Dynamics of Doing Business in International Market - Essay Example

Executive Summary The dynamics of doing business in international market that the firms now must look for new opportunities and enter into new markets. This report discusses the entry of CCL Marine into Indian market through the formation of a joint venture with the local partners. The overall analysis indicates that India is a relatively investor friendly country and risks of doing the business are relatively manageable. However, some important social and political considerations also need to be managed in order to ensure that the firm remains in good standing. This report suggests the formation of a joint venture as the preferred mode of entry into the Indian market however; the ratio of failure of joint ventures is relatively high and the firms to fail very quickly. There is also an element of creating a cultural cohesion and managing the diversity which Indian market can offer. In terms of sales activities, it is important that the firm must engage into B2B activity and manage its sales through creation of a dedicated sales force for personal selling mode of generating the sales. Mode of Entry A mode of entry into international market is basically a channel which any organization can use to gain access to that market. Four most important modes of entry are : Exporting Exporting involves directly exporting the product of the firm into the market where firms wants to get entry. Exporting is desirable by those firms which tend to keep operational control of their products into their own hands besides launching and maintaining its own brand name in the international market. Exporting can also be done through piggybacking wherein the firm can actually utilize the available logistic and distribution networks of existing businesses to distribute and sell its products. It is important to note for successfully exporting a product, exporter requires the help and support of not only the importers but also that of the government as well as the transport. For successful completion of export targets, it is therefore critical that the exporter must strike a balance between the two. Further, the risk of high early failures is relatively high as business of this type often fail to materialize properly thus forcing exporters to look for some other alternative channels to continue to operate in the chosen market. Such high riskiness of the export will therefore may not be suitable for the firms engaged in B2B type of business. Joint Venture Forming joint ventures is another important mode of entry wherein the firm can participate through equity to formulate a new company. Joint ventures are especially helpful in gaining access to the technology as well as the core competencies of other firms besides utilizing the local knowledge of the firms working within the industry. Further, by forming a joint venture, an international firm can actually take the benefit of utilizing the existing distribution and logistic networks of their local partners. Various research studies indicate that the only 30% joint ventures actually kick off and they too die down within two years therefore the overall ratio of the failure of the joint ventures is relatively high.(Kippenberger, 1997). It is critical to note that joint ventures tend to fail because of the failure of the firms to effectively merge two cultures with each other. This means that the firm may be performing excellently on some grounds however, they may be lacking on relatively soft issues which can contribute towards the differences between the firms. This also means that the cultural differences between the organizations can effectively result into the failure of the joint ventures. If the firm decides to enter into the Indian market, it has to extensively evaluate as to whether the merger of two cultures can take place or not. This assessment will greatly assist the firm in understanding the internal dynamics of doing business in India. Licensing Licensing often involve franchising as well as the contract manufacturing and is considered as one of the easiest methods of making an entry into a new market. International firms, through licensing, charge a certain amount of fee for the use of their brand name and technology. Franchising is also an important part of licensing where firm provides almost every facet of conducting the business according to the business model of the international firm.(Park & Sternquist, 2008) Licensing and Franchising is pretty straight and offer the added advantage of early brand exposure in the local market. This exposure therefore often results into the brand recognition and provides an opportunity to develop local recognition of the brand. Strategic Alliances Formation of strategic alliances is also an important mode of entry into the market as the international firms attempt to formulate the strategic alliances with the local firms to share their technology, market knowledge as well as the brand strength. Strategic alliances can be formulated in order to either perform shared manufacturing, sharing the research and development initiatives as well as making marketing arrangements with other firms to gain access to the market. Recommendations Based on the above description of strategies for entering into a new market, firm can either consider the formation of joint ventures with the local firms or utilize licensing as the preferred method of entry into the market. Since firm is involved in the shipping business therefore its products are not portable and movable therefore it has to either formulate a joint venture with any local firm or license its manufacturing facilities to some other local firms. Joint ventures are more important in the sense that they offer the firms a direct experience of the market by exposing to the local market realities besides offering the opportunity of tapping into local knowledge. Since joint ventures are normally formed on temporary basis i.e. joint venture cease to exist when the overall purpose is fulfilled therefore it is critical that the firm must look into the opportunity of forming a joint venture with a local firm so that after the end of the joint venture, it will have enough knowledge and expertise to make a direct investment into the market. As a second strategy the firm can enter into the formation of strategic alliances wherein for short period of time, it can take advantage of the local partners and once initial formalities are over, it can fully launch itself into the market without the local support. It is critical to note that the strategic alliance must be of non-equity strategic alliance with the local partners wherein the firm shall only be able to utilize the local knowledge and resources in order to understand the dynamics of the local business as well as to effectively utilize the core competencies of the local partners. Marketing Implications The overall marketing implications of entering into a new market and following a particular mode of entry may be different under different circumstances. As such it is critical that the firm must take into consideration the different aspects of implementing a particular strategy. However, the marketing implications for different elements of marketing i.e. 4Ps are discussed below: Pricing If the firm decides to enter into the market by forming a joint venture, its overall pricing may be affected by the way revenues are shared with the local partners. Further, pricing strategies also need to be adjusted in a manner that will be based upon any given formula i.e. cost plus basis or premium pricing. Further, the overall pricing strategy also need to aligned with the overall strategy of the firm such that if the firm is willing to make an aggressive entry into the market, it may require to have relatively different pricing strategies as compared to the strategy which it might adapt just to skim the market. Placement Formation of joint venture will mean that the firm will have to utilize the local resources in order to make a successful entry into the market. This would mean that the existing distribution network of the local partner will be used to place the product of the firm till the unique distribution network of the firm is developed. It is also important to understand that utilization of distribution channels i.e. how the product will be sold will also depend upon the reputation of the local partners of the firm also. As such it is important that the firm must be able to utilize the existing distribution channels fully well. Product Since the firm is in shipping business therefore the nature of its product is markedly different from that of the ordinary products. It is therefore important that the firm must look for the B2B type of opportunities wherein it will basically attempt to market its products to the business users. It also means that that the overall offering of the firm must be bundled in a manner which can offer a combination of both the services as well as the product itself. Promotion Promotional activities of the firm may include the promotion of the firm at Business 2 Business level. Further the firm can also market its products through local industry fairs or by conducting information sessions for the industry participants. It is also important to note that the firm must combine its promotional activities with that of its pricing strategies in order to ensure that its promotional activities are supportive of the pricing strategy or vice versa. It is important to consider that the firms of this nature tend to adapt different strategies at different stages and as such it is really critical that all the elements of the marketing must support each other in order to create favorable impact for the firm to make a successful entry into the market. People People may not be essential in the sense that the overall nature of the business is B2B therefore there will be specific interaction between the buyers and the sellers. As such the firm can focus on the development of personal selling strategy wherein the overall trained sales force of the company can actually interact with the buyers etc. Discussion Considering the overall nature of the business and the different options available, it is recommended that the firm must formulate a joint venture to make an entry into the market. Formation of joint ventures is effective in the sense that joint ventures are normally temporary in nature therefore once the firm gets to know the local environment and understand its business dynamics it can establish the business with its own name thus gaining wider choices and market access in order to get better brand recognition. Further, since the entry into the industry will be highly regulated i.e. India has very strict legal system, therefore a soft entry into the market through a local partner will provide a very safe and less risky route to the firm to gain access to the market. Joint ventures are also more useful in the sense that they allow the local firms to share the risk and as such the overall chances of losing all are less when two different companies teamed up to achieve certain objective. Further the financial strength of two firms is also combined to ensure that the joint venture has the enough funds to keep itself solvent. One of the critical aspects of forming the joint ventures is the fact that both the firms have to manage a different culture which means the issues of leadership as well as the management of the affairs of the new firm in an entirely different manner will arise also. It is also important to note that formation of joint venture will also mean that the firm will have to learn quickly i.e. it is assumed that the firm is a learning organization and is entering the market with an aim to gain enough local knowledge to enter the local market on its own. Conclusion The above discussion indicates that the firm has the chance to actually enter the market through the formation of a joint venture. However, given the fact that entry into the market is naturally restricted due to high set up cost, it is therefore critical that the firm must attempt to formulate a concise strategy in terms of forming the joint venture with a local partner. This would also mean that the firm must ensure that it has the necessary resources and expertise to enter into a market which is relatively more volatile. Firm will have to adapt a policy of personal selling and utilizing the various marketing and distribution channels available to the firm. It would mean that the firm has to develop a very powerful and skilled sales force which can oversee not only the initial development of the business but ensure that it can sustain the marketing pressures and still manage to achieve the business targets. The overall marketing implications of choosing joint ventures will include the development of early brand recognition in the market as well as the opportunity to get the local access to the distribution channels of the partners. Further the utilization of the existing sales force will also contribute towards the development of strong networking with various local businesses in terms of developing long term business relationships. References 1. Kippenberger, T (1997). A pragmatic view of joint ventures and alliances. The Antidote. 2 (6), pp.02. 2. Park, Y, Sternquist, B (2008). The global retailers strategic proposition and choice of entry mode. International Journal of Retail . 36 (4), pp.281-299 Read More