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Identify and critically discuss different market entry strategies.

You should cite

relevant examples within your answer. You should use your knowledge gained

from your lecture, readings and beyond.

The key to successfully entering new foreign markets is choosing the market entry

strategies. There are plenty of ways to enter a market, and there are no strategies

which work for every type of markets. In addition, the most appropriate strategy just

can be identified after referring to many relevant factors which affect the economic

environment. According to Lana (2008), the elements determining the natures of the

environment include cost factors, legal factors, consumers or trade situation,

besides, there are many aspects such as location nature, timing, logistic, HRM, etc.

New foreign market entry is a chance for companies to expand their business, so the

question for the situation is should they expand their business and how. In details,

there are many opportunities from a direct investment such as direct exporting to

indirect ways as well as franchising or joint venture method.

Export is the most common method used by the organization to enter a new region

market. Carter (1997) described this traditional strategy as ‘the marketing of goods

produced in one country into another’, which mean the goods and/or service are

produced in the domestic market or in any other country before be delivering to host

markets. The export strategy considered as fast entry, it lets MNCs enter many

markets at the same time with the low capital investment required. In addition, there

are 2 types of export mode, which is direct export and indirect export. Furthermore,

Fernández‐Olmos and Díez‐Vial (2014) described the difference between exporting

directly and exporting indirectly is the responsibility of undertaking deliver product

and/or service taken by which firm to the importing firm based on the contractual

agreement between them.

On the one hand, direct export is a non-FDI entry strategy, which means sale

activities can be made directly between companies to end-users, or through sales

representatives, the business further in that market without taking ownership. Thus, it

is easier for organizations to adjust their plan or their strategies. Meanwhile, the

direct export method requires more negotiations and contracts, because the branch

firm has to directly handle business activities such as ‘documentation, physical

delivery, and pricing policies, with the product being sold to agents and distributors’

(Akande and Khadka, 2018). The MNCs applying direct export mode can use a

distributor, subordinate enterprise, or act via a Government agency. For example, in

1997, the Grain Marketing Board in Zimbabwe had been commercialized but still had

been controlled from a Government agency. Besides, the other agencies such as

Horticultural Crops Development Authority (HCDA) is a ‘promotional body, dealing

with advertising, information flows and so on, or it may be active in exporting itself,

particularly giving approval to all export documents’ (Carter, 1997).

On the other hand, if a company with a little or no experience in the business foreign

market, indirect exporting sensible option for the first time entering a new market.

Because the export activities would be taken care of by intermediaries which might

be knowledgeable about the countries. For instance, the enterprises which are small

or medium do not own enough ability to afford to operate their business in another

market, then they have to approach their overseas customers aid on indirect exports

method (Peng and Meyer, 2016). To be more specific, with exporting indirectly

mode, producers do not face directly with the marker, the challenging in socio-

cultural conditions (Glowik, 2016). For instance, the winery factory choosing the

indirect export strategy would have a little or even no administer on the wine market.

This responsibility would belong to the intermediate who buying the wine, or the
specialist for the wineries who are also wholesaler in the host market (Fernández‐

Olmos and Díez‐Vial, 2014).

Otherwise, to enter the new foreign country, there is a strategy called franchising

which is also non-FDI method as well as export way. Moreover, the franchising

model and licensing model are considered alike, but in franchising strategy, the host

firm must cover more aspect than just provide product, service or trademark (Peng

and Meyer, 2016). To be more specific, the franchise strategy divided into 2 forms by

Akande and Khadka (2018) which is Product and trade name franchising and

Business format “package” franchising. In detail, in the first case, the franchising

mode sells to another party in the foreign market the right to use the company brand

name and reputation and commercialize goods and/or services under that brand

(Akande and Khadka, 2018). Toyota, Pepsi or Shell are the brands applying the

product and trade name franchising in their business. On the other hand, the

Business format “package” franchising the franchisor gives intangible property such

as the business plan and the format of operation, provided intangible property such

as ‘trademark, copyrights, designs, and patents’ (Akande and Khadka, 2018). This

market entry format is usually applied by the fast food companies, for instance,

McDonald’s and Dunkin Donuts. There is a popular franchise market in Asia, which

is Indonesia according to Porral and Dopico research (2011), especially in the luxury

fashion industry

However, the franchisee applying the host company system and marketing

campaigns just for a concrete period of time depending on the contract between

parties and has to execute specified conditions. Moreover, franchising strategy has

its own advantages and also some disadvantages. Firstly, cooperating with

franchisees in other areas gives MNCs opportunities to branding their company

name to more customer. This is the positive effect, but also the necessary condition

for the enterprise in decision whether or not become international. Salar and Salar

(2014) said that branding recognition forceful component in entering foreign markets

and having franchisees requires the perspective of the customer about the existence

of the company brand. Secondly, cooperating with the other parties help MNCs who

are more similar to the local market and customer behavior. Then exploiting their

knowledge about the local market, cultural sensitivity and also ability in doing

business from the other parties helps it is easier to penetrate the local market

(Glowik, 2016). Thirdly, because franchising method is considered as the low failure

rate so it is easy to find financial support from banks and either alike organizations

(Salar and Salar, 2014)

Additionally, before applying the franchising model, MNCs should also consider its

drawbacks. Initially, the relationship between franchisor and franchisee might be

damaged during the doing business process. Because these parties are dependent

on each other, the franchiser has to continuous support the other party although the

incunabula already over or the property already transferred (Global Victoria, n.d.).

And also the franchisers have to follow their franchisees ‘because franchisees want

to convert their investments to the profit and franchisor wants to be a part of the

profit’ (Salar and Salar, 2014). For that reason, the conflict between parties easily

occurs when the business objects are missed or dispute in the target or profit,

committee (Glowik, 2016). In other respects, Holmes (2003) commented that the

cost of preparing the agreement, Uniform Franchise Offering Circulars (UFOCs) and

the related document would require noticeable spending. Furthermore, there are

different cost barrels in different states making the situation become more

Otherwise, to enter a foreign market, there is a strategy called joint venture, which

had been applied by many big brands like Sony, Samsung, etc. In details, the joint

venture strategy means a company partners up with one or more other parties to

create a third independently company (Peng and Meyer, 2016). Besides, joint

venture considered as a strategy which is flexible in growth and low capital

demanding (Hendrikse et al., 2008). In addition, this method is appreciated as a

popular strategy because of its nature (Chang et al., 2015), has its own benefits and

drawbacks. The first advantage in the business process is the profit, cost and also

risk are shared between parties, so the risk in investment financial is also reduced

for each enterprise (Peng and Meyer, 2016). Furthermore, because of the partners

up with local parties helping the home company has the opportunity to exploit the

local partner’s infrastructure and also their experience in the market (Akande and

Khadka, 2018). And also, according to Akande and Khadka, joint venture strategy

allows home companies to approach the international distribution network of the

local they cooperate with, helping to have the greatest productivity and reduce cost.

In other respects, applying the joint venture mode requires the enterprise and the

other independent parties must own a certain level of technology. Therefore, it

becomes a barrier in many countries, for instance, the joint venture strategy is rarely

applied in China during 2009 period by mobile companies, because of the lack of

technical equipment and experts (Chen, 2009).

In conclusion, every type of market entry strategy has its own upside and downside.

To choose the most appropriate method, the enterprises must consider their

business scale, their capacity, the industry nature, the situation in the foreign market,

timing and speed, etc. Similarly, Peng and Meyer (2016) said that before deciding to

become international firms should match the many factors of the approaching new
market with their business objects. In addition, if the MNCs are not confident in their

ability, they shall consider following the indirect approaching by partner up which

another local enterprise to use their resource and lower risk and operating cost.

However, the direct approaching method such as direct export creates a great

chance to branding their companies name, and keep profit intact although the cost

would be higher and also risky for them self.

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