#1: What are the factors that influence an organization’s choice of entry mode in a country? Discuss how the chosen model fits with an organization's goals and objectives.
#2: What are the country factors that influence an organization’s decision to enter that country? What is the impact of the culture and geography on the organization’s value-chain activities being relocated to the country?
In your discussions, cite examples when you describe theories from your reading and research. You may use examples from your organization or industry, current or recent newsmakers, or other reliable sources.
Introduction
According to Lamb et al. (2015), there are lots of ways a company can enter a foreign market in today’s globalized world and all the options available have their own risks and rewards. Therefore, for a company to succeed in deciding the best entry mode, the management has to carefully access the long-term vision, goals, internal capabilities, and the foreign market in its entirety, to fully understand the risks and challenges of its international entry strategy. Leeman (2021) defined entry mode as the institutional arrangement by which a firm gets its products, technologies, human skills, or other resources into a market.
1: The factors influencing an organization’s choice of entry mode in a country
When it comes to choosing the entry mode, an organization’s choice is influenced by both external and internal factors. The external factors include target country market, production capacity, and environmental factors. While internal factors include the company’s resources, products, internal processes, and capabilities.
Target country market
Before entering a foreign country, a business would want to know the overall size of the market, the infrastructure, and the availability of buyers (Guenzi & Geiger, 2011). For small markets, the management may decide to enter using less risky modes because of the low sales while for larger markets they may opt for higher risk modes because of the high sales volumes. For instance, the banking industry has a larger sales potential market. therefore banks usually enter new markets by investing in subsidiaries and branches enough to cover a wider geographical area in a country.
Target country production capacity
The factors of production in a foreign country will determine the mode of entry, for instance, the cost, quantity, and quality of land, labor, energy, and other useful economic elements influence the mode of entry.
Target country environmental factors
The choice of entry can be influenced by government policies, regulations, economic benefits, and socio-cultural conditions of the target country. Tax restrictions, tariffs, geographical distance, cultural distance, and other barriers may force a multinational company to have a base in a county instead of exports from one country to another.
How the chosen mode that fits with an organization's goals and objectives.
Exporting
This is an externalized way of establishing a physical presence in a foreign market by direct marketing and selling goods produced in the home country to another country (Kotler et al., 2019). This mode of entry is best for a company with the aims and objectives of not investing in a foreign market, minimizing risk, and testing the market before fully committing. For example, a clothing brand may quickly enter a foreign market and earn short-term benefits by exporting.
Joint Ventures
This entry mode involves a strategic alliance or partnership between parties (from the home country and a foreign country) to contribute resources and share the benefits or any losses. For example Starbucks - a company famous for its coffeehouses and roastery services- first entered the Japanese market through joint ventures like SAZABY INC with the aims and objectives of partnering with companies in Japan that know the culture and the business environment (Strehle & Cruickshank, 2004).
Licensing and Franchising
These involve allowing the foreign company to use intangible properties like copyrighted material, patents, and trademarks in exchange for payments with the objective of obtaining extra income and reaching new markets without risks of capital investments. Coca-cola has entered some markets by licensing and franchising its trademark, brand, and capabilities. The company does this to reach new customers, utilize local economies, and avoid trade barriers (W, 2019).
Internalize / Wholly-Owned Subsidiary
In this last mode of entry, a company completely owns and controls the foreign entry mode to gain the highest possible degree of control by owning and managing both local and foreign country’s value chains (Udroiu & Bere, 2018). This is done by companies with the aim or objective of having full control of the value chain. For example in the motor manufacturing industry, Toyota and Volkswagen enter business-friendly countries by establishing subsidiaries.
Raczkowski and Schneider (2013) explain that there are two primary ways for direct investments: direct acquisition and Greenfield investment. Therefore a company can enter into a foreign market by acquisition – purchasing part or a whole of another company – to establish a presence and combine strengths while mitigating its own weaknesses. Greenfield investment is the establishment of a new wholly-owned subsidiary like building factories and offices from scratch with aim of having full control of the foreign market by eliminating intermediaries. For example, McDonald's and Starbucks are great examples of US firms that have invested in greenfield projects around the world
#2: Country factors that influence an organization’s decision to enter that country
Economic factors
Before an organization decided to enter into a country and commit its resources they have to study the economic factors such as people’s disposal income, currency stability, and the country’s standard of leaving. These are important indicators of the level of risk associated with entering that country. Then the level of competition in that market for the company’s goods and services will also affect the choice of entry.
Social and cultural factors
Even with globalization, Societies and cultural practices still differ in most countries. People still communicate differently, have entirely different customs, and practice different religions. A company might have to change some of its messages or create different marketing mixes before entering a different country.
Political and legal factors
An organization trying to enter into another country should, first of all, understand the legal and regulatory policies, history records towards foreign companies, together with total political attitude towards foreign investments because they greatly influence the decision to enter a new foreign market. The company has to also understand that governments protect local industries in terms of taxes, labor unions, and use of resources. For example, Germany has a social market economy where enterprises are free to operate although there is some legal control from the administration to prevent the bigger enterprises from damaging the interests of smaller enterprises from unfair competition, protection of the environment, and protecting employees.
Target Market factors
The target market potential in terms of potential revenue to be generated, access to the market, and competition in the market contribute to the decision to enter a country. Companies will invest in bigger markets with less competition because they are attracted by the potential to earn more revenues. The competition will determine the entry mode which best suits a foreign market. For example first entrants in the foreign market experience advantages like low competition and consumer loyalty, although they may experience higher entry costs associated with the promotion and physical presence.
The impact of the culture and geography on the organization’s value-chain activities being relocated to the country
Gaps exist between cultures of different countries and the management of an organization’s value chain has to understand all differences to develop the kind of working relationships that lead to acceptance of the organization’s activities being offered abroad. Otherwise, any misunderstandings lead to loss of business contracts, rejections, and loss of money. A company that enters a new market without completely understanding the culture and traditions of its host country usually fails (Udroiu & Bere, 2018)
Ann Murray, a strategic director of a logistics provider once said culture is a learned experience that starts in our childhood, and we have to learn to work with people with different cultures by developing multi-cultural teams to handle business issues across boundaries and making better decisions that can be accepted by others. For example, the Chinese Guanxi culture - a network of personal connections - is embodied in friendship and affection among powerful persons or the government (Kaynak et al., 2013). To be able to deliver more value, an organization has to implement these cultural practices.
Geography
geographical distance, communication, and transportation infrastructure all impact how products are delivered to the target market through the organization’s value chain. For example, According to a 2017 report by PWC, Germany is an EU member state that offers a first-quality manufacturing, energy, and communications infrastructure and state-of-the-art transportation networks that provide quick access to domestic and international markets. As well as a stable and transparent legal environment that provides investors with a secure legal framework and the ability to quickly enforce their rights. On the other hand, there are some remote countries with Inefficient transport and logistics services and together with multiple border crossings requirements making it difficult for logistics to take place.
References
Lamb, C. W., Hair, J. F., & McDaniel, C. (2015). MKTG 9. Cengage Learning.
Leeman, J. (2021). Export Planning: A 10-step approach -2nd edition- (2nd ed.). Books on Demand.
Guenzi, P., & Geiger, S. (2011). Sales Management. Palgrave Macmillan.
Kotler, P. T., Armstrong, G., Harris, L. C., & Hongwei He, P. H. (2019). Principles of Marketing. Pearson Education Limited.
Strehle, P., & Cruickshank, M. (2004). Starbucks. International Business Concept and Starbucks in Germany. Beltz Verlag.
W. (2019). In Good Company: Managing Intellectual Property Issues in Franchising. World Intellectual Property Organization (WIPO).
Udroiu, R., & Bere, P. (2018). Product Lifecycle Management. IntechOpen.
Raczkowski, K., & Schneider, F. (2013). The Economic Security of Business Transactions. Chartridge Books Oxford.
Kaynak, E., Wong, Y. H., & Leung, T. (2013). Guanxi. Taylor & Francis.
PwC Annual Report 2017, pwc.com. https://www.pwc.com/my/en/publications/pwc-annual-report-2017.html
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