International Business - Foreign Market Entry Strategies - Report Writing Assessment Answers

• 1. Executive summary

• 1.1 Topic chosen

Research on foreign market entry strategies

• 1.2 Statement of purpose of the report

The purpose of this report is to present and discuss the findings of our research on strategies that can be used to enter a foreign market

• 1.3 Methods and sources used to research the report

The sources used for this report include peer-reviewed journals and company websites. We also used trade organisation websites in our research.

• 1.4 Summary of main findings

From the research, we discovered several strategies used to enter foreign markets, but we shall present and discuss only four of them. The foreign market entry strategies that we shall present in this report include franchising, partnering, licensing and exporting. We found that all the four strategies can be applied to a wide range of industries.

• 1.5 Main conclusions and recommendations

The main conclusions are that when deciding to venture into a foreign market, a firm must assess the suitability and relevance of the strategy they want to choose. Most of the strategies can work in a variety of situations, but for a company that is entering a foreign market for the first time, licensing is the best option.

• 2. Introduction

• 2.1 Purpose of the report

The aim of this report is to present and discuss the findings of our research on foreign market entry strategies.

• 2.2 Background of the task

The research and the report are part of the course on International Business. The aim of the task is to strengthen our teamwork, cooperation, critical analysis ability as well as report writing and presentation skills.

• 2.3 Limitations of the report

Limitations of the report include the limited scope of the research and our non-scientific approach to the research. The scope of the research covers international trade from a general perspective. Therefore, the suitability of the strategies discussed might not be relevant to a specific firm. If a firm wishes to enter a foreign market, it is recommended that they do a separate research on what strategy can be suitable in the particular trade region they want to venture.

The research also did not follow scientific research methods, but rather, it took a casual approach. It can be seen as an average of the individual findings of the group members. Therefore, the conclusion and recommendations could be biased towards personal opinions. However, we used credible sources to research the information which can assure the integrity of the findings.

• 2.4 Outline of the report

The report's body section presents and discusses the four main findings of the research. We have defined each strategy and explained its advantages and disadvantages separately. At the end of the discussions, we have provided a summary of the discussions, our conclusion and recommendations on the findings.

• 3. FINDINGS

In this section, we shall discuss the four foreign market entry strategies that we found in our research. The findings are general and not particularly suitable or fool proof to any firm wishing to enter a foreign market.

• 3.1 Franchising

• 3.1.1 What it is

From our research, we found that franchising is a way of doing business that entails using a foreign company's business model under an agreement. In this strategy, the franchiser – who is the original business, grants a foreign firm the right to use its trademarks, logos, business processes and intellectual property. The franchiser will usually be a big brand; otherwise, it may not make much sense to the franchisee. It is more popular in fast food businesses than any other type of business (Dant et al. 2013, p. 473). Although it can succeed anywhere in the world, this strategy has been used more widely in the United States than in other global trade region. The global fast food chain McDonald's is a good example of a business that operates using this model. This strategy is popular because it presents some advantages to both the parties in the deal. First, for the franchiser, it presents minimal risks since they do not need to make any capital investments. To the franchisee, they get the advantage of using an established brand which gives them an upper hand especially if they are just beginning business in a competitive market. The brand advantage to a starting business is a huge asset as it helps the business establish a client base as fast.

• 3.1.2 How it works

The contract terms for franchise agreements vary from firm to firm as there are no established regulations that govern them; other than the general international, regional and state laws. However, some features such as a royalty payment and an agreed percentage of the franchised business' sales are common to every franchise agreement. Franchise contracts are time-bound – normally with a maximum period of 30 years. Since the franchised outlet portrays the brand of the original business, the franchiser will be very keen to protect their name. They will normally create a comprehensive agreement that they expect will be strictly adhered to. Stiff penalties for breaking agreement terms are common in such contracts (Salar & Salar 2014, p. 515). It is important to note the risks that can arise from using this strategy to enter a foreign market – the brand's reputation is always at stake. If the franchised unit fails to stick to the original business' standards, it can cause a big mess to the brand. This model also presents the disadvantage of a heavy startup capital as well as continuous remittances to the franchisee.

• 3.2 Licensing

• 3.2.1 What it is

Licensing is a foreign market entry strategy that involves transferring the right to use a company's product to another firm. It can also mean granting a foreign firm the right to manufacture your products for an agreed period of time. It has some similarity with franchising in that both of them involve granting some rights to a foreign firm to use the company's assets. However, there are different since licensing allows the foreign firm to manufacture or use a product, but it does not convert its brand to that of the licensee. It is typically applicable in situations where the foreign firm has a good a good market share of the product or service in question, but lacks the capacity or technology or rights to produce it (Colombo & Filippini 2013, p. 2122). For example, an Australian firm could be producing water purifiers. Then, there is a company in India that specialises in providing home solutions, but they do not have water purifiers in their portfolio. The Australian firm can licence the company in India to manufacture or sell these patented water purifiers as part of the Indian firm's home solution.

This business arrangement obviously presents significant risks to the firm issuing the licence. For example, the licensed firm could damage the reputation of the product by producing products of poorer quality. They can also become competitors if they start selling in markets where the licensing firm has already established presence (Geradin 2013, p. 223). However, it offers the advantage of establishing a base for future investment. When the licence expires, the licensing firm may already have a demand for their products and can easily start operating on their own. It also provides a risk-free extra earning since it is required to make any investment in the licensed firm.

• 3.2.2 How it works

When a firm that produces certain goods or services realises that there is a high demand for similar goods or services in a foreign market, they can approach a relevant business in that host country. It could also be the other way round where the business in the host country identifies a demand of product that they do not produce; then they approach a foreign manufacturer for licensing. As with many other agreements, they are similarly fixed-term contracts. Payment arrangements may differ but they usually involve one-off payments that are a sum of royalties and technical operations fees (Chun-miao, Geng-xin & Hao 2015, p. 5).

• 3.3 Partnering

• 3.3.1 What it is

From our research, we also discovered partnering to be a feasible foreign market entry strategy. Partnering could mean making arrangements with a foreign firm. It could also involve manufacturing agreements where a firm produces its products in a foreign market with the assistance of a local company. Partnerships are normally formed between firms and hardly between a firm and a marketing or trade agent. Most partnerships are also made on the basis of research and development of a topic that is common between the partnering firms. The logic behind this strategy is the high costs of, for example, research that a firm could incur if decides to work alone. This strategy has been widely used in medical and information technology fields than any other industry. Partnering is very useful in venturing into markets where the culture and socio-economic background of the people is significantly different from yours.

• 3.3.2 How it works

Corporate partnering works essentially because of economies of scale and reduced risks (Iossa & Martimot 2015, p. 48). When two firms collaborate in a partnership, they pool together resources that enable them to do research in a field that is expected to enhance the operations of both companies.

• 3.4 Exporting

• 3.4.1 What it is

From our research, we were able to identify two ways in which exports can occur: directly or indirectly. Indirect exporting involves using a local agent to deliver your product overseas. If such is the case, your relationship with the product ends at the hands of the agent. Direct exporting simply involves selling goods or services to a foreign country without using intermediaries. The scope of this discussion is strictly limited to direct exporting. In direct exporting, the firm has control over the sale of its products or services (Yi, Wang & Kafouros 2013, p. 392). Although the exporting firm usually retains its identity, the exported products may sell under varying brands in different countries according marketing decisions made by the firm. For example, Unilever Pty. Ltd. sells deodorant, perfume under the name “Axe” in Africa, but it is exported as “Lynx” for sale in the UK (Unilever global company website, 2016). These are purely marketing decisions that may be informed by the social-cultural background of the market.

Due to the scale of operations involved with exporting, companies will normally work with sales agents in the target countries to reduce operational costs and other risks. In instances where the firm has grown really big, it can establish plants or warehouses which receive imports from the home country and distribute them locally. This foreign market entry strategy has the advantage of control over the marketing and sale of company products (Grosse, Mudd & Cerchiari 2013, p. 409). The firm is able to make its own decisions on with regard to up selling, market diversification or even quality and price of the product. However, this strategy faces some challenges such as high costs of exporting and prohibitive legislations.

• 3.4.2 How it works

If you have a firm and would wish to extend your operations to another country, you can do so by exporting your products to the foreign country. Direct exporting is best done through establishing a warehouse in the foreign country where you will be keeping your inventory before distribution. However, before a firm is well established to operate at that level, you can use agents in that country who buy your products and sell them at their own arrangements. This can set a good background to prepare your entry.

• 4. CONCLUSION AND RECOMMENDATIONS

The purpose of this report was to present and discuss foreign market entry strategies. From our presentation and discussion, we have identified the four approaches that can be taken to enter a foreign market. We have seen that the suitability of a strategy depends on the needs of the firm, the industry in which it operates and its size. We have also established that the most suitable strategy for a company that is entering a foreign market for the first time, licensing is the best option. We therefore recommend that a firm makes an assessment of the above factors before choosing a strategy to enter a foreign market.