Let’s take a look back in our vacation memory and we will see our previous discussion on Global entrepreneurship part one: Doing business across borders. In this article, we saw the fundamentals of doing business across borders, what the influencing factors are and the success factors of the entrepreneurs that dare
Now we will discuss the strategies of going across the border. Now that we have a view of what it means and what it takes, let us give it a try ourselves. In order to successfully enter a foreign market, you should be considering your mode of entry. Once you have chosen to venture beyond borders, you have taken a fundamental strategic decision that will lay out the future of the business (Ellis, 2000; Nisha, 2016).
There are primarily three categorical modes of entry into foreign markets (Nisha, 2016).
In this mode, the strategy is based on exporting to a foreign territory. Which may not include any operations within that market but just the introduction of the product (Nisha, 2016).
This mode is based on setting up actual operations in the foreign market. You will invest in that market (Nisha, 2016). The definition of the subsidiary assumes sufficient ownership to be part of the expanding firm (Nisha, 2016). We are talking mergers and acquisitions (M&A’s) to a degree.
This mode can be represented in various ways however it essentially outlines a form of agreement that will aid you as in the foreign market to achieve the requirements as well as your partner’s requirements (Nisha, 2016).
The models are in no way mutually exclusive and extensively in how they are expressed. They can be done in combination based on market research and immediate opportunities. The selection of the entry strategy is really about opportunity exploitation while avoiding regulatory, financial and operational risks (Nisha, 2016). There are also models that depend purely on the social ties (Ellis, 2000).
There two main things to consider in international business. These two are:
- Which market to enter; and
- How to enter that market (Ahi, Baronchelli, Kuivalainen & Piantoni, 2017).
Which market and how to enter that market can depend on the resources that the firm has in relation to that market and how well those resources can competitively position the firm (Buckley & Casson, 1998). This includes factors from within the firm like:
- Social ties in that market,
- the amount of presence already in that market, and
- the productivity of the entrant etc (Buckley & Casson, 1998).
Other factors are external and based on the market environment:
- nature of the market,
- the rival or competition within that market, and
- regulations etc. (Buckley & Casson, 1998).
We will discuss two priority considerations you should thoroughly articulate and plan out.
The first is the matter of ownership: It is the core of the process. The ownership of assets and skills are its advantage because they allow the firm to differentiate its value proposition and compete in a foreign market (Agarwal & Ramaswami, 1992). So much so that when this is shared with a local partner, it could threaten the long-term sustainability of the firm(Agarwal & Ramaswami, 1992).
Location, location, location: The market is deemed attractive depending on the investments risks as opposed to the potential benefits or gains (Agarwal & Ramaswami, 1992). The risks involve policies; socio-political conditions, limitations in accessing resources and customers etc. The benefits can be the market potential (growth and size) whereby the firm could secure long-term profitability and growth (Agarwal & Ramaswami, 1992).
Practical strategies for
· Exporting is a traditional way of whereby the firm is able to take advantage of production surplus in the domestic country (Nisha, 2016). It entails selling products in another country and slowly over time, expanding this to other countries (Nisha, 2016). This the category of trade.
· Licencing or Franchising allows the firm to take advantage of its know-how and intellectual property by licensing it out to a third party in a different country at a fee (Nisha, 2016).
· Contract Manufacturing and assembly is the right given to manufacturers in another nation to manufacture goods or assembles the product from supplied parts, on behalf of the expanding firm (Nisha, 2016). The goods, however, cannot be distributed by the manufacturer and this model allows the expanding company to without setting up the required manufacturing facilities (Nisha, 2016).
· A joint venture talks about most conditions whereby there is a partnership of shared management and ownership. This is an ideal when the local partner has an established infrastructure network and knowledge of the local market.
· Cross-border acquisitions and mergers are done when the two firms across the borders are operating in a similar market and in a similar fashion. They can then combine their resources in order to improve long-term sustainability (Nisha, 2016)
Reflection and Conclusion
The choice as to which market to enter is based on assessing two things: the conditions of the firm and those of the market (Nisha, 2016). The final decision should be the optimum returns but through the path of least resistance (Ellis, 2000). Therefore the entrepreneur will essentially perform cost-benefit analyses taking into account the advantages of the firm, the market potential, investment risks, contractual risks etc. (Agarwal & Ramaswami, 1992).