Company Entry Modes Into New Markets: Challenges And Strategies

Discuss about the Company Entry Modes Into New Markets.

A firm entering a new market is faced with many challenges from the onset of entry. These problems could affect the successful entry into the market and often derail the whole project. To counter this and ensure success, firms employ different entry modes to ensure their products actually get into the market. These entry modes are customized to tackle the different issues that the firms face and actively eliminate them. This paper seeks to explain the way in which these firms address the challenges they face when entering into foreign markets by applying the most suitable entry mode. There shall also be an illustration of some firms and how they applied the several entry modes to successfully get into markets.

There are many different modes of entry that a company can apply to enter into a foreign market. These are essential matters and considerations when a firm wants to enter into a new market. Such markets require a firm to meet some requirements that may often beyond reach for the company during that period (Brouthers, & Hennart, 2007). These modes of entry are often dependent on some factors that include tariff rates in the new market, the degree of adaptation for the product required, transportation costs and marketing costs. Firms will, therefore, choose the modes of entry that suit their businesses best and maximize profits.

Every firm that attempts to enter a foreign market will sometimes be faced with the communication challenge. Beside the common differences in language, there can also be a problem when trying to communicate some product to locals in the new market. For instance, some words that are ordinary and used often in English might mean something offensive in a different language (Bell, 1995). This can make the communication or marketing of a certain product or concept be misconstrued to mean something else, therefore, failing it miserably.

This challenge can be handled by employing the franchising mode of entry. This involves selling the franchise rights to a company that is well established in that country to make products under the franchises' name. This will mean the original company doesn’t have to necessarily handle the situation on the ground but gets a one off fee for the franchise rights and royalties as the business progresses. A good example is the MacDonald’s multinational in several countries like china and the greater Asia. There is also Domino’s pizza and Coffee republic that have made successful franchises all over the world.

In some instances, communication can also be hindered by the type of culture in that place. For instance, Americans often want to hurry things along and complete business as early as possible. This isn’t the case in some countries as some cultures insist on building relationships first before handling business (Cui & Jiang, 2009). This means that if a firm concentrates solely on making business and ignores the relationship part the business might not be successful. To counter this challenge, companies can employ the partnering mode of entry. This involves simple methods such as co-partnering with a company to handle the products. In that market to a strong alliance with a local company that will help in the manufacturing process while handling marketing and sales at the same time.

Culture

A good business requires the investor to identify a true market need. The need makes the business viable and determines whether the business will make money or not. In order to achieve this firm that is entering a foreign market can opt to enter into a joint venture with another company that has already been in the market. Joint partnering as a mode of entry involves the coming together of two companies that are in the same business line to create third companies that can address the business at hand (Ahmed, et al., 2002). These two companies agree to share costs and profits from the company that they form before the business begins this will help the company intending to venture into the foreign market to enter successfully as the risks are split between the two firms and the company they tend to merge with already has experience in the market (Davis, et al., 2000).  A good example is a joint venture between Sony and Ericson that created the Sony Ericson phone company. This went on to become a very successful company that made both Sony and Erickson to be international household names around the world.

A firm with a relatively unknown brand will face a lot of challenges in entering a foreign market. With the current trends of internet and movies, there are some brand names that have made a name all over the world. To penetrate such a market would, therefore, require an entry mode that would bank on an already established company or a firm with a well-known product (Evans, et. al., 2000). This challenge can, therefore, be overcome by buying a company as the choice market entry strategy. Buying of a company is done by identifying a company that is well known in the country or locality that a firm has targeted to enter. The firm then buys off the company in terms of shares or as a whole (Erramilli & Rao, 1993). This offers the incoming company the benefits of a well-established market and customer base and the advantages of being a local firm. A good example is when the Microsoft Company bought off the Nokia Company and slowly diluted it finally fading it off and taking up the customer base.

To make a proper entry into a new market often requires having good partners. These partners have to be local entrepreneurs of firms that already know the market and can successfully assist the new entrant to get into the market. They can also provide vital information on the market dynamics and the geographical demarcations of the area of operation as well as legislation advice in their locality (Peng, et. al., 2008).  They can also assist in hiring the locals to work in the company in order to promote it. It is, however, challenging to find such partners especially when new to the area. This challenge can be handled by employing turnkey projects as a mode of entry.

Turnkey projects involve building a facility from the ground and then turning it over to the client when it is complete and ready to be used. This is often applied in in construction, engineering, and architectural services (Robinson, 1988). The client is often a government or a strong multinational. This often means that there is a minimal risk as the project is often funded by an international financial institution such as the World Bank. There is, therefore, minimal chance for there to be no payment. Toyotas car plant in Adapazari, turkey is a good example of a turnkey project

Identification of a True Market Need

The most common entry method of entry into a foreign market, however, is direct exporting. This involves the shipping of products directly to the clients in the new market through exporting (Ramaswamy, et al., 1993).  Many companies around the world employ this method of entry by employing agents to represent them in the countries that they are to sell their products. These sales agents represent the interests of the company in the locality and are the face of the company (Root, 1994). This mode of entry cuts back on a lot of expenses that would be incurred when a company begins the whole process of building facilities and creating the market from scratch.

To handle such issues like political unrest and uncertainties in market’s, some companies choose to apply piggy banking as a mode of entry into foreign markets (Wright, et al., 2005). Piggy banking involves adding a firm’s products and services on the product portfolio of a company that is already established in the prospective market. It, therefore, means that a firm’s product will be marketed in the foreign market under the banner of the company that is already established there. This makes for very few risks and minimal costs for the firm as it is under the protection of the bigger one (Zahra, 2005). This makes the firm good profits as they have a market both in the locality where they operate in and abroad where the bigger company is handling their sales.

There are some firms that opt to go into markets directly without applying any form of partnerships. This is the riskiest and most financially involving the mode of all and it is called. It basically entails getting directly into the market building everything from ground up. It usually takes up a lot of financial investment and the risk of failure is high. This is because the firm is not sure of the available government regulations, transportation costs, and availability of skilled labor or access to the necessary technology.

Any firm that is entering into a new market must, therefore, consider the best entry mode that suits its needs and covers the areas of risk properly. The application of a proper mode of entry will ensure the successful entry of a firm into a foreign market and its progressive achievement of its goals.

References

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