MBM_6104_CAT 2_Deliverable_Lamed.docx submitted for review in partial fullfillment of the coursework assignment
- 1. DEPARTMENT OF MANAGEMENT MBM6109: INDUSTRIAL MARKETING CAT 2 NAME: AHIMBISIBWE LAMED REG No: MBA/3885/13 SCHOOL: MKU, NAIROBI CAMPUS. DATE: 13TH November, 2023 COURSE: MBM6104: INTERNATIONAL MARKETING LECTURER: DR.KLEI Instructions: a) Attempt All Questions b) No related work c) No plagiarism a) Evaluate the different market entry methods available to an international marketer (5 Marks) b) Analyze procedures used to choose the most appropriate market entry strategy (or Strategies) (5 marks) c) What factors encourage standardization of products in international markets? (5 Marks)
- 2. Part A Evaluation of the different market entry methods available to an international marketer Entering an international market as a strategic task that demands the marketer to carefully assess the market environment in the country where they intend to expand their products or services. This demands the understanding critical market information on which country or to expand their operations, when is the best time to enter, and what is the scale of entry into such a market as well as the market entry methods. When the marketer has carefully studied the market environment along these major factors, then there is a high possibility of successfully expanding their products or services to that particular market. In this section, I will focus on the different market entry methods available for the international marketer through which they can enter a new international market. There are several international market entry methods that can be used and these need to be understood carefully by the international marketer since they are the determinants of success or failure in international market penetration. The different International market entry methods include Exporting, Licensing, and Franchising, Joint venture, foreign direct investment, wholly owned subsidiary and Piggybacking. Exporting. Exporting can be defined as the direct sale of goods or services in a foreign market or in another country. Exporting is one of common and well known method of penetrating a foreign market and also known to have the lowest risk involved. It is also not expensive in terms of costs since there is no need for investment in establishment of production facilities in the target country, goods can still be produced in the country of origin and be exported to the target new country or countries market for sale. The major visible factors affecting this method to watch is the ever increasing costs of transportation as well as the risks related to security on the route to the foreign country as well as government policy of the country. (Workspace, 2023) Licensing. With licensing, another company in the target market country uses your property and this property in question is normally intangible. It can include such properties like trademarks, production techniques or patents. The business is done in such a way that the party receiving license (licensee) will have to pay an agreed fee in order to be given the right to use the property. The advantage with this method is that it
- 3. can generate more returns on investment with little costs of investment since the license will also cover other such costs like marketing and manufacturing. (Workspace, 2023) Franchising. In this method. Just as it is in licensing, intellectual property rights are sold to a franchisee. However, the rules guiding how the franchisee carries out business are always very strict. For example, specific components must be used in manufacturing and also certain processes must be followed. (Workspace, 2023). Joint venture. A joint venture is an international market entry method where two companies establish a jointly-owned business. In this jointly-owned business, one company will be a local business and local to the foreign market while the other one will be a new company from another country. They will provide the new business with a management team which will be jointly supervised and controlled and they will share the overall control of the joint venture. The major benefits of joint venture is that it allows the marketer to benefit from the local company knowledge of a foreign market and allows for sharing costs. There are some bottlenecks as well especially challenges in deciding who invests what and how to split profits and these can affect the business if not well managed.(Workspace,2023). Foreign direct investment (FDI). This method involves directly investing in facilities in a foreign market or foreign country. This method is associated with huge costs and need for a lot of capital to cover costs for premises, technology and staffing. It can be done by acquiring an existing company or establishing a new venture. (Workspace, 2023). Wholly owned subsidiary (WOS). A wholly owned subsidiary (WOS) is somehow similar to foreign direct investment. This is because money goes into a foreign company in another target country but money is not invested into another company but rather that foreign company is bought outright. After buying the company, the owners are at liberty to decide whether the company will continue operating as before or they take more control of the WOS and make needed adjustments in form of adaptation or standardization to fir their own required company profile. (Workspace, 2023). Piggybacking. With Piggybacking method, two non-competing companies come together to start working together to cross-sell each other’s products or services in their home country. Piggybacking is a low-risk method and it involves little capital. This method requires very high level of trust between companies and also the risk of allowing a foreign company to determine how your products or services will be marketed and
- 4. distributed and therefore there are some companies that will not be comfortable with this method. (Workspace, 2023). Greenfield investments. Greenfield investments involve buying the land and resources to build a facility internationally and hiring a staff to run it as an independent business facility. These investments can subject a company to high costs and risks but they enable firms to catch up with compliance standards to comply with government regulations in a new market. These kind of entry strategies benefit large and already established organizations and companies as opposed to new enterprises. (Indeed, 2023) Turnkey projects. Turnkey projects apply mostly to companies that plan, develop and construct new buildings for their clients. The terminology "turnkey" refers to the idea that the client can simply turn a key in a lock and enter a fully operational facility. A company can consider this market entry strategy if their customers clients consist of foreign government agencies. These arrangements are most of the time managed by International financial agencies on behalf of companies and their overseas clients in order to ascertain that the companies provide high-quality services to clients and the clients pay the full amount due for their work. (Indeed, 2023). Part B Analysis of the procedures used to choose the most appropriate market entry strategy or Strategies. According to Study.com, (2023), Market entry strategies are approaches or methods and that a company’s uses to enter a new market. There exist various ways of entering a new market and for the company to choose the most appropriate one, it needs to consider specific procedures to enable it choose the best and appropriate entry strategy in order to enter the market successfully and achieve sustainable growth. The company needs to put in consideration such factors like its resources, objectives, and the target market itself. Market entry strategies can either be domestic or international. For domestic market entry strategy, this is when a company is expanding within its home country with the goal of growing the company's local market share. And on the other hand, international market entry strategy is when a company intends to expand to a foreign country. For a company to successfully expand internationally, it will require awareness of the different cultural, political, and economic environments in the target
- 5. country it intends to expand to, other factors like the legal and regulatory requirements of that country need to be considered as well. The procedure of choosing the most appropriate market entry strategy or strategies requires through analysis of certain critical Internal and external factors regarding the firm itself, and external factors related to the target market in another domestic or international market. The Internal factors include Company Objectives. Company size. Company available resources (Human and financial). Company’s International experience and agility. Company’s products and services. Company Objectives. It is very important to look at the company's resources and objectives when designing a market entry strategy. If a company has limited human and financial resources, it is very important for such a company to opt for less expensive market entry strategy like direct selling or licensing. But if a company has sufficient resources and is aiming at quickly gaining and expanding its market share, then such a company might need to opt for a more aggressive and expensive strategy such as joint ventures or acquisitions. (Prime Target, 2022). Company size. Internal factors such as Firm size is very important when determining the entry mode. This can be measured in terms of revenue and number of employees to work as an indicator of the company’s resources availability. Small and medium size companies will always wish to have presence on the international market but due to their resource constraints, they will always opt for export modes which are cost friendly while for bigger companies, they can choose to rapidly and quickly expend to international markets using expensive entry modes like acquisitions and joint ventures due to their resource stability. (Prime Target, 2022). Company’s International experience and agility. Another important internal factor to take note of is the company’s international experience and agility. The firm’s previous experiences in operating in foreign markets and dealing with international clients will determine the entry strategy. It also applies to the international experience of company managers and the decision makers themselves, a company with an experienced team will manage the entry mode selection much confidently and differently than a team targeting international markets for the first time. This international experience will enable the
- 6. company to mitigate risks and increase its commitment of resources to foreign markets. (Prime Target, 2022). Company’s products and services. Another determinant factor for entry mode is the company’s products or services. For example, with low cost and low margin products, a company might choose to move production to the target market through licensing or direct investment in the form of a joint venture, an acquisition or establishing a local production subsidiary. This also is favorable option when a firm intends to adapt the product to the local market and this may influence companies to work with local partners. If the firm has an innovative product, it will place a lot of value on retaining full control of its entry and operations in foreign markets meaning that it will less likely go for licensing and joint venture as an entry mode of choice. (Prime Target, 2022). The External factors affecting choice of market entry strategy are factors that apply to the target market and these include; The level of competition. The market size. Ease of Market access and regulatory environment. Social Cultural differences. The risk associated with the target market. The level of competition. Every company's market entry strategy is designed to minimize risks and maximize opportunities on the target market. The most important external factor is the level of competition. If there are already many companies selling similar products in the target market, it can be hard for new entrants to gain market share. A company may in this case need to differentiate its product or offer a lower price and if the market is not yet saturated, a company may have more flexibility in choosing market entry strategy to apply. (Prime Target, 2022). The market size. Size of the target market and its potential can lead to different considerations regarding the choice of entry mode. The size of the country and its market size is the higher the market growth rate and the more likely firms will be to commit resources to expand to such markets. This might influence companies to establish a wholly owned subsidiary or seek acquisition when entering such a large market with significant growth opportunities and if the market size was smaller, the approach would different in terms of market entry strategy. (Prime Target, 2022). Ease of Market access and regulatory environment. The regulatory environment and ease of accessing the market can inform the market entry strategy. Trade barriers and
- 7. custom duties on the import of foreign goods will influence establishment of production operations locally. Also, the tendency to prefer local suppliers and buying local products can encourage a marketer to consider a joint venture or other contractual partnerships with a local company where by the local partner will help in negotiating sales, developing local contracts and establishing distribution channels. If a market is hard to access, it requires the commitment of more resources and this leaves the company with less appropriate entry modes to choose from. (Prime Target, 2022). Social Cultural differences. When there are Sociocultural differences between a company’s home country and its target market country, this can pose some uncertainty for the firm and this will influences the mode of entry the firm will take. In situations where there are significant differences in culture, product preferences and consumption behaviors in terms of the company’s product, it will require commitment of more resources to the target market for adaptation purposes which might translate to establishing a joint venture with a local company which will take lead in providing helpful insights for a successful adaptation to the market. And, in markets which are similar to the company’s home market, entry modes requiring less commitment such as exporting might be applied. (Prime Target, 2022). The risk associated with the target market. Risks that are associated with international markets influence the choice of mode for market entry. A company need to properly evaluate target country risk before choosing an entry mode there by evaluating the political, economic and market related risks as the risk of exchange rate. Companies like restricting their resource commitments to markets with high risks associated. In so doing, companies will opt for highly flexible entry modes such as export in order to avoid committing heavy investment while entering high risk markets. In conclusion, selecting a suitable entry mode is an important step in a firm’s process of internationalization. This is because the choice of the entry mode made can determine the success or failure of a company’s expansion in the international market. When firms base their decision on extensive evaluation of the different available market entry modes can help the firm choose the most appropriate entry mode for a specific international market. This tasks the firms that need to expand to foreign markets to go through a procedure of evaluating the different entry modes by assessing the different internal and external factors and this evaluation procedure will always lead the firm to selection of the mode that will help it expand successfully and sustain the market of fail and withdraw from the market.
- 8. Part C Factors encourage standardization of products in international markets Product standardisation is the process of making modifications and changes to the product in order to deliver a single unified product that sits comfortably in all target market segments. It involves offering a common product on a worldwide basis and it allows company to keep costs down using one set of manufacturing tools and the same packaging there by creating a truly global product in the process. (Mbaskool, 2023). The factors that encourage standardization of the product on the international market are; Customer Orientation. This is the most important factor that influences an exporting firm to take decision of product standardization due to customer’s response to the product. Customer orientation also concerns customers demand or purchasing power, tastes and preferences and habits, socio-cultural factors, literacy and education levels. When customers are used and familiar with the product, they tend to identify with it according to its likeness and features and this promotes loyalty to the brand and product justifying reason why companies will favour standardization. Climatic Conditions and Physical Environment. Companies can be made to standardize due to environmental concerns so that the product can remain in good and recommended standards of use. The physical environment like hot weather, cold weather, the terrain like plains, hills, as well as living environment in homes can all act as determining conditions for the standard of a product. The Stage of Market Development. Another reason why the firm will choose to go for standardization is the stage in which the market lies in terms of development. There are different factors that characterize stages of market development including the availability of reliable infrastructure facilities like transportation and communication facilities, the level of technical skills and Maintenance. These characteristics of stages in market development will influence companies to standardize. For example in markets where the facilities are advanced, there will be evidence of improved product quality in
- 9. terms of design and product form while in market stages where such advancements has not reached, there will be high need for companies to favor standardization. Legal Considerations. Sometimes firms are made to opt for standardization due to legal requirements in the country where they are exporting. There are countries which have specified products, packaging, and labeling standards for specified commodities and mandate all exporters to adhere to such standards and regulations have to be followed and implemented. Example of such legal considerations include patents, safety standards, and commercial terms. And control requirements. These legal considerations will influence companies to go for standardization in order to align their products in terms of brand name, labels, language used, measurement units and sizes, packaging as well as instructions for use of the product. In such instances, all these features are required by law to be matching the set standards. Market homogeneity. This is yet another factor that can influence standardisation. There are some products which are homogenous on the world market and it’s necessary for companies to standardise such products where they can’t match the homogeneous features without product modifications being necessary. Such products as raw materials, DCDs and some clothing products.
- 10. References Workspace, 2023. How to enter a foreign Market. Retrieved fromhttps://www.workspace.co.uk/content- hub/business-insight/how-to-enter-a-foreign-market Indeed, 2023. 10 International Market Entry Strategies (With Definitions). Retrieved fromhttps://www.indeed.com/career-advice/career-development/market-entry-strategies Study.com, 2023. What are Market Entry Strategies? Retrieved fromhttps://study.com/learn/lesson/market-entry-strategies-examples.html Prime Target, 2022. How to choose the right entry mode for new international markets? Retrieved fromhttps://primetarget.tech/how-to-choose-the-right-entry-mode-for-new-international-markets/ Mbaskool, 2023. What is Product Adaptation? Retrieved fromhttps://www.mbaskool.com/business-concepts/marketing-and-strategy-terms/3035- product-adaptation.html