A Report On Market Entry Strategy

International Marketing is the performance of business activities that direct the flow of a companys goods and services to consumers or users in more than one nation for a profit.Cateora and Ghauri (1999)

Market entry strategy can be defined as an organised way of delivering and distributing goods or services to any specified market. This market can be local as well as foreign. The statement that there is no single method for entering any particular market is fairly true. Firms can use different strategies to exploit markets under different circumstances. The market entry strategies of a firm can be influenced by the characteristics of the market (such as sales potential, strategic importance of the market, country barriers and culture), organisation’s characteristics and capabilities and it’s near market knowledge and involvement and also commitment of the management. The main strategies that an organisation can use to gain entry into a foreign market depends on factors such as organisation using a strategy of technical innovation where it introduces a product which it regards as superior to those already in the market. Secondly, it can use the strategy of market adaption to modify the product slightly for a region or specific customers. Thirdly, the pricing factor influences the market entry strategy where pricing is kept low to challenge the competition which bits into profits. The attitudes and the ability to achieve goals in the target markets, level of risk involved are important factors when deciding on whether to export, franchise, license, joint venture or get into direct investment.

Marketing Strategies

Exporting

In this strategy, a company can export goods to overseas markets from its home base without directly marketing and producing those goods in that market. It can be direct or indirect.

In direct exporting, the company can sell its products or services directly to the customers without the help of the middle man.

In in-direct exporting, a company can sell its products or services to an agent or distributor in the foreign market, which then repackage, advertise and sell it to the customers.

Main advantage of exporting includes the exporter’s total control over pricing and distribution (not in case of agents and distributors), reduced potential risk of producing overseas due to home base manufacturing and greater potential for profits due to the removal of middle man. Although, foreign agents can be a barrier to the entry strategy and exporting firm may have lesser control.

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Licensing

Licensing can be described as a market entry strategy where an organisation(Licensor) based in one country grants the permission to another company(licensee) to use the brand, trademark, technical knowledge, manufacturing processes, knowhow and other skills to conduct business in that country.

Licensing is a contractual agreement and is quite similar to “franchise”. It engages little involvement and expenses from the licensor and only needs to sign the contract and oversee the implementation of that contract.

Some of the advantages involve lower financial risk, lower cost method of assessing the market potential, avoidance of tariffs, non-tariff barriers, government restrictions etc. It is a safer way of going international and starting low risk manufacturing relationships. It also means getting most out of marketing process due to greater interest of both the parties.

But the participation in this type of strategy is limited to the length of agreement, particular products, trademarks and processes. Licensee can develop skills over the time so the license period is short and licensee can become competitor. Possible manufacturing and marketing returns may be lesser. It also needs thorough fact finding, investigation, planning and interpretation skills.

Joint Venture

Joint venture is normally a partnership between two or more firms at a corporate level who join together to achieve particular business goals and a combination create a separate entity where ownership and control of the property rights and operations is shared by the parent companies. These firms can be from more than one country. It involves a more broad type of involvement than either licensing or even exporting. Japan’s Nissan Motors has a quite successful joint venture with France’s Renault.

Joint venture a very useful and a less risky way of entering a market. Risks and skills are shared along with the domestic market knowledge of the local partner and technology or process know how of the foreign partner. Financial strengths are joined. Sometime is can be the only mean of entry due to political situation and can also be useful to dilute the political risk by collaborating with the local partner.

However, they can also be counterproductive if partners do not share the full management control. Capital invested is also almost impossible to recover. Partners can develop disagreement on serving third party market and having different outcome expectations. Therefore, JV partners must cautiously plan their objectives and how they would achieve them.

FDI

It refers to the overall ownership of the business facilities in the foreign market. It consists of resources transfer including capital, employees and technology. FDI can be done through acquiring an existing firm or by building up a brand new firm. It gives a greater level of operational control and better knowledge of competition and consumer environment. Though, it needs greater commitment and resources. In FDI, an international firm directly invests into a production unit in a different country. Commitment is greatest because of hundred percent ownership and control. The firm can get a foreign production unit either by directly acquiring or merging in the foreign market or by developing its own facilities thorough Greenfield strategy. Toyota is a prime example of this type of strategy when it built its own facilities to avoid tariff and quota restriction placed upon it by the American government.

Franchising

It is a type of a contractual agreement in which the parent company the franchisor delivers products package, systems and operation management and process whereas the franchisee contributes capital, market knowledge and personnel. It is a type of licensing. In this contract the franchisor agrees to sell the right to a particular technology, brand name, structure and processes in return of capital. The arrangements of the structure are as such that the franchisee buys into the actual commercial concept of franchisor from products to culture. This entry strategy is quite visible in hotel chains and fast food chain such as Marriot, McDonalds and KFC etc. Franchisee gets the permission to use the logo, trademarks, services and advertising and marketing support. The franchisee’s abilities of carrying out the promotion, production and service according to the standards of franchisor must be taken into account in the agreement. Improper agreements can seriously prejudice the Vendor’s reputation. Low capital requirement and easier access to market are the main benefits to franchises. Although, the control over these franchises is hard as they tend to be pretty autonomous. And franchises can also be seen as lesser commitment to the target market which in turn can damage brand perception and impacts on sales.

Strategic Alliance, Overseas Subsidiary, Overseas Agents and distributors are some of the other market entry strategies firms can employ to get access to the target market.

Types of Firms and Their Strategies

* Large

* SMEs

* Manufacturing

* Service Based

Market Conditions

It is very important to consider the target market conditions when deciding about the entry strategy into that market. The market analysis should consider the marketing mix (N. Borden; 1964) that includes 4Ps of Product, Price, Place and Promotion. M. Porter’s generic strategic analysis can also be used to understand the market structure before entering. Particularly in case of a foreign market, the organisation should carry out thorough PEST analysis of the country and the market. This analysis would help to understand how easy it might be to go international and if the business is going to take advantage of the inner foreign investment? It will also help to understand the competitive market of the market and how other international firms from different countries would respond to your entry.

Level of Risk

Political

The company should analysis the political history and current conditions in the target market country before entry and see how they can affect on its business. The political situation of country has great importance in foreign investment initiatives. Successful MNCs take the political risk as a very significant investment decision making determinant. Political instability and volatility is raises the insecurity and risk for the entering firm. Political risk raises the possibility of investors might lose their money or might not make as much money as they thought if the political events and decisions taken have a negative effect of the market environment. Moreover, in countries under transition, instability and chaos can create political risks like coup, strikes or terrorism. As during Iranian Revolution, the assets of US firms were taken away without any payment. Therefore, before entering into a foreign market, the firms should take the political risk and cost into account.

Economic/ Financial

The second risk that a firm should take into account should be Economic and Financial risk. It should consider the growth factor in the industry, the exchange rate and fluctuation in currency, inflation, employment, GDP, national income and consumer behaviour. Firms should understand the economic indicators such as stock market performance, market volume, insurance and economic systems and overall business climate. Companies should also take the transaction cost, tax rate, economic policies and incentives offered by the foreign country into account before entering.

Technology

Firms need to consider the possible technological risk in the target market that it can face such as piracy and if the firms’ technology is in accordance with the foreign laws. It should see if intellectual property laws, international copyrights and patent protection technology have been implemented in the country. It should also consider if the technology is at various levels of the product life cycle in different markets.

Tariff and Non-Tariff Barriers

Apart from the risks mentioned above, a firm should also consider tariff and non-tariff barriers placed by governments in the target market. Even in a WTO era, tariff and non-tariff barriers are very much alive. Companies need to plan for numerous hurdles before entering to international market. Tariff barriers are a type of tax on imports that are charged on imports. They eat into profits and doing business internationally becomes harder. They tend to be transparent and companies can plan well ahead for them. On the other hand, non-tariff barrier are not so transparent and therefore, hard to plan for. There is a tool to protect local companies from foreign competitors. A common example would be bureaucracy where pointless hold ups and red tapes are used. Quota is also a non-tariff barrier

Culture

* Cultural Factors

* Working and Business Practices

* Cultural and Geographical Distance