: Date: International Market Entry Strategies Executive summary Central Car Company (CCC) is a UK based company that imports and exports vehicles and their parts. Recent rapid growth and high customer demand has necessitated expansion into foreign markets. Over the years, as we improved our service delivery and strived towards offering the highest quality vehicles in the market, our customer base has grown considerably. This has prompted us to expand our services to other parts of the world. In particular, my department chose Canada. This decision was arrived at after extensive research conducted on their market status and financial and economic status of the country. As a result, we considered several entry strategies that could enable us roll out our services in Canada with the least risk. My department decided to apply the joint venture strategy because of its effectiveness and inherent benefits. This was after the realization that the Canadian vehicle market was highly competitive and entry was difficult. In addition, established firms have developed barriers that prevent new entrants from plying the market. Introduction After successful delivery of services in the UK’s vehicle market, Central Car Company has decided to expand its services to other parts of the world. This decision was arrived at after an extensive analysis and evaluation of our company. A SWOT analysis was conducted and a decision made to expand our business operations internationally. Our strengths offer us a better chance of successful international service delivery considering that our customer base has been on the increase over the years. In addition, we have received excellent feedback from our customers stating how satisfied they were with our services and how good our products are. The management of the company decided to roll out our services to Canada after extensive evaluation of its car market. As a result, the International Operations Department was responsible for finding the best entry strategy that would present the least risk to the company (Vaghefi, Paulson, and Tomlinson 43). As the Director of the department, I am responsible for evaluating and selecting the best entry strategy. This was after the company’s management approved my group’s presentation of Canada’s risk assessment of its market. This report will evaluate the different entry strategies available and that the company may adopt. This evaluation will be based on their advantages and disadvantages they may present to the company. From this evaluation, the company will select the best entry strategy for adoption. The best strategy will be selected based on the need of the company to enter Canada with the least risk. In addition, the need to expand services to other parts of the region will also be incorporated into the evaluation. Why Canada is appropriate Canada’s vehicle market has experienced a consistent and rapid performance compared to other countries in the region in recent years. In addition, its resistance to the volatility that is characteristic of the vehicle market in many parts of the world was a positive factor that was considered. This stability and sustained good performance motivated my group to choose Canada. Their small vehicle and heavy vehicle markets are very well established and developed and entry into the country would serve to spur the growth of the company. My group also found out that the Canadian vehicle market achieved annual sales of US$260 billion and it is the biggest manufacturing sector in Canada. This industry accounts for 17% of the entire production and sales of vehicles in the North American region. This means that Canada has the best and well-developed vehicle market in the entire region of North America. In terms of export of automotive goods, Canada is among the leaders. In addition, five of the best manufacturers of vehicles in the world are located in Canada. Toyota, Ford, Chrysler, Honda and General Motors have well established production plants there. Moreover, the government spends a lot of money on the vehicle sector due to its great contribution to the country’s economy. This has resulted in high growth and sustained high quality of services delivered. These factors make Canada a favorable market for CCC to roll out its services as it focuses on expanding to other parts of the North American region. Current situation of Central Cars Company Since its establishment in 1972, CCC has experienced considerable growth in offering services to the vehicle industry in the UK.When starting out only small vehicles were sold. This was because the vehicle market was small and not well established. The sales were very low at the time and the company had to establish good sales and marketing strategies to ensure that it carved a niche in the market. The strategies guaranteed growth over the years and even though economic recessions hit hard, the company survived the financial crises. As the vehicle market experienced sustained growth, so did the company. It experienced better results and profit margins and the customer base grew considerably. The feedback received from satisfied customers was proof enough that the company was growing. This continued for many years and the company made it its priority to offer the best services to satisfy customers. This strategy was used to maintain the customer base. This was in addition to offering good prices that our customers could afford and frequent discounts on our products. At present, customer demand has exceeded output capability and this has prompted the company to expand to other parts of the world. For example, in the last decade the profit margin increased by 70%.This represents a 25% growth of the company. In addition, the heavy vehicle sector has grown rapidly due to increased customer demand and customers have increased by 19% since the year 2000. Potential market entry strategies There are four market entry strategies that companies consider when entering foreign markets for the very first time. These strategies include the licensing strategy, direct importation strategy, low price strategy and the joint venture strategy (Neelankavil & James 51). All these strategies have both benefits and shortcomings that call for an in-depth evaluation to ensure that the best strategy is used. Licensing strategy Licensing is a strategy that involves a certain firm in one country allowing another firm in another country to apply the manufacturing, trademark and processing knowledge or other specified skills that are availed by the licensor. This strategy is similar to franchising. It involves reduced expenses and involvement in dealing with a product. The only expenses involved are signing the agreement and the implementation of the agreement. Licensing presents several advantages that make it a strategy of choice. First, it is an effective way to enter a new market with low risks, the association means that both parties are equally involved in marketing and as such, both get the best out of it. In addition, capital is not tied up in operations in the new market and there is a possibility to buy into the partner (Tielmann76). Also, there may be issuing of royalties for promoting a certain brand. However, there are shortcomings associated with this strategy. First, there is limited participation in operations by the licensor on various aspects of the product in the market. Secondly, there is a possibility of losing returns from manufacture of a product and its marketing. Thirdly, the licensee gains knowledge of the product and the market and therefore the period of agreement is usually short. This presents a competition risk in case the licensee opts to provide the same services in the same market from the knowledge gained (Neelankavil & James 66).Finally, licensing calls for extensive and in-depth research on its feasibility and possible consequences. Product adaptation strategy This strategy involves improving the services or products offered with an aim of conquering a certain niche market. A company can create a competitive edge by being innovative. This innovation may be fundamental or an improvement of the existing product or service. An example of an improvement innovation is the enhancement of an existing product. The benefit of this strategy is that this product may be able compete with existing products in the market. This may led to attraction of new customers and the conquering of a larger market segment due to improvements made on the product (Tielmann 73). However, this strategy has a shortcoming too. In case of a fundamental innovation, the product may fail to appeal to customers and lead to great losses. The process of innovation is costly and its success depends on how well customers receive it and the impact of existing market dynamics. The product may not fully satisfy customers’ needs and this may lead to its rejection. Direct exportation strategy Exporting products is the most established way of entering and operating in a new market. It involves transporting goods that produced in one country and marketing them into another. This strategy calls for extensive marketing of the product in the new country. This strategy has several rewards. Since products are produced at home, less risks are inherent than if the products are produced in a new country. In addition, it presents an opportunity to learn of the foreign market, its operations and dynamics before investing. Finally, it reduces possible risks of foreign investments. Its shortcoming is that a new entrant can fail to gain control of the new market due to the activities of agents operating in the market (Tielmann 79). Exporting as a strategy involves to variations: direct or indirect exportation. Direct exportation involves the use of an agent who operates in a chosen market segment. Indirect exportation methods ensure that the exporter has fewer burdens and in that case, does not need great expertise because another company deals with the product in the new market. Joint venture strategy This entry strategy involves forming associations or partnerships with other firms and sharing ownership, control of all products and operations in a new market (Tielmann 16). Joint ventures have several advantages. There is increased and enhanced financial strength, it may be the only means available for entry, there is shared risk, and the ability to share knowledge on different market issues is enhanced. Joint ventures present several disadvantages. In a joint venture, any one partner does not have total control of management and this is a source of disagreements due to different views and opinions by each partner. In addition, in case of a disagreement, it may be difficult to obtain capital. In addition, disagreements on the criteria of service delivery may present obstacles to achieving success in the new market (Neelankavil & James 71). Recommendation From the evaluation conducted on the above entry strategies, I recommend the joint venture strategy as the best for entry into the Canadian vehicle market. This strategy will present the best opportunity for entry and operation into the already well-established market. This strategy is the best because financial requirements and risks will be shared with the partner firm and as such, losses will be minimal in case of any uncertainty. Forming a joint venture with an already established firm in the market will also enhance sharing of knowledge and experience. This will improve market operations and guarantee a large market segment. Adopting this strategy means that the company must establish ways of reducing the involved such as limited control of operations and management. In addition, it will help overcome barriers established by pioneers to prevent new entrants from entering the market. Conclusion Entry into a foreign market requires extensive research on the operation procedures and market dynamics of the new market. Several strategies are at the disposal of firms for consideration. Each strategy has both benefits and shortcomings. A firm chooses a strategy based on the market environment, its competitiveness and the performance of the products of pioneering or existing market players. For CCC, the joint venture strategy is the most appropriate considering the presence of the many well-established firms in the Canadian vehicle market. These firms control a great portion of the market and this would present a great obstacle in an attempt to enter the market. This makes it necessary for the company to collaborate with one of the established firms to eliminate the obstacles developed by pioneers to prevent new entrants from entering the market. This is the best strategy to adopt compared to the others discussed above. It will present the least risks and will make entry into the Canadian market easy and successful. Works Cited Neelankavil, James P. International business research. New York: M.E. Sharpe, 2007. Print Tielmann.V.Market Entry Strategies: International Marketing Management. Munich: GRIN Verlag, 2010.Print. Vaghefi, Mohammad, Paulson, S and Tomlinson, Wialliam. International business: theory and practice. New York: Taylor & Francis, 1991. Print Read More