Market Entry Strategy

Executive Summary

As firms expand their business operations across national borders, a better understanding of the motivations and strategies for entering and locating in foreign markets becomes more important to their survival and growth. The aim of this report is to analyze critical issues related to strategies of multinational corporations focusing on international business, main emphasis is on mode of market entry strategies of enterprises through foreign direct investment(FDI), franchising, licensing, joint ventures, greenfield strategy and once the firm enters the market different approaches used in practice, companies develop various methods through international strategy, global, multidomestic or transnational strategy to compete with their competitor by a competitive advantage. Case study approach is also considered in this report, to analyse their market entry strategies, what challenges they face, and how they cope with them. As a result, research includes there are several ways of entering a market and if companies want to be successful, firms always looking for the right time to enter the right market through right channel.

Introduction 

With a good strategy, the difficult becomes easy
With a bad strategy, what’s easy becomes hard

Source (http://www.marketentrystrategies.com)

The choice of appropriate mode of entry into new markets is a key strategic decision for international business. The concept of strategy has been borrowed from the military and adapted for use in business. In order to build a successful and profitable business, first and foremost priority is to create a powerful business strategy. According to Porter (1996) “the essence of strategy is choosing to perform activities differently than rivals do” .The fundamental importance of strategic management for the use of strategic planning is to make decisions to guide an organisation’s future directions. In terms of future directions, the basic problem of any company is survival. And to survive over the long term, a company must have two strategic capabilities: the ability to prosper and the ability to change Betz F (2001). A Strategy is a special kind of plan formulated in order to meet the challenges of the policies of competition. Strategy formulation is concerned with establishing the organisation’s mission and strategic objectives, also refers to an assessment of strengths, weaknesses, opportunities and threats facing the organisation, Glaister K et al (1995)

There are different school of thoughts for enterprise internationalisation and its entry strategy, however no acceptable conclusion have been formulate that how firms internationalise and what factors influence their chosen strategy. Companies always show interest to go beyond the boundaries to maximise their profit and enhance their market share, now a day’s MNCs are keener to enter into the emerging markets either its telecommunication, retail or banking sector.

Literature Review

According to Dawes B (1995) there are number of reasons that companies internationalise their operations, ranging from the purely reactive and opportunistic to the proactive business decisions which seems international markets as a major strategic opportunity. Dawes B (1995) emphasize on four basic ways of doing international business i.e. exporting, licensing/franchising, joint ventures and foreign direct investment. Mode of entry strategy is about how firms go beyond the boundaries to have international competitive markets and a process by which firms of all sizes evaluate their changing international business environment and shape an appropriate organisational response that involves the crossing of international borders, David W et al (1995).

Thompson J L(1993) has concluded that planning the future, thinking about the most appropriate strategies ,changes of strategic direction are always essential for organisations. Hunger J D & Wheelen T L (2008) studies shows that an organisation uses competitive strategies and tactics to gain competitive advantage within an industry by battling against other firms and the mode of entry strategy is one of the option for competing successfully. So company also uses cooperative strategies to gain competitive advantage by working with other organisations. Cavusgil S T et al (2008) research shows there are four alternative strategies these are international, multidomestic, global and transnational strategy. According to Lembersky L (2008), developing a multinational strategy is a more difficult than developing a strategy for single country or market. International strategy is an ongoing and comprehensive process that needs to be update constantly.

Market entry strategies reach from licensing, franchising and joint ventures to foreign direct investment (FDI).According to Lu and Beamish (2006) two most common entry strategies are export and FDI. Export has low level of risk and investment and the easiest way of entering the market, whereas FDI has a high level of control and risk and low flexibility. Cavusgil S T et al (2008) stressed that foreign direct investment is the most advanced and complex entry strategy which involves establishing manufacturing plants, marketing subsidiaries or other facilities abroad.

 Bradley (2005) reveals in his findings that many researchers determine the flow of changing market entry strategies influence by market knowledge, experience and financial resources. Cavusgil S T et al (2008) argued that each strategy has advantages and disadvantages and have its own demands, selecting market entry strategy firms should consider their resources and capabilities, conditions in the target country, risk factor, competition from existing and potential rivals and products or services already offered in the market. According to Bradley (2005) development of entry strategies starting with export and ending with FDI

International market entry evaluation process 

According to Johansson J K (2000) International Marketing Entry Evaluation Process is a five stage process, and its purpose is to gauge which international market or markets offer the best opportunities for products or services to succeed. The five steps are

                                                                                                                                                         Source Johansson J K (2000) www.marketingteacher.com

Market entry strategies

Successful business strategies require doing business differently. Market entry begins with assessing feasibility, factors such as the trends, culture, nature of the competition and the opportunity. If these are positive, firm goes forward to develop market entry tactics. Different modes of entry may be more appropriate under different circumstances, and the mode of entry is an important factor in the success of organisation

Direct involvement                                                                                                                                                                               in foreign markets

                                                                                                                         FDI

                                                                                              Joint Venture

 Mergers/Acquisitions                                                                                             .

                                                                  Licensing/Franchising

                                     Export via agent or distributor

                                                                                                                                                                                            Time

                                                                                              Source: Rugman A M et al (1986) International Business Pp 90.

Once a company decides to enter a market, it needs new frameworks to guide product and partner policy decisions. The different patterns of market development in emerging markets imply that, contrary to conventional models, companies can expand the market rapidly, should offer a combination of global imported brands and locally made joint venture brands, and use emerging markets to test product innovations. The design and management of relationships with local distributor partners is the most critical challenge for executives. In the areas of industry experience, direct selling, local autonomy, and exclusivity, experienced MNCs are adapting the approaches employed in developed markets in a ways that are appropriate for emerging markets.

Market entry strategies in transitions countries

A significant motive to enter transition countries (Brazil, India, Russia, and China) is their market growth potential and most commonly strategy used by firms is joint venture, where the most important factor influencing is legal framework and the problem facing by transition countries is social legacy. Countries like China and India, they have high rate of FDI, and enterprise are willing to operate their business in these emerging economies by direct and indirect investing modes. 

MNE strategies (a case study approach)

Report covers case studies approach to analyse the market entry strategies of enterprises, what scale of entry company uses, some cases also approach to the firms using international, multidomestic, transnational, global strategy tactics to internationalise their business.

Techina group in UK  (direct exporting)

Technic group is a UK based company established in 1987 which manufactures retreaded tyres and sells most of its products abroad. Technic developed its overseas business by signing exclusive distribution agreements in each country for the two brands it produced, Technic and Eurospeed. Distributors were able to build their own national markets avoiding direct competition. The company believes that dealing with a small number of customers gives it an advantage over other companies. Distributors visited at least three times a year and visits were organised to the UK factory at Burton. This relationship helps the company to keep up with new development in tread patterns and tyre sizes and to assess levels of demand for existing tyre types.

                                                                                               Source: adapted from Financial Times, 29.6.93 

Elle goes European: the internationalisation of Elle magazine (joint venture)

The women’s weekly magazine Elle was first launched in France in 1945. In 1983 its publisher, Hachette, decided to sell a monthly edition of Elle in the US in joint venture with the Mudoch group. In this 50-50 partnership Hachette provided the concept and News Group Publications of the Murdoch Group provided the logistics for launching the magazine and the use of its distribution network. In 1988 Elle US made a profit of $16 million.

After this experience joint venture arrangements provided the means for Hachette to offer Elle in a variety of international markets. In 1985 a British version of the magazine was published, again in partnership with the Murdoch Group. In 1987 Elle ventured into the Italian market as the product of an arrangement with RCS RizzoliThis approach was also used to sell the magazine in Hong Kong, Sweden, Brazil, Japan, Netherlands, Australia, Turkey, Germany, Portugal, Greece, Canada and China.

                                                                                       Source: Elle goes European: the internationalisation of Elle magazine 

Toshiba approach (FDI)

Toshiba opened the first Japanese-owned factory to produce air conditioning units in the UK in February 1992. When full production levels were reached in 1993, the plant was intended to produce 25000 units of various sizes worth £30-£40 million, with half of these for export. The company wanted to secure its position ahead of the European Single Market reforms. The European Commission imposed tariffs on imported Japanese air-conditioners of about 5 percent, and the company wished to act in anticipation of any future increases. Europe is an attractive site for Japanese producers who have identified a long-term growth potential. The use of air-conditioning in the UK commercial sector to be much lower than in Japan.

                                                                                                                                                      Source: Financial Times, 17.2.92 

Internationalisation of US retailers

Throughout the 1970s and 1980s the majority of US retailers focused on their domestic market, but in the last few years number of retailers looking to expand across borders has increased considerably because of international opportunities and competition in the domestic market. In this case, US looking outside their present market where they find same market conditions to enter in Western Europe as compared to Eastern Europe or Asia.

Honda strategy for US motorcycle market

In early 1960s, when Honda a Japanese motorcycle manufacturer, decided to enter the American motorcycle market, their main competitor were Harley-Davidson and BSA/Triumph who were making large size motorcycles, but surprisingly Honda success was the sales of 50cc capacity motorbike, because people in America they prefer 50cc motorbike (which was used by Honda staff for transportation) instead of large and luxury bikes, as a result company change its strategy to transational strategy and achieve a successful market entry to US market.

Source: Bradley, F. (2005) International Marketing Strategy. 5^th ed

Creditanstalt Bank

In 1990s, Creditanstalt an Austrian based bank group decided to establish a commercial banking network in Central and Eastern Europe. While Creditanstalt plans to open wholly owned subsidiaries which take about nine to twelve month from the moment of decision is made, on the other hand its major competitor, Raiffeisen Zentralbank Osterreich, investing in existing local banks in same countries. Which led them get the market share more quickly and safely as compare to Creditanstalt.

eBay’s International Market Entry Strategy 

eBay desire to expand globally, goes back to one of the very early goals of eBay, create a global trading platform that would make it as easy as possible for anybody anywhere to trade practically anything. After eBay early success in the United States, it began looking at the possibilities of offering the service on an international level.

eBay has used all three different options available to look at a new market. One of them is clearly to begin a site from scratch. That is essentially what it has done in France and Italy. Another option is to simply buy companies that already operate their business.

Reasons for Failure of International market entry strategies

According to David W. et al (1995), Market entry and development strategies do not always succeed. For a company entering a cross-border market for the first time there are formidable obstacles to overcome before its strategy can be considered successful. This might cause because of

• Inappropriate market screening and selection/entry mode
• Inability to implement a chosen strategy.
• Unforeseen events
• Competitor strategies
• Lack of products meeting consumers needs
• Failure to differentiate from existing retailers
• Lack of market research

Apart from following reasons, SLEPT (social, legal, educational, political, technological) factors also cause the failure. In less developed countries firms are very careful because of these factors fluctuation. The importance of the failure to consolidate market entry is often that the organisation learns from its experience and there is not always single chance, organisations may have the opportunity to try again and consider what to change and how to change. David W. et al (1995)

Conclusions 

Doing business in the right location is a key ingredient in a business’s success. If a firm selects the wrong market entry strategy, it may have inadequate access to meet its objectives. Consequently, location strategy plays a significant role in a company’s profit and overall success. A location strategy is a plan for obtaining the optimal location for a company by identifying company mission and objectives, and searching for locations with offerings that are compatible with these needs and objectives. Generally, it results that the firm will attempt to maximize opportunity while minimizing costs and risks.

Market entry strategy offer many challenges, and the organisation needs to manage the tension between continuity and change, if it is to secure a cross-border market and maintain its presence in its domestic market. To do this successfully organisations must not only ensure a degree of fit with its organisational dynamics, but also recognise and manage the degree of stretch required to extend its competitive scope. David W. et al (1995). Choosing the best way to enter a market is not a simple task. There is no single strategy to fit all companies, products and markets. However the planned framework can be used to guide decisions about the right market entry strategy of a firm.

It is becoming more and more important for companies to go for international markets in order to survive the tough competition and growth. Many markets are almost saturated, companies are forced to look at new opportunities, and these opportunities are often found in transition economies. Transition economies have a huge potential for future growth. However, they can be difficult to function in due to for example non-westernized business practices. For this reason, the mode of entry strategy has to be carefully evaluated and selected.

References

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