The essay helps in analysing the different strategies that is required to be adopted by different organizations for expanding their business in the international market. The different strategic initiatives have to be analysed in an effective manner as this will help in understanding the external and internal growth strategies. The analysis of the foreign market has to be done by the organizations that wants to expand their business internationally. The size of market along with economic growth sales has to be analysed. The entry mode strategies have to be conducted on the basis of the kind of market they want to expand internationally.
The main aim and purpose of the essay is to analyse the importance of the scale and timing of entry. The different advantages and disadvantages of the entry modes has to be analysed as this will help the companies in understanding the best mode of entry to expand globally. There can be different kind of challenges along with benefits that are associated with acquisitions versus Greenfield ventures that has to be analysed effectively. The scale of entry has to be chosen by the organizations as this will help them in planning accordingly for their future growth.
The structure of the essay will include the literature review of the different kind of strategic initiatives that has to be undertaken by the organizations. The different analysis of the entry mode strategies is required to be done as this will help in understanding the best suitable modes to expand their business globally with implementation of strategic alliances(Markman and Waldron 2014).
Criteria used by firms for international growth
There are different criteria that has to be undertaken by different firms that will help them in growing internationally. The companies need to understand the size of market wherein they will be expanding the market along with growth rate of the economies. The future wealth of the consumers has to be kept in mind as this will help the companies in increasing their competitive advantage in such areas(Grant 2016). The different model analysis can be done by the firms as to understand the growth of the firms in specific markets(West, Ford and Ibrahim 2015).
For instance- Amazon.com has selected the Porter’s Five Forces Model wherein the company proves to be completely competitive in nature than the other competitors. The respective company uses the intensive strategies wherein they develop their products for growth of product in an effective manner. Amazon has expanded their business in the different countries wherein they can use the different alternatives as this has helped them in diversification of the existing products in a unique manner.
Importance of timing and scale of entry for firms
The timing of the entry for the different firms has to be analysed in an effective manner as this will help them in increasing their business. The loyalty of the customers along with the condition of the market has to be analysed by them. The firms need to decide whether they should wait to check whether the other firms are gaining some profit from entering into the market or not(Vedel and Servais 2017). For instance- Flipkart has tried to expand their business in different countries after understanding the strategies used by Amazon in expanding their business globally. The different importance of the time to entry has to be considered by the firms to understand the strategies along with models.
The entry mode decisions are based on internal factors and external factors wherein the desired factors have to be analysed in an effective manner. The complexity of the product has to be analysed to understand the transaction costs along with the socio-cultural and size and growth of the market. With the help of Hollensen’s Model, it helps in increasing internationalization and this will help in differentiation of the product(Hill, Jonesand Schilling 2014). The organizations need to understand the different size of the firms in the country wherein it wants to settle the business as this will help them in gaining international experience. The desired characteristics have to be analyzed effectively as this will help the company in solving the complexity regarding product and differentiation in the product as well in comparison to the competitors in the market.
The Hollensen’s model can be adopted by companies as this will help them in providing the different kind of barriers of trade and different kind of uncertainties involved in the business that will be set up globally. The entire issues and other problems can be seen in the diagram below:
Figure 1: Hollensen’s Model
(Source:Suarez, Grodal and Gotsopoulos 2015)
Furthermore, the scale of entry is another essential factor that has to be considered effectively as this will help the company in understanding the large and small-scale entry strategies for entering into the market in an effective manner. The Johnson’s model of international market entry wherein this will help in gaining competitive advantage in the competitive market. The company needs to understand the different techniques that needs to be analysed as to understand the sustainability of the market and the market suitability. The competitive position will be gained in such a manner that will help the company to initiate the strategic initiatives for the global growth (Suarez, Grodal and Gotsopoulos 2015).
The scale of entry modes has to be understood that will help the firms that wants to gain competitive advantage in an effective manner with the adoption of the different entry modes that will help in increasing their potential for the growth in future. The firm needs to understand the different techniques that will help them in understanding whether it will be suitable to enter the small or large-scale entry based on the specifications of the products and services that will be sold by them(Gerr et al. 2014). The companies to select the entry mode based on the different culture and systems of the country wherein the company needs to spread the business and this will help in maintaining the different initiatives in an effective manner.
Figure 2: Johnson’s Model of International Market Entry
(Source: Gerr et al. 2014)
Types of entry modes and best option suitable for global expansion
Direct exporting refers to the process of shipping the good from the manufacturing facility in the home country of the organization to the host country (Durmaz and Tasdemir 2014). In this case, the organization is not having any facilities in the host market; rather they are just transporting the goods according to the demand in the host market.
Franchising is the process of granting the license to the third party vendors who will be responsible to run the business in the host country. The mother organization will not have their direct presence but they will be driven by the franchisee (Nijmeijer, Fabbricotti and Huijsman 2014). In exchange of the license, franchisee will have to pay a certain royalty to the franchisor.
Joint venture is the agreement between the two companies to form a single entity in the target market. In majority of the cases, global firms went for joint venture with another domestic firm of the target market in order to create the separate entity.
Direct investment refers to the core form of the foreign investment. According to this entry mode, organization invests directly and fully in the foreign market and has own operational facilities in the foreign market (Blonigen and Piger 2014).
Acquisitions refer to the concept of acquiring another domestic or local firm in the target market in setting up the operational facilities (Bena and Li 2014). Investment is being made but it is made to acquire the domestic firm rather than setting up the facilities from the scratch.
Contract manufacturing refers to the shifting of the manufacturing facilities or outsourcing the manufacturing facilities to the third party in other countries in order to reduce the cost of production (Hsiao and Chen 2013).
Criteria for making global expansion and rationale behind it
The different entry modes that has been discussed have to be analysed by the different firms in order to expand their business globally. The companies need to understand the different and best entry mode that will help the company in expanding their business globally. The different entry modes have to be analyzed effectively as there are different kind of advantages and disadvantages in different entry modes (Lee 2013).
For instance- Amazon and Flipkart sell their products directly to the customers and there are no franchises in the entire world as well. The companies need to check whether the entry modes that is selected by them is profitable in nature and whether that is helping them in generating revenues in an effective manner (Fernandez-Olmos and Diez-Vial 2014). Amazon has direct selling technique that has full operational control and they sell their products in an effective manner (Lee et al. 2015). However, there are different companies that have franchise in different countries and they gain profit and commission accordingly. From the different examples, it can be analyzed that the companies need to check the different techniques that can be applied by the companies in an effectual manner (Mathur and Singh 2013). Similarly, when a company feels that it is not being able to run properly in an effective manner, then the company can opt for acquisition wherein the other company can take over this company and this will help them in running the business in an effective manner as well.
The main rationale behind choosing the criteria by the different firms is that they need to understand the different issues in different kind of entry modes. The companies need to focus more on the international market entry mode strategies as that will help them in providing more focus on the loopholes and advantages of each of the criteria effectively.
Linkage of Five Forces Model with Entry Modes
The entry modes that will be chosen by the companies can be linked with the Five Forces Analysis Model of Porter wherein the companies that are planning to settle in different companies and expand their business globally with the help of appropriate entry mode strategy, it has to analyze the different bargaining power of the suppliers along with analyzing the impact of the substitute products in an effective manner. The companies need to analyze their threats from the existing competitors in the market with strategic analysis of the competitors in the competitive market (Creusen and Lejour 2013).
However, there are different kinds of limitations of different kind of entry modes that can have huge effect on the business in the future. For instance- it can be seen in the present scenario, there are few companies that are not performing well, if such companies follow direct investment, this will hugely affect the company in a negative manner (Chang, Chung and Moon 2013). Furthermore, the companies such as Flipkart and Amazon are the ones that are performing well in direct investment and the franchise option can be difficult for them as the company wants to sell their offerings on their own in the competitive market (Lopez-Duarte and Vidal-Suarez 2013).
Lastly, the porter’s five forces model has to be analyzed effectively in linkage with entry modes as this will help in analyzing the five forces that will affect the business in an effective manner. The companies have to plan strategically as this will help them in planning strategically to plan for their future to gain competitive advantage.
Benefits of strategic alliances
Strategic alliance between the Starbucks and United Airlines helped in offering their coffee in the flight. Moreover, it also helped United Airlines in enhancing their service quality by offering Starbucks coffee.
Challenges in strategic alliances
In the case of strategic alliances also, the profit will be shared between the two companies. Thus, companies will find it difficult in enhancing their revenue generation by sharing the profit. Another challenge to be faced by the companies in the strategic alliances is the negative branding of the strategic partner. For instance, if Starbuck is gathering negative impression in the market for some reasons, then it will also affect the business potentiality of the United Airlines also. Therefore, the business potential will get determined by other brands in the case of the strategic alliances.
Therefore, it can be concluded that there are different kind of strategic initiatives that has to be undertaken by the companies in order to expand their business in the global market. The companies need to decide the strategies that will be suitable for the growth of the firm in an effective manner as this will help them in growing in the foreign market in an effective manner. The different models can be used by the firms as this will help in solving the different issues that are faced by them and solve the issues with implementation of different kind of strategies. The participation strategies have to be analysed in an effective manner as this will help the companies in gaining competitive advantage in an effectual manner.
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