The Challenges of Firm Entry into Foreign Markets - Coursework Example

THE CHALLENGES OF FIRM ENTRY INTO FOREIGN MARKETS Name Course Tutor University Date The Challenges of Firm Entry into Foreign Markets International trade has faced many barriers from the twentieth century especially in its last half that has compelled firms to develop global strategies for them to maintain or improve their competitive advantage. The challenges are, however, accompanied by several benefits to some specific countries depending on the type of business they carry out. Globalization has given rise to most of the challenges that firms face and the managers must understand the dynamics of global competition and the nature of global industries (Twarowska & Kakol, 2013, 1005). Most international firms lay their focus on investing in the foreign emerging economies for the expected positive results due to a more favorable competitive advantage. Still, the emerging economies often lack the efficient institutional environments necessary for the firms to optimize their profits (Arnstorp, 2013, 9). This paper discusses the challenges that firms face when establishing businesses in the foreign markets and the measures that they have taken to address them. The emerging economies where most firms endeavor to invest have institutional environments that are less familiar and generally different from those of the developed countries. The markets are less predictable and less stable. The emerging economies are as well weaker and less developed than the developed countries. The authorities could also favor the local firms due to their bureaucracy, and overwhelming influence. The challenges and differences that arise in entry to the foreign market are varied and, as such, the researchers cannot achieve a general description that can be applied to all foreign markets (Arnstorp, 2013, 9). Twarowska and Kakol (2013, 1007) state that for firms to successfully enter the foreign markets, they must first understand the return on investments, control and commitment of resources, and degree of risk. The modes of entry could involve either the non-equity mode or the equity mode. The non-equity mode includes contractual agreements and export while the equity mode includes wholly owned subsidiaries and joint venture. The modes can use various strategies to enter the foreign markets. With exporting and importing, firms can sell the products from one country to the other. Firms can as well use licensing to gain the trademark rights, licensee patent rights, Know-how, or copyrights on their processes and products. Franchising is related to licensing but it has the advantage of being involved directly in controlling and developing the program of marketing. Joint ventures are as well related to licensing with the only difference that the international firm would have a management voice and an equity position in the foreign firm. The status of the foreign firm in the agreement usually results in the formation of a third firm due to the development of a partnership between the home- and host- country. Firms can as well form strategic alliances to reach several cooperative agreements such as minority equity participation, formal joint ventures, and shared research to enter foreign markets. Last, firms can enter the foreign market by investing in a production unit in the foreign market by making direct investments (Twarowska & Kakol, 2013, 1007-1009). Firms need to gain a strategic fit and a corporate unique value proposition for them to succeed in dealing with the local market conditions of the foreign markets. While assessing the factors that led to the failure of Wal-Mart’s entry into South Korea, Kim (2008, 344) states that the firm was not well prepared on clearly projecting on the amount of investment and growth required for it to achieve an effective localization strategy. The failure of Wal-Mart’s venture in South Korea arose from the company’s erroneous application of the American marketing strategy in the foreign market that required a different strategy. The Korean consumers did not perceive the “value” that the American company was trying to promote using its Every Day Low Price (EDLP) strategy, which led to its failure. Firms wishing to enter the foreign market must carefully consider their circumstances and the mode of entry to use in the process because they require resource commitments. By doing so, the firms could save themselves a considerable loss of money and time. The mode of entry is determined by three factors including the firm’s integration of transactions and internalization advantages, the market’s location advantages, and the firm’s ownership advantages. The Dunning framework has been explained by several empirical studies and they have contributed significantly to the understanding of the choices that firms should make but they leave a gap between the choices made by the firms and the mode’s interrelationships ( Agarwal & Ramaswami, 1992, 2). The Marks & Spenser (M&S) Company endeavor to enter the foreign market provides useful insights on the importance of choosing the best strategy of entry when firms wish to enter the foreign markets. The company entered China by franchise in the Dodwell stores from the 1980s. In spite of the success of the company in establishing its own subsidiary in 1988, the global ambitions of the company failed in 1999 and it restored its operations to its home market (Cavusgil, Sinkovics, & Ghauri, 2009, 46). To restore its foreign market ventures, M&S started being involved with many international actors. The company invested time to learn about the necessary and useful information from the international consultants and property companies. The company as well achieved information from the external consulting companies that it hired to analyze the local market. M&S understood that at first it had to understand who its customers are and their needs. Consequently, further research on the needs of the Chinese customers gave the company a strong potential market for its products. M&S has used the strategy of applying the supplier knowledge in its experience and specialization to expand its foreign markets. The company associates with the foreign markets’ local leaders to determine its entry strategy as it had done with the Triumph Company of Asia. The company has as such used a combination of various strategies to succeed in its entry into the foreign market countries including Thailand (Cavusgil, Sinkovics, & Ghauri, 2009, 49). Synnex is as well an important firm to serve as an example of how the companies wishing to be involved in international trade should choose on the most appropriate modes of entry. The firm created an operational template in Taiwan to be adopted by the foreign market. Synnex used its managerial know-how and logistics system to build its core competency along with its favorable technologies that are advanced and deep pockets. Synnex grew its foreign market business volume by opening a logistics center some years earlier before launching its entry (Case Studies in Marketing Management, 2013, 187-188). Therefore, the company has grown rapidly and incessantly in the past two decades by positively associating with the foreign market’s local firms as proven by its entry into 16 nations and 141 cities worldwide. Wu and Zao (2007, 183) argue that many of the enterprises in China venturing in technology entrepreneurship have achieved the most in the country in terms of internationalization. The private hi-technology company, Huawei, is the leader in China’s telecommunication equipment manufacturers. Fifty Eight of the USD8.2 billion contract sales of 2005 came from the company’s foreign markets. The success of Huawei is clearly evident from the manner in which the company increased its total sales in the foreign markets from the 4% of 1999 to the 58% of 2005. The sequential stages of modes of entry into the foreign markets do not strictly apply to the entry strategies that Huawei has used to succeed in the expanse. The new economy would require the application of the appropriate and varied modes of entry at the appropriate states of internalization for them to succeed in entering the foreign markets as has been demonstrated by Huawei (Wu and Zao, 2007, 184). In addition, Matarazzo and Resciniti (2014, 57) contribute that the perspectives of entry into the foreign markets including the resource-based theory, transaction cost and institutional theories would result in an effective framework for the international trade. Literature mostly focuses on entry mode because the risk and return mostly depend on it. As such, most firms prefer to enter the markets that are less risky and more attractive through focusing on and addressing their cultural, political, social and economic, conditions. In conclusion, this paper has demonstrated that globalization has given rise to most of the challenges that firms face and that the managers must understand the dynamics of global competition and the nature of global industries for then to develop the appropriate strategies for venturing into the foreign markets. The emerging economies in which most firms endeavor to invest in often lack the efficient institutional environments necessary for the firms to optimize their profits. Firms aiming at entering the foreign markets meet varied challenges and differences and researchers cannot achieve a general description that can be applied to all foreign markets. The modes of entry mainly involve either the non-equity mode or the equity mode, with each having the associated variations. Firms wishing to enter the foreign market must carefully consider their circumstances and the mode of entry. The firms would reduce risk and enter more attractive markets by addressing their cultural, political, social and economic, conditions. References Agarwal, S. & Ramaswami, S. N., 1992. Choice of foreign market entry mode: Impact of ownership, location and internalization factors. Journal of International Business Studies. Accessed at http://www.rcmewhu.com/upload/file/20150525/20150525201726_6655.pdf Arnstorp, H., 2013. Foreign market entry strategies in developed and emerging economies. Norwegian University of Science and Technology. Accessed at http://www.diva-portal.org/smash/get/diva2:735294/FULLTEXT01.pdf Case Studies in Marketing Management, 2013. Pearson Education India. Accessed at https://books.google.co.ke/books?id=hau6_kC6HhUC&dq=enter+foreign+market+challenges+case+study&source=gbs_navlinks_s Cavusgil, T., Sinkovics, R. R., & Ghauri, P. N., 2009. New challenges to international marketing. Bingley: Emerald Group Publishing. Kim, R. B., 2008. Wal-Mart Korea: Challenges of entering a foreign market. Journal of Asia-Pacific Business, 9(4).Pp. 344-357. DOI: 10.1080/10599230802453604 Matarazzo and Resciniti, 2014. New trends in foreign market entry mode choices: The case of Italian midsized companies. Journal of International Business and Economics, 2(4). Pp. 2374-2194. Twarowska, K. & Kakol, M., 2013. International business strategy - reasons and forms of expansion into foreign markets. International Conference 2013, Zadar, Croatia. Accessed at http://www.toknowpress.net/ISBN/978-961-6914-02-4/papers/ML13-349.pdf Wu, D. & Zao, F., 2007. Entry modes for international markets: Case study of Huawei, a Chinese technology enterprise. International Review of Business Research Papers, 3(1). Pp 183-196. Read More