Entry into Foreign Market - Case Study Example

ENTRY INTO A FOREIGN MARKET Commercial organizations undertaking business activities within contemporary economic environments have a tendency to undergo expansion at one point or another. Expansion takes place in two aspects. A company can undergo expansion in terms of production, or in terms of marketing activities. The two aspects derive from the dictates of supply and demand within a given commercial environment. According to Tielmann (2010), the aspect of globalization has enabled business organization to expand their operations beyond their parent territorial borders. This desire for expansion outside initial business setups seeks to enhance production and supply of goods to more potential consumers. Increase in consumer population translates into a corresponding increase in revenue generation. This means that international corporations wanted to increase their customer base; hence established business facilities within international markets. Tielmann (2010) says that despite the fact that most business environments are present within a free market settings, other factors still play a significant role in starting and developing production and sales activities within such settings. Therefore, business organizations wishing to expand into new markets should adopt appropriate strategies in order to achieve marketing success. From a practical perspective, entry into a new market needs systematic approaches depending on the internal and external factors surrounding the company. Typical internal factors include a company’s efficiency in management, availability of resources for expansion and the culture of its business operations. On the other hand, external factors include those elements lying outside the control of company’s management. According to Erkan (2011), these include social, political and economic factors prevailing within the new market. The nature of internal and external factors acknowledged above could either smoothen or toughen a company’s entry into a new market. In the context of marketing terminologies, effects on the environment could narrow down to aspects of risk, cost and magnitude of control that an organization experiences upon entering a market segment. In the process of determining as to whether entry into a new market will be successful, company managers select appropriate strategies that will produce the best desired outcomes. Upon thorough analysis, some organizations may decide to use indirect market entry, which involves export of manufactured products into the new markets using existing supply channels. On the other hand, a product manufacture may use direct entry method by a partnership with agents already present within a new market environment. In this regard, the operational thesis statement postulates that Myanmar oil industry is a potential market for Cameron’s production equipment. Institutional Strengths and Risks Having appreciated the theoretical framework of new market entry, we will conduct a real life analysis on Cameron International Corporation. This organization has successfully entered other new market in the past. Erkan (2011) says that currently, Cameron International Corporation is undertaking its business operations in approximately 100 countries around the globe. Its expansion strategies have yielded fruits; hence there is a growing desire to venture into other virgin territories. This time, Cameron International Corporation has identified Myanmar, a reforming South Asian nation formerly known as Burma, as its target market. In the year 2010, the company posted a profit of approximately $ 500 million. This profit resulted mainly from its operation within the US market. Cameron Corporation deals with production and supply of equipment used in oil and gas productions around the globe. In this case, the organization decided to venture into the South Asian nation in subject since Myanmar has prospectus profile in terms of oil and gas resources. In the past, the nation had a dented history of human rights abuses. According to Henry (2012), this serves as the reason why its oil and gas industry failed to attract international investors. In the year 2011, Myanmar has started restructuring its public governance in order to improve its international image. Prior to making a decision on whether or not to invest in the identified market, a thorough analysis on both institutional strengths and weaknesses will be administered. One positive attribute held by Cameron Corporation is the aspect of profit generation. As acknowledged earlier, the organization makes a net profit of approximately $ 500 million. This large profit indicates the presence of efficient operational and marketing strategies within the company’s structure. In this case, similar management approaches will increase the chances of making profits within the new market. Henry (2012) says that on the aspect of risks, Myanmar features as one of the most corrupt nation in the South Asian region. This means that Cameron’s operation within this nation may encounter influence from either internal or external fraudulent acts. Internal risks of fraud may manifest will manifest in the form of asset and resource misappropriation. On the other hand, external frauds may involve theft or vandalism of property by rebel groups operating within Myanmar. However, these risks are expected happenings, and there is no guarantee that they may occur. On the other hand, the strength on management reflected on profit generation is real. Therefore, it is advisable to enter into the new market. VRIO Analysis In order to further ensure that entry into the market is feasible, it is appropriate to consider conducting an objective VRIO analysis. According to Claude and Smith (2008), VRIO analysis evaluates the viability of an investment project with respect to both the product characteristics and the organization’s qualities. In the case of Cameron Corporation, the product in subject involves productions equipment within the oil and gas industry. Based on relevant information, the most lucrative market section on Myanmar’s oil industry is the productions section. This means that the value of productions and drilling equipment will exploit available opportunity within the new market. In the case of rarity, actual trends in the ground suggest that Myanmar oil industry is in dire demand of oil drilling and procession equipment. Therefore, Cameron Corporation has a high chance of controlling the production equipment market. Claude and Smith (2008) agree that production equipments need substantial resources to produce and deliver to oil drilling sites. This means that Cameron’s products are not easily imitable with armature investors in the productions market. Finally, the organization has appositive track record in entering new markets around the world. Based on this analysis, one can state that Cameron should enter Myanmar market. Cultural Aspects One prominent cultural aspect within Myanmar’s market is domestic terrorism and human rights abuses. In the past decade, Myanmar has a painful history of human rights abuses by a brutal military regime. This regime left most people traumatized and riddled with poverty. Currently, the nation features as one of the most unequal territories in South Asia. According to Henry (2012), this social inequality forced desperate youth to join rebel groups in order to gain a source of living. In this context, it is evident that entry into such market will present unprecedented cultural challenges to the organization. The most appropriate way of dealing with effects of this cultural reality will be influence of current democratic government. Myanmar is trying to improve its international image. As a result, it allowed free elections in 2011 as a means of signaling the world that there is social and economic freedom in the nation. In this case, Cameron Corporation will depend on the newly created government structures in addressing issues caused by cultural aspects in the market. Entry Approach As insinuated earlier, one way of entering into Myanmar’s involves direct foreign investment, commonly abbreviated as FDI. In this context, Cameron Corporation will enter into Myanmar as an independent and direct partner with total control from its headquarters in the US. In the recent past, Cameron entered the Brazilian market as a direct investor after the purchase of a Brazilian organization within the equipment manufacturing sector. Despite the fact that we cannot compare Myanmar’s business environment with that of Brazil, Cameron will have to expand its share within an international market control. Having conducted a VRIO analysis, it is evident that Cameron Corporation stands a high chance of controlling Myanmar’s market. According to Claude and Smith (2008), one advantage of FDI in this context is the fact that Myanmar is emerging from a decade long military regime into a civil government. As a result, the nation will witness increased economic and social freedom. This means that the presence of the company during and after this transition will lead to expansion in revenue generation as opposed to running its business through affiliate agents, which cuts their share of profits. Risks outlined earlier may fade with time as the civilian government takes full control of the nation. In this case, Cameron Corporation should enter the market through FDI in order to get higher returns. Suitable Joint Venture Partner Despite the fact that analysis on the situation suggest that both FDI and subcontracting entries are feasible, it will be better for Cameron to take the risks associated with direct entry than to lose the high returns accompanying this entry strategy. In order to ensure ease in the entry, Cameron should adopt an offshore joint venture. In this case, the multinational corporation will partner with a local oil firm. Appropriate oil firm that is recommendable would be a government corporation. Myanmar’s government is undergoing reformation, especially to the international world. This means that the government handles foreign relations carefully in an effort to prove its commitment to reforms. According to Claude and Smith (2008), a government owned Oil Company will facilitate the creation of a less risk business association that with a private company within Myanmar. In this partnership, Cameron Corporation will participate in production through supply of drilling and processing equipment. On the other hand, the local company, which owns oil wells will produce and market resultant oil after drilling and processing. In an event that the local company decided to engage in FDI with Cameron, they should agree on a 50-50 basis of profit sharing. Potential Difficulties With respect to potential challenges, Myanmar presents customized difficulties to new market entrants, especially to those using Foreign Direct Investment approach. In the essay, we acknowledged earlier that Myanmar has a corrupt and opaque business environment. In this case, the first difficult with Cameron could involve intensive fraudulent acts by business partners. Another difficulty could entail the threats posed by the numerous rebel groups operating within Myanmar. Myanmar’s military, which is filled with children soldiers, can also prove as another threat to the company’s operation within the nation. Finally business difficulty could involve lack of efficient transport and supply system of products to target markets. According to Henry (2012), Myanmar had a decade long military regime, which led to its excommunication from the rest of the world. This means that Cameron Corporation may need to develop new supply chain into the new market, which will require substantial resources. Strategic Remedies In an event that the postulated difficulties materialize, it would be appropriate to utilize custom-made remedies. In the case of corruption and transparency, Cameron can employ the use of automated and electronic business transaction systems. In this case, all payments and invoices made will be fed into a central information system. This will ensure Cameron seals all loopholes; hence discouraging corruption. On the aspect of security, the organization will have to enter into an agreement with Myanmar’s government concerning the safety of their assets and employees’ within the nation. According to Erkan (2011), Lack of supply chains will prove challenging and difficult to address. However, Cameron may consider establishing production sites within Myanmar. This will not necessitate transportation of finished goods from foreign production sites into the new market. Conclusion In conclusion, analysis of the market variables proves that Myanmar oil industry is a potential foreign market for Cameron International Corporation. The VRIO analysis shows that the company has a positive outcome with respect to value, rarity, the degree of imitation and the internal characteristics of the organization. In addition, the potential difficulties identified can be effectively addressed with corresponding remedies. At this juncture, we can acknowledge the fact that Myanmar offers a good investment opportunity to Cameron International Corporation. Therefore, it is advisable for the company to invest within the new market segment. Reference List Claude, V. & Smith, P. J. (2008). Secrets of Successful Market Entry: Investment in Third World Nations. New York Business Journal, 7(4). 23-24. Erkan, M. (2011). International Energy Investment: Stability through Contractual Clauses. New York: Kluwer Law International. Henry, M. (2012). Myanmar in South Asia: Politics in Regional Corporation Experience. Denver: Institute of Southeast Asian Studies. Tielmann, V. (2010). Market Entry Strategies: International Marketing Management. Cardiff: GRIN Verlag Publishing. Read More