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International Marketing Management assignment gave me the opportunity to learn and research on this interesting topic. I have some knowledge already about that how companies enter into new markets and how they capture and attract new markets but this opportunity helped me to know more about how companies go globally with the help of available different market entry strategies and expand their businesses.
Discuss the commonly held belief that there is no single market entry strategy which is appropriate in all circumstances.
Different market entry strategies available throughout the world depend which country you are. There are different methods and procedures geographically, the nature of the business is also the main point and especially the worth and compatibility between two or more involved parties. The famous well known market entry strategy rules are same globally.
Companies always go for different market strategies to enter to new markets it's not possible to follow the same market entry strategy for all businesses and for all organizations. When any company plans to enter in other overseas market there are variety of options available for companies but it involves very high costs, risk and takes long time to observe and take final step to get in. The simplest and the traditional entry strategy is exporting using both ways direct or indirect methods such as agent or an intermediary person.
Further below I have mentioned and explained the market entry strategies which are commonly followed by organizations to enter to overseas and international markets. There are following strategies mostly used by large, SMEs and manufacturing companies which are:
Foreign Direct Investment
Joint Venture & Alliances
Mergers & Acquisition
Green Field Strategy
Green Field Strategy
A green field strategy is to enter into a new market without the help of another business who is already there. An acquisition is the opposite of a green field entry.
Exporting is described as the marketing and the sales of local manufactured goods in overseas which is traditional and well know established method to capture overseas markets. The advantage is that in exporting it is not required that the specific product must be produced in the target country, during exporting no foreign investment is required but the expenses and costs involves for exporting and having a good business is that exporter needs to spend on marketing.
The owner of any brand or the company who holds the rights and they give the permission to use rights against money in order to selling those different products to the world by different parties. These kinds of products are mostly intangible and not possible to copy by others because of trademarks, patents and product techniques. The licensee is the person who pays to get rights of using license rights.
Licensing is beneficial for licenser and licensee both earns good profits but there is risk for licenser if the licensee doesn't keep the standards and good quality controls because this will damage the image of brand.
Joint venture is a famous term and we have many examples in our practical life. It helps companies to grow like one plus one is equal to three. When same nature of business joins and work together it help a lot and chances of positive outcomes increase. The objectives involved in joint venture are:
Joint Product Development
Skills & knowledge sharing
Conforming government regulations
Few issues are thinkable before go for joint ventures like ownership, contract length, control, pricing, technology transfer and resources.
Foreign Direct Investment (FDI)
Foreign Direct Investment is investment which you can make directly in any country but different things includes before you go for FDI like rules & regulations, permissions, transfer of capital, personnel and technology. FDI can happen with the help of establishment of the new enterprise or may be through the acquisition of an existing entity. Direct ownership helps to have a good control in the operations, competitive environment and to better know the consumers.
A good example of FDI is Euro Disney when Walt Disney had a challenge to build Disney park in Europe they chose the foreign direct investment.
Mergers & Acquisition
Merger word simply explains the gathering of something. Mergers is business word is when different companies hand shake and promise to work together called mergers. One plus one is equal to three, this sentence is quite famous in mergers situation. It works to create shareholder value over and above that sun of the two companies. After merging the worth of both companies is more valuable than two separate entities. There is slightly difference between mergers and acquisition. When a company takes over other company and become a new owner it is called as acquisition and when two companies' merges and work together is called mergers.
A good example of merging is YouTube mergers with google.com.
Franchising is a method of using successful available business models. Franchisor gives permission to Franchisee to use the rights of that business model. With the help of that model franchisee sells and markets the products and services. It's more like to have distribution of specific trademark and the franchisee pays in return what services and products they use in their business.
Very good examples of franchise in today world are McDonalds, Burger King, KFC, Subway and New York Pizza.
Above mentioned different market entry strategies help different businesses to grow but it depends on the nature and size of the business also. This is very important how big or small is the company and how much it worth. Different types of firms are:
Different types of firms structures basically used which are called, Small & Medium Enterprises, Manufacturing, Services Based, and Multinational corporations or Global firms.
Small and Medium Enterprises
Small and medium enterprises (SMEs or Small & Medium Buisness) are the companies who have limited turnover and below certain limits. This term is widely used in EU and in international organizations such as UN and WTO. This term is predominately used in USA and Canada.
Traditionally in EU it was different and they had their own definitions bit not they have standardized the concept. e.g.. Companies with less than 10 employees called micro, companies having employees less than 50 called small and 250 employees as medium.
Manufacturing firm can be from any industry which produces products from raw materials using labor land, machines and capital. In other way manufacturing firm is a company who assembles goods into finished form for end users to fulfill their needs. Manufacturing firms can be automotive, clothing, electronics, furniture, machinery, steel, petroleum products and tools etc.
Service Based Firm
Any services based firm is a business that provides facilities and work efforts for the others and charges them for these services and most of the times the services based firms provides their services according to contract terms.
Netherlands is the very good example of providing services, they providing their skills and techniques worldwide.
Multinational Corporation is a firm that has its facilities, operations and assets in at least one country other than its home country. This type of firm has offices and factories in different parts of the world. One head office in middle of all and from their control and instruct global management.
Above I have explained and mentioned also when its useful to use which market entry strategy and for what type of an organization. But there is something else also very considerable issue like before entering to any market need to measure level of risks, political risk, financial, culture factors and geographic distance.
PEST is used to measure different risks and learn how its possible to cope that risks. But I have used a revised version called PESTLE analysis which is more suitable in this case:
PESTLE stands for "Political, Economic, Sociological, Technological, Legal and Environmental" factors. Its useful tool to understand the situation of any market and learn well before you step in to that market it helps to have a clear view for your business.
The possible questions for any firm are:
What are the key political factors likely to affect the industry?
What are the important economic factors?
What cultural aspects are most important?
What technological innovations are likely to occur?
What current and impending legislation may affect the industry?
What are the environmental considerations?
Current taxation policy
Future taxation policy
The current and future political support
Grants, funding and initiatives
Effect of wars or worsening relations with particular countries
Overall economic situation
Strength of consumer spending
Current and future levels of government spending
Ease of access to loans
Current and future level of interest rates, inflation and unemployment
Specific taxation policies and trends
Lifestyle patterns and changes
Attitudes towards issues such as education, corporate responsibility and the environment
Media views and perceptions
Ethnic and religious differences
Relevant current and future technology innovations
The level of research funding
The ways in which consumers make purchases
Intellectual property rights and copyright infringements
Global communication technological advances
Legislation in areas such as employment, competition and health & safety
Future legislation changes
Changes in European law
The level of pollution created by the product or service
Attitudes to the environment from the government, media and consumers
Current and future environmental legislative changes
Franchising is the common method of entering services markets abroad. What is the special attraction of International franchising to both partners?
What is franchising?
Franchising is a form of entrepreneurship. According to Shane and Hoy (1996, p 325) there have been studies about entrepreneurship, but the area of franchising has stayed quite unexplored. There are many things that make franchising special compared to other forms of entrepreneurship.
Franchising can be described as a strategic cooperation between two parts - the franchiser and the franchisee. They are operating under the same company name as well as using an identical business idea and a business concept. The franchiser is the main owner of the business concept and the company name and licences the right of using these further to the franchisee against certain fees and royalties. The franchiser usually has a contract with several franchisees at the same time. (Shane and Hoy, 1996, p 325 & 326). Franchising is a popular business format in the retail business (Kaufmann and Dant, 1999, p 11). In 2003, 43 percent of all franchising activities in Finland took place in retail business (see figure 1 on the next page). This is 76 percent of the registered franchising chains altogether. (The Finish Franchising Association, 7.7.2006) Franchising can be very attractive to franchisees since many franchising companies offer and even require much cooperation along the way.
In comparison to a pure entrepreneurship, with franchising relationship the new franchisee is provided with a complete and tested business idea, established trademark and help with startup. In addition, the franchisee gets supplier discounts as well as support from experienced branch and market experts through a network of other franchisees and company employees. (Franchisenet, 7.7.2006) This said, the franchisee gets multiple competitive advantages compared to pure entrepreneurs on the business (Kaufmann and Dant, 1999, p 1112). For the licensee, the negative side of franchising is that the franchisee is bind to obey the general agreement, which is usually very strict. Therefore the franchisee has an extremely limited freedom to operate. (Franchisenet, 7.7.2006)
For the franchisee the relation can be said to be something between a regular payjob and pure entrepreneurship and is often a step in transition from the former to the latter. Franchising is a way to practice entrepreneurship. In a franchising relationship the franchisee is the owner of his own business but is still connected to a bigger organization and being supervised. It has to be noted, though, that the franchisee is the one bearing the financial risks of the business. However, since franchising companies usually select their franchisees carefully the risk for failing in this business is less significant than in the pure entrepreneurship. (Kaufmann and Dant, 1999)
More information about franchising and franchising opportunities can be found in following web pages: www.franchiset.net, www.franchising.org and www.franchising.com.
Pros of Franchising, how it helps franchisee to gain capital and how it allows firms to expand basically using the potential franchisees own capital.
Chances of Success
The chances of success are high when you are having franchise kind of business because you do business of that products and services which are worldwide famous, proven and recognized. Its easy to see how successful franchising and this kind of business are always expand and grow very fast, franchising guide you through the whole process of business and guide you with their experiences and makes you successful also by independent business. In short in franchising the chances of success are always high.
Avoid Start up Mistakes
Franchising helps you and make very easy to star up your franchise, this is really helpful and save you from initial which mostly happen when you start new business. But while franchising the experts already experienced that kind of hurdles so they know very well how to save your self from loses and risk while starting new business at new location.
This is the big great impact for you when you buy any established local, national, international or global brand, you don't need to do marketing struggles because people are already aware of that brands taste and know well the value. Franchisee enjoys the name recognition and the large familiar company associated with you.
Product and Service Acceptance
Franchise contains standard products and provides the same standard products to their all franchisees; due to the highly established standard the products are highly acceptable. This is a big benefit of customer awareness which normally takes ling time to build this kind of trust for your customers.
Independent but not alone
To be franchise owner is a great thing because you don't need to worry that much, you work hard but on the other hand the franchisor team helps you a lot to build your business strong. You get financial security for your family, earn more money and all is yours after paying other costs. This franchising network reduces your risk and allows you to enjoy the success of that time what you have word hard.
Training and Support
Franchisor provides also different training sessions and different kind of support at each step where you face any problem. These training and support helps to be successful in your business and save you in future form costly mistakes and reduce risks for you at all levels.
Peer to peer networking
Peer to peer networking give you access to the network of business owners who are in the same business and have experienced and experiencing the situation which you might face also. So this networking helps each others how to get rid from different hard times and problems. Its great advantage and priceless opportunity for owners.
It involves the economies of scale the franchisor keep standard and buy products from well known and trusted supplier where they can reply they will have the same taste and size of products always. The franchisor always have good and high level relationships with suppliers and suppliers also cares a lot because of having big buyers for their products. In the same way the franchisor provides the good value of goods to their franchises and customers.
Development in any business is very important otherwise companies don't survive for long time. Improve standards, working conditions; add new technologies and skills are very important. Another advantage for the franchisee is that franchisor provides the costs for these kind of developments and try their best with the help of their development teams to secure the future of the business. It a big support for individual and these supports are very supportive and sufficient to product development.
If financial support is needed and you are in business with a recognized and well know franchisor it will help you to get finance very easily. Because the lenders believe that you are linked with a good network business and they can rely and feel less risk to lend money if the business is a part of the well structured business model and system.
Company Wide Connections
If you customers needs job and you are not able to provide or help then there are still possibilities to use your franchises network and that will help you to find the required needs. They try their best to help you and find similar business for you.
Individual Roles with Common Goals
Every business major gaol is profit if there is not profit than no business also. Franchisees aim is to run a profitable business and grow with visible changes and support the franchisor business systems and to give more value to brand. Oppositely franchisor has to give a healthy leadership and clear goals to help franchisees to grow and protect the brand. This mutual understanding and help builds brand stronger.
Gaining a Competitive Edge
Business gets competitive edge with the help of sharing resources, skills and knowledge.
Selling your Business
First there are very few chances that a franchisee would like to sell because they want to lose a fixed kind profits and a good business. But sometimes it happens owners came in financial problem and decided to sell. Whenever you decide to sell a franchise it is attractive and likely to sell very fast at higher price.
Working together is Smart and Fun
Working together in teams and with mutual understanding is great and big fun also. Franchise provides people opportunity and chances to operate their selves independently. Gives more courage and feel free to work and use their inspired thoughts. This is because of the large organization rules standards and good relation of employees.
Some disadvantages of franchising and risk involved for franchisee.
To follow a system
All Franchises have their own business models and they operate and require their franchisees also to follow the the same business model in all situation and there is no flexibility in that case. If someone found neglecting the rule and regulations of that model they will penalized. The procedures, rules and regulations vary between franchise businesses.
The franchise is bound to pay for the initial settlement and franchise fees, training, marketing and other costs which incurred during setting up new franchise.
Before you get settled franchises the franchisee provide a feasibility report and ask for the permission to have business at desired area or location. If they accept then you can proceed further otherwise you need to submit a new location plan.
Many restrictions involved also which bound the franchisee to take different actions. Franchisee not allowed to buy products or services from any station, there is listed and recognized supplier which you can use to buy required products. You can not sell directly your business you need a permission of franchisor and then you can take further steps to sell your business.
You need to control on regular bases and the team of from franchisor is sent regularly also for controls. If they found any irresponsibleness and deficiency you can be in big problem and it not acceptable at any cost because this kind of carelessness damages the brand image and business.
Franchising is expanding quickly in developing countries also and it's beneficial to both parties. It provided jobs and the brands owners earning money and growing their name worldwide. There are some risks involved also for investors and the brand owners which I described above. Franchises get technology, skills and business transfer in their countries and it helps to improve country economy. The local business try to copy that business model but they are not allowed to do 100 percent but still they do it increase competition but still the world recognised brands have more preference among customers that why franchisee take risk of investment.