The Introduction Of Entry Market Strategy

2004 words (8 pages) Essay

11th May 2017 Marketing Reference this

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Introduction of entry market strategy

Strategy is planning through companies achieve their goals and move forward. A company makes a decision to enter an international market, this strategy works to expand its wings. Company could use many ways to get it. These ways can be a shade of company’s strength, potential and the level of interest in marketing. Exporting is main entry strategy in international arena which can be used direct or indirect mode. A company’s aim to international market can require minimal investment and be limited to infrequent exporting with title thought given to market development. Or a company can make large investments of capital and management effort to get strength of its shares in foreign markets. Both approaches can be profitable. Entry market strategy can be fulfilled through these mechanisms.

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A company can decide to enter foreign market by exporting from home country. This means of foreign market development is the easiest and most common approach employed by companies taking their first international steps because the risk of the financial loss can be minimised. Many companies engage in exporting as their major market entry method. Generally early motives are to skim the cream from the market or gain business to absorb overheads. Even though such motives might appear opportunistic, exporting is sound and permanent from of operating in international marketing.

Piggybacking

Piggybacking occurs when a company (supplier) sells its product abroad using another company’s (carrier) distribution facilities. This is quite common in industrial product but all types of product are sold using this method. Normally piggybacking is used when the companies involved have complementary but non- competitive product. Some companies use this method to share transportation costs and some companies do it purely for the profits as they can make profit on other companies (suppliers) products. This method also can be used a first step towards a company’s own international activities to test the market. This particularly advantageous for small firms as they often lack the necessary resources. Once they realise the market potential, they can start their own exporting.

Ref: hik.diva-portal.org/smash/get/diva2:1138/FULLTEXT01

Ref: Ghauri, p,cateora(2006)international marketing (2nd edition)McGraw-Hill

Licensing

A mean of establishing a foothold in foreign markets without large capital outlays is licensing patent rights, trademark rights and the rights to use technological processes are granted in foreign licensing. It is favourite strategy for small and medium-sized companies although by no means limited to such companies. Not many companies confine their foreign operations to licensing alone. It is generally viewed as a supplement to exporting or manufacturing rather than the only means of entry into foreign market. The Advantages of licensing are most apparent when capital is scarce, when import restrictions forbid other means of entry, when a country is sensitive to foreign ownership or when it is necessary to protect patents and trademarks against cancellation for non use. Although this may be the least profitable way of entering a market but the risks and headaches are less than for direct investments.

Franchising

Franchising is a rapidly growing form of licensing in which the franchiser provides a standard package of products, systems and management services and the franchise provides market knowledge, capital and personal involvement in management. The combination of skills permits flexibility in dealing with local market condition and yet provides the parent firm with a reasonable degree of control. Potentially the franchise system provides an effective blending of skills centralisation and operational decentralisation and has become increasingly important form of international marketing.

Joint venture

Joint ventures one of the more important types of collaborative relationship, have accelerated sharply during the past 20 years. Besides serving as a means of lessening political and economic risks by the amount of the partner’s contribution to the venture, joint ventures provide a less risky way to enter markets that pose legal and cultural barriers than would be the case in the acquisition of the existing company. Joint ventures are established divided legal body. Joint ventures should also be differentiated from minority holdings by an MNC in a local firm. It enables a company to utilise the specialised skill of a local partner. A joint venture can be attractive to an international marketer when the firm lacks the capital or personal capabilities to expand its international activities.

Manufacturing

Another means of foreign market development and entry is manufacturing within a foreign country. A company may manufacture locally to capitalise on low cost labour to avoid high import taxes to reduce the high cost of transportation to market to gain access to raw materials and or as means of gaining market entry. Seeking lower labour costs offshore is no longer an unusual strategy. A hallmark of global companies today is the establishment of manufacturing operations throughout the world. This is a trend that will increase as barriers to free trade are eliminated and companies can locate manufacturing wherever it is most cost effective.

Ref: Ghauri, p,cateora(2006)international marketing (2nd edition)McGraw-Hill

Foreign direct investment

Foreign direct investment is a higher risk strategy as compare to other modes but it has positive impact for the companies which want to get new markets for their product so that they can make profit. FDI strategy helps to strengthen economic relationship with another country where the investment is made. It requires participation of joint venture, management, transfer of technology and capital. India and China are big markets where this strategy is being used a lot.

Illustration of entry strategies related some organisations

We can classify the organization in four types.

Manufacturing firms

A hallmark of global companies today is the establishment of manufacturing strategy throughout the world. There are three types of manufacturing investment by firms in foreign countries.

Market seeking: Investment in china where companies are attracted by the size of the market.

Resource seeking: investment in India, especially by a number of fashion garment producer such as Mexx and Marc O Polo.

Investment seeking: Investment in Malaysia and Singapore by electronics manufacturers such as Philips and Motorola.

Example: Renault, the French auto-maker entered India with joint venture and became partner with Mahindra, the Indian tractor and SUV maker to launch its “Logan”. The four door saloon car which is already sold in Romania and is a low-cost car suitable for emerging market purchasing power. Logan entered India’s mid-market and competed head to head with TATA, Ford and Hyundai

Service firms

These types of organizations provide facilities to others on some fee basis. They might use joint venture, licenses and franchising entry strategy.

Example: Starbucks entered in UK, was the first European country. The UK provided facilitation this company to expand its business in Europe. That has been a milestone of its achievements and to go into a foreign market. Strategy was taken by Starbucks to enter and fulfil new or all sort of market, encourage country’s culture and traditions. Recently three different strategies are used in starbucks. Joint venture, licenses and wholly-owned subsidiaries.

Ref: Ghauri, p,cateora(2006)international marketing (2nd edition)McGraw-Hill

General electronic or big retailer as wall-mart or Tesco to sell their products abroad, use exporting (carrier) strategy as a way of broadening the product lines that they can offer to their foreign customers. These companies believe that offering a broader range of products will help them in boosting the sales of their own products.

Vodafone is a mobile telecom company working in Africa, Asia, USA, Europe and Middle East entered in India with joint venture. They didn’t use their existing strategy which they use in UK and rest of the world.

Telenor is a Swedish telecom company which used direct investment strategy in Pakistan. Now telenor has become a 2nd largest telecom company in Pakistan.

McDonald KFC including soft drinks, motel, retailing, fast foods, car rental and automotive services using Franchising for fastest growing market entry strategy.

Multinational and Global firms

These types of organizations sell their product globally and have branches all over the world. They might use foreign direct investment strategy.

Example: Coca-cola Pepsi using foreign direct investment strategy to grow their business in the world. They take all measures to fulfil company’s strategy.

Unilever P&G use foreign direct Investment to expand their business in the world. This entry market strategy has been successful for these sorts of multinational companies.

Barclays bank is a financial service provider entered in Pakistan with foreign direct investment strategy.

Pfizer pharmaceutical company has merged with four other research companies to get good economical growth.

Small firms

These types of organizations have limited resources to expand their business globally. They might use joint venture and merger strategy to grow.

Example: General Mills has been in Europe since 1920 and controls about half of the Kellogg’s cereal market entered in Europe with joint venture Nestle. Although the cereal business uses cheap commodities as it raw materials but Kellogg’s has earned significant profit in Europe.

A sager industry has been in Pakistan for last 40 years making soaps and detergents has merged in unilever to gain sufficient profit.

Igloo ice-cream is a very famous in Pakistan has been working well in Pakistan now has merged unilever to achieve successful company’s goal.

Ref: Ghauri, p,cateora(2006)international marketing (2nd edition)McGraw-Hill

Analysis of Market conditions and Risk

We can discuss market conditions through these financial and political-legal factors.

Economic-Financial Risk

Amount of foreign debt carried

Income distribution within the market

Amount of foreign investment already in the market

Natural resource base

Inflation rate

Political-Legal Factors

Role of government in business activities (free or not free markets)

Stability of government

Barriers to international trade (whether or not favourable trade policies)

Laws and regulations affecting the marketing mix (marketing regulations)

Laws and regulations affecting business activities (acceptance of foreign investment, etc.)

Stability of the workforce

Political relations with trading partner

Analysis of cultural factors

We can discuss cultural factors through cultural and geographic distance

Cultural distance

Style of business within the market

Attitudes toward bribes and questionable payments

Language, race and nationalities, geographic divisions

Role of institutions, religious groups, educational system, mass media, family

Socio cultural (social interaction, hierarchies, interdependence, etc.)

Geographic distance

Number of organizations within the market

Size and quality of workforce

Population size and growth rate

Composition of house holds

Geographic distribution and density of population

Introduction of entry market strategy

Strategy is planning through companies achieve their goals and move forward. A company makes a decision to enter an international market, this strategy works to expand its wings. Company could use many ways to get it. These ways can be a shade of company’s strength, potential and the level of interest in marketing. Exporting is main entry strategy in international arena which can be used direct or indirect mode. A company’s aim to international market can require minimal investment and be limited to infrequent exporting with title thought given to market development. Or a company can make large investments of capital and management effort to get strength of its shares in foreign markets. Both approaches can be profitable. Entry market strategy can be fulfilled through these mechanisms.

A company can decide to enter foreign market by exporting from home country. This means of foreign market development is the easiest and most common approach employed by companies taking their first international steps because the risk of the financial loss can be minimised. Many companies engage in exporting as their major market entry method. Generally early motives are to skim the cream from the market or gain business to absorb overheads. Even though such motives might appear opportunistic, exporting is sound and permanent from of operating in international marketing.

Piggybacking

Piggybacking occurs when a company (supplier) sells its product abroad using another company’s (carrier) distribution facilities. This is quite common in industrial product but all types of product are sold using this method. Normally piggybacking is used when the companies involved have complementary but non- competitive product. Some companies use this method to share transportation costs and some companies do it purely for the profits as they can make profit on other companies (suppliers) products. This method also can be used a first step towards a company’s own international activities to test the market. This particularly advantageous for small firms as they often lack the necessary resources. Once they realise the market potential, they can start their own exporting.

Ref: hik.diva-portal.org/smash/get/diva2:1138/FULLTEXT01

Ref: Ghauri, p,cateora(2006)international marketing (2nd edition)McGraw-Hill

Licensing

A mean of establishing a foothold in foreign markets without large capital outlays is licensing patent rights, trademark rights and the rights to use technological processes are granted in foreign licensing. It is favourite strategy for small and medium-sized companies although by no means limited to such companies. Not many companies confine their foreign operations to licensing alone. It is generally viewed as a supplement to exporting or manufacturing rather than the only means of entry into foreign market. The Advantages of licensing are most apparent when capital is scarce, when import restrictions forbid other means of entry, when a country is sensitive to foreign ownership or when it is necessary to protect patents and trademarks against cancellation for non use. Although this may be the least profitable way of entering a market but the risks and headaches are less than for direct investments.

Franchising

Franchising is a rapidly growing form of licensing in which the franchiser provides a standard package of products, systems and management services and the franchise provides market knowledge, capital and personal involvement in management. The combination of skills permits flexibility in dealing with local market condition and yet provides the parent firm with a reasonable degree of control. Potentially the franchise system provides an effective blending of skills centralisation and operational decentralisation and has become increasingly important form of international marketing.

Joint venture

Joint ventures one of the more important types of collaborative relationship, have accelerated sharply during the past 20 years. Besides serving as a means of lessening political and economic risks by the amount of the partner’s contribution to the venture, joint ventures provide a less risky way to enter markets that pose legal and cultural barriers than would be the case in the acquisition of the existing company. Joint ventures are established divided legal body. Joint ventures should also be differentiated from minority holdings by an MNC in a local firm. It enables a company to utilise the specialised skill of a local partner. A joint venture can be attractive to an international marketer when the firm lacks the capital or personal capabilities to expand its international activities.

Manufacturing

Another means of foreign market development and entry is manufacturing within a foreign country. A company may manufacture locally to capitalise on low cost labour to avoid high import taxes to reduce the high cost of transportation to market to gain access to raw materials and or as means of gaining market entry. Seeking lower labour costs offshore is no longer an unusual strategy. A hallmark of global companies today is the establishment of manufacturing operations throughout the world. This is a trend that will increase as barriers to free trade are eliminated and companies can locate manufacturing wherever it is most cost effective.

Ref: Ghauri, p,cateora(2006)international marketing (2nd edition)McGraw-Hill

Foreign direct investment

Foreign direct investment is a higher risk strategy as compare to other modes but it has positive impact for the companies which want to get new markets for their product so that they can make profit. FDI strategy helps to strengthen economic relationship with another country where the investment is made. It requires participation of joint venture, management, transfer of technology and capital. India and China are big markets where this strategy is being used a lot.

Illustration of entry strategies related some organisations

We can classify the organization in four types.

Manufacturing firms

A hallmark of global companies today is the establishment of manufacturing strategy throughout the world. There are three types of manufacturing investment by firms in foreign countries.

Market seeking: Investment in china where companies are attracted by the size of the market.

Resource seeking: investment in India, especially by a number of fashion garment producer such as Mexx and Marc O Polo.

Investment seeking: Investment in Malaysia and Singapore by electronics manufacturers such as Philips and Motorola.

Example: Renault, the French auto-maker entered India with joint venture and became partner with Mahindra, the Indian tractor and SUV maker to launch its “Logan”. The four door saloon car which is already sold in Romania and is a low-cost car suitable for emerging market purchasing power. Logan entered India’s mid-market and competed head to head with TATA, Ford and Hyundai

Service firms

These types of organizations provide facilities to others on some fee basis. They might use joint venture, licenses and franchising entry strategy.

Example: Starbucks entered in UK, was the first European country. The UK provided facilitation this company to expand its business in Europe. That has been a milestone of its achievements and to go into a foreign market. Strategy was taken by Starbucks to enter and fulfil new or all sort of market, encourage country’s culture and traditions. Recently three different strategies are used in starbucks. Joint venture, licenses and wholly-owned subsidiaries.

Ref: Ghauri, p,cateora(2006)international marketing (2nd edition)McGraw-Hill

General electronic or big retailer as wall-mart or Tesco to sell their products abroad, use exporting (carrier) strategy as a way of broadening the product lines that they can offer to their foreign customers. These companies believe that offering a broader range of products will help them in boosting the sales of their own products.

Vodafone is a mobile telecom company working in Africa, Asia, USA, Europe and Middle East entered in India with joint venture. They didn’t use their existing strategy which they use in UK and rest of the world.

Telenor is a Swedish telecom company which used direct investment strategy in Pakistan. Now telenor has become a 2nd largest telecom company in Pakistan.

McDonald KFC including soft drinks, motel, retailing, fast foods, car rental and automotive services using Franchising for fastest growing market entry strategy.

Multinational and Global firms

These types of organizations sell their product globally and have branches all over the world. They might use foreign direct investment strategy.

Example: Coca-cola Pepsi using foreign direct investment strategy to grow their business in the world. They take all measures to fulfil company’s strategy.

Unilever P&G use foreign direct Investment to expand their business in the world. This entry market strategy has been successful for these sorts of multinational companies.

Barclays bank is a financial service provider entered in Pakistan with foreign direct investment strategy.

Pfizer pharmaceutical company has merged with four other research companies to get good economical growth.

Small firms

These types of organizations have limited resources to expand their business globally. They might use joint venture and merger strategy to grow.

Example: General Mills has been in Europe since 1920 and controls about half of the Kellogg’s cereal market entered in Europe with joint venture Nestle. Although the cereal business uses cheap commodities as it raw materials but Kellogg’s has earned significant profit in Europe.

A sager industry has been in Pakistan for last 40 years making soaps and detergents has merged in unilever to gain sufficient profit.

Igloo ice-cream is a very famous in Pakistan has been working well in Pakistan now has merged unilever to achieve successful company’s goal.

Ref: Ghauri, p,cateora(2006)international marketing (2nd edition)McGraw-Hill

Analysis of Market conditions and Risk

We can discuss market conditions through these financial and political-legal factors.

Economic-Financial Risk

Amount of foreign debt carried

Income distribution within the market

Amount of foreign investment already in the market

Natural resource base

Inflation rate

Political-Legal Factors

Role of government in business activities (free or not free markets)

Stability of government

Barriers to international trade (whether or not favourable trade policies)

Laws and regulations affecting the marketing mix (marketing regulations)

Laws and regulations affecting business activities (acceptance of foreign investment, etc.)

Stability of the workforce

Political relations with trading partner

Analysis of cultural factors

We can discuss cultural factors through cultural and geographic distance

Cultural distance

Style of business within the market

Attitudes toward bribes and questionable payments

Language, race and nationalities, geographic divisions

Role of institutions, religious groups, educational system, mass media, family

Socio cultural (social interaction, hierarchies, interdependence, etc.)

Geographic distance

Number of organizations within the market

Size and quality of workforce

Population size and growth rate

Composition of house holds

Geographic distribution and density of population

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