The various market entry strategies Essay Example for Free

The various trade entry strategies EssayResearch ObjectivesThis look is undertaken to identify, analyze and evaluate the various market entry strategies in globular markets. Specifically, the research forget examine exporting, franchising, acquisition, jointure, wholly owned subsidiaries and joint ventures. Further much, the research will as well as analyze entry strategies implemented by a number of multinational corporations operate in divergent industries. Finally, the research will conclude with the factors that need to be examined and investigated before entering a global market. everyday IntroductionMultinational firms deciding how to enter or operate in a global market must c atomic number 18fully and precisely take into consideration numerous critical factors including the topical anesthetic business environment in addition to the firms own core competencies. An entry mode is defined by infatuated Wild (2012) as the institutional arrangement by which a fir m gets its products, technologies, human skills, or other resources into a market. (Wild Wild, 2012, p.358)Wheleen Hunger (2010) utter that research had indicated that growing globally is linked with the organizations profit skill. This means that firms who are looking for ways to increase their long-term profitability, are forthwith looking for profitable and appropriate markets to offer their products and or inspection and repairs. A firm heap select from a number of strategic options the most appropriate method acting for entering a global market or establishing production plans in other nation. Zekiri Angelova (2011) argued that Firms that want to multinationalize must decide on a conform to mode of entry into a extraneous market in order to make the best use of their resources. The age of globalization has some(prenominal) facilitated and necessitated businesses to move towards the internationalisation of organizations of all sizes. (Wood and Robertson, as cited in Zekiri Angelova, 2011, p.573).There are many a(prenominal) different modes of entering into foreign markets. Each mode has its strengths and weaknesses in general terms. However, Zekiri (2011) explained that each iodin multinational firm would be more attracted to a type mode depending on their backgrounds, nature of the participation, strategic objectives as well as the resources. In many cases, there are many obstacles that companies have to meet while deciding to enter other markets, for example safety, environmental, packaging, labeling, patents, trademarks and copyrights, are factors that businesses depend on being successful. Moreover, It should be stated that the local business environment in terms of governmental, technological, legal, environmental, and cultural factors should be deeply studied to assess the attractiveness of the target market. This argument is also supported by Zekiri Angelova (2011) as he stated it is difficult to understand the business environmen t in a country without studying the current political system and institutions, government policies, and a variety of data and other information on the countrys economy. (Zekiri, 2011, p.573)Kotler Armstrong (2008) as well as Chung Enderwich (2001) explained that some of the benefits associated with operating on international basis are the increased profits and sales growth, the chances of achieving both economies of scale and location economies. Zekiri Angelova (2011) also added that many firms are operating on international basis for better opportunities and profit potential in e unite markets such as (India, China, Brazil and Russia) As globalization now is fostering international operations as nations are being more open to trade and foreign investment opportunities.Global Market Entry Strategies Advantages and DisadvantagesexportationAccording to many researchers including Wheleen Hunger (2010), Kotler Armstrong (2009), and Chung Enderwich (2011) exporting is unmatchable of the most basic and simplest entry strategies as it minimizes the stake and experiment with a specific product. Shaver (2009) defined exporting as the production of goods at home that are sold in foreign markets. (Shaver, 2009, p.1047) in other words, products are shipped from the home country to other countries for marketing. Wheleen Hunger (2010) stated that the company could either choose to handle all critical functions itself or could contract these functions to export management companies.The main benefits of exporting are its simplicity and utter cost of investment and risk. Consequently, exporting could be seen as the first entry method utilise by organizations in order to obtain knowledge of the foreign market. Other advantages of exporting are increased utilization of the domestic plant, thus using idle capacity and reducing unit costs through economies of scale. Exporting also helps in diversifying markets, which reduces the companys exposure to domestic demand inst ability.On the other hand, the hurts of exporting include high transportation fees trade barriers, tariffs, quotas, and problems with local agents. In addition, exporters have lower control of distribution and local agents. Moreover, Shaver (2009) noted that companies engaging in exporting could face the potential risk of change rate fluctuations, and could be subject to custom duties and taxes in the importing counties.Zekiri Angelova (2011) although exporting costs are relatively low compared with the other entry methods, to enter and get under ones skin these markets exporters usually incur costs to gain exposure, set up sales and distribution networks, and attract customers. Furthermore, cultural barriers could forces companies to modify or redesign their products including labeling and packaging for the determination of meeting consumers preferences/tastes and local requirements. From on own point of view, which was not discussed by any of the previous authors and research ers, is that exporting is hindering a firms ability to quickly respond to the changing needs of target consumers.FranchisingFranchising is one of the global entry modes that has been widely used as a quick method of global expansion, most notably by multinational fast food and retail chains such as (KFC, McDonalds, Starbucks). According to Wheleen Hunger (2010), under a franchising agreement, the franchiser offers rights to another party to open a retail store using the franchisers name and operating system. In other words, by the payment of a royal line fee, the franchisee will obtain the major business know-how via an agreement with the franchiser.Franchising is most commonly used in a number of American service industries, such as McDonalds, KFC, and Starbucks etc. from an own point of view, franchisers are constantly demonstrating their ability to adapt and modify their product offering to suit local tastes and preferences. This is especially true in McDonalds, which offers dif ferent menus in different nations. McDonalds brand is still internationally consistent, but service staff and menu choices can be modified to local needs. According to Roland Berger Tata strategic management group (2009) McDonalds in India was able to create localized products where it did not serve hamburger meals as some religions in India prohibits the consuming meat. Instead McDonalds served vegetarian and chicken meals that gained the favorability of most Indian consumers.Holmes (2003) stated a major disadvantage associated with entering global markets via franchisee agreements. Firstly, he stated that franchisers world power find it difficult to manage a large number of franchisees in a variety of national markets. The major issue in franchisee agreements is that product and service quality in addition to promotional messages among franchisees will not be consistent or similar from one market to another. Another major disadvantage discussed by Wild Wild (2012) is franchisee s can experience a freeing of organizational flexibility in franchising agreements. Franchise contracts can restrict their strategic and tactical options and they may even be forced to promote products by the franchisers other division. Dahlstrom, Duncan, Ramsay, Amburgey (2004) explained that when PepsiCo used to own the global fast-food chains Pizza Hut and KFC, it used to force franchisees to sell its beverages to their consumers which gained the criticism of many franchisees worldwide.AcquisitionsAs Wheleen Hunger (2010) explained a fast way used by heavy multinational corporations in different industries to operate into a desired and profitable global market is through purchasing another company already operating in that area. One of the benefits that he clearly discussed is the synergistic benefits could be acquired if the firm acquires another company having strong complementary product lines and a good distribution network. Lahovnik (2011) argued that acquisitions have be en the most familiar growth strategy for decades in the US economy.He explained that the 1990s and 2000s also featured a markedly increased volume of European mergers and acquisitions. Economic growth, deregulation and the development of the common European economy accelerated the acquisition process in EU countries. He also noted that the number of acquisitions has also lift in economies in transition. Horizontal acquisitions are the most popular and most frequently pursued acquisition type. From the strategic perspective, the key questions are whether and how an acquirer will restructure the company, and how this will contribute to the acquired companys competitive advantage.For instance, According to UPI (2012) Boeing is continuing to advance its defense logistics support portfolio with the acquisition of California Company miro Technologies, a Boeing supplier. UPI (2012) further explains that Miro was a privately held software company specializing in enterprise asset and supp ly chain management maintenance, repair and run services and performance-based logistics management. It will become part of Boeings Global Services and Support business within Boeing Defense, Space and Security. Boeings services and logistics business has grown significantly in recent years and Miro has been a trusted technology partner during that time. (Parasida, as cited in UPI, 2012)Specifically, the acquisition expands GSS product offerings for linking and fusing data from existing systems to improve relegating readiness and to reduce sustainment costs. Some of the major advantages that acquisitions provide to multi-national firms are the following. First, Riley (2012) stated that firms could have quick admittance to resources both physical and human as well as potential skills and competencies. Secondly, economies of scale could be achieved which helps spread the risk through wider range of products and great geographical spread. However, from an own point of view, the mai n drawback of acquiring other companies from a different nation is the clash of cultures.From instance, when Wal-Mart decided to enter the European market through Germany it acquired two German retailers however, the two acquired companies had a completely different corporate culture which prohibited Wal-Mart from integrating its corporate culture into the newly acquired companies. Therefore, from an own point of Wal-Marts entry in the German market through acquisition could have been more successful if Wal-Mart carefully studied the various German retailers and appropriately chose a profitable German retailer that is characterized with a culture that is not highly differentiated from Wal-Marts corporate culture and can be integrated easily into Wal-Marts. Also the acquired companies should have given Wal-Mart a unique opportunity to utilely compete with the aggressive competition in the Retailing industry and offer a unique and innovative value propose that is not offered by oth ers.MergersAccording to Investopedia (2010) In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go away as a single new company quite than remain separately owned and operated. This kind of action is more precisely referred to as a merger of equals. Both companies stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms interconnected, and a new company, DaimlerChrysler, was created. Schamotter (2012) stated that the mergers could benefit both companies in various ways. Firstly, A merged company can reduce many of its expenses. Budgets for things like marketing might be shared, while the new, larger company enjoys greater purchasing power, which lowers the costs of raw materials and other necessities. More often than not, a merger results in staff layoffs as positions become redundant in the new single entity.Merged companies can also share office space and eliminate duplicate manufacturing facilities. Secondly, Schamattor (2012) explains that by merging, the new company is theoretically provided with access to more customers. This is true if the individual companies had been demonstrably successful in separate markets, as opposed to roughly equally competing in the same one. For example, according to the BBC, the merger of the German automaker Daimler Benz with the American automaker Chrysler Corp. allowed the new company, Daimler Benz, to access markets in both Europe and North America. Merged companies can offer a greater range of products and services. Because these may be complimentary, the merged company may be able to capture more consumers than they would as individual entities. Moreover, the research firmly believes that merged companies can access a diversified set of intellectual superior through different human skills and competencies that could be used as a chopine from continuous innovation and new prod uct development.On the contrary, mergers could harm both companies if a clash of culture does exist. Just like acquisitions, a firm merging with another firm from a different culture could lead to decline in the firms performance, unsatisfied employees, and more importantly loss of stockholders value and decline in the market performance. These arguments are supported by both Wild Wild (2012) and Chung Enderwich (2011) as they both argued that lack of cross-cultural competence is the barrier to an effective and long-term mergers.Joint VenturesIn some situations or circumstances, many multinational firms prefer to share ownership of an operation rather than complete ownership. Joint ventures differs from mergers in the sense that in joint ventures a separate company is created and jointly owned by two or more independent entities to achieve a common business goal. The partners could be private firms, government agencies, or public companies (companies owned by the government). For example, BP was forced according to the practice of law in Egypt to form a joint venture with the Egyptian General Petroleum Corporation (EGPC) has made our joint venture, GUPCO, an industry leader and one of the largest crude and gas operations in the entire region. Moreover, BP Egypt has another joint venture with United Gas Derivatives Company (UGDC), owns and operates the largest natural gas liquids (NGL) plant in Egypt.Wild Wild (2012) discussed some of the advantages of joint ventures. First, they argued that companies do rely on joint ventures to reduce risk. In other words, a company can use a joint venture to learn about the local business environment before operating solely. Secondly, they argued that companies can use joint ventures to penetrate international markets that are other wise off limits. Some governments do design and implement laws that force foreign companies to share ownership with domestic firms.Finally, a company can gain access to another companys inte rnational distribution networks through the use of joint ventures. (Worley Worley, 2012, p.374) Among the disadvantages of joint ventures, conflict of ownership might wax between the two parties. Also Worley Worley (2012) added that conflict can also arise from disagreements over how future investments and profits are to be shared. Secondly, they are stated that loss of control over a joint ventures operations can also result when the local government is a partner in the venture. Where governments could decide to nationalize the company and takes full ownership of the venture.ConclusionTo conclude, the choice of the entry mode has many important strategic implications for a firms long-term operations. Firms do spend a large sum of money and devote much of their time in determining the most efficient and effective way to enter the desired global market. From an own point of view, which is also supported by the work of Worley Worley (2012), Zekiri Angelova (2011) and Kotler Arms trong (2008) one of the critical activities that needs to be conducted before the entry choice is to analyze and evaluate both the opportunities and threats present in the local business environment of the host country.The culture, which is the set of values, beliefs and norms greatly differ from one country to another and could negatively or positively influence the firms performance. Wal-Marts failure in Germany was the result of the lack of intercultural competence. The political and legal environment could serve as an opportunity or threat for a specific firm. For example, political instability in a target market increases the risk of investment. Certain import regulations such as high tariffs, or low quota limits can discourage a firm to export its products to this country. Also local core requirements by governments could force multinational corporations to use local resources which might not be meeting the quality standards.Bibliography1- Wild, J Wild, K. (2012). Internatio nal business the challenges of globalization. (6th ed.). London Pearson precept 2- Wheleen, T. Hunger, D. (2010). Strategic management and business policy. (12th ed.). New Jersey Pearson Education 3- Kotler, P. Armstrong, G. (2008). Principles of marketing. (12th ed.). New Jersey Peasron Education 4- Shaver, J. (2011). The benefits of geographic sales diversification how exporting facilitates capital investment. Strategic counselling Journal, 1046-1060. Retrieved from Ebscohost research database. 5- Zekiri, J. Angelova, B. (2011). Factors that influence entry mode choice in foreign markets. European Journal of Social Science, 4(22), 572-584. Retrieved from Ebscohost research database. 6- Roland Berger Tata Strategic Management Group. (2009). India opportunities challenges. 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