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Entry Strategies for New Market

Essay by   •  January 15, 2012  •  Case Study  •  1,819 Words (8 Pages)  •  2,128 Views

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Index

Topic 1

Reasons to go international 1

Growth 2

Resources 2

Ideas 2

Diversification 2

When to Enter Target Markets 2

Which Markets to Enter 3

Export 3

Alliances and partnerships 3

International joint ventures 4

Mergers and Acquisitions 4

Franchising 5

Advantages and disadvantages of franchising for the franchisee 5

Advantages and disadvantages of franchising for the franchiser 6

Licensing 6

Wholly owned subsidiary 6

Entry Strategy for New Markets

Topic

Our topic deals with strategies for companies in breaking into foreign markets.

When a company is planning to join into new markets it will have to regard a lot of market entry barriers.

The company should consider the same rules and aspects as in the domestic markets. The key questions are, what does the company have to offer to the customers and who will be the customer.

Moreover, the enterprise needs to plan and monitor the whole value chain like the primary and the secondary activities. The primary activities starting with the inbound logistics, production, outbound logistics, marketing and sales as well as customer service and support could be organized decentralized. On the other side the secondary activities like purchasing, research and development, human resource management and infrastructure is located central at the headquarter. Other relevant aspects in different markets and customers are the right segmentation, verified marketing and services.

Firstly, multinational companies that hope to succeed in new and unfamiliar markets have to prepare exactly and should analyze the market of interest, especially the different local cultures and diversity. Furthermore, the challenge of dealing with very different business practices and should know the local rules. This is one part of the preparation before operating internationally. Local laws, patent laws, taxes, matter of payments as well as restrictions of the governments can be complex and mysterious.

Reasons to go international

Many businesses are forced into international selling due to the competitive environment. While it might be wonderful to stay the same size and just focus on quality, the problem is that the competitive environment creates situations where your competition continues to grow - so, if you do not grow and expand you will lose customers. Beside this, there are a lot of advantages to go international.

Growth

Many companies look to international markets for growth. Introducing new products internationally can expand a company's customer base, sales and revenue

Resources

Some companies go international to locate resources that are difficult to obtain in their home markets, or that can be obtained at a better price internationally.

Ideas

Companies go international to broaden their work force and obtain new ideas. A work force comprised of different backgrounds and cultural differences can bring fresh ideas and concepts to help a company grow. For example, IBM actively recruits individuals from diverse backgrounds because it believes it's a competitive advantage that drives innovation and benefits customers.

Diversification

Some companies go international to diversify. Selling products and services in multiple countries reduces the company's exposure to possible economic and political instability in a single country.

When to Enter Target Markets

The timing of entry is crucial because it could be a significant advantage over other firms. While the benefits accuring to the pioneer can be significant, such is not always guaranted, and, in fact, the follower can gain advantage by learning form the pioneer's mistakes. For the first mover, an appropriate strategy is to build barriers to entry and to forestall competitive imitation. There may also be intangible, political advantages to the first mover, such as being able to develop and nurture close relationships with the host country. For the follower, a good strategy might allow entry barriers to be overcome through a series of actions focused on a pioneer's area of weaknesses, or through an alteration of the bases of competition.

Which Markets to Enter

Possible global markets should be ranken on several factors, including market size, market growth, cost of doing business, competitive advantage, and risk level. The goal is to determine the potential of each market. Then should someone decide which markets offer the greatest long-run return on investment.

The mentioned aspects are the basics to arrange the market entrance. The following theories of breaking into foreign markets are export, alliances and partnerships, joint venture, franchise, mergers and acquisitions, licenses, new facilities and subsidiary.

Export

"Export" is the most uncomplicated way operating in unfamiliar markets. It means when you trade products and goods out of the country into a foreign countries. It is often the only available choices for small and new firms wanting to go international. For larger firms, exports are the best way to begin their international expansion with a minimum of Investment. Exporting can provide easy access to overseas markets. By contracting with foreign wholesalers (export strategy), an company can limit its risk and payments. Another advantage is shown in the fact that the company is able to sale domestic products with the same design in other target markets without additional charges (standardization). A disadvantage can occur through higher domestic production costs than in the foreign target market as well as the high transportation costs due to the location with the cheapest and high-skilled labor. Furthermore, tariff barriers can make exporting uneconomical. The mentioned point with the tariff barriers shows the power of governments.

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