Market Entry Strategies - Essay Example

? Market Entry Strategies Introduction A typical start up firm has limited marketing abilities with no base and lack of formalized marketing planning that inhibits its entrance. Unlike other older firms, new firms suffer from various liabilities that are characterized by beings small, new, uncertainties and turbulence. According to Elie and Ozge (2008), companies who enter the market first get significant and a sustainable market share than late entrants in the same market. Gwendolyn (2008) also supports that late entrants have the possibility of succeeding by adopting distinctive positioning and marketing strategies that propel them to become the market leader. New entrants can take advantage of the gaps in the market and develop innovative ways to market their products and services that are equally competitive and regain the market share. The market entry always contains three market entry decisions that are; where to enter, when to enter and how to enter (Ulrike, 2004). There are numerous modes of new entries to choose from, which include joint venture, franchising among other methods. The choice of entry modes are largely determined by risk assessment, the level of control, expansion strategy and the return on investment in the new market. Planning in new ventures Globalization and free trade agreements are making most of the countries to turn their focus into expansion to new markets in their attempts to increase their profit earnings. The main challenge facing new market entrance is the how to overcome the liability of newness (Guo & Turner, 2002). Planning involves setting organization goals, identifying strategy alternatives, selection, and implementation of chosen objectives. The planning stage also involves the explicit and deliberate process of defining the organization mission, objectives and strategies that can yield for the firm in its new environment (Dirk & Anastasia, 2013). Choosing the right market The process of choosing the particular place to enter with a new venture is important since it determines the level of success of the firm. The factors that should be considered when setting the destination for the new venture include internal factors, external factors, desired mode characteristics, and transaction specific behaviors (Ozge & Elie, 2012). Consider the location of any direct investment and then consider the culture of the country in terms of religion, ethnicity and language. Other factors that need to be considered includes institutional weaknesses and government policies of the country in which the new market is situated. Choosing the appropriate space involves market scanning and is based on secondary data and it should give the advantages and the disadvantages of investing in a particular market. Market research is the most complex part of determination of where to invest and it requires more resources to manage. Market research is mainly based on primary research and this is the reason why it requires more resources to manage. Among the factors that are studied during market research are the geographic distance, cultural proximity, maturity of the distribution system and the economic and political stability in the region (Su, 2013). Timing of entrance According to Veronika (2007), timing of entrance is also an important for the organization just like the positioning of the market system. Both the latecomer and first mover have got advantages and disadvantages that they enjoy in market acquisition and establishment in the market (Limbersky, 2008). The first mover takes the advantages that include technological leadership and pre-emption of scarce resources in the market. The first movers also enjoy the advantages that come with of strong brands and the establishment of entries of barriers in the market. According to Michael and Hans (2012), the late movers also enjoy some advantages in the market that first mover cannot easily enjoy and they include opportunities to ride on first mover investment in the market. Janet and Gao (2012) also support that they also enjoy the benefits of resolution of technological, market uncertainty, and then take the advantage of first mover difficulty to adapt to the market changes. A firm is thus expected to weigh the merits and demerits of the time they should enter the market so that they avoid making errors with regards to entrance time. The best time to enter a new market also depends on the type of market whether it is emerging market or an established market. Ozge and Elie (2012) suggest that companies should always consider first mover advantages as they outweigh the late mover advantages with regards to profitability of the company. This is mainly because first mover is likely to experience less competition since the last mover will find an already established brand in the market. The early entry will thus enable the company to establish a strong position in the market which will give the late entry hard time to overcome. Strategic planning Competitive strategies of a new entrance to the market highly depend on the market environment and the positioning of the product portfolio of the existing competitors in the same market. Ulrike (2004) and Veronica (2008) argues that a new entrant can decide to reduce the price of its products by introducing a price lower than the pioneers price to attract new customers. This should be done with care since it can greatly reduce the profit margin leading to losses unless the cost of production of the new entrant is cheaper than that of the pioneer. The new entrant can also improve the product or service with a strong focus to the niche market (Guo & Turner, 2002). The new entrant can also opt to establish new geographic markets for the existing products thus gain customers that have not been reached with the pioneer companies (Ulrike, 2004). Alternatively, the new entrant can opt to develop new distribution channels in order to access new markets that have not been fully reached by pioneer firms in the course of their business. All the above strategies should be adopted with caution since there is a possibility of pioneer counteracting these moves by increasing barriers to entry by reducing the price and decreasing the value of business of the new entrant. The new product can possibly appeal to the consumers more than other products, hence giving them an advantage in the market. The new entrants can also discover creative ways to increase product trial to generate trial market share to overcome the disadvantages posed by early entrants. It is also advantageous for late entrance to segment the market and focus on a particular product by providing appropriate values of its products in order to extract additional rent. According to Elena (2012), they can position themselves as variety enhances rather than replace or substitutes for the pioneers and still get good profits in the new market. When the pioneers put barriers to entry for the new players, they should develop creative marketing, innovative advertising, new service packages, and superior customer service. They should take advantage of the weaknesses of the pioneers like establishing a good customer service since most pioneers have a relatively poor customer service orientation. When there is a particular shift in the industry as a result of regulation of technological change, late entrants can succeed by attacking high growth markets to get more profits in their new market. Another market entry strategy is by focusing on micro segmenting the customer base through targeting high value customer that are willing to pay the extra price hence generating more income for the firm (Katrijn & Mark, 2007). Modes of market entry Janet and Gao (2012) argues that the choice of entry method is one of the most crucial strategic decisions for a firm that is fully determined to make profits in the new market. This is because a wrong choice of entry method can cost the company by making it incur losses instead of profits since entry mode cannot be easily changed in the course of business. The entry modes also have a strong impact on the future performance of the business in the future of the organization and the level of profits and losses a firm is likely to make in future. This is because a choice of entry mode also has an impact on the expansion and marketing abilities of the organization. Feng and Marco (2012) argue that care should be taken when investing in emerging markets since they focus so much on regulation regarding entry modes in order to assure local involvement and protection of their domestic companies The companies are also faced with the option of choosing between equity and non-equity entry modes when entering a new market for business activities. The non-equity modes are represented by exports and contractual agreements while the equity modes are represented by joint ventures and wholly owned subsidiaries. Equity models on the other hand are characterized by more commitment hence making the company less flexible than non-equity models (Ovcina, 2010). Equity and Non equity modes (Source: Ovcina, 2010) According to Ovcina (2010), companies that choose wholly owned subsidiary and joint ventures are at higher risks than those that opt to invest in exports and contractual agreements in the same market and this makes the company less flexible to changes. The company can also opt to choose joint venture to reduce the extent of risk but it comes with the demerit of sharing control and profits of that comes from the new market. Different entry modes have their have their merits and demerits and thus a company is expected to analyze the market carefully before deciding on which entry method to choose. Some companies can also decide to operate with different entry modes in different markets in their bid to reduce the extent of risk posed by new ventures. Comparison of different entry modes (Source: Ovcina, 2010) WOS Acquisition Joint Venture Licensing/ Franchising Agent/ Distributor Upfront investment High High Medium Low Low Speed of entry Slow Quick Quick Medium Quick Market penetration Medium High Medium Nil Nil Control of market High High Medium Nil Low Political exposure High High Medium Low Low Technological leakage Low Low High/Medium Low Low Managerial complexity High High High Low Low Return on Investment High/Medium High/Medium High/Medium High Return Joint ventures This method of market entrance is mainly for those companies that are interested in operating beyond simple exports of goods and services. The joint venture is a good alternative when it comes to investing in a market where the level of profit margins may not be very clear for the investing company. The joint venture is also good for companies that establish licensing manufacturing rights in foreign lands. The company can liaise with service providers to give them advice and provide them with potential partners of business in their new environment. A joint venture always involves a market entry with the exporter and a domestic company in the target country formed together to from a new incorporated company with new aims and objectives (Su, 2013). The benefits of the joint venture are that both parties share equity and resources together with management, profits and losses hence the risks are not very high. The method of joint ventures is profitable in a country where there are restrictions of ownership like Vietnam where foreign companies are rarely given a chance (Elena, 2012). The advantage of joint ventures is that the investing company is likely to acquire competencies and skills that were not previously available at their disposal. The company is also likely to penetrate the new market quickly since they operate with a company that has its footing in the new market. Another advantage of joint venture is that a company is able to spread the risk of a large project, hence they are able to penetrate the market faster and get quick return on investment. Government regulations are always a big obstacle to foreign investment but through joint ventures, a company may easily avoid tariff barriers and satisfy local requirements within a very short time. The disadvantages of joint ventures are that partners may not be able to recover the capital invested due to shared profits and the disagreements that may arise in the course of management by their partners. The partners may have different views on expected benefits since no partner has full control of the management of their new venture. When thinking of a foreign partner, the companies have to consider complimentary skills, cooperative culture, compatible goals, and commensurate risk before signing their joint pact. Mergers and acquisition Katrijn & Mark (2007) explain that mergers occur when a foreign company merger with a domestic company and create a new entity while in acquisition, the exporting takes over a new domestic company in the target market. The advantage of mergers and acquisition is that there is reduced time to access and penetrate the target market since they exploit the product line and distribution network. Mergers and acquisition is the best method to reduce the number of competitors in the market and this increases the level of monopoly leading to increased profits. Just like joint ventures, mergers and acquisitions enable a company to evade most of the barriers to entry that characterize some potential markets for new investment. Franchising This is an ongoing business relationship whereby one party grants another party the right to distribute goods and services using the franchisor brand name and system at a fee agreed upon by both parties. According to Elena (2012), this method enables a rapid business expansion using the intellectual property of the franchisor, and the capital and the enthusiasm of network operators. This method is not as quick as merger and joint ventures since initial training is essential together with some form of advertising programs to sensitize the market of the new arrangement. Contracting and licensing This is whereby firms decide to enter a market by contracting the manufacture of its product in the target market instead of establishing its production in the same market. There are sometimes agreements whereby products are tailored according to the conditions and specifications of the local market. When a company enters the market through licensing, one company agrees to permit another company to use the manufacturing, processing, trademark, and skills provided by the licensor at a fee agreed upon by both parties (Su, 2013). Group supply chains According to Su (2013), this is a trend towards globalization whereby the large engineering and construction firms are pre qualifying firms and purchasing equipment and services through the supply chains. The advances in electronic business and online procurement are the major drivers of global supply chains in the current development systems. Global supply chains represent a new and exciting way to enter new globalized markets since it’s efficient and cost effective in its operation. The projects being undertaken by global supply chain can be supplied to any part of the world thus making it a good entry strategy for new markets. The companies that need to operate in this line of market entry needs to register with proactive marketing firms in order to benefit from stable long-term partnerships with the project execution managers. Conclusion Market entry is vary challenging for businesses that want to get a good return on their investments. There are various modes of entry that are available for businesses to exploit as they invest in foreign countries. The choice of entry mode has an influence on the level of marketing for some requires less marketing while others need more marketing. Wholly owned subsidies require more marketing since the business depends on itself for establishment in the new foreign market. Other business models like joint venture and mergers and acquisition require relatively less marketing since they ride on the wave of an already established business on the foreign market. Bibliography Dirk, H & Anastasia, B. 2013. Market Entry Strategies in Emerging Markets: An Institutional Study in the BRIC Countries. Thunderbird International Business Review.  Vol. 55 Issue 3, p237-252.  Elie, O & Ozge, T. 2008. To innovate or Imitate? Entry Strategy and the Role of Market Research. Journal of Marketing Research (JMR), Vol. 45 Issue 5, p575-592 Elena, S. 2012. 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