Case Study Market Entry Modes Marketing Essay
One of the largest realities of our lives may be the fact that we are living in a world were the surfaces of our homes, nearly, no longer exist. We stay in an available, interdependent and interconnected globe, where surviving in isolation and maintaining personal privacy is no longer possible. Globalization, lifting of trade barriers, revolution in it and many other factors has taken people closer than ever before in the annals before. Quite reasonably, globalization had a great impact at the corporate world as well. Even if businesses want, they cannot contain themselves to their domestic markets since the desire to develop and grow frequently have made them enthusiastic about international expansions. Consider these examples. Exxon Mobil is an American firm, which receives a lot more than 75 percent of their yearly revenues from functions in rest of the world. Finnish employees no longer form almost all at Nokia's head one fourth, which is a Finland based company; surprisingly, staff members from China and India dominate the amounts. Honda, a Japanese car maker, has its most important production plant in Ohio. 3M would lose a lot more than 53% of its revenues if the American authorities asks them to restrict their operations within the United States (Johnson & Turner, 2009). Ford would find itself in big trouble if there have been some disturbance in America-Brazil relations because Ford manufactures almost all of its automobiles in Brazil. BMW directly finds itself damaged with any changes in the economy of South Africa or India because of the existence of its manufacturing plant life there. McDonalds earns 63 percent of its income from procedures outside the United States of America (David, 2010). Therefore, the point here is an increasing number of companies, everyday, want to maximize their scope of procedures in terms of geographical markets. However, in the process of expanding globally, one of the most crucial decisions that firms have to undertake is deciding on the market entry function. Quite reasonably, deciding on the market entry mode is essential because it is the base which rest of the functions would be conducted through the entire life of that expansion. Since there are varying levels of control, risk, involvement, aspect of competition, investment and market costs, speed of entry and earnings potential in each option, therefore, the decision for the same should be made after great idea, decision, analysis, general market trends and debate.
This paper can be an attempt to explore, analyze and examine these different modes of entries in overseas markets, looking at their advantages and disadvantages and "best fit" scenarios. The remaining portion of the paper would make an effort to bring the previously mentioned concepts in practice by shedding some light on the best-fit industry entry mode for an automobile company in Czech Republic.
Market Entry Modes
Even a glance at the literature on international marketing and particularly market entry modes and approaches would reveal that there are dissimilarities between authors and operations experts how they group these settings and approaches. Furthermore, as enough time passes and market becomes more competitive, businesses want to use new, complex and progressive entry strategies. However, significant here to notice is that the fundamental idea or the essential concept may be the same. Accordingly, in light of the almost all of the material present on this topic, market entry modes can broadly get grouped into four groups, which are exporting, licensing/franchising, Joint ventures/ Strategic alliances and Full ownership/direct access (Onkvisit & Shaw, 2008).
One of the oldest, well-established and traditional varieties of entry in virtually any foreign market is through exporting. Regarding to its description, exporting is the procedure for selling goods and offerings stated in one country to several other countries. As stated earlier, there are many ways in which marketing experts divide and classify exporting mode. One-way to do the same is classifying it as "occasional exporting" and "active exporting". Occasional exporting is usually a passive way of exporting with low level of involvement along the way. The company decides to export from time to time, when desired, demanded or whenever, it appears feasible to the business. However, with energetic exporting the business actively engages in the process and takes on the duty to export over summer and winter. However, a far more acceptable and superior way of classifying them is in groups of "direct exporting" and indirect exporting" (Johnson & Turner, 2009).
Amongst all of the possible market entry modes, indirect exporting is the way that offers minimal risk, minimal degree of involvement, however, concurrently, the returns or earnings potential as well remains low. Most firms that could want to entry in the market in any form would in the beginning "test the waters" with indirect exporting. The complete idea of indirect exporting is to market goods with intermediaries in between which can take the responsibility of dealing with the company and the rest of individuals. For example, domestic structured export merchants, who choose the products of the business and assume the responsibility of looking after all of those other deal. Domestic based mostly export agents try to manage foreign purchases and in exchange, they are paid out a commission. Cooperative organizations, which usually are under general public sector, governmental or administrative control would cope with foreign purchasers on behalf of many exporters. Finally, there are export operations companies aswell which would manage the company's exports in substitution for a fee or a little share in the profits (Onkvisit & Shaw, 2008).
Once they have attained experience, many companies try to jump into the arena of immediate exporting by eliminating all the intermediaries and dealing immediately with the ultimate purchasers. Despite the fact that exporting in general, is the lowest risk, lowest control and lowest involvement choice available in all strategies, yet comparatively with indirect exporting, it increases the risk, control and involvement. Businesses are now own their own to comprehend their purchases, contact them, negotiate with them, understand their way of life and demands, unsaid and unheard indicators and others. Companies may end up blunders in the same if indeed they don't have the expertise, knowledge and experience; however, it is tempting because very careful execution may raise the profit potential. Firms could also have to develop an overseas sales team, travelling export sales representatives, overseas revenue branch or subsidiary, foreign-based distributors or brokers, set of intercontinental contacts or an export department solely to look after the exports of the company (Johnson & Turner, 2009).
When firms make an effort to assume additional responsibility, want to have larger risks and control in substitution for high returns they make an effort to enter into contractual agreements with others because of their entry in the overseas marketplace. Since comparatively with all other methods, the responsibility is low, therefore, it is also regarded another troublefree and straightforward method. Following are different variations of the contractual method (Hollensen, 2009).
The licensor merely issues a license to a foreign firm so that the business can gain access or use the selling rights of the merchandise, trademark, patent, trade magic formula, and manufacturing process. The same is done in exchange of a fixed fee, selected percentage of profit percentage, or royalty. It is aimed at creating a win-win circumstance for both the partners because the licensor gains entry in the market for a very little risk and degree of involvement and the licensee benefits the rights to use or promote the product for just a little fee.
Firms like Hyatt and Marriot sell off control contracts to foreign resort owners to perform their resorts in the name of their company's brand for a fee. Actually, the company may even assure to buy some stake in the assets of the foreign resorts aswell (David, 2010).
As the name suggests, when exporting seems to be an expensive option, the company would hire a local manufacturer and ask him to initiate the production on behalf of the company.
Another very common sort of contractual agreements is franchising. For instance, KFC offers franchised its operations in Pakistan to a Dubai established company name Cupola that works its businesses in Pakistan in exchange for a show in the gains. KFC has offered Cupola total control over employing the brand, inventories, and raw materials and in exchange, Cupola is taking the responsibility of operating all of the franchises (Johnson & Turner, 2009). However, in case of an incompetent franchisee or licensee, the company may find damage and destruction to its brand. Furthermore, if appropriate legal conditions and conditions aren't defined, then your contractual spouse may emerge as a competitor either in the domestic industry of the business or, when the company decides to get rid of the contract and enter in the market by itself. Furthermore, important here to notice can be that contractual agreements are the best way when the business is looking for comprising on their income in exchange on low level of inconvenience, control, involvement and expenditure (Cateora & Graham, 2007).
Joint Ventures / Strategic Alliances
Consider these examples. "Ready to drink" tea and espresso, which is currently being sold in large sums in Japan, is because jv between Nestle grant cover letter and Coca Cola. To be able
to become dim ant pressure in reselling baby diapers in Italy and United Kingdom, Procter & Gamble and Fater, which are rivals in all of those other world, decided to become a member of their hands and work together. When Unilever wished to enter in the Chinese ice cream market, it has no choice but to interact with Sumstar, a general public sector Chinese firm (Shenkar & Luo, 2008). As evident from these examples, various players in the overseas market would use the approach to joint ventures in order to operate in different markets. There are numerous known reasons for the same. First, for many countries, joint venture may be the only mode of entry. Second, the company might lack the financial, intellectual, physical, managerial or different resources to attempt the venture all alone. Third, merger of two firms may offer them the opportunity to emerge as the market leader for the reason that market (Lymbersky, 2008).
However, there are lots of problems with joint ventures concurrently, which need to be addressed in order to make sure that the ventures are successful. First, companies often find themselves fighting over the application of retained earnings, somebody may believe it ought to be reinvested, other may feel that it must be used to pay more dividends. Second, cultural problems always arise when companies from different cultures are trying to work together. Pre-requisite understanding of other cultures is extremely important. Third, the partners may not have the ability to trust each other in terms of using and sharing crucial internal information. Fourth, problems also arise whenever a partner tries to get rid of the jv since conditions of the same possess not been decided but. Fifth, partners always make an effort to ensure that their personal competitive, bargaining and negotiative job could be strengthened, sometimes by putting the jv at stake.
It is also vital that you note that as compared to the settings of exporting and contracts, joint ventures allow the firm to exercise increased control, earn much more profits in return for more risk, higher investment and higher level of involvement (Czinkota, et.al., 2010).
Lastly, the most approach, which offers the maximum possible control, maximum earnings potential, maximum level of involvement, requires maximum expenditure and which is the most risky is full direct acquisition. Quite plainly, the firm decides not to merge or collaborate with anyone or acknowledge any intermediaries in between but to accomplish it on your individual. There are various modes of entering any marketplace directly. A firm may decide to buy and create his very own new planet, right from scratch. Additionally it is known as "green field investment. Just how would be where the firm should find the resources, name and procedures of any existing company available in the market. Direct expenditure is a decision used situations when the marketplace is apparently big enough to provide benefits of economies of scale, authorities and other stakeholders are extremely friendly, the marketplace is huge plenty of that saturating point would come after a long time and until then your profit probable or the ROI is normally high or the company is sure it has or it will be able to need to good, favorable and friendly picture in the united states. Again, important here's to note the actual fact that huge returns which this method of entry offers is only and only in return of the risky that the method incorporates (Wagner, 2009).
Example of Czech Republic
As brought up in the introductory stage of the paper, that right now the paper would use the Czech Republic's automotive market as an example to use the concepts presented above.
Czech Republic and its Automotive Industry
Surrounded by Poland, Germany, Slovakia and Austria, Czech Republic is certainly land locked country found in the central Europe. The united states happened in 1993 and since that time it has been a member of NATO, OCED and EU. With substantial incomes, GDP per Capita, stable economical growth and general better economical outlook, Czech Republic is normally a developed country, which has attracted many investors over the years (OCED, 2010).
The automotive market of Czech Republic is normally one of the most crucial sectors of the Czech market where it has got witnessed a whole lot of foreign expenditure. Technologically advance infrastructure, excessive incomes, stable economy and changing consumer tastes means that the industry offers some serious prospects fro growth. Presently Skoda is top rated the automotive sector of Czech Republic (Pavlínek, 2008).
Best Entry Mode and Justifications
Political and Legal Elements: - It is mainly due to favorable political-legal macro environmental elements that it joint ventures appear to be more feasible as compared to licensing or exporting. Firstly, the federal government of Czech Republic is extremely enthusiastic and seriously interested in increasing and encouraging overseas investors to type in the Czech marketplace and spend money on it. Therefore, the government offers various incentives, which include corporate income tax relief, work creation grants, training grants, transfer of territory on discounted rates, special discounts of purchasing property for businesses and others. Secondly, the government is taking all conceivable steps for enhancing the infrastructure in the united states, which will further raise the demand for automobiles in the united states. Third, the federal government of Czech Republic can be taking into consideration adopting Euro by the 2013-2014 (OCED, 2010).
Economic Elements: - Czech Republic is usually high-income country and one of most developed and industrialized countries of EU. Stable Economy, healthy inflation rates and ranks 26th in the world when it comes to GDP per capita, Czech Republic includes a strong bank operating system. Furthermore, it has been ranked on top of the factor "ease of doing business". Despite the fact the economy shrinked due to the current crisis with unfavorable GDP growth rates, however the country has plans for even more aggressive growth as the market recovers to make up for the misplaced progress in the recession. Subsequently, the united states offers many prospects of growth (OCED, 2010).
Social Factors: - Unlike other European countries, 71 percent of the Czech Population is the age bracket of 15-64 years. Since they are the people who are the prospective customers anthropology research paper topics of automobiles, there happen to be chances of considerable growth (OCED, 2010).
Technological Elements: - Czech Republic possesses been rated as the 4th country in universe regarding attractiveness for automotive exploration. Furthermore, the country includes a huge pool of skilled labour, both in managerial and complex fields. The country has high level of IT spending which is just about 3.2 percent of the GDP when the EU ordinary is just about 2.72 percent (Czinkota, et.al., 2010).
Rivalry: -Another reason for the same is due to high rivalry amongst the existing players in the market. Players like Skoda, Fait, Toyota, Ford, Citron, Renault and others are nearly balanced with one another, which fuels the rivalry. Even so, if a competitor of considerable, even moderate personal and technological power decides to go into with a jv, then it could disturb this stability of the market by producing the partnership emerge as the biggest firm of the sector. Quite understandably, the same would help in decreasing the threat of rivalry available in the market (Czech Invest, 2009).
Economies of Scale: - Without any doubts, automotive industry is certainly one those where historically, businesses have often tried to rake good thing about economies of scale by large-scale production. Even so, presence of several players and their personal different production houses ensures that none of the participant has had the opportunity to take complete benefit of it. On the other hand, with a jv, both the companies can produce along and produce more, thus reaping the advantages of economies of level (Pavlínek, 2008).
Cost of entry: - Getting into in any automotive sector of the globe requires significant amount of investments compared to many other industries. Additionally, with increasing investment, escalates the overall risk in procedures as well. Therefore, it is advisable to get to establish partnership with additional firms so that the price tag on entry could possibly be reduced and at the same time, substantial level of control over the functions could be gained aswell (Czech Invest, 2009).
Access to distribution channels: - Distribution channels hold immense importance for just about any industry, however, for automotive industry marketing and distribution channels are of above common importance. Customers are drastically influenced by the distributors, so, access and partnerships with them is actually important. However, occurrence of well-established existing players ensures that any firm, which tries to go into directly the automotive industry, would have to face a tough time, at least in its original days, for getting usage of the distribution channels. Joint venture with an currently established partner available in the market would mean that the firm wouldn't normally have to put significant amount of energy in this respect (Pavlínek, 2008).
Cultural barriers: - Quite reasonably, Czech Republic has its culture, which includes not been researched very much since it has been significantly less than two decades because it became an independent country. Any latest entrant available in the market would experience cultural barriers, however, with joint venture, the player which is already working in the marketplace and has find out about he dynamics of customer behaviours and market circumstances would offer substantial assist in overcoming this barrier.