Business Explain: International Market Entry Strategies

What is the establishment chain model?

A model that shows how a firm's resource commitment when going abroad depends on psychic distance, need for control, and knowledge of the market.

What are the market entry objectives?

1. Psychic distance
Market is considered distant due to psychological barriers

2. Market seeking
Companies that venture into new countries become international because they are looking for new markets, actively seeking customers worldwide

3. Efficiency seeking
Firms want to enter countries/markets where they can achieve efficiency in different ways

4. Resource seeking
Firms try to enter countries to get access to raw materials or other inputs for cost reduction

What is a wholly-owned subsidiary and what are the benefits of it?

A wholly owned subsidiary is a company whose common stock is 100% owned by another company, the parent company.

Whereas a company can become a wholly owned subsidiary through an acquisition by the parent company or having been spun off from the parent company, a regular subsidiary is 51 to 99% owned by the parent company.

When lower costs and risks are desirable or when it is not possible to obtain complete or majority control, the parent company might introduce an affiliate, associate or associate company in which it would own a minority stake.

1. To capitalise on low-cost labour

2. To avoid high import taxes

3. To reduce the high costs of transportation to market

4. To gain access to raw materials

5. Means of gaining market entry

What are the factors that influence the strength of a company in a particular market?

1. Its achievable market share

2. Marketing ability and capacity

3. Product and positioning fit

4. Quality of distribution services

A firm's competitive strength, meaning the strength of a product or company as compared to competitors. By assessing this, managers can determine whether the firm has the resources and potential to achieve goals in the particular market or not. Depending on the outcome, there are several different ways of entering a new market that firms can choose from, depending on their objectives.

A business designs its competitive strategy to deliver advantages in the marketplace, but the market situation may evolve. Knowing which factors affect the strategy lets you monitor key variables and adjust your actions to take advantage of changes and opportunities. As markets shift under the influence of the actions of your competitors, you have to modify your strategy to continue delivering the competitive advantages you need to remain profitable

Why are strategic alliances popular and why do companies enter into these agreements?

These are cooperative agreements between potential or actual competitors, often between firms from different countries.They can be anything from joint ventures to short-term contractual agreements. The perks are that they facilitate entry into a foreign market, as a local business partner can provide the necessary experience to do so successfully.

They also allow firms to share the fixed costs and possible risks of developing new products or processes, and are way to bring together complementary skills and assets that the firms could not develop on their own.

Ultimately, it makes sense to form an alliance that will help the firm establish technological standards for the industry that will benefit the firm. What speaks against it is that it gives competitors a low-cost route to new technology. Unless a firm is careful, it can give away more than it receives in the end.

What are the factors that influence the attractiveness of a country as a market? How can you do the analysis to select a market to enter?

1. Market size (total and segments)

2. Market growth (total and segments)

3. Competitive conditions

4. Markets uncontrollables (political, economic, and cultural factors)

It is pretty clear that businesses prefer a country that is less costly, more profitable, and has fewer risks. Cost considerations are related with investment. Profitability is dependent on resources. Risks are associated with the environment and hence it is of prime concern.

Why are joint ventures popular?

Joint ventures have become popular for a number of reasons.

Gain access to markets

One important marketing reason is to gain access to markets. Nearly all of the developing countries, and many developed countries, require some degree of local participation for operating in their country. Mergers with distributor companies or companies which already have well-established local distribution may provide rapid market access and distribution to foreign companies entering a country.

Broaden the line of merchandise

Sometimes companies join forces in order to broaden the line of merchandise that they have available, thereby gaining marketing efficiency and better public image.

Gain valuable local knowledge

Another market reason for joining ventures is that local firms possess market information and the marketing know-how, which would take years for a foreign company to acquire. Such participation minimizes the risk of market failure and speeds the marketing effort.

Financial reasons

Joint ventures may also arise for financial and manpower reasons. Financially it is sometimes desirable to merge with foreign companies because the merger provides access to local capital markets and combines the resources and fund raising capabilities the companies have. It may also give access to a higher quality and more capable managerial manpower.

How will entry into a developed foreign market differ from entry into a relatively untapped market?

The differences between entering a fully developed market and an untapped foreign market are many and extremely varied. Some of these differences are channels of distribution that may or may not be developed. Governmental attitudes toward business, foreigners, and industry may be very liberal in a growing economy, while an established market may be very restrictive.

Communication and transportation may be highly limited in untapped markets and highly developed in successful countries. The amount of capital, banks, and exchange-rate systems will vary according to the market's development. Finally, the degree and amount of competition will vary accordingly. To this list, endless factors could be added such as cost of entering the market, social customs, laws, etc.