ENTRY MODES

INTRODUCTION;

Entry: is an act of beginning something new or an act of entering. Furthermore is something that provides access.   

A mode of entry into an international market: is defined as the channel which your organization employs to gain entry to a new international market. This lesson considers a number of key alternatives, but recognizes that alternatives are many and diverse. The development of international market has been facilitated by the social, economic, political and cultural factors.

In today's globalizing world, firms are increasing, looking towards other regions of the world to trade in.

Before an organization enter into international market there are number of criteria to be consider such as follows:

Speed of market entry desire. A firm or an organization should consider the speed of market so as to make a suitable entry mode. Example when market demand is of low, the organization should prefer licensing or use of agent to ensure quick distribution in foreign market.

Direct and indirect cost should be considered. For an organization or firm to perform well when enter into international market should make a precaution measures on indirect cost such freight, strikes and disruption to out put in which all these may have negative impact on the performance of the firm.

Flexibility required. This is very important for the firm so as for it to be able to copy with changes according to the market and demand in regarding the right of different culture, the countries laws and international laws.

Risk factors. The organization or the firm should consider risk factors such as political, and economic as well as competitive risk. This will help the firm to minimize investment stake in the company by accepting local joint venture partners.

Investment payback period. Consideration of payback period such as shorter term period or long term period will help the firm to formulates measures to ensures that it maintain its market position. Example short term payback has significance important for the growth of a firm due to regular flow of capital.

Long term profit objectives. The purpose of any firm is to make profit, therefore the firm should make the distribution channels policy including small department so as for its to maintain a developed market.

McDonald restaurant is one of the bid restaurant found in U.S. But wonderful enough, By the mid 1980’s, McDonald’s found it next to impossible to continue its growth within the U.S. domestic market. This was mainly because of:

-          The U.S. market had become saturated with competition

-          The U.S. domestic market was simply too small, in itself, to sustain consistent growth for the growing fast-food industry.

There after as the representative of McDonald restaurant, I will consider the following modes of entry as an alternative to find a foreign market.

The Internet:

The Internet is a new channel for some organizations and the sole channel for a large number of innovative new organizations. The Marketing space consists of new Internet companies that have emerged as the Internet has developed, as well as those pre-existing companies that now employ Marketing approaches as part of their overall marketing plan. For some companies the Internet is an additional channel that enhances or replaces their traditional channel.

Advantages

·        Fast and easy

·        Broad reach to customers

·        Reach customers through email market

Disadvantages

·        Internet marketing requires a great deal of effort and hard work.

·        The net is ever changing. What are in demand and hot now may not be the same few months from now so you need to be constantly on the lookout for anything new for your business to survive.

·        A wide array of product competition is out there in the World Wide Web. Remember that you are not the only person who offers the service or sell the product. There are many online business owners who sell the same products you do.

·        Getting the right people to visit your site is as hard as finding a prospect.

·        People tend to be cautious because of the too many scams in the internet.

·        Online marketing is not a get-rich-quickly scheme as opposed to what many think it is

Exporting;

 Exporting is the marketing and direct sale of domestically-produced goods in another country. There are direct and indirect approaches to exporting to other nations. Direct exporting is straightforward.

 Essentially the organization makes a commitment to market overseas on its own behalf. This gives it greater control over its brand and operations overseas, over an above indirect exporting. On the other hand, if you were to employ a home country agency (i.e. an exporting company from your country - which handles exporting on your behalf) to get your product into an overseas market then you would be exporting indirectly. Examples of indirect exporting include:

v     Piggybacking

 Piggybacking is an interesting development. The method means that organizations with little exporting skill may use the services of one that has. Another form is the consolidation of orders by a number of companies in order to take advantage of bulk buying. Normally these would be geographically adjacent or able to be served, say, on an air route.

v     Export Management Houses.

Export Management Houses that act as a bolt on export department for your company. They offer a whole range of bespoke or a la carte services to exporting organizations.

v     Consortia

These are groups of small or medium-sized organizations that group together to market related or sometimes unrelated products in international markets.

v     Trading companies

They were started when some nations decided that they wished to have overseas colonies. They date back to an imperialist past that some nations might prefer to forget e.g. the British, French, Spanish and Portuguese colonies.

Today they exist as mainstream businesses that use traditional business relationships as part of their competitive advantage.

Advantages of this mode;

• Minizing risk in the investment
• Speed of entry
• Maximizes scale uses existing facilities

Disadvantages of this mode;

• Trade barriers and tariffs add to cost
• Transport cost
• Limit access to local information
• Company viewed as an outsider

Licensing

This refers as an international agreement that one company allows foreign firms, either exclusively or non-exclusively to manufacture a proprietor’s product for a fixed term in a specific market

Licensing includes:

v     Licensing is where your own organization charges a fee and/or royalty for the use of its technology, brand and/or expertise.

v     Franchising involves the organization (franchiser) providing branding, concepts, expertise, and in fact most facets that are needed to operate in an overseas market, to the franchisee. Management tends to be controlled by the franchiser. Examples include Dominos Pizza, Coffee Republic and McDonald's Restaurants.

v      Turnkey contracts are major strategies to build large plants. They often include the training and development of key employees where skills are sparse - for example, Toyota's car plant in Adapazari, Turkey. You would not own the plant once it is handed over.

Advantages

v     Minizing risk in the investment

v     It is Speed

v     Able to circumvent trade barriers

Disadvantages

·        Lack of control over use of assets

·        Licensee may become competitor

·        Knowledge spillovers

·        Linces period is limited

International Agents and International Distributors

Agents are individuals or organizations that are contracted to your business, and market on your behalf in a particular country. They rarely take ownership of products, and more commonly take a commission on goods sold. Agents usually represent more than one organization. Agents are a low-cost, but low-control option. If you intend to globalize, make sure that your contract allows you to regain direct control of product. Agents might also represent your competitors - so be aware with conflicts of interest. They tend to be expensive to recruit, retain and train. Distributors are similar to agents, with the main difference that distributors take ownership of the goods.

Strategic alliances

These are terms that describe whole series of different relationships between companies that market international. Sometimes the relationships are between competitors. Examples of this include; shared manufacturing e.g. Toyota Ayago is also marketed as a Citroen and a Peugeot, Research and Development (R&D) arrangements, Distribution alliances e.g. iPhone was initially marketed by O2 in the United Kingdom, Marketing agreements. Essentially, Strategic Alliances are non-equity based agreements that’s, companies remain independent and separate.

Joint Ventures

Tend to be equity-based. A new company is set up with parties owning a proportion of the new business. There are many reasons why companies set up Joint ventures to assist them to enter a new international market: There are five common objectives in a joint venture: market entry, risk/reward sharing, technology sharing and joint product development, and conforming to government regulations. Other benefits include political connections and distribution channel access that may depend on relationships.

Advantages

·        Overcomes ownership restrictions and cultural distance

·        Combines resources of  two companies

·        Potential for learning

·        Viewed as insider

·        Less investment is required

Disadvantages

·        Difficult to manage

·        Dilution of control

·        Partner may become a competitor

Foreign Direct Investment

Foreign direct investment (FDI) is the direct ownership of facilities in the target country. It involves capital, technology, and personnel. FDI can be made through the acquisition of an existing entity or the establishment of a new enterprise. Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment, and the market in general. However, it requires a high level of resources and a high degree of commitment.

Advantages

• Greater knowledge of local market
• Minimize knowledge spill over
• High sales potential

Disadvantages

• Higher risk than other modes
• Requires more resources and commitment
• May be difficult to manage the local resources

 Foreign Acquisition

Acquisitions can be defined as a corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm.

Acquisitions are often made as part of a company's growth strategy whereby it is more beneficial to take over an existing firm's operations and niche compared to expanding on its own.

The main advantages of acquiring a foreign company:

• Access to target’s local knowledge
• Control over foreign operations
• Control over own technology

The main disadvantages of acquiring a foreign company:

• Uncertainty about target’s value
• Difficulty in “absorbing” acquired assets
• Infeasible if local market for corporate control is underdeveloped

After analyzing the different Entry Mode into the International Market, let now look a bit on the Comparison of some of the Foreign Market Entry Modes though the chart mainly concentrating on the condition favoring the mode, the advantages of it as well as the disadvantage of it.

We have already seen the different entry mode into international market, let now analyze the challenges of it. 

Understanding the global customers and competition. To be familiar with the global customers and the total competition of the business can be among the great challenges to any firm when trying to find a way to the international market.

Social and cultural differences. There are different cultures in different nations, and this made the various firms to fail to perform well in the foreign market. For example, take language factors into account when making adjustments in packaging, signs, and logos. This means different signs and logos may have different meaning to different places. In Thailand, for example, Kentucky Fried Chicken (KFC) has adjusted its menus, ingredients, and hours of operation to suit Thai culture.

 Inflexibility in planning and implementations. Many firms fail to be flexible in planning various strategies and the implementation of those strategies mainly when there in the foreign market. Actually being flexible mainly depend on the familiarity of the places, so due to the factor that, there in the foreign market hence failed to do so.

Economic differences. The levels of economy do differ from country to country. Where by it seems to be very difficult to conduct trading among two nations having different levels of economy. This may lead to unequal trading because the one with low level of economy can sometimes fail to conduct a business in foreign investment due to high tariffs and taxes.

Understanding world brand dominance. In the world there is some of the main brand dominance. So for sometimes it may become very difficult for an organization to understand this, and hence face some barriers in trading into international market.

Legal and Political Differences. This is said to be one of the common challenges of international marketing because, a particular nation can set conditions for doing business within their borders or even prohibit doing business all together. More common legal and political issues in international business are: quotas, tariffs, and subsidies; local content laws; and business practice laws.

A quota restricts the number of products of a certain type that can be imported into a country. By reducing supply, the quota raises the prices of those imports. For example, Belgian ice cream makers can ship no more than 922,315 kilograms of ice cream to the United States each year.

A tariff is a tax on imported products. Tariffs directly affect prices by raising the price of imports. Consumers pay not only for the products but also for tariff fees.

Protectionism Debate. The practice of protecting domestic business at the expense of free market competition. Supporters argue that tariffs and quotas protect domestic firms and jobs, therefore, sheltering new industries until they are able to compete internationally

Local Content Laws. Requirements that products sold in a particular country be at least partly made there. In this way, some of the profits from doing business in a foreign country stay there rather than flowing out to another nation. In Mexico, for instance, Radio Shack de Mexico is a joint venture owned by Tandy Corporation (49 percent) and Mexico's Grupo Gigante (51 percent)

Business Practice Laws. Many businesses that enter new markets encounter a host of problems in complying with stringent, and often changing, regulations and other bureaucratic obstacles. As part of its entry strategy into Germany, Wal-Mart has had to buy existing retailers rather than open new ones. Why?  Because the German government is not currently issuing new licenses to sell food products.

Lastly after discussing the challenges of the entry mode into international market, let we suggest some of the solutions of the challenges.

Do your homework before entering a foreign market. Do not enter any nation without being fully aware of the unique risks and issues presented by that nation. Asses’ political risks and the legal environment as well as the business and competitive environment, and develop strategies to minimize or circumvent these risks. Study the histories of local and international companies in the specific country and industry to gain deeper insight into what your own experience may be like.

 Pay careful attention to exchange rates, including their histories and expected future actions. Utilize the services of local consulting firms specializing in international investment. These firms will have thorough knowledge of the challenges and opportunities presented to international businesses in their specific country.

Partner with local organizations. Much of the risk of uncertainty can be curtailed by cooperating with local organizations to take advantage of their market-specific expertise and local reputation. According to effective cooperation strategies include joint ventures, licensing agreements, and contracts with local suppliers or customers.

Be patient if environmental risk factors are currently unfavorable, and consider pulling out of a market if conditions become extremely adverse. If the business environment becomes unfavorable, do not hesitate to move your operations to a friendlier climate.

Do not place all of your foreign investment in one country. If the business environment in a specific country turns sour, your business can benefit from having an established presence in one or more additional countries. Factory output from a given nation, for example, can be shifted to a factory in a different country, or spread among several factories, if you decide to pull out of the given nation.

            Purchase an international business insurance policy. Insurance policies covering political risk, terrorism risk, global property damage and liability, and international credit transactions are available to companies with exposure to international markets. According to castlerockinternational.com, international coverage for additional issues such as auto insurance, medical expenses, and workers' compensation can be included as well.

Accept only letters of credit from trusted banks. Deal with banks with which your own bank has had positive dealings in the past, if at all possible. If your customer is only willing to use a foreign bank that is unknown to your own, consider requiring a significant initial payment when offering a credit arrangement, or declining the transaction.

To some up, in  obtaining access to an international marketing especially in tourism context the matter of international relation should be consider in international market so that to encourage establishment of different tourism investments such as hotels and tour operators, also to consider the intercultural communication, licensing as well as security among the business partnership.

REFERENCES:

·        Ronkainen, A. & Czinkota, R. (2007). International Marketing. Library of congress cataloging in United State of America.

·        John, D Daniel & Lee,H, Rodebaugh,(2001).International Business (Environment and Operation) 9th Edition

·        Michalel,R & Likka,A. (2004). International Marketing.

·        Janice W. McLean, (1994) Training and development organizations directory.Gale Research Company