Market Entry Strategies - Assignment Example

Market Entry Strategies AFFILIATION: Introduction In the current era of globalisation, it has become compulsory on almost all organisations to have a global presence if they want to remain competitive in the business environment. For initiating a global presence, organisations have to opt for different market entry strategies so that they can gradually attain a market share in the respective foreign markets. This essay discusses five market entry strategies that can be implied by international organisations as part of their global strategy. The five strategies discussed in this essay are Indirect Exporting, Contract Manufacturing, Licensing, Joint Ventures and Direct Investments. Indirect Exporting Indirect export is one of the five market entry strategies that can be implied by businesses while implementing global strategies. In the indirect export strategy, there is a minimum amount of risk involved. On the other hand, the level of control of the market is also the least in this strategy. The market control is less due to the reason that products are being transferred abroad by other intermediaries (Levesque, 2004). In this strategy, the organisation does not get involved in any type of marketing. No type of marketing or any other activity is conducted in the strategy of indirect exporting. The sales in such a strategy are conducted as sales in a domestic market. Positive Aspects of Indirect Exporting Indirect exporting has the ability to invest in new markets and to do this they do not require any expertise or high amounts of investments. The strategy of indirect exporting is a common strategy initiated by organisations as a market entry strategy. If organisations become successful with the results of this strategy then they plan towards further agreements with the organisations of the host country (Terpstra and Sarathy, 2001). Indirect exporting is conducted via sales organisations that are domestically located. Domestic sales organisation is considered to be an easy method of managing sales in foreign markets. In this strategy, products can be bought and sold in the domestic market and it can be resold in the foreign market. The firm that is exporting the products needs to be in touch with the marketing activities of the foreign market so that they are able to increase the sales of their products at a constant note (Raff, Ryan, and Stahler, 2009). International trading companies is another form of indirect exporting. This type of indirect exporting is conducted by initiating local offices across the globe. Examples of international trading companies can be Mitsubishi Company of Japan. The international trading companies have the opportunity of addressing a huge market and hence this attribute makes them attractive distributors. Their attractiveness is also due to their credibility of information that they possess of the local markets (Cateora and Graham, 2002). Negative Aspects of Indirect Exporting The level of sales attained by this strategy is limited. Also, the knowledge avenue via this strategy is limited for the global organisations. In indirect exporting, the commitment levels of the global organisations with any particular market are weak. The disadvantage of international trading companies is that the organisation may possess other competitive products and hence the particular firm may not receive the attention and sales support as required by the global organisation opting for this strategy. Contract Manufacturing In the market entry strategy of contract manufacturing, the local producers of the foreign market produce the products of the global or international organisation. The global organisation allows the local producers to produce their products under a contract. The local producers are only contracted to manufacture the products of the global organisation. The marketing area of the global organisation is controlled by a subsidiary of the organisation that deals in sales area. This way the global organisation has a substantial control on the marketing activities of its products in the foreign market (Magnusson, Haas, and Zhao, 2008). Positive Aspects of Contract Manufacturing In the contract manufacturing market entry strategy, the investments that are required for putting up the plant are eliminated. So are the costs of transportation and also the customer tariffs are prevented in this strategy. The global organisation has the privilege of conducting its marketing and advertising activities in the foreign market with the assistance of local production. Due to contract manufacturing, the global organisation does not have to deal with problems in labour, does not have to deal with issues in understanding the business culture and training employees accordingly and also does not have to think in the direction of local economy. All this is handled by the local producers of the foreign market (Hryckiewicz & Kowalewski, 2010). Negative Aspects of Contract Manufacturing A disadvantage of contract manufacturing is that since the global organisation does not have control in the production and manufacturing of the products, they bear a loss on the profit margins of the activities of production and manufacturing. A major loss in incurred if the cost of labour is cheap in that specific foreign market (Cateora and Graham, 2002). The risk involved with contract manufacturing market entry strategy is that the global organisation may have to transfer their technological expertise in the foreign market for conducting business operations and this may allow competitors to get some insight into the global organisation’s technological strength. This type of risk is reduced if the key success factors of the global organisation are its brand name and the level of marketing expertise possessed by the organisation (Terpstra and Sarathy, 2001). Another major disadvantage with this type of market entry strategy is that the risk of maintaining quality in the production activities as the production department is handled by the local producers in the foreign market. The global organisation cannot interfere in the production activities and hence the quality control element is at risk for the global firm (Terpstra and Sarathy, 2001). Licensing Licensing is one of the common ways of market entry in the foreign markets. In this type o market entry strategy, the level of risk is limited in the foreign markets. Licensing market entry strategy differs from the contract manufacturing strategy in the sense that licensing strategy is for long time duration and the level of responsibilities for the local producers of the foreign market is very high and demanding. The entry strategy of licensing has similarities to the franchising market entry strategy. The difference lies in the area where the franchising organisation has more control over the marketing and advertising activities conduced in the foreign market (Gillespie, Jeannet, and Hennessey, 2004). The licensee is given different rights by the international licensing organisation. The different types of rights are the copyrights of the products and services, the trademark rights of the organisations and the patent rights. When these rights are given to the licensee, the licensee then will work upon the production of the products of the licensor. The licensee will also conduct the marketing and advertising activities of the licensor’s products. The licensee is also subjected to pay a royalty fees to the licensor and this fees is dependent upon the volume of sales of the licensor’s products (Zekiri, 2011). Positive Aspects of Licensing The advantages of the partners in this entry strategy are similar to the advantages of the partners in the franchising partnership agreement. The licensing market entry strategy is preferred by the foreign markets as due to this market entry strategy the foreign market as the opportunity of receiving new technological advancements in the country (Terpstra and Sarathy, 2001). Negative Aspects of Licensing The disadvantage of this type of market strategy is that the licensor cannot have control on the way the licensee in handling the work. There is lack of control due to no commitment as such from the organisation that grants licenses to the licensee. There is a high level of risk involved in this market entry strategy as after few years of operations by the licensee, the licensee would gain knowledge on how to conduct such operations and then therefore strive towards becoming independent. This way, the chances of losing on the market share by the international organisation increase in the particular foreign market (Datta, Liang, & Musteen, M., 2009). Joint Ventures The joint ventures conducted in foreign markets have similarities with the licensing market entry strategy. The difference in joint ventures and licensing is that, in joint ventures the organisations that has planned to start operations in the global market has the equity position and can also take part in the decisions of management in the host organisation of the foreign market. In joint ventures, partnership agreements are formed in between the host country organisation and the foreign market organisation. This partnership results in the formation of a new business entity or organisation (Cateora and Graham, 2002). Sony Ericsson is an example of a joint venture, the original organisations being Sony Corporation and Ericsson was a mobile company. Electronic expertise of Sony was combined with the technological expertise possessed by Ericsson. Positive Aspects of Joint Ventures In joint venture agreements, there is a good amount of control in the operations by the international organisations and they also can access and conduct research in the local market of the foreign organisation. The international organisation can easily address all the franchisee relationships on the business network and the level of being prone to any type of risk in such a case is also reduced due to the business partnership with the organisation in the foreign market (Zekiri, 2011). The joint venture market entry strategy is famous in the international markets. The main reason for its popularity is the organisations, the host and the foreign market firm, have equal control on the business operations and this delineates the problems of control and autonomy in both firms. This is usually not the case in other market entry strategies. The partnership with the local organisation of the country allows the international organisation to remain well informed about the business practices and also the local organisation assists the foreign organisation in al business related matters (Terpstra and Sarathy, 2001). Negative Aspects of Joint Ventures The organisations that have partnered into a joint venture agreement are not offered any protection on their liabilities. The formation under a joint venture for any organisation has a limited time period. When two organisations merge together, there are high chances of conflicts and disputes that may take place as the management of both organisations combine together (Terpstra and Sarathy, 2001). Direct Investments In the direct investments strategy, the organisations that are operating at an international level invest in foreign markets in their production units. In this strategy, the organisations investing in foreign markets have complete ownership of their business (Zekiri, 2011). Positive Aspects of Direct Investments There are two ways in which the international firm can have ownership of the production facilities in the foreign market. The first way is that they can conduct a merger in the host country or have a direct acquisition in the host country. The other way in which ownership can be attained in the production facilities is that they initiate their own production unit (Clarke, 2005). Suzuki Motors is an example of a direct investment in India via Maruti Suzuki India. Negative Aspects of Direct Investments In some of the global countries, laws are such that they prohibit the international organisations to possess complete ownership and hence such governments allow only licensing strategies or joint venture market entry strategies for organisations to operate in their business market (Cateora and Graham, 2002). Conclusion The entry strategies in the foreign market by various organisations are of many types and each strategy has its own level of risk, advantages and disadvantages. Organisations have to plan their strategies in steps while planning to conduct operations in the foreign global market. Market entry into new markets is an important aspect of global strategy as all new market entries allows organisations to increase their competitiveness and profitability in their business operations. Entering new markets allows organisations to be open to new market opportunities and hence it is observed that all organisations strive to enter into foreign markets via one market entry strategy or another. References Cateora, P.H & Graham, J.L., 2002. International Marketing. 11th edition, McGraw-Hill Companies Inc . Clarke, G., 2005. International Marketing Environment Analysis. Marketing Review, 5(2), p.159-173.  Datta, D.K., Liang, X. & Musteen, M., 2009. Strategic Orientation and the Choice of Foreign Market Entry Mode. Management International Review, 49(3), p.269-290. Gillespie, Jeannet, J. & Hennessey, H.D., 2004. Global Marketing Strategies. 3rd edition, Houghton Mifflin Company, USA. Hryckiewicz, A. & Kowalewski, O., 2010. Economic determinates, financial crisis and entry modes of foreign banks into emerging markets. Emerging Markets Review, 11(3), p.205-228. Raff, H., Ryan, M. & Stahler, F., 2009. 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