Many international firms have entered Japan, China and Eastern Europe with JVs. In a way, the international company rents the production capacity of the local firm to avoid establishing its own plant or to circumvent barriers set up to prevent the import of its products. Many companies realize that to open a new market and serve local customers better, exporting into that market is not a sufficiently strong commitment to realize strong local presence. Another situation may assume a change in political leadership to a group less friendly to foreign investments. The challenge in making an alliance work lies in the creation of multiple layers of connections or webs that reach across the partner organizations. Franchising works well for firms that have a repeatable business model (eg. Typically, contract manufacturing is chosen for countries with a low-volume market potential combined with high tariff protection. Preparing An Entry Strategy Analysis Of course, assembling accurate data is the cornerstone of any entry strategy analysis. About 80 percent of all McDonalds restaurants are franchised and as of 1999 the firm operated about 24,500 stores in 116 countries. This is often not guaranteed and in countries with chronic foreign exchange problems, supply interruptions can occur. A company interested in M A looks for good compatibility and complimentarily in the organization. Financial data are collected not only on the proposed venture but also on its anticipated impact on the existing operations of the international firm.
Using electronic means, primarily web pages, trading market entry strategies e-mail, file transfer and related communications tools, firms have begun to enter markets without ever touching down. A firm can consolidate production elsewhere while retaining a strong brand and marketing presence. The actual type of local production depends on the arrangements made; it may be contract manufacturing, assembly or fully integrated production. A greenfield investment is where you buy the land, build the facility and operate the business on an ongoing basis in a foreign market. If the price falls off the open, the pullback and consolidation may occur below the opening price. I was able to pace myself and complete my courses during my free time while working. Since they reside in the customers country, they can deal with their customers effectively. Sample examination questions to demonstrate exam format and help you practice for your final assessment.
For example, IBM, Apple and Motorola have come together in a strategic alliance for marketing their products globally. Law trading market entry strategies and Ethics, intercultural Competence, our other online courses, feasibility of International Trade. Licensing also is an effective mode for testing the future viability of more active involvement with a foreign partner. (ii) A company wants to enter an overseas market where wholly owned activities are prohibited. Sales, costs and assets levels have to be estimated before. Entering Markets Through Mergers and Acquisitions Although international firms have always made acquisitions, the need to enter markets more quickly than through building a base from scratch or entering some type of collaboration has made the acquisition route extremely attractive.
The alliance can be formed between firms of the same industry or members of different industries. Another reason can also be shifting production abroad to save costs. Exporting to a foreign market is a strategy many companies follow for at least some of their markets. Both approaches can be profitable. Indirect exporting reaches the consumers through middlemen, who may be appointed and contacted by the manufacturer during favourable conditions. Many companies engage in exporting as their major market entry method.
Experience has shown that JVs can be successful if the partners share the same goals with one partner accepting primary responsibility for operations matters. However, such strategies have become less typical-particularly in larger markets, many firms have begun to unbundle their operations. With licenses usually limited to a specific time period, a company has to guard against the situation in which the licensee will use the same technology independently after the license has expired and therefore turn into a competitor. The consolidation should be relatively small compared to the impulse wave that preceded. Motor vehicle manufacturers and electronics industries have made extensive use of assembly operations in numerous countries. My favourite course was International Market Entry Strategies because it provides a great platform for international trade and export readiness. This has opened new avenues for Indian companies to invest globally and as a result of which 66 wholly owned subsidiaries were established trading market entry strategies in 18 countries with an equity participation of Rs73.84 crore. Company could use many ways to get. The program sharpened my knowledge of different cultures unique methods of conducting business The online courses were very convenient for. A major disadvantage of licensing is the companys substantial dependence on the local licensee to produce revenues and thus royalties usually paid as a percentage on sale volume only. The necessary sales projections have to be supplemented with detailed cost data and financial need projections on assets (managerial, financial, etc.
There are a variety of ways in which a company can enter a foreign market. When the brand is established the manufacturers will go for wide network with major firms. Factors affecting M As: Some of the factors, which affect the restructuring activity in a sector, seem to be: (i) Over-capacity in the industry measured as the gap between capacity and demand for the product. The possibility of nurturing a potential competitor is viewed by many companies as a disadvantage of licensing. Once a license is granted, royalties are paid only if the licensee is capable of performing an effective marketing job. (iii) Low profitability measured by the Return on Equity prevalent in the industry. By building the relationship well, the exporter saves considerable investment costs.
Hiwot Regasa, citpfibp, Student Liaison, Mount Royal University. Depending on the product, licensing fees may range anywhere between 1 percent and 20 percent of sales, with 3 to 5 percent being more typical for industrial products. The Japanese car manufacturers who had been subject to an import limitation of assembled cars imported from Japan, began to build factories in United States in the 1980s to protect their market share. This pattern could occur throughout the day. If you have a particularly interesting and unique product or service that you sell to large domestic firms that are currently involved in foreign markets you may want to approach them to see if your product or service can. A company can decide to enter foreign market by exporting from home country. On the technical side the partners share contributions, profits, and.
Licenses are signed for a variety of time periods. International trade is growing faster than the world output and international portfolio investments and equity trading have also been surging. Table.11 lists ten benchmarks for each business alliance. As a result, a commitment to a sales subsidiary should not be made without careful evaluation of all the costs involved. Turnkey Projects, turnkey projects are particular to companies that provide services such as environmental consulting, architecture, construction and engineering. It is assumed that any company approaching a new market is looking for profitability and growth. International trade competencies to help you compete in todays integrated global marketplace. In other words, the foreign company sets up a single company in one country and uses that company as a legal umbrella for all its entry activities. By purchasing an existing player, a firm does not have to take the time to establish its presence or develop for itself the resources it does not already possess. Since building a plant involves a substantial outlay in capital, companies only do so where demand appears assured.
On the other hand, if the anticipated sales volume is small, the independent distributor will be more efficient since sales are channeled through a distributor who is maintaining the necessary staff for several product lines. Several types of intermediaries located in the domestic market are ready to assist a manufacturer in contacting international markets or buyers. Licensing is another alternative to enter a market. Changing economic or political factors may make such a move necessary. Usually, contract manufacturing is employed where the production technology involved is widely available and where the marketing effort is of crucial importance in the success of the product. In that sense, alliances may very well be just an intermediate stage until a new company can be formed or until the dominant partner assumes control. Lower labor costs abroad are the major incentive for using this entry mode. The exporter finds it possible to transfer or export not only the product but also the entire marketing program that often makes the product a success. It differs from licensing principally in the depth and scope of quality controls placed on all phases of the franchisees operation. In many industries, important suppliers want to keep a relationship by establishing plants near customer locations; when customers build new plants elsewhere, suppliers move too.
Following are the major types of market entry: The manufacturer may decide to enter the market directly He can approach the consumers with his personnel and organizational infrastructure. National economies are becoming more and more interdependent and integrated even as the world economy and business is becoming increasingly globalized. The market selection decision may conclude whether to select concentrated market, target market, differentiated or undifferentiated market. Partnering, partnering is almost a necessity when entering foreign markets and in some parts of the world (e.g. (v) Stage in the product life cycle measured as the average sales growth for a period of four years. Food outlets) that can be easily transferred into other trading market entry strategies markets. The particular participation of the partners may vary, with some companies accepting either a minority or majority position. Licensing agreements are subject to negotiation and tend to vary considerably from company to company and from industry to industry. Foreign Production as an Entry Strategy.
The financial data can be adjusted to reflect each new set of circumstances. Two caveats are required when considering using the franchise model. (Sun Pharmas strategy has been to grow through mergers and acquisitions). Thus, the producer loses some control in certain situations. The major advantage for managers using a domestic intermediary lies in that individuals knowledge of foreign market trading market entry strategies conditions. Often, the primary reason is to take advantage of lower costs in a country, thus providing a better basis for competing with local firms or other foreign companies already present. The independent distributor earns a margin on the selling price of the products. Generally early motives are to skim the cream from the market or gain business to absorb overheads. Other than the failure to achieve marketing objectives, there may be political, economic or legal reasons for a company to want to dissolve or sell an operation (management myopia). This may mean a consolidation of factories from many to fewer such plants. Objectives to establish market entry could be based on: minimum market size, market growth potential, acceptable tariff barriers, acceptable price controls, attainable product standards and political stability.
Parkhe defines strategic alliances as relatively enduring inter firm cooperative arrangements involving flows and linkages that use resources and/or governance structures from autonomous organizations, for the accomplishment of individual goals linked to trading market entry strategies the corporate mission of each sponsoring firm. Supplier partnerships with (a) goods suppliers, and (b) services suppliers. The company that views of foreign operations as an integral element of its overall growth plan will establish a very different set of objectives from the company that considers foreign operations as a mere extension of its domestic goals. Although many alliances have been forged in a large number of industries, the evidence is not yet in as to whether these alliances will actually become successful business ventures. There are a number of ways in which joint ventures may be initiated. Despite the potential for problems, joint ventures are common because they offer important advantages to the foreign firm. In particular, it is important to recognize that the needs and aspirations of partners may change over the life of an alliance and do so in divergent ways. These conditions tend to exist in the smaller countries in Central America, Africa and Asia. Morgan and Hunt identified as many as 10 distinct forms of intra- and inter-organizational relationships pertinent to the study of relationship marketing. This is quite common in industrial product but all types of product are sold using this method. Acquiring an existing firm also takes a potential competitor out of the market. Such control may be important if the companys products require the use of special marketing skills such as advertising or selling. Strategic alliances : Strategic alliances, a manifestation of inter-organizational cooperative strategies, entail the pooling of skills and resources by the alliance partners in order to achieve one or more goals linked to the strategic objectives of the cooperating firms.
By switching to a sales subsidiary to carry out the distributors tasks, the exporter can earn the same margin. For best results, the analyst must take a long-term view of the situation. Moving with an established customer can also be a reason for setting up plants abroad. By bringing in a partner the company can share the risk for a new venture. Table.9 summarizes seven alternative strategies and their advantages and disadvantages.
Companies adapting global strategies are not likely to target seriously countries with high barriers and small national product markets. The most common entry trading market entry strategies routes are internal development and acquisition. Helpful Links: Next: Intellectual Property. Franchising, franchising is a typical North American process for rapid market expansion but it is gaining traction in other parts of the world. If they find them worth investing in they would pay any cost to acquire that business. The target market may be known as any market to which manufacturer is willing to enter once the target market is decided; the next step in market decision is to decide the mode of entry in the market.
Also, the exporting company may establish its own sales subsidiary as an alternative to independent intermediaries. The lack of control frequently causes exporters to shift from an independent distributor to wholly owned sales ny companies export directly to their own sales subsidiaries abroad, sidestepping independent intermediaries. Here, we are dealing with completing a sale, shipping, collecting funds and providing after-sales service to customers all over the world. This particularly advantageous for small firms as they often lack the necessary resources. Direct Exporting, direct exporting is selling directly into the market you have chosen using in the first instance you own resources. A company may open up a subsidiary that produces some products locally and imports others to round out its product line. Direct exporting may be the most appropriate strategy in one market while in another you may need to set up a joint venture and in another you may well license your manufacturing. This consolidation should occur within the range of the impulse wave. In such cases, a foreign manufacturer may prefer to team up with capable licensee despite a large market size, because other forms of entry may not be possible. International companies have to be aware of the high costs attached to the liquidation of foreign operations; substantial amounts of severance pay may have to be paid to employees and any loss of credibility in other markets can hurt future prospects. Develop an international business plan that details key business strategies with metrics to monitor success. Thus, to defend market positions, Japanese car companies instituted a longer-term strategy of making cars in the region where they are sold. In some countries where the political or economic situation appears uncertain, a licensing agreement will avoid the potential risk associated with investments in fixed facilities.
This reduces your risk and costs because you are essentially selling domestically and the larger firm is marketing your product or service for you internationally. Exporting represents the least commitment on the part of the firm entering a foreign market. A major advantage of acquisitions is that they can quickly position a firm in a new business. (iv) Recession or slackening of demand in the industry measured by the growth in the sales as compared to the cagr over the last five years. The most common types of intermediaries are brokers, combination export and manufacturers export agents. This means of foreign market development is the easiest and most common approach employed by companies taking their first international steps because the risk of the financial loss can be minimized. Agents and distributors work closely with you in representing your interests. Entry market strategy can be fulfilled through these mechanisms. But, not all joint ventures are successful and fulfill their partners expectations. Alliances can be in the forms of technology-based alliances, production-based alliances or distribution-based alliances. It is certainly the most costly and holds the highest risk but some markets may require you to undertake the cost and risk due to government regulations, transportation costs, and the ability to access technology or skilled labour. The Internet will eliminate some of the hurdles that plagued smaller firms from competing beyond their borders.
Licensing, licensing is a relatively sophisticated arrangement where a firm transfers the rights to the use of a product or service to another firm. Management should rate countries on such criteria and determine whether market entry would meet international objectives. The local manufacturing plant may be incorporated separately from the sales subsidiary. Typically, alliances involve either distribution access, technology transfers or production technology with each partner contributing a different element to the venture. (icici merged with ITC Classic to obtain its retail network and depositor base). With increasing volume, the incentive to start a sales subsidiary grows. In some markets buying an existing local company may be the most appropriate entry strategy. Companies use licensing for a number of reasons. A company that establishes a server on the Internet and opens up a web page can be connected from anywhere in the world. Exporting and licensing are two other approaches with low commitment. By moving to an assembly operation, the international firm locates a portion of the manufacturing process in the foreign country. There should be a distinct impulse wave, a distinct pullback, and a distinct consolidation during the pullback. The manufacturer is therefore benefited by their action although cost is high.
Usually the franchise agreement is trading market entry strategies more comprehensive than a regular licensing agreement in as much as the total operation of the franchisee is prescribed. Eventually such connections will result in the creation of new organizations out of the cooperating parts of the partners. A local company may acquire interest in an existing operation of the foreign company. Also, high transportation costs and tariffs may make imported goods uncompetitive. Joint ventures: advertisements: When foreign investor joins hands with a local investor to start a local business or an industry in which they share joint ownership and control, aspects it is called a joint venture.
Once they realize the market potential, they can start their own exporting. Each company has a specific strategy may be selected to suit a companys needs. A poor rating on any criterion could mean a decision against entry, even if an opportunity exists to meet a defined set of consumer needs. Franchising is the most popular form of licensing in which the franchiser provides standard package systems and management. This method also can be used a first step towards a companys own international activities to test the market. Predicting what the goals and incentives of the various parties will be under various circumstances is a critical part of effective planning. Case studies offering real-life examples to help trading market entry strategies you study and prepare for important business situations. When a company unbundles, it essentially divides its operations in a country into different companies. When this occurs, companies may select different ownership strategies, for instance, allowing a JV in one operation while keeping full ownership in another part. The major motives for M A in India are as follows: (i) Growth, viz., growth which is instantaneous as opposed to organic growth. They also need to arrange ownership, either as a wholly owned subsidiary, in a joint venture, or more recently in strategic alliance.