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Discuss the commonly held there is no single market entry strategy which is appropriate in all circumstances. In the current decade most of the relevant research is focused on examining the impact of specific factors on the entry mode decision. Among these factors institution attracted greatest attention.
Others argued that institution affects the entry mode decision by increasing the cost of uncertainty and transaction (Said and McDonald 2002; Meyer 2000), further factors which have been examined empirically are:
- Technology transfer
- Immigrant effect
- Market size
- Firm size
- Cultural distance
- Industry barriers and firm advantages
- International experience
- Country risk and environmental uncertainty
- Role of staffing as well as Foreign exchange rate and host country currency
All these factors can be classified into country specific factors (cultural distance, institution, exchange rate, etc.), industry specific factors (market size, market structure, industry type, etc.), firm specific factors (firm capacity, firm size, etc.) and product specific factors (product type, maturity, sales service, etc.).
Additionally, many companies successfully operate in a niche market without ever expanding into new markets. However, some businesses could achieve increased sales, brand awareness and business stability by entering a new market. Developing a market entry strategy involves a thorough analysis of your potential competitors and possible customers.
Some of the relevant factors that are important in deciding the viability of entry into a particular market are suggested below:
Barriers: Are there any legal barriers that need to be overcome in order to enter the market? For example, you need a licence to enter the pub trade. Consider whether you will need an export licence to enter a particular international market. What are the limitations to trade, such as high tariff levels and quotas? Do you have the required level of knowledge and training in exporting procedures?
Product or service: Look at the product or service that you are intending to sell. Consider the following questions:
How easy is it to maintain?
Does it have a unique selling point (USP) or direct competitive advantage (DCA)?
Is it fashionable?
Does it have limited appeal? If yes, would a new market be receptive?
Will it be in demand for a long or short period of time?
Is it easy to transport or will it need special treatment?
Is the product restricted abroad? (e.g. tariffs, quotas or non-tariff barriers)
Are there product modifications required?
When an organisation has made a decision to enter an overseas market, there are a variety of options open to it. These options vary with cost, risk and the degree of control which can be exercised over them. The simplest form of entry strategy is exporting using either a direct or indirect method such as an agent, in the case of the former, or countertrade, in the case of the latter. More complex forms include truly global operations which may involve joint ventures, or export processing zones. Having decided on the form of export strategy, decisions have to be made on the specific channels. Many agricultural products of a raw or commodity nature use agents, distributors or involve Government, whereas processed materials, while not excluding these, rely more heavily on more sophisticated forms of access.
More importantly, risk perceptions are believed to influence a firm's choice of entry mode into foreign markets. However, studies of the risks faced by international businesses have typically focused on a specific category of risk, such as political or financial risk, overlooking possible interrelationships among the many types of risk that are present in the international environment. This study applies an integrated international risk framework to investigate the relationship between risk perceptions and the choice of foreign market entry mode. Data from 69 Malaysian public companies yielded a high degree of correlation among 11 international risk variables that were broadly grouped into two categories: external risks and internal risks. A significant relationship was found between the level of perceived risk and choice of entry mode, such that low risk perceptions were associated with high control modes of entry and high risk perceptions were associated with low control modes of entry.
a) Franchising is a common method of entering services markets abroad. What is the special attraction of international franchising to both partners?
According to the U.S. Small Business Administration, franchising is the fastest-growing kind of small business. Furthermore, each new franchise generates 8-14 new jobs and a new franchise opens an average of every eight minutes per business day. Overall, franchises create over 300,000 new jobs per year.
Franchising has opened the door of opportunity for women, families, and minorities.
Women have discovered that operating franchise often allows them to spend more time with their families. Women wholly own about 10 percent and jointly own about 30 percent of U.S. franchise outlets, according to the Small Business Administration. In many cases, families pool their resources and time to operate outlets—and often use the profits to create their own mini-chain of stores. Minorities have benefited, too.
They have been able to locate establishments in urban areas which at one time lacked minority ownership. Significantly, some franchisors such as Burger King and the
Southland Corporation, owner of the 7-11 convenience stores, provide special financial programs for minority owners. They also work closely with organizations like the National Association for the Advancement of Colored People (NAACP) to recruit more minority owners. In this respect, franchises have been a boon for society.
No matter who owns a franchise outlet, the franchisee and the franchisor share the risks and the responsibilities, although not always equally. Since both parties have a financial investment at stake, the risk can be substantial.
Actually, Franchising offers a number of advantages not only to franchisors but also to franchisees—which helps explain why franchising has been so successful.
Franchisors benefit from these agreements because they allow companies to expand much more quickly than they could otherwise. A lack of funds and workers can cause a company to grow slowly. However, through franchising a company invests very little capital or labor, because the franchisee supplies both.
A company also can ensure it has competent and highly motivated owner/managers at each outlet through franchising. Since the owners are largely responsible for the success of their outlets, they will put a strong, constant effort to make sure their businesses run smoothly and prosper. In addition, companies are able to provide franchising rights to only qualified people. Moreover, franchisors can raise money without selling shares of their companies through franchising.
Likewise, franchisees reap a variety of benefits from franchising. As noted previously, the franchisee faces much less risk through franchising a company, than through starting a business from scratch, according to many studies. The lower risk is related to other advantages of franchising that stem from being affiliated with a proven company. The franchisor generally has had some experience in the field of business and has national or regional name recognition. Franchisors also provide franchisees with a proven and efficient method of operation through their years in the business, with management assistance and training, and with marketing assistance and advantages. Franchisors usually conduct national or regional marketing campaigns developed by professional advertising agencies and they can help franchisees run local ad campaigns, though franchisees generally must contribute 1-5 percent of their gross profit to advertising funds. All of these aspects of franchise agreements can significantly increase the chances of an outlet's success.
Furthermore, franchisors sometimes help franchisees obtain financing for their outlets as well as prepare business plans and strategies. What's more, if a prospective franchisee needs to borrow money to help with business-related costs, financial institutions may be more willing to lend if a well-known franchisor is backing the applicant—especially if the franchisor is well established, rather than based on a new concept.
✔“Owning a franchise allows you to go into business for yourself, but not by yourself.”
✔A franchise provides franchisees with a certain level of independence where they can operate their business.
✔A franchise provides an established product or service, which already enjoys widespread brand name
Recognition. This gives the franchisee the benefits of customer awareness, which would ordinarily take years to establish.
✔A franchise increases your chances of business success because you are associating with proven products and methods.
✔Franchises may offer consumers the attraction of a certain level of quality and consistency because it is mandated by the franchise agreement.
✔ Franchises offer important pre-opening support:
- Site selection
- Design and construction
- Financing (in some cases)
- Grand-opening program
✔ Franchises offer ongoing support
- National and regional advertising
- Operating procedures and operational assistance
- Ongoing supervision and management support
- Increased spending power and access to bulk purchasing (in some cases)
There are several sources of financial banking for potential franchisees. Since franchisors do not always offer financial assistance, people rely primarily on their own funds, family support, and the traditional sources such as financial institutions, banks, and private investors. The more money a franchise costs, the harder it is for potential operators to raise the necessary funds. However, the search does highlight another positive aspect of franchising: it involves a cadre of specialists (e.g., bankers, lawyers, and accountants), who earn all or part of their salaries from their involvement with franchise operations.
For people with limited cash or access to it, franchising may not be the easiest career path for prospective business operators, then.
However, for many people who have made the investment, franchising has paid off substantially from both the company and outlet owner standpoint, as history shows
Based on the success companies have enjoyed since the franchising boom began in the 1950s, the future of franchising is positive. The U.S. Department of Commerce predicts that slower population growth, population shifts to new metropolitan areas, and the introduction of new technology will create new opportunities for franchises. Mergers and acquisitions will increase as larger franchisors take over smaller ones. Schools and universities are adding franchising studies to their business curricula.
These factors, combined with the low rate of franchise failure, stability in the industry, and a considerable return on everybody's investment, have made franchising a major force in the American economy to this point. Some of the emerging franchise businesses expected to drive the growth of franchising tend to offer customers added convenience such as to-the-door services offering everything from dry cleaning and pet care to window coverings and furniture repair, according to Nation's Business. In addition, Nation's Business reported that other franchise trends of the future will include education and training businesses, second-hand merchandise stores, office support services, and health service providers.