Why Companies Struggle To Become Profitable

Published Date: 02 Nov 2017

1.Introduction

Companies enter international markets for varying reasons, and these different objectives at the time of entry should produce different strategies, performance goals, and even forms of market participation. According to Kotler and Keller

list five reasons: 1) Some companies Discover that a foreign market presents higher profit opportunities than the domestic market; 2) The Company require a larger customer base to achieve economies of scale; 3)The company try to minimise the dependency on any one market; 4) counterattack against companies that have entered the home market; and 5)The company's customers need international servicing when they are going abroad. (2006, p. 669).

2. Market analysis

Before entering into a new market, any of the organization has to consider the different risk involve with market. For that reason their need a careful analysis of that particular market where the company intend to enter. In the sense of international company's market analysis is more complicated than that of the domestic market because the international company must consider the two level of uncertainty rather than one .Uncertainty is formed by the unavoidable circumstance of all business environment, the nature of uncertainty varied country to country and sometime it is a unique set of uncontrollable for that company. According to Cateora and Garham the international marketing task defined in 3 tiers.

Marketing Controllable: Marketing controllable are those element which can be altered in the long run and also in the short run to adjust with changing market circumstance, consumer tests or corporate objectives. The basic market controllable items are product, price, promotion and channel of distribution.

Domestic uncontrollable: Domestic uncontrollable consists of home country elements that can influence directly on the foreign venture to operate and the success of the business. In general it is out of immediate control of the marketers. This controllable consist of competitive structure, political and legal forces and economic climate. For example, The USA imposed trade restriction with Iran and North Korea to condemn their nuclear enrichment program.

Foreign Uncontrollable or International environment: This type of uncertainty arises from the international market or the particular foreign market where the marker tends to go. It is a very crucial and sensitive task for the marketer to analyse the international environment risk. The process of evaluation includes careful analysis about political and legal forces, cultural forces, geography and infrastructural, structure of distribution, level of technology, competitive forces and economic forces.

3. Market entry strategy:

When an organization has taken a decision to enter into a foreign market, there are many of Alternatives open to it and these alternatives associated with risk, cost, degree of control, ownership status. Company must choose an entry strategy after careful analysis of market potential, company capabilities, and the degree of marketing involvement and commitment. There are varieties of ways a company can enter into the foreign market. The approach of international marketing can range from low investment with less often and indirect export to huge investment of capital to capture and maintain the reputation and specific share of the world market3.

MODES OF MARKET ENTRY STRATEGY:

INTERNATIONAL TRADE: International trade is the most conservative to approach to penetrate foreign markets by exporting or to obtain supplies by importing. Nowadays many large multinational firms doing their business through this ways like Boeing, DuPont, and General Electric etc.It is the most common and traditional approach sell product to country in another country. In another word exports is produced goods domestically and sell it to another customs territory. There are two types export mechanism exercised by the business firm

              A. Direct export: In this mechanism business firm solely operate and manage its own international business. It is one of the most popular ways to expand their business globally. In this criteria business does not have to place any of its capital risk. If the firm experiences a downturn of the business, it can normally discontinue this part of the business at a low cost.

              B. Indirect export: In this mechanism marketer selling goods to foreign market through third party. It is one of the most popular methods to export product by taking the least amount of risk and avoid administrative complexity. There are several sorts of intermediary firms provide a range of services.

• Export Agent: Export agent or merchant generally purchase product from main manufacturer then they export to the other nation. Here agency is responsible to take the risk of business.


• Piggybacking: The process means that organisations with little exporting skill may use the services of one that has. Another form of piggybacking is the consolidation of order from the different buyers to get the facilities of bulk purchases.


• Countertrade: Any form of international trade that involves the reciprocity. It is modern darter system of trade. Here one country exchange goods with another country without any financial transaction5.

LICENSING: it is a favourite strategy for small and medium sized companies. Licensing is a contractual agreement in between two firms , here one firm is obligate to provide the technological assistant, copyright, patent, trademark or trade names in exchange of specific benefit which normally treated as loyalty. Licensor provide a the firms to use their technology in a foreign territory and the main advantage is that licensor do not required any capital investment as well as avoiding business risk6.

JOINT VENTURE: Joint venture is a kind of business that is owned by tow of more business entity jointly. Many firms expand their foreign business operation in a joint venture with firms that already exist in that market7.Its a effective means to minimise political and economical risk by the amount of partner's contribution to the joint venture. In JVs local partner provide the market knowledge, familiarity government bureaucracy, labour marker understanding, competitors analysis and etc. On the other hand foreign country brings the update business knowledge, know-how, and technology etc8.

FOREIGN DIRECT INVESTMENT: Foreign direct investment is invested to a foreign directly to manufacture the product or service. Nowadays it is one of the best ways to spread business globally. In this investment policy company may capitalized the local knowledge, low labour cost, avoid transaction cost, to gain access to raw materials, to avoid high import tax, import restriction etc. Trade liberalisation is one of the main factors which facilitate to take FDI decision.

NO SINGLE MARKET ENTRY STRATEGY WHICH IS APPROPRIATE IN ALL CIRCUMASTANCE. WHY...................?

The method of increasing international business extended from the relatively simple international business approach to more complex approach of foreign direct investment .Here, every method got some advantage and disadvantage, which has to be considered by the organization before entering into a market or agreement with any foreign firms. Market entry decision also depends on the organization's mission, vision, also on the future plan .Moreover it's directly related with the foreign country's economic condition, business environment, cultural, social, government attitude, legal and etc where that particular firm intend to go for doing business.

PART 2

FRANCHISING: Business format franchising is a rapid growing market-entry strategy and it is a powerful means for the marketing and distribution of goods and services. Franchising is a contractual agreement in between two parties under which parent company (the franchisor) agree to allow another firm(the franchisee) to sell their product ,service or process in exchange for some form of payment. In this agreement franchisor provides a standard package of product, system, management service and franchisee provides local business knowledge, market situation, capital and personal involvement in agreement.10 Nowadays it is consider the fastest among the type of foreign business to open in the emerging economy of the former republic of Russia, Eastern Europe, India and china.

There are two types of franchising agreement which is used by the franchising firm. First instance, Master Franchise-It is a very spetial and inclusive agreement in between franchisor and franchisee and this method is used by about half of the international franchise. In this agreement franchisor allow the franchisee to operate its business to a specific area and also allow to sell of establish sub franchises. Another one is licensing, licensing a local franchisee the right to use the trademark ,logo, product , service , technology in exchange fo payment.(Catero and graham, p328)

In the franchise agreement, franchise fee are associated with three main areas which are

• The initial fee: It is a kind of payment paid by the franchisee to get the right to operate the franchise system. The fees cover the franchisor's initial cost for arranging up the system, initial training, operating manual, marketing, opening stock and necessary equipment.


• There is another sort of fee, which called on going management service fees. This type of fees is paid by the franchisee on a regular basis. This fee is for the continuous services, advices, training and support which are provide by the franchisor. On top of the management payment franchisee pay a percentage of gross turnovers of business.


• There is another form of payment named royalty fees. It is paid by the franchisee to franchisor in respect of the legal authority to use the franchisor's brand name, reputation , logo etc.

Reference

• ( Mirage of Global Markets, The: How Globalizing Companies Can Succeed as Markets LocalizeByDavid Arnold )


• http://www.ftpress.com/articles/article.aspx?p=101588


• Catero and graham 10th edi,p325


• INTERNATIONAL FINANCIAL MANAGEMENT JEFF MADHURA 8TH EDITION P10


• http://www.anz.com/edna/dictionary.asp?action=content&content=countertrade


• INTERNATIONAL FINANCIAL MANAGEMENT JEFF MADHURA 8TH EDITION P11


• INTERNATIONAL FINANCIAL MANAGEMENT JEFF MADHURA 8TH EDITION P11


• ROBERT M I L L E R , JAC K G L E N, F R E D JA S P E R S E N, A N D YA N N I S K A R M O KO L I A S International Joint Ventures in Developing Countries ,march 1997,p26


• Choice of foreign market entry mode: impact of ownership, location ,internationalisation factor,Sanjeev agarwall and Sridhar N. Ramaswani


• Catero and graham 10th edi,p328