Process Of Entering And Then Building

Published Date: 02 Nov 2017

The process of entering and then building an global market is a hard one, which many businesses still recognize as an Achilles’ heel in their international potentials. In basic terms, entering a new market in a different country is very like a start-up position, with no marketing, no sales, no infrastructure in place, and no or little knowledge of the market (Arnold, 2003). In spite of this, businesses generally treat this state as if it is an addition of their company, a basis of incremental profits for existing goods and services.

Arnold (2003) identified two features of the distinctive approach are mainly striking. First, businesses frequently follow this new company prospect with a center on reducing risk and investment—the total opposite of the approach generally promoted for legitimate start-up situations. Second, from a marketing standpoint, many businesses break the founding standard of marketing—that a business should begin by examining the market, and then, and only then, make a decision on its offer in terms of goods, services, and marketing programs.

Businesses having decided to enter a new market must choose an appropriate strategy. While the timing of entry has drawn a lot of attention, the entry mode into market has been partially neglected by scholars in management despite the fact that the entry mode may condition the development of the firm, and hence its future performance (Mitchell, 1991).

There are a number of strategies to use when entering into a new market, however, for the purpose of this discussion the researcher is going to limit himself to acquisition, exporting, licensing and joint ventures.

Acquisition

Hitt (1990) stated that acquisitions frequently serve as a substitute for innovations and allow firms to undertake substantial expansions of resources that might be difficult to develop internally (Karim and Mitchell, 2004). Another advantage of acquisitions is to accelerate the time required to enter a new market. But firms that make acquisitions have to integrate acquired capabilities within the firm, which also takes time and can be hazardous. Using acquisitions to access capabilities can be costly, for reasons ranging from legal constraints to the necessity of leveraging acquired capabilities (Barney, 1999). In rapidly evolving industries, this cost can be particularly high and acquisitions constrain a firm’s options in a costly-to-reverse way. Acquisitions are not exempt of moral hazard issues since the acquirer can find it difficult to assess the value of the acquired resources and may encounter a performance downturn of the acquired personnel (Chi, 1994).

Another disadvantage of the acquisition mode is that it involves a high level of commitment from the acquiring firm. Reversing an acquisition is more complicated than a licensing or joint-development agreement (Steensma and Fairbank, 1999). Nevertheless, one can argue that reselling an acquired firm whose capabilities do not meet expectations can be a reasonable opt-out option. Overall, one must note that there is no empirical consensus on the expected returns from acquisition (Karim and Mitchell, 2000). In summary, acquisitions reduce the delay for entering a new market. The appropriation of new competencies can be hazardous and the flexibility of an acquisition as an entry mode into a new market is limited (Quélin et al., 2006).

Exporting

Exporting is treated as the most long-established form of globalization. All associated costs to exporting have to do mostly with marketing, so it is not simply the oldest but also the safest method to attain a foreign market, since it does not need the business to move its location and everything can be made directly in their country of origin (Terpstra and Sarathy, 2001)

. Though, there are a number of related costs and risks, mainly to do with transport with the most significant factor being, incapability to be close to the foreign market.

Exporting is the direct sale and the marketing of locally produced products or services in another country. Exporting is a traditional and well recognized means of reaching foreign markets. Exporting does not need that a business’s good or be produced in the target economy; no investment in overseas manufacture facilities is needed. The main costs are only linked with exporting take type of marketing expenses. Also, in services like information technology that does not necessarily need physical existence of material; the business can export the services to a foreign aim market (Terpstra and Sarathy, 2001). By exporting the goods or services, the business will be able to save the cost of establishing facilities in the overseas market. As abovementioned, portion of the cost saved from not establishing facilities in the foreign market can then be diverted to marketing and promotion (Ghauri and Cateora, 2010)

E-commerce has made it quite easy for businesses to penetrate a new or market. For instance, buyers and suppliers can work together and carry out businesses on eBay which is an online sale site. However, there are new worries when a business utilizes e-commerce to enter a market or a global market place. One of the worries is time disparity. Due to time disparities in the world, pressure is placed on the business to offer and meet orders of clients and also give consumer service. In addition, the business should have an understanding of global marketing settings so as to grow business interaction further. As supported by Czinkota and Ronkainen (2010), certain lawful concerns for e-businesses like export manage laws exist, mostly if the business deals in tactically fundamental software or goods. Parts of the lawful features that must be put in deliberation are security regulations and privacy intellectual property (IP). Significantly, businesses should also assume the demanding responsibilities of defending clients from online scams and other personality theft.

Licensing

Licensing is an authorized or legal consent to do or own something specific. In business terms, licensing is the process in which a business offers the right to another business in the aim country it wishes to penetrate, to use its own belongings (Keegan, 2002). A well recognized form of licensing is franchising, however, it is completed on a longer term basis, while licensing has to do with short-term obligations. Licensing is another type of safe market infiltration, as it does not need much from the licensor, apart from giving the correct to the relevant foreign country to use intangible assets of their business, such as the product for example.

Licensing is also a method to penetrate a foreign market with a restricted level of risk. It changes from contract built-up in that it is generally for a longer term and engages greater accountabilities for the local producer (Yip, 2000). Licensing is similar to franchising only that the franchising business tends to be more openly engaged in the improvement and direct of the marketing programme.

The global licensing business offers the licensee trademark rights, patent rights, copyrights or know-how on goods and procedures. In return, the licensee will:

• Produce the licensor’s goods

• Market these goods in his allocated region

• Pay the licensor royalties connected to the sales quantity of the goods.

This kind of contract is usually welcomed by foreign public authorities because it transports technology into the country.

The main disadvantage of licensing is the issue of controlling the licensee due to the lack of direct commitment from the global business granting the license. After some time, once the know-how is transported, there is a danger that the foreign business may start to act on its own and the global business may therefore lose that market.

Cavusgil et al. (2012) said that the two most accepted contractual market entrance approaches are franchising and licensing. They described licensing as an understanding in which the possessor of intellectual property awards another business the correct to use the assets for a specific period of time in substitute for royalties or other reward. What this suggests is that a business in the aim market can be permissible to use the assets of the business that issues the license. Such assets are generally not tangible properties. Some may include copyrights, processes and systems of service trademarks. The licensor would have to charge the licensee a specific fee for permitting it to use its assets.

The main advantage of this kind of market access mode is that no or little investment is needed on the part of the licensor; therefore, one can simply end that the benefit on investment will be as the cost of offering the promotion and service will be completely bear by the licensee. Nevertheless, the problem to this technique is that if a licensee is using the trademark and the name of the licensor, concern should be taken so that the name of the business is not draw in the mud. This can occur if the licensing contract is made with a dishonest licensee. The name of the business can be damaged in the procedure of the licensee trying to make the most of profit. Hence, extra care and measures must be taken to make sure that licensing contract is not made with the business that cannot be believed. Also, there are considerable risks involved in licensing because parties involve in the licensing contract are allowable to share intellectual assets, the licensee may become dishonest by using the knowledge gained through the contract with the licensor to produce other goods or services (Keegan, 2002).

Direct Investment

OECD describes Foreign Direct Investment as a type of venture which reveals the goal of founding long term significance by a resident venture in a market other than that of the direct investor themselves. In other words, Foreign Direct Investment is the procedure whereby one business from one nation makes a physical asset into building e.g. a factory in a new country.

The process involves the transfer of capital, technology and personnel, and thus a greater amount of resources to be invested.

Som (2009) said the enhance in FDIs by international businesses has influenced global trade patterns, even though not continually in ways that are straight forward; they usually result from a series of multifaceted interactions, which may differ over time. According to the International Monetary Fund (IMF), FDI is defines as "an investment made to obtain permanent interest in businesses operating outside of the country of the investor". Additional, in case of FDI, the investor´s reason is to gain an efficient voice in the management of the business (International Monetary Fund, 1993). In this agreement, the global business makes a direct investment in a manufacture unit in a overseas market. It is the utmost commitment since there is a 100% rights. The global business can attain wholly overseas manufacture facilities in two primary ways: It can build up its own amenities from the ground up. It can make a direct merger or acquisition in the host market. However, in some countries, governments prohibit 100% ownership by the international firm and demand licensing or joint ventures instead.

The foreign company or group of associated companies that make the investment is termed the direct investor (IMF, 1993). One clear benefit of this kind of entry mode is that it gives the firm a high level of power in the operations of the company and equally offers the option to better understand and know the clients and competitors alike. It is however relevant to note that entry mode is a very important and critical factor in the procedure of globalization and as such, the business should know that no particular entry mode is the best mode but that different modes of entry are at times more appropriate under diverse situations. Therefore, the responsibility rests on the company to measure its resources, capability, object and strategic goals in the light of the diverse new market entry modes (Ghauri and Cateora, 2010).

Conclusion

Businesses enter global markets for different reasons, and these diverse goals at the time of entry should create different strategies, forms of market participation and performance goals (Yip, 2000). Yet, businesses regularly follow a standard market entry mode and development strategy. Before selecting a market entry approach, one should take the time to assess the company and its strengths and weaknesses. Foreign market entry plans are many and entails a varying degree of commitment and risk from the global business. In general, the execution of a global development strategy is a procedure attained in several steps. Indirect exporting is normally used as the beginning; if the outcomes are satisfactory then more committing agreements are made by associating local businesses.

QD2

Strategic planning is the practice by which a business envisions its future and develops the essential processes and operations to attain those expectations. The fundamental steps of the strategic planning procedure include identification of critical issues facing the business, information gathering and analysis, growth of a strategic vision, mission review/revision and the development of strategic objectives and strategies (Bryson, 2004). Strategic planning presumes that certain parts of the future can be influenced or created by the business.

Price (2004) indicates that strategic planning is a partnership between management and workers. Both the board and employees contribute equally in the planning procedure and give significant insights and information. In addition to helping build the plan, the board of directors offers final endorsement for the plan and holds it and employees responsible for the expected outcomes. Strategic planning establishes where a business is going in years ahead, how to get there and how to know if the business is there or not. The center of a strategic plan is generally on the entire business, while the center of a business plan is generally on a particular goods, services or plans.

There are a diversity of viewpoints, approaches and models used in strategic planning. The means that a strategic plan is developed depends on the nature of the business's leadership, culture of the business, difficulty of the business's setting, size of the business, expertise of planners, etc.

Workers, the strongest stake of the business are the most precious asset that contributes considerably to its achievement and prosperity. Price (2004) said the involvement of workers in the organizational process not only serve as motivation but also allows them to give more efficiently and effectively. Further, he explains worker involvement as a procedure involving communication, participation, decision making which directs to employee motivation and industrial democracy. Additionally, CIPD (2009) explain worker involvement as a dedication of the workers towards the values of the business and willingness to help each other to attain the company’s goal.

Employee involvement during the strategic planning procedure helps in other ways beyond the information they can offer. Marchington (2005) indicates how implementing strategy planning is dependent upon the energy, hard work, dedication and faith of a business’s workers. Simply stated, a considerable amount of energy is needed to drive strategies to fruition and that energy must be produced from within the business. In practical terms this means inspiring and energizing people to get them psychologically involved in the achievement of the business’s strategic plans. Instead of engaging workers in the procedure of strategic planning and building that emotional participation, businesses pummel their worker’s interest for the project by excluding them from the procedure and not telling them what is happening.

Employees during acquisition become anxious and uncertain about their role in the business or even their continued existence after the process. It is up to the each worker to deal with this change. Either the worker surrenders and waits for the result, whether it has positive or negative impact on him/her (Chiu, 1999). Employees often panic during acquisition, which creates insecurity and change for workers both of the buying business and the purchased business. In both cases human resources should involved employees for smooth transition, helping calm any fears as well as giving solutions to questions about how the acquisition affects each worker individually. If the workers of both businesses do not have as much trepidation over the change, output is more possible to stay at previous levels. Through involvement human resources can notice and tackle any rumors about office relocation, layoffs or other changes workers fear, then giving feedback to top management about worker fears. Also, employee’s involvement in acquisition helps establish if the cultures of the two businesses that are becoming one through acquisition are well-matched. Workers have a firm grasp on the culture of the business for which they work and must learn the culture of the other business to make such a determination (Chiu, 1999). Cultural differences may include benefits workers enjoy, such as insurance and personal time; how the two businesses measure and define success within the business; benefits workers enjoy; how problems in the business are handled; the overall attitude of the employees; the management styles of the two businesses and executives toward business functions.

Employee’s involvement in exporting goods or services into new market is crucial. Management should developed a training programs for workers and also provide continuing educational training for employees to strengthen export compliance knowledge, business policies and processes, communicate changes in the export control regulations, and to educate on the application of the regulations to new product lines for export (Aposto, 2000). Formal export control and compliance training should usually be conducted on an annual basis. The rate of recurrence and layout of refresher training, though, would differ depending on worker’s responsibilities and the nature of the export issues involved.

According to Ang (2002) the idea of worker involvement in licensing is still developing even though there is large sum of research done in the last decade still there is not any developed ways to use worker involvement as top management approach when it comes licensing. The executive approach depends how they wants to involve their worker in different function. According to Lawler et al (1998) the most significant factor of worker involvement approaches is how it can represent broadly in the procedure of sharing information, problem solving, rewards for performance and developing ideas and knowledge relating to licensing as a means of entry a new market. He further says that in order to apply these practices the business needs a particular worker involvement programs.

Conclusion

Worker involvement is advantageous for both the worker and the management. According to CIPD (2009) worker involvement has lot to present to the management as they can use the knowledge and skill of the workers in different procedure which can lead to improved performance. Further it can build the image of the business as an outcome of better worker fulfillment can attract new talent. Worker involvement programs can improve the understanding and communication which can reduce conflict in the business. For the workers it offers them chance to develop their knowledge and skill and bonus and rewards for better performance. Further it can provide greater job security and higher job satisfaction.