Entry Strategies and the International Human Resource Strategies - Coursework Example

International Business and Management Student’s Name: Course Code: Instructor’s Name: Date of Submission: Executive Summary In the 21st century markets have widely become competitive, making companies look for new markets to expand their business. As the company endeavors to get the best markets to invest, several factors currently play a crucial towards their success. International business and strategic management research presently pay more attention on the role of factors like HRM and mode of entry and how they contribute to firm advantage and disadvantages in getting into new markets. Therefore, using secondary research sources, this report will evaluate the entry strategies and the international human resource strategies which multinational firms commonly apply in entering into new global markets. The report will also identify different strategies and their conditions of application, and compare the strategies in terms of pros and the cons of every strategy using examples. In comparison, the research found out that strategic alliance was more advantageous among other modes of entry. Table of Contents Executive Summary 2 Table of Contents 3 1.0Introduction 4 2.0 International Business Strategies 5 2.1 Entry strategies and their pros and cons 5 2.1.1 Export Strategies 6 2.1.2 Strategic Alliances 8 2.1.3 Joint venture 10 2.1.4 Foreign Direct Investment 11 2.2 International Human Resource Strategies 12 3.0 Conclusion and recommendation 14 References 16 1.0 Introduction The rapid change in the business environment has made competition intensified as business scramble for customers. In phase of such competition, choosing to remain within the domestic markets is considered not the best strategy for the company to survive. International business experts now advise managers to seek for opportunities abroad to increase their competitive advantages. The quick rise of globalization in the recent past majorly owing to advanced technology connecting business and locations, financial deregulation, increase removal of the trade-barriers and the growing new markets for the investments is some of the advantages companies can benefit from. Therefore, debate of the market entry strategies has continued to create a great interest in international business practitioners and academics (Alan & Wei 2009). Even as companies scramble for new foreign markets, such move is not easy and is marred with political, economical and socio-political challenges. The companies must therefore choose the most suitable entry strategy which matches their internal objectives and reduces the risk of being overshadowed in the market. Based on secondary research, this report will evaluate the entry strategies and the global human resource strategies and approaches which global firm commonly employs when entering a new international market. To understand the most suitable strategy, the report will compare the pros and cons of each strategy, analyze and recommend their applications to the companies. 2.0 International Business Strategies 2.1 Entry strategies and their pros and cons Anderson & Buvik (2002) defined entry strategy as a method employed by a firm to begin conducting business transactions in foreign nations. In brief, an entry strategy is described an arrangement which facilitates entry of company’s products, management, human skills and technology into another nation (Arregle, Hebert & Beamish, 2006). Many types of entry strategy can be used by companies to get into international markets. International business experts have often differed on the number of modes of entry into the new market. While some claimed there are six modes of entry, others have argued there are four. Christoph (2008) claims four modes of expanding global which he ranked, from the highest risk to lowest risk, including wholly owned foreign subsidiaries, strategic alliances, franchising and licensing, and exporting. On the other hand, Brouthers & Hennart (2007) claimes that there are 6 fundamental modes for getting into a global market consisting of export or import, franchising and licensing, consortia, joint venturing, wholly-owned subsidiaries and partially-owned subsidiaries. Generally, these modes can be ranked from the highest to lowest risk to the organization. The categorization of different global entry approaches is anchored on two dissimilar features which include the ownership percentage the company yearning for foreign investment, and the manufacturing facilities’ location. Expansion into an international market takes place in two modes in terms of location of the production plant. The companies can export the products to their target nation from the manufacturing plant outside such country, or the company can move their resources in capital, technology, enterprise and human skills to an international nation in which they can be traded directly to the consumers. According to Dean (2014), another feature which is ownership percentage provides three diverse alternatives such as wholly, partly or none owned investment. 2.1.1 Export Strategies Several companies select exporting as a preferred strategy which maintains resources and effort whilst capitalizing on the foreign opportunities. Jamshid, Nabi & Kambiz (2011) defined exporting as the practice of selling of product or services to other countries. Numerous companies normally choose firms decide on exporting as their first mode of entry into overseas markets. There are two types of exporting, including direct and indirect exports. Direct export is the more common of the two and entails manufacturing product and selling it directing in a foreign market. In this practice, the company capitalizes on the economies of scale, particularly on the production and having control over the distributions. On the contrary, indirect export is the practice of exporting via locally based intermediaries. This situation makes the exporters not to have control over their products or service at the international market (Stanley & Michael, 2013). Companies which have adopted exporting strategies normally attain particular benefits such as the increased speed of global market entry, and low investment needed in facilitating operations in a foreign nation. Particularly direct exporting approach provides a company with a low risk and easy mode to start its global process and fulfill the challenges and demands. In direct exporting requires that the companies are highly connected with foreign customers to be able to attract more sales. Therefore, the companies must dedicate more resources to market its products or services abroad. One of the processes of this mode of market entry is that it can attract more control, sales and market information (Alan & Wei 2009). The information and marketing enable the exporter to establish a good relationship with buyers in the market. The process helps the company in earning trust and attracting more customers in the future. Kraft Foods Group Inc and Apple are some of the companies which used exporting mode in entering China and established themselves well in the market (Dennis, Randall & Ibraiz, 2012). Despite of accepting products and services from other countries, China remains the largest exporter in the world. Electronic companies such as Samsung, Lenovo, Huawei, Haier and ZTE top the list of companies which export their product to countries across the globe representing 24.6 percent of the country’s total trade (Alan & Wei 2009). Since Chinese products are sold at low cost, they have attracted high sales across the globe. Another advantage of exporting is that companies are able to protect their trademarks, goodwill, patents and other intellectual properties. Intellectual property is very important to companies because it enable them to innovate and benefit fully from their products or services. China is one of countries with weak intellectual property yet companies which have adopted exporting as their mode of entry has been able to protect the product from copying. Coca-Cola is one of such companies which have managed to protect their intellectual property (Dennis, Randall & Ibraiz, 2012). The process of exporting is normally faster compared to other modes hence company may benefit from quick sales. Today, competition has intensified and a company which has quick distribution strategies gains the competitive edge. Despite having numerous pros, the strategy also has many cons to the companies using exporting as a strategy. One of such cons is that the company needs more information about the market. The market changes rapidly hence more funds should heavily on research (Dennis, Randall & Ibraiz 2012). Failure to have information about market change means the company can never satisfy consumer needs. Similarly, the company needs to set more funds and time on marketing to promote its products and services. Companies with inefficient market practices are likely to fail in wining customer to its business (Alan & Wei 2009). It implies that such company cannot survive the competition challenge intensified by well established companies. The company can also get ineffective distributor who might not enable help the company push for sales or get good feedback. Politics and foreign policies of a host nation normally affect the exporter as a breakdown in the business relationship may shut the company from exporting. In addition, the company sometimes is viewed as an outsider. 2.1.2 Strategic Alliances Dennis, Randall & Ibraiz (2012) described strategic alliance as an entry mode where cooperative agreements are initiated between different companies to share various factors of business such as research, joint ventures or the minority equity involvement. In the current times, strategic alliance strategy is increasing among companies and hold three unique features. One of the characteristic is that, they mostly take place between companies within the industrialized countries. Furthermore, the emphasis is frequently on developing new technologies or product as opposed to marketing the existing ones. Also, strategic alliances are usually created just for a short time. As one of the best entry mode, strategic alliance has several pros to the company in its endeavor to perform well in the global market. In this practice, companies exchange or share technology for mutual benefits. Countries have different pace of technological advancement yet the factor is very important in product processes. For that reason, some companies sign agreement of access with another foreign company to be able to use their technology for research and development and other processes. An example is Volkswagen and Suzuki Corporation that pursued a strategic alliance in their approach to benefit from their capabilities and access Japanese and German motor market. In 2009, Volkswagen bought a stake at Suzuki; the agreement also held that both would share their distribution network and technologies with one another (Jamshid, Nabi & Kambiz 2011). Volkswagen agreed to offer its electric and hybrid technologies together with access to international markets to its counterpart Suzuki (Harzing, 2000). Suzuki contracted to provide Volkswagen access to Indian presence and small-displacement motors. Sharing technology decreases the need to purchase technological devices. Another advantage of strategic alliance is that it reduces economic risks and enhances access to intentional markets. However, strategic alliance has its shortcomings which can negatively impact the operation of a particular company. One of such shortcoming is that it causes mistrust between or among the parties. Giving access another to one’s resources can expose the company to competitors (Alan & Wei 2009). The permission of access can expose company’s secrets hence putting its competitive advantage into jeopardy. Strategic alliance can also be used to a company as its partner can apply it as a way to acquire the business. Coordination normally proves difficult as far as strategic alliances are concerned due to informal settings of cooperation due to the absence of a formal administration and hierarchy in the strategic alliance. An example of absence of coordination can be drawn from Volkswagen and Suzuki Corporation (Dennis, Randall & Ibraiz, 2012). 2.1.3 Joint venture A joint venture involves constantly sharing equity and risks and also participation in management between partners forming a long lasting, profit seeking relationship (John & Praveen, 2009). There are five common objectives in a joint venture: market entry, risk/reward sharing, technology sharing and joint product development, and conforming to government regulations (John & Praveen, 2009). The company involved in joint venture is able to save some money which they would have as capital to establish and outlet in a foreign country. Therefore it can be argued that joint venture enable the managers to reduce risk of losing the investment capital and also helps on leveraging invested capital (Dennis, Randall & Ibraiz, 2012). This strategy comes with fewer risks as compared to other modes of entry. With joint venture, the companies acquires significant resources such knowledge and the experience about the local markets (James, 2015). Since one of the companies is from the local market, joint venture strategy facilitates the other international partner to form a good rapport with local government, institutions and labor unions. Other benefits include political connections and distribution channel access that may depend on relationships. Furthermore, it provides access to another country’s resources like staff, technology, capital, larger distribution reach, sharing risks among others. However, they are cons associated with joint venture like variation of culture and style of management and leadership between two countries or regions. There is also unclear communication regarding joint venture strategy objectives. Furthermore, there is a poor tactical decision mainly due to misunderstanding each company’s roles as well as taking a bit too long in building a right relationship as well as partnering with another business (John & Praveen, 2009). Mahindra & Mahindra (Indian based) and Renault (French based) formed one of the major joint ventures in producing and commercializing LOGAN which is developed by Renault. They came up with a framework of setting a joint venture in India whereby Mahindra was taking up 51percent while Renault 49percent of the shares. They developed a factory for LOGAN with a capacity of 50,000 per year whereby the manufactured cars were exported to countries like South Africa, Srilanka among others. However, Renault moved out of the venture citing high production cost, poor marketing promotions, poor manufacturing environment, and decreased sales by over 60 percent in 2009-2010 with less than 6000 units sold (Karl, Jaya & Ayesha, 2010). Dow Corning, Sony Ericsson, MillerCoors, Owens-Corning and Penske Truck Leasing are some of the known joint ventures and have enjoyed the advantages and faced problems as well (John & Praveen, 2009). Comparing with others, this strategy comes third after strategic alliance and franchising in terms of benefits. 2.1.4 Foreign Direct Investment According to John & Praveen (2009) this strategy is characterized by a situation where a global firm conducts every manufacturing activity within a foreign nation and posses 100 percent of the firm. This process often takes place in two methods. In one way, an international company can acquire an existing firm in a foreign country and in another it can decide to set up a new firm. John & Praveen (2009) stated that when companies decide to establish wholly owned international outlets as way of entry, they are setting up business in an international country with no involving local firms. The major benefit of using foreign direct investment is that it enables the firm control its marketing strategies, technology and even its products’ distribution strategies (John & Praveen, 2009). The drawbacks of this strategy are that it normally complex in terms of process of establishment and high costs. Oded, Yadong and Tailan (2014) argued that setting new subsidiary take a longer time, hence this approach is not viable for companies which rapidly intends to enter in the new markets. John and Praveen (2009) claimed that among other entry modes, setting up a foreign direct investment requires the greatness knowledge and expertise about the international markets. Some of the successful cases of foreign direct investment in India by Mauritius companies between years 2000-2011 include companies like TMI Mauritiius Ltd, Cairn UK Holding (1492US Dollars), Oracle Global (Mauritiius Ltd (1083 USdollars) and Vodafone Mauritiius Ltd (801US Dollars) among others like Etisalat Mauritius Ltd, CMP Asia Ltd etc. (Oded, Yadong & Tailan 2014). 2.2 International Human Resource Strategies International business is defined as the trade transaction between parties from several nations. Such parties could consist of private individuals, individual companies, groups of companies and Governmental agencies (James, 2015). Various theories have driven companies to engage in global business. In particular, the theory of comparative advantage has widely been used in effort to benefit from large markets, cheap labour and production cost in some countries. Theory of comparative advantage holds that two nations can both benefit from trade with each other even where one holds an absolute advantage over the other in the production of all goods (Oded, Yadong & Tailan 2014). International trade has increased since the millennium with several companies across borders to capitalize on the comparative. However, being successful at the international business starts with adopting right entry strategies. Politics, economics and legal, technological and socio-cultural factors affect strategies chosen by the company (James, 2015). Many companies have conducted their research well in their target market, thus have settled for some of the best entry methods. McDonalds, Samsung, Apple, Toyota, Coca Cola, IBM, Facebook, Acer, Air France-KLM, Emirates airline, General Motors, Google, Glaxo Smith Kline and Philips are some of the most successful companies which adopted the right strategies in their entry into new markets (Oded, Yadong & Tailan 2014). Even though some could have struggled along the way, their approaches and resilience have made the successful cases in foreign markets. Enright (2005) stated that a clear strategy must be put down and followed in quest for success. Enright (2005) argued that human resources management also contributes to the success of entry strategy. Expansion into international is just like a change process which can highly create confusion in the organization leading to rejection. Therefore, before the process is adopted, effective training should be impacted on employees to familiarize them with knowledge about the new markets and expectations. Expansion of a business into new overseas markets places great tension on companies, particularly if they do not have past experience in other country. As highlighted by the Hymer-Kindleberger’s paradigm, foreign companies undergo basic disadvantages in as compared with their domestic counterparts because of human resource incompetency, culture, legal regulations, uncertainly, organizational change and flexibility (James, 2015). Emphasizing on the company-specific functions of human resources, numerous researchers argue that the international companies have to adjust its current culturally distinct existing between of host nations. From the geocentric point of view, Li (2005) claimed that the organization needs to recruit and train the most qualified workers with cross-cultural skill who can settle quickly in new markets. Li (2005) established a correlation between HRM and entry mode. The hiring of expatriates and training is hardly ever linked with the exporting, apart from the situation of close ties with the domestic partner. Within franchising and licensing, recruitment and selection is bestowed on the franchisee or domestic licensee. In joint ventures case, local agents often offer domestic expertise, and sharing functions of the management. In the recent past, Li (2005) reviewed the major issue a core issue of the multinational company management, particular setting a balance between subsidiary autonomy and centralized decision. Analyzing the significance of practices such as the talent management in an international arena and leadership and management of global assignment, Saul & Klaus (2004) revealed the nature of human resource management within the international firms. HRM is thus a facilitator of transfer of knowledge and link platform between key business practices and domestic decision-making. Another research conducted by Saul & Klaus (2004) emphasized on the employment of the expatriates and held that companies must hire on employees who have technical skills and willing to work and live abroad. According to (Saul & Klaus, 2004), technical skills have been established as major important criteria to look for in expatriates since it helps in accomplishing a particular task. Cultural awareness and intelligence play an important role in managing employees in foreign countries and determines the success of the company. 3.0 Conclusion and recommendation The report has achieved its objective by evaluating entry strategies and the international human resource strategies that international companies commonly use when entering a new international market. The report has also depicted pros and cons to guide company intending to enter new markets. From the analysis, strategic alliance is rated as the best among the four common entry modes such as joint ventures, exporting, and franchising and licensing. Strategic alliances have enabled airlines to partner with several counterparts and competitors facilitating easy access to foreign markets. Strategic alliance is easy to form with less capital and also easy to terminate (Dennis, Randall & Ibraiz, 2012). Therefore, this report recommends that; Companies seeking to enter new markets must look at the cost in forming trade relations. Entry modes which require less capital investment not only enables the company to increase profits but also reduce loss in case of failure. Company intending to expand into the international markets must analyze and comprehend legal implication of entering such agreements. Entry modes that are easy to terminate is advantageous to company because it reduces conflicts and waste of funds on lawsuits. 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