The existing literature suggested that there is no consensus about which managerial decision actually makes up an entry strategy (Green, 1995). It is also very crucial to understand what market entry strategy means in the context of the mentioned question. Strategy is defined as an internally consistent set of goals and policies, which aligns the firm's strengths and weaknesses with the external (industry) opportunities and threats (Porter, 1991, p.96). On the other hand, if a firm has an effective strategy in place, internal firm-level variables will be best matched with external environmental variables to achieve superior performance (Robinson, 2001, p.667). Therefore, it can be said that a market entry strategy is one which is formulated before the actual product launch, in order to guide a firm's decisions with regards to product, market and firm organization. Entry strategies are crucial to the survival of new firms as they ensure that the firms are moving on the correct track right from the start without deviating from their goals (Gruber, 2002, p.1). Numerous studies have shown that an effective launch strategy increases the chances of firm survival and improves performance.
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Other literature suggested that the interest in market entry mode choice actually originates from the theory of international investment and eventually it was discussed as a critical issue in international marketing by many economists and marketing experts. According to Root (1994), the choice of market entry is one of the most critical strategic decisions for any business in particular for Multinational Enterprises (MNEs). Therefore, it actually influences the firm's future decisions and also firm's performance in a new foreign market. Kumar and Subramaniam (1997), Chung and Enderwick (2001), as well as Nakos and Brouthers (2002) emphasized that the choice of market entry mode is a critical strategic decision for firms intending to conduct business overseas.
Furthermore, it has also been argued that both strategic and tactical decisions make up a firm's market entry strategy. Strategic decisions address the what, where, when and why to launch questions whereas tactical decisions aim to answer the question of how to launch. Tactical decisions are made relatively late in the project and can be easily modified. These include all the marketing mix decisions for the new product, like pricing, distribution, promotion, branding and product assortment.
Exporting is the most established and well well-known form of operating in foreign markets. Exporting can be defined as the marketing of goods produced in one country into another. Even as no direct manufacturing is mandatory in an overseas country, significant investments in marketing are required. The tendency may be not to obtain as much detailed marketing information as compared to manufacturing in marketing country; however, this does not negate the need for a detailed marketing strategy (Daniel et al., 2007). However the lack of control on the overseas market is a disadvantage for this market entry
(Piercy, 1982, p. 26-40). Besides exporting, other market entry strategies include licensing, joint ventures, contract manufacturing, ownership and participation in export processing zones or free trade zones played vital role in the global market (Griffin & Pustay, 2005, p.348). For implementing the different mode of market entry, firms may use different types of strategies such technical innovation strategy, product adaptation strategy, low price strategy, total adaptation and conformity strategy (Griffin and Pustay, 2005; Daniel et al., 2007). In addition to the above strategies, two theories such as porter's five force models and resource base view (RBV) also play very significant strategic role in deciding mode of foreign market; the former indicates the dependency on the product market environment and the later theory focuses on the unique resources that enable firms to gain competitive advantages.
The entry mode strategy of any firms also depends on the size of the firms. One single strategy many not be suitable for all kinds of organisation such small & medium enterprises (SMEs), large organisations, manufacturing type organisations and service organisations. Small business and medium enterprises generally produce or render small scale of production or services whereas large organisation such as manufacturing focuses high volume of production. The main motive of large production ensuring the economics of scale resulting high penetration of mass market in the foreign markets. Therefore, these organisations actually involve in huge investment in research and development and enjoying the new product innovation and intellectual property rights (Griffin and Pustay, 2005). In other way, SMEs most of the cases prefer to enter into foreign via franchising market entry strategy due to many reasons (franchises.about.com). One of the biggest advantages of purchasing a franchise is that you have access to an established company's brand name; meaning that you do not need to spend further resources to get your name and product out to customers.
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On the other hand, market entry for the manufacturing organisation may also differ from the other type of organisation. Generally, foreign direct investment (FDI) is widely used when the tariff and non-tariff barriers are very high in the foreign market. The incentives provided by host countries may also encourage MNEs to enter into foreign market via FDI. However, in some cases, licensing market entry becomes quite useful for manufacturing organisations. This strategy helps to start overseas operation with low risk manufacturing relationships, proven marketing effort and also less capital requirement. The market entry mode strategy also differs in case of service based organisations. For service organisations, joint venture market strategy can be useful technique due to sharing of risk, joint financial strength, and in-depth knowledge (Griffin and Pustay, 2005)
The market conditions such as political risk, financial risk, level of competitions, and market growth also affect the selection of mode of market entry in international business or marketing. According to Erb, Harvey and Viskanta (1995) country risk is an uncertainty about the environment which has three sources: political, financial, and economic. Political risk is the risk that laws and regulations in the host nation are changed adversely against a foreign firm. These could be of a regulatory nature such as the imposition of tariffs or political in nature such as unrest caused by pressure groups.
Financial and economic risks manifest themselves in several ways. They could take the form of: a) recessions or market downturns, b) currency crises or c) sudden bursts of inflation. Most of these factors arise from imbalances in the underlying economic fundamentals of the host nation such as a balance of payment crisis. Therefore, the financial risk becomes the major consideration at the point to market entry and it is minimised by low-intensity modes of market participation. But in such cases the marketing risk is maximized, with a local partner making all the important marketing decisions.
The market entry strategy not only depends on the economic consideration but also highly depends on the cultural dimension of a society (Marieke de Mooij, 2004). Culture is usually defined as shared values and meanings of the members of a society. It not only affects underlying behavior of customers in a market but also the execution and implementation of marketing and management strategies (Kogut and Singh 1988). For example cultural distance affects how well partners in a joint venture interact over the cultural divide. Thus, cultural distance directly impacts the effectiveness of the entry. For example, the tendency of firms to start their international marketing activities in countries similar to their own is another example of how culture influences market entry. Firms usually start internationalizing by entering countries culturally close to them. For example, Toyota started exports by first selling to the South East Asian countries (Terpstra et al., 2006). In addition to geographic proximity, cultural similarities may also lead Americans to trade with Canada, the European countries to trade with one another, and the Japanese to focus on Asia (Johansson 2006). Recently Frankel and Rose (2002) show that linguistic similarity is a far more powerful determinant of the volume of trade between countries than economic factors such as a common currency. There are also conflicting results with regard to the influence of cultural distance on entry mode decision. Some studies, see e.g. Leung et al. (2003), Cristina and Esteban (2002), as well as Evans (2002), found that there is a negative relationship with the level of control, i.e. the higher the cultural distance the more efficient it is to adopt an entry mode with a low level of control. Other empirical studies provided evidence for a positive relationship with the level of control. There are also many firms that have been very successful by operating in new markets with quite different cultures, such as NOKIA, MOTOROLA, and SIEMENS, in China for instance. So cultural distance is a factor to be considered when entry mode decision is being made, but it is not a determinative one, and it should not be an obstacle of entering into a potential market with the right mode. But also some other factors such as firm size and international experience are not determinative unilaterally
'Franchising is a common method of entering services markets abroad. What is the special attraction of international franchising to both partners?'
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A franchise is the agreement or license between two legally independent parties (Beshel, 2005). It is a specialized form of licensing is franchising. It occurs when a firm authorizes another firm to use its brand name, trademark, logos & operating system. It is a contractual agreement between the manufacturer (franchisor) & the wholesaler or retailer (franchisee) (Griffin & Pustay, 2005). There are main two types of franchising such as product distribution and business format. The product distribution franchises simply sell the franchisor's products and are supplier-dealer relationship. Here, the franchisor licenses its trademark and logo to the franchisees but generally does not provide them with an entire system for conducting their business such as Pepsi and Ford Motor company. On the other hand, business format franchises not only use a franchisor's product, service and trademark, but also the complete method to conduct the business itself, such as the marketing plan and operations manuals (Beshel, 2005). Fast food like McDonald's, KFC, and Pizza Hut are good examples for the type of franchising. On the other hand, the environmental impact and managerial skills are clearly at the root of entry method selection within the international business environment. According to Alexander & Myers (2000, p.347) have argued, "the internationalisation process must be.....considered in both market and corporate terms." Therefore, it can be said that competencies of leadership, functional coordination, experience, perception and attitudes actually determine the franchising as the certain entry mode strategy in the international marketing strategy.
Franchising allows a company to expand its business using the capital of the franchisee. Companies take the decision to expand via franchising from a desire to keep the monitory cost low & less capital investment. Franchisors get a certain amount of royalty & fees from franchisee & they wants to make more profit so they inspires potential franchisees to use own capital. If the franchisees can arrange capital for expanding the firm there is no need to invest by the part of the franchisors which reduce their cost as well as lowering risk.
As franchisees have invested their own money they are likely to be highly motivated to make it successful. They don't bother about the self interest of their employees in most of the time. As they invest their own capital to build & operate & have to pay a large amount of royalty fees so they become more motivated than employees. But sometimes they offer incentives to their employees.
When a company wants to starts franchising in another country, some information is required about the culture & custom regarding to that country which is difficult to collect by the part of franchisor. As it is new franchising for the first time, it will be highly risky. The best way to collect those is to gather information from the local company that is franchisee. The franchisee can provide the correct information about the local market cultures & customs. By using those information franchisors can lowering their cost. In order to meet the local customs & taste sometimes franchisors allows some flexibility to franchisees.
On the other hand, technology transfer becomes the critical for the franchising business. Here, knowledge transfer is closely related with technology transfer. Franchising is basically the practice of using the business model of another person. As the business model & image is already established, it saves time & Franchisee Company feels comfort to run the business. But franchisees must follow standardized business techniques & layout of premises over which franchisor has control. Franchisees have to maintain minimum quality standards, standard opening hours, adaptation of layout& uniform layout in order to preserve the goodwill of the franchisor. If the franchisor is a manufacturer, the franchisee required to purchase supplies from the franchisor at a predetermined price (www. hubpages.com)
Potential franchisees get a proven business format & support from the franchisor. Franchisor gives all kinds of support to franchisee such as assistance on site location, quality control, accounting system, start up practices & responding to problem etc. The products that are provided by the franchisor have been developed & refined through years of successful sales knowledge. As franchisees is inexperience at running business & have limited familiarity so every franchisor provides training programs. Franchisees also get the opportunity to use same design, layout & operating procedure & management system. As for example, in Bangladesh, Transcom Foods enjoys o proven business format & support from KFC (www.transcom.com). Transcom uses even the same outlay, same uniform appearance & their employees are highly trained.
In today's cost-conscious environment, technology may be the best partner of all for franchised small businesses.Â Whether it's an effective Web site, a good piece of business management software or a powerful new computer, these tools can support a host of core activities.Â However, technology needs to be considered carefully and managed to generate a maximum return on investment (www.franchise.org)
Through the franchisee a country get both business and technological support. Through the franchising a firm can use patents/ establish firm brand name, copyright, trademark and also get opportunity to transfer business from one country to another country. It is more helpful for developing country because developing countries do not have enough capability to establish new factory or develop new technology. That's why they follow franchising business and easily get technological or other support from other countries big establish firm.
The franchising business is useful in newly capitalist and developing countries. For example- as franchising is one of the methods of transferring technologies from one country to another, it also happens in Estonia. It is the newly capitalist country. Though its technological condition is good, the technology and business transfer from the franchisors is useful. They have the ability to protect the intellectual property rights and technology of the franchisors. Now India is successfully implementing the technology to their activities which are transferred by the franchisors and totally new to them. The educated and skilled operators are increasing day by day. All of these cut down the costs of the franchisors and they are becoming profitable for fruitful outcome.