The Choice of Entry Mode Strategies and Decisions for International Market Expansion - Example

PRINCIPLES OF MANAGEMENT By Name Course Instructor Institution City/State Date Introduction Basically, the resolution to go global symbolizes a vital commitment of the organisation to shift into an innovative line of business, and that is why entering into a foreign market is a process that must be taken bit by bit: getting market information, examining the information itself, as compared to the late entrants (Tan, 2009, p.1047). However, later entrants may as well achieve something by implementing different marketing as well as positioning strategies. According to Chen and Mujtaba (2007), pioneers in nearly all industries, upon receiving incumbent status, are influential, but sometimes they become contented with what they have failing to notice the shifting or growing demands in the foreign market. In this regard, new market entrants can exploit gaps presented by such aging pioneers, or discover ground-breaking means to promote their services or product in the international platform (Pehrsson, 2004, p.758). Currently, there are two main ways of entering a new market: first, non-equity mode, which entails contractual and export agreements; second way is equity mode, an entails completely owned subsidiaries as well as joint venture. According to Chen and Mujtaba (2007), the market-entry method that presents the least risk level as well as the lowest control f the market is import and export. Market Entry Strategies Exporting The first strategy of entering international market is through exporting, which can be defined as a process of selling the company’s products or services to a foreign country. Basically, exporting can be categorized as either indirect or direct. For indirect export, goods are distributed overseas by specific agents and the company does not have any unique activity related with foreign market, since the sale overseas is perceived as the local one. For such reasons, Chen and Mujtaba (2007) posit that it is hard to state that indirect export is a global-based strategy. Based on direct exporting, the company happens to directly participate in promoting its services and products in international markets. According to Pehrsson (2004), the export symbolizes the simplest method for penetrating into international markets. Organisation’s participation in export functions is distinct, as we are speaking with regards to active exporters (when exporting is instigated by the supplier, who has an export plan as well as an appropriate business plan) or passive exporters (when carrying out a business overseas is stimulated by the high demand on the international market, indicating that the business is instigated mainly by the importer). In essence, the export activities determinants are knowledge and improbability influences; strategic effects; and firm-specific as well as behavioural effects. Skills and knowledge concerning the exporting behaviour may possibly be owned or accrued by the business organisation in due course. I concur with Tan (2009) assertion that knowledge plays a fundamental role in exporting, as company’s participation in foreign markets is mostly a steady process. Al through the early days of exporting, concentrate more on foreign market, whereas augmented participation in international market facilitates diversification to various markets. Importantly, as the export knowledge of the company heightens, the ambiguity factor reduces, and this knowledge permits the recognition of existing business opportunities. Licensing Another noteworthy market entry strategy is licensing, which allows company to enter an international market with less or no risk. Essentially, the global licensing companies the licensee copyrights, trademark rights, or exclusive rights on products and processes. In response, the licensee should create the products of the licensor, promote these products in his allocated country and reimburse the licensor charge and percentages normally connected to products sales volume (Tan, 2009, p.1051). This form of accord is usually hailed by international public authorities given that it comes in with technology. International licensing entails the contracting of market know-how and knowledge and occurs when a business organisation offers, for a specific fee-royalty, know-how required by another business organisation so as to run a business internationally. Chen and Mujtaba (2007) outline elements involved in licensing a company that desires to go international: operations know-how, a brand name, access to exclusive rights, technology for production process, and trade secrets. Fundamentally, licensing may possibly be eye-catching when host nations limit foreign direct investment (FDI) or imports, or the time when the market is undersized and technology feedback prospects are far above the ground. Benefits of licensing include easy access to the perceived complicated markets and low resources commitment as well as low risk on capital. Other benefits include details pertaining to the performance of the product and competitor behaviour in various markets is obtained cheaply and enhanced service and delivery levels in the markets locally. Franchising Another excellent market entry strategy is franchising, which is akin to licensing apart from the fact that the company offering franchising services directly takes part in the control and development of the marketing plan. In this regard, the franchising system is a system wherein franchisees (semi-autonomous business owners) reimburse royalties as well as fees to franchiser (parent company) (Pehrsson, 2004, p.763). Contrary to licensing, agreements based on franchising appears to be more tenacious prompting the franchisor to provide a less subtle resources and rights package which normally consists of: tools, decision-making systems, primary trainings, operation manual, consists of things likes trade secrets and intellectual property, franchising on its part it is restricted to operating experience and trademarks of the company. International franchising comes in with benefits such as low cost and political risk and permits concurrent growth into various countries across the world. In addition, partners who are wisely chosen bring management capabilities and fiscal investment to the host country. One method of franchising is through product distribution franchises, whereby the franchisor licenses its logo as well as trademark to the franchisees, but on average fails to offer them with the whole system for business operation. This type of franchising is widely notable among the automobile dealers, soft drink distributors, as well as gas stations. A number of well-known product distribution franchises entails: Ford motor Company, Exxon, and Pepsi. Even though product distribution franchising presents the biggest proportion of whole retail sales, nearly all franchises offered nowadays are business format franchises. Basically, Business format franchises are the second method of franchising, and use the franchisor’s trademark, services, and products, and as well the entire technique to carry out the business itself, like the operations manuals and marketing plan (Chen & Mujtaba, 2007, p.326). Strategic Alliances Strategic alliance presents an excellent market entry strategy, and is an idiom utilized to portray a diversity of supportive agreements flanked by various companies, like joint research, minority equity contribution, and formal joint ventures. Fundamentally, the contemporary form of strategic alliances is turning out to be trendier and has three unique attributes: they are often flanked by business organisation in more industrialized countries; they concentrate mainly on generating novel technologies and products instead of distributing accessible ones; and finally, they are usually just generated for temporary durations. According to Tan (2009), technology exchange remains to be the main goal for numerous strategic alliances, given that technological modernisms are rooted in interdisciplinary progresses making it hard for a single company to have the essential capabilities or wherewithal to carry out its own efficient research and development (R&D) efforts. In addition, this is braced by more myopic life cycles of the product and the desire for various firms to remain competitive during such innovation. Pehrsson (2004) holds the opinion that the utmost drawback of strategic alliances is competitive partnership risk, given that a number of strategic alliances engage companies that are in ferocious competition outside the explicit alliance scope. As a result, it generates the risk that some of the alliance associates will attempt to exploit the alliance to generate a competitive advantage over the other. Conclusion In conclusion, it is apparent that in global competitive setting, the capacity to create an international organisational competence is the fundamental element that can assist the company become accustomed to the transitions in the active setting. While the hasty pace of globalization continues to make the conventional methods of performing business extraneous, it is imperative for business managers to have an international state of mind to be successful. Apparently, business globalization has brought about the materialization of international strategic management. Undeniably, an integration of foreign business as well as strategic management will give rise to strategies for international collaboration, but there are barriers erected across the road. However, the setbacks brought about these barriers can be handled by joint ventures anchored in joint benefits of the parties drawn in. What’s more, suitable effectual communication remains to be the fundamental factor for international strategies given that what is suitable and valuable in one culture may possibly be unproductive and inappropriate to the other. Besides, marketing company’s services or products internationally is multifaceted and complicated due to a number of factors such as: global strategic alliances, management and regulation of worldwide marketing, regional trade barriers, communication, as well as selection of international market entry strategy. For that reason the report has presented four main strategies that any company can use to enter in the international market: strategic alliances, franchising, licensing, and exporting. References Read More