Before opening a business in a foreign country we should analyze the market in which we are going to enter. We have to understand how country variables affect our business whether in positive or negative ways. The first part of this paper covers market success analysis in which I will discuss market size, resources, regulations and procedures, and risks. The second part will touch upon the issue of market entry analysis. And the third part will move on with a discussion of market entry implementation strategy.
II. Market success analysis
Market size (potential to make money by providing the service), Resources (educated or non educated laborers, professional services, raw materials), Regulations and Procedures (government red tape, duties, and taxes), and Risks (financial, safety, and competitive).
Indian market has a huge potential and this is explained by the fact that India is the second most populated country in the world. In India, there are 7-8 million internet users (including 2 million - subscribers of ISPs). Total population of India is 1 billion people. In Indian companies, there are 5 million computers. Thus, two thousand Internet cafes are an important way to gain access to the Network for Indian users. The number of Internet cafes in India is increasing constantly. In particular, for example, the company Satyam Info way Ltd is planning to open a chain of 500-600 and cyber cafes across the country. This will be a very significant step in the popularization of the Internet, because until recently such a cafe located only in the four major Indian cities - Delhi, Mumbai, Bangalore and Madras. Further enhances the significance of this step, the fact that other options for access to the Network for the Indians, almost closed. For example, home Internet access, in fact, still a dream for them, because even today for the 100 residents of the country accounts for only about three phones. All in all, I consider Internet café in India to be very attractive. The great number of population involved in this sector will affect my business only in a positive way.
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Resources (educated or non educated laborers, professional services, raw materials)
The labor force in India is one of the cheapest in the world. In India there are a large number of English qualified workers. This increases the size of the Indian market and attracts foreign companies to establish firms there. India is the largest example of countries that suffer from the problem of child labor. In my opinion it is obvious to all that in India children without education are being exploited and forced into labor. There are about 60 to 115 million working children in India - the highest number in the world (Human Rights Watch 1996, 1).In one way the fact that Indian labors are the cheapest it is an advantage to hire children without education for food service workers and underpay them. But there is a disadvantage too. For example, I can't hire uneducated IT experts, administrators because they are the integral part of my business. Will I prosper or lose mostly it will depend on them.
There are many Internet cafés in India which provide different services. Almost all cafes provide more than access to the Internet. Also Internet café serves with food, drink, playing room for children and maybe it is crucial factors to become one of the top cafes. Moreover there is a professional café in Delhi for companies and businessmen.
Another very important aspect is raw materials. As concerns Internet café I need to rent a building, buy tables. Also I need wireless Internet and food & drink services. So My Internet café will have an opportunity to get raw materials right in India.
Regulations and Procedures (government red tape, duties, and taxes)
India has well-establishes rules of law, stable political environment. As I discussed in previous paper for setting up business in India I have to obtain permission from the Reserve Bank of India to conduct any activity in India, trade, office or other place of business .To put in application for such permission I have to go to the Office of the Reserve Bank in Mumbai. Bureaucracy and corruption affect business in India. Starting a business with contracts in India is very difficult. India has the worst levels of red tape. It takes lots of time to run the business when there are many regulations. On one hand it is negative impact on my business but if we will think in another way we come up with a thought that government regulations and laws protect society. And it seems to me that a country that cares about people attracts foreign firms in spite of its rules, regulations, and duties.
Always on Time
Marked to Standard
Local companies in India are taxed on income from all sources in India. However with an accordance of the Income Tax Act foreign companies are taxed on income earned through business connection in India or from other Indian sources. If a foreign company has no business with India, and the income is not taxable. Tax rate for local companies is 33.22% and for foreign companies is 42.23%.
As I am going to set up a foreign company of course I will pay taxes. Taxes are pretty high. But tax rates were lowered in recent years with the government's goal to broaden the tax base and ensure greater observance. In my opinion, India is an appropriate place to set up a business. Actually, the taxation is very high; however the political environment is stable and well-established.
Risks (financial, safety, and competitive)
In fact there are good and bad sides establishing business in the country where the population is seemingly at its peak. Everyone knows that India is still facing shortage of skilled workers and thus it is risky for my café to hire residents. To raise the productivity of the company I would like to have good qualified workers.
Today India is one of the fastest growing economies. Government urges foreign firms to invest in the business and by this to lead the growth of economy. Economic reforms are aimed to regulate the economy. The question arises whether or not to invest in the business?? In any case, each company has a risk that either it will be burned up with the money or the reverse side to climb up. As India is a rapidly growing economy, I believe that it minimized the risks of Internet café.
India established by the judicial system, complex legal and accounting systems and convenient infrastructure gives foreign companies the opportunity to feel in a safe environment that ensures safe long-term relationship. Vibrant and highly competitive private sector in India offers great opportunities for foreign companies, creating a competition among enterprises. As previously mentioned, there are plenty of Internet cafes in India, and because of that we need to learn some market entry strategies in order to succeed in this business.
III. Market Entry Analysis
Each of us wants to flourish the business. In order not to fail in the initial stages we have to select the right market entry strategy. There are main market entry strategies: direct investment, joint ventures, licensing, franchising, exporting and importing, turnkey project, and management contract. I'm going to set up my business in India and therefore I have to choose the right strategies considering culture of a chosen country, consumers and so on. I think the best entry strategies for my business are Franchising, direct Investment, and Joint Venture.
Franchising is a widespread-known marketing strategy. Let's discuss what does Franchising mean? Franchising is an agreement between firms that one firm make an agreement with another one firm to sell its products. The second firm has a right to get the trademark and the logo of products. There are disadvantages and advantages of this market strategy entry. Advantages are that franchising gives an opportunity for the second firm to grow rapidly and to be widespread-known. Also this company is sure that the product will be in demand because it is brand. The benefit of the first company is that it makes more money by providing its products to another company, franchisee. Buying a franchise you will get a support from franchisor-advices, training support, and help for running business. Disadvantages are restrictions from the franchisor in operating the business; you have to share with a profit with franchisor and also franchisee can spoil the good reputation of the brand. I think using franchising strategy Internet café will survive and prosper because my business will operate on proven ideas.
The second entry strategy is Foreign Direct Investment. Foreign direct investment (FDI) is becoming an increasingly important factor in economic development. In recent years more and more of an increase in foreign direct investment is observed. Foreign direct investment (FDI) occurs when a firm invests in facilities to manufacture the product in another country. The creator of the company is the owner.
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Invested money stimulates economic growth
Domestic producers can become more efficient
Country has more stakeholders
If domestic companies uncompetitive they may suffer
Rrequires a high level of resources
The direct investment strategy has more advantages than disadvantages and thus this strategy is the right strategy for my business which will increase our efficiency.
The last strategy is a joint venture. A joint venture between foreign companies is a popular strategy today for both companies to achieve their goals. Each partner has the opportunity to get their benefits from the comparative advantages of others. Local companies can provide knowledge about domestic and foreign companies can offer know-how and access to foreign clients. Like other strategies joint venture has advantages and disadvantages. When forming a joint venture company has an opportunity to gain new experience and advanced knowledge in technology. Also, the company has an access to important resources, personnel and technology. In addition to this companies share the risks with a partner and they become flexible. Companies can sell the business to another parent company. Approximately 80% of all joint ventures in the end are sold. So, these are advantages of joint venture and let's look at disadvantages. It requires a lot of time and effort to build a proper and strong relationship and cooperation with other business and thus there may be some problems if the target of the company is not communicated to all parties or incorrectly communicated.
There is an imbalance in the level of knowledge, investments or assets are listed in the company by various partners. Different cultures and management styles contribute to deterioration of cooperation. In order to succeed you need to carefully study the targets. I think that this strategy is an appropriate for my business I am going to set up. But I do not want to share my business with another person despite the fact that with a partner running business would be much easier.
After all research that was provided by me I have decided that the best market entry for my business is Foreign Direct Investment (FDI). As I discussed it earlier, this strategy is more appropriate for my business than another two. Because using FDI strategy you can be the owner of the company and this is what I mostly want to. Another reason why I decided to choose FDI strategy is that I can control all operations, to know consumers needs. In addition to this FDI strategy has law political risks because India is politically stable country. That is why I settled on this decision.
Market Entry Implementation
To become successful in my business I decided to choose FDI market entry strategy. I have to decide how I will implement this strategy. At the initial stage of opening an Internet cafe, I should control all actions that will be made to create my business. Staff plays an important role in my business and to attract people to my café, I must carefully choose educated, highly skilled and courteous people. Also I would like to have employees whom I could trust. Each of us knows that the success and prosperity of our business is our clients and to attract them it is very important to select staff that will satisfy all the needs of clients. Since I am not the resident of India, I must understand that for me there are certain rules that I need to follow. I have to determine the budget, control all costs and to be sure that I could pay all bills. Also I should have start-up capital that would help me to open a business in a foreign country.
In order to move ahead my café I need to create a marketing strategy that is completely new, something that no one has it. Creating a Marketing Strategy will save me lots of money. Many business owners don't want to do it because they don't know where to start and they feel they don't have the time to spend on it .I want everyone in India to know about my Internet café and have a vivid impression.
Summing up I would like to say that India is the best choice to run my business. There are some positive (political, legal environment) and negative aspects (taxes, red tape etc) that will affect my business. But I understand if I want to achieve my goal it is necessary to work very hard and strive to success.