Case Study Market Entry Modes Marketing Essay

Case Study commercialize Entry fashions Marketing Essay groundingOne of the larger-than-lifegest realities of our lives is the occurrence that we ar alive in a ground were the walls of our homes, virtually, no long-run exist. We live in an open, interdependent and interconnected world, where living in isolation and maintaining privacy is no longer possible. Globalization, lifting of trade barriers, rotation in information technology and m all an opposite(prenominal) factors has brought mass adjacent than ever in the history before. Quite reasonably, globalization had a vast impact at the corporate world as well. Even if companies want, they fuelnot incorporate themselves into their domestic food securities industrys since the desire to grow and grow constantly render do them obsessed with international expansions. Consider these examples. Exxon Mobil is an American degraded, which receives more than 75 contribution of their yearly r regularues from operations in symmetricalness of the world. Finnish employees no longer form the majority at Nokias head quarter, which is a Fin get d experience based corporation surprisingly, employees from China and India dominate the numbers. Honda, a Japanese automobile maker, has its biggest production full treatment in Ohio. 3M would lose more than 53% of its revenues if the American governance asks them to trap their operations within the United States (Johnson Turner, 2009). ford would find itself in big trouble if at that place were some disturbance in America-Brazil relations beca function Ford manufactures nigh of its cars in Brazil. BMW like a shotly finds itself affected with any changes in the parsimoniousness of South Africa or India because of the presence of its manufacturing plants there. McDonalds earns 63 percent of its income from operations outdoors the United States of America (David, 2010). on that pointfore, the point here is more and more companies, e realday, be trying to step-up their scope of operations in legal injury of geographical marts. However, in the process of expanding globally, one of the more or less important decisions that unwaveringlys have to assure is deciding on the foodstuff accession regularity. Quite reasonably, deciding on the market founding mode is important because it is the base on which consist of the operations would be conducted throughout the life of that expansion. Since there are variable directs of authority, risk, involvement, nature of competition, decoratement and market costs, speed of entry and pro outburst electromotive force in each option, therefore, the decision for the equal has to be made afterward great thought, decision, analysis, market research and debate.This paper is an attempt to explore, analyze and establish these polar modes of entries in contradictory markets, looking at their profits and disadvantages and opera hat fit situations. The remaining portion of the paper wou ld try to bring the previously mentioned concepts in pract rubbish by shedding some light on the best-fit market entry mode for an automobile firm in Czech republic.Market Entry ModesEven a glance at the literature gettable on international marketing and specifically market entry modes and strategies would key out that there are differences between authors and management experts on how they group these modes and strategies. Furthermore, as the time passes and market place becomes more competitive, firms are trying to use new, complex and innovative entry strategies. However, important here to personal credit line is that the to a lower placelying head or the basic concept is the identical. Therefore, in light of the most of the material present on this topic, market entry modes can slackly be grouped into four categories, which are trade, licensing/franchising, adjunction adventures/ strategical alliances and all-encompassing birthership/direct entry (Onkvisit Shaw, 2008). tradeOne of the oldest, well-established and traditional forms of entry in any unconnected market is through trade. According to its definition, exporting is the process of selling goods and services flummoxd in one state to divers(a) other countries. As mentioned earlier, there are umpteen right smarts in which marketers divide and classify exporting mode. One-way of doing the analogous is classifying it as nonchalant exporting and active exporting. Occasional exporting is a passive way of exporting with low take of involvement in the process. The company decides to export from time to time, when needed, demanded or whenever, it appears feasible to the company. However, with active exporting the company actively engages in the process and scoops on the responsibility to export throughout the year. However, a more acceptable and superior way of classifying them is in groups of direct exporting and indirect exporting (Johnson Turner, 2009).Indirect ExportingAmong st all the possible market entry modes, indirect exporting is the way that offers minimal risk, minimal level of involvement, however, at the same time, the shines or profit potential too trunk low. Most companies that would want to entry in the market in any form would initially test the waters with indirect exporting. The whole idea of indirect exporting is to sell goods with intermediaries in between which can take the responsibility of dealing with the company and the rest of people. For example, domestic based export merchants, who buy the products of the company and prehend the responsibility of taking care of the rest of the deal. Domestic based export agents try to deal with foreign purchases and in counter, they are paid a commission. Cooperative organizations, which are usually under public sector, governmental or administrative control would deal with foreign purchasers on behalf of many a(prenominal) exporters. Lastly, there are export management companies as well which would manage the companys exports in retrogress for a fee or a small share in the profits (Onkvisit Shaw, 2008). reign ExportingOnce they have gained experience, many firms try to jump into the arena of direct exporting by eliminating all the intermediaries and dealing directly with the final purchasers. disrespect the fact that exporting in general, is the last-place risk, lowest control and lowest involvement option available in all strategies, yet relatively with indirect exporting, it increases the risk, control and involvement. Companies are now own their own to transform their purchases, contact them, negotiate with them, understand their culture and needs, unsaid and unheard signals and others. Companies whitethorn end up mistakes in the same if they do not have the expertise, knowledge and experience however, it is tempting because careful execution may increase the profit potential. Firms may also have to develop an overseas sales force, travelling export sales representatives, overseas sales branch or subsidiary, foreign-based distributors or agents, set of international contacts or an export department but to look after the exports of the company (Johnson Turner, 2009).Contractual ModeWhen firms try to assume more responsibility, want to take higher(prenominal) risks and control in return for high returns they try to unload into contractual agreements with others for their entry in the foreign market. Since comparatively with all other methods, the responsibility is low, therefore, it is also regarded another troublefree and simplistic method. Following are dissimilar variations of the contractual mode (Hollensen, 2009).LicensingThe licensor simply issues a license to a foreign company so that the company can gain access or use the selling rights of the product, trademark, patent, trade secret, and manufacturing process. The same is done in exchange of a fixed fee, certain percentage of profit margin, or royalty. It aims at creatin g a win-win situation for both the companions since the licensor gains entry in the market for a very unretentive risk and level of involvement and the licensee gains the rights to use or sell the product for a little fee.Management ContractsFirms like Hyatt and Marriot sell management contracts to foreign hotel owners to run their hotels in the name of their companys brand for a fee. In fact, the company may even assure to buy some stake in the assets of the foreign hotels as well (David, 2010).Contract ManufacturingAs the name suggests, when exporting seems to be an dearly-won option, the company would hire a local manufacturer and ask him to startle the production on behalf of the company.FranchisingAnother very common form of contractual agreements is franchising. For example, KFC has franchised its operations in Pakistan to a Dubai based company name Cupola that runs its businesses in Pakistan in exchange for a share in the profits. KFC has offered Cupola concluded control over using the brand, inventories, and raw materials and in return, Cupola is taking the responsibility of operating(a) all the franchises (Johnson Turner, 2009). However, in case of an incompetent franchisee or licensee, the company may find damage and destruction to its brand name. Furthermore, if appropriate legal wrong and conditions are not defined, whence the contractual partner may break through as a competitor either in the domestic market of the company or, when the company decides to end the contract and enter in the market by itself. Furthermore, important here to note is that contractual agreements are the best way when the company is looking for comprising on their profit margins in return on low level of hassle, control, involvement and investment (Cateora Graham, 2007).Joint Ventures / Strategic AlliancesConsider these examples. Ready to drink tea and coffee, which is currently being interchange in huge inwardnesss in Japan, is a result of collapset venture b etween Nestle and Coca Cola. In order to become a dim ant force in selling baby diapers in Italy and United Kingdom, Procter Gamble and Fater, which are rivals in the rest of the world, decided to join their hands and work together. When Unilever wanted to enter in the Chinese ice cream market, it has no choice but to work together with Sumstar, a public sector Chinese company (Shenkar Luo, 2008). As evident from these examples, many players in the international market would use the method of occasion ventures in order to operate in different markets. There are several(a) reasons for the same. First, for many countries, joint venture may be the only mode of entry. Second, the company might lack the financial, intellectual, physical, managerial or other resources to start out the venture all alone. Third, merger of two firms may offer them the line up to put out as the market leader in that market (Lymbersky, 2008).However, there are many problems with joint ventures at the sa me time, which need to be addressed in order to make sure that the ventures are successful. First, firms often find themselves fighting over the use of retained earnings, a partner may believe it should be reinvested, other may think that it should be used to pay more dividends. Second, cultural problems always arise when firms from different cultures are trying to work together. Pre-requisite knowledge most other cultures is extremely important. Third, the partners may not be able to trust each other in terms of using and sharing important internal information. Fourth, problems also arise when a partner tries to end the joint venture since terms of the same have not been decided yet. Fifth, partners always try to condition that their own competitive, bargaining and negotiative position could be strengthened, at times by putting the joint venture at stake.It is also important to note that as compared to the modes of exporting and contracts, joint ventures allow the firm to exerc ise greater control, earn more profits in return for more risk, higher investment and higher level of involvement (Czinkota, et.al., 2010).Full AcquisitionLastly, the most way, which offers the maximal possible control, maximum profit potential, maximum level of involvement, requires maximum investment and which is the most risky is full direct acquisition. Quite clearly, the firm decides not to merge or collaborate with anyone or accept any intermediaries in between but to do it on your very own. There are various modes of entering any market directly. A firm may decide to buy and set up his very own new planet, right from scratch. It is also known as green discipline investment. The way would be in which the firm may decide to pull ahead the resources, name and operations of any existing company in the market. Direct investment is a decision taken in situations when the market appears to be big enough to offer advantages of economies of scale, government and other stake consecr ateers are very friendly, the market is huge enough that saturating point would come after many years and until then the profit potential or the ROI is high or the company is sure that it has or it would be able to have to good, genial and friendly image in the realm. Again, important here is to note the fact that high returns which this mode of entry offers is only and only in return of the high risk that the mode incorporates (Wagner, 2009).Example of Czech democracyAs mentioned in the introductory phase of the paper, that now the paper would use the Czech Republics self-propelled industry as an example to apply the concepts presented above.Czech Republic and its Automotive IndustrySurrounded by Po go through, Germany, Slovakia and Austria, Czech Republic is land locked country located in the central Europe. The country came into being in 1993 and since then it has been a member of NATO, OCED and EU. With high incomes, gross domestic product per Capita, stable economic growth and overall better economic outlook, Czech Republic is a developed country, which has attracted many investors over the years (OCED, 2010).The automotive industry of Czech Republic is one of the most important sectors of the Czech preservation where it has witnessed a lot of foreign investment. expertly advance foot, high incomes, stable parsimoniousness and changing consumer preferences guesss that the industry offers some serious prospects fro growth. Currently Skoda is tether the automotive industry of Czech Republic (Pavlnek, 2008).Best Entry Mode and JustificationsPolitical and Legal Factors It is mainly due to favorable political-legal macro environmental factors that it joint ventures appear to be more feasible as compared to licensing or exporting. Firstly, the government of Czech Republic is extremely enthusiastic and serious roughly increasing and encouraging foreign investors to enter the Czech market and invest in it. Therefore, the government offers various inc entives, which include corporate income tax relief, melody creation grants, training grants, transfer of land on discounted rates, discounts of purchasing land for businesses and others. Secondly, the government is taking all possible steps for improving the infrastructure in the country, which will further increase the demand for automobiles in the country. Third, the government of Czech Republic is also considering adopting Euro by the 2013-2014 (OCED, 2010).Economic Factors Czech Republic is high-income country and one of most developed and industrialized countries of European Union. invariable Economy, healthy inflation rates and ranks 26th in the world in terms of GDP per capita, Czech Republic has a strong banking system. Furthermore, it has been graded high on the factor ease of doing business. Despite the fact the economy shrinked due to the current crisis with negative GDP growth rates, but the country has plans for even more aggressive growth as the economy recovers in order to make up for the lost growth in the recession. Therefore, the country offers many prospects of growth (OCED, 2010).Social Factors Unlike other European countries, 71 percent of the Czech Population is the age bracket of 15-64 years. Since these are the people who are the prospective buyers of automobiles, there are chances of extensive growth (OCED, 2010).Technological Factors Czech Republic has been ranked as the 4th country in world in terms of attractiveness for automotive research. Furthermore, the country has a huge pool of skilled labour, both in managerial and adept fields. The country has high level of IT spending which is around 3.2 percent of the GDP when the EU average is around 2.72 percent (Czinkota, et.al., 2010).Rivalry -Another reason for the same is due to high rivalry amongst the current players in the industry. Players like Skoda, Fait, Toyota, Ford, Citron, Renault and others are almost balanced with each other, which fuels the rivalry. However, if a competitor of considerable, even prevail financial and technological strength decides to enter with a joint venture, then it would disturb this balance of the industry by making the partnership emerge as the biggest firm of the industry. Quite understandably, the same would help in decrease the threat of rivalry in the market (Czech Invest, 2009).Economies of Scale Without any doubts, automotive industry is one those where historically, firms have always tried to rake advantage of economies of scale by large-scale production. However, presence of many players and their own different production houses means that none of the player has been able to take complete advantage of it. However, with a joint venture, both the companies would be able to produce together and produce more, thus reaping the benefits of economies of scale (Pavlnek, 2008).Cost of entry unveiling in any automotive industry of the world requires considerable amount of investments as compared to many other industr ies. Moreover, with increasing investment, increases the overall risk in operations as well. Therefore, it is advisable to get to establish partnership with other firms so that the cost of entry could be reduced and at the same time, substantial level of control over the operations could be gained as well (Czech Invest, 2009).Access to scattering channels Distribution channels hold immense importance for any industry, however, for automotive industry marketing and distribution channels are of above average importance. Customers are greatly influenced by the distributors, therefore, access and partnerships with them is really important. However, presence of well-established existing players means that any firm, which tries to enter directly the automotive industry, would have to face a tough time, at least in its initial days, for getting access to the distribution channels. Joint venture with an already established partner in the market would mean that the firm would not have to p ut considerable amount of elan vital in this regard (Pavlnek, 2008).Cultural barriers Quite reasonably, Czech Republic has its own culture, which has not been researched very much since it has been less than two decades since it became an independent country. any(prenominal) new entrant in the market would face cultural barriers, however, with joint venture, the player which is already working in the market and has know about he dynamics of consumer behaviours and market conditions would offer substantial help in overcoming this barrier.