Methods of market-entry strategy

Chapter 8

Methods of entry

A well planned market-entry strategy entails an operator greater management over its market initiation and launch expectations, thus providing assurance to meeting financial targets. Businesses nowadays attempt to accomphlish increment in sales, brand awareness and business sustainability by breaking into new markets. Formulation of a market entry strategy requires an in depth analysis of potential competitors and likely customers.

There are numerous options to enter a market. The list comprises of direct and indirect exporting, joint ventures, Merger & acquisitions or licensing of technology abroad. The risks & benefits associated with each method are attributed to several elements. This includes the nature of the product or service you produce, the requirements for product or service support, and the foreign economic, political, business and cultural environment that the firm is seeking to enter. The ideal strategy is highly reliant on the firm’s level of resources and commitment, and the level of risk that the firm is willing to take.

Many businesses select exporting as their entry strategy. Start-up costs and risks are kept to its minimal, and it is less complicated in comparison to the other methods. Exporting can be performed directly or indirectly. Via the direct method, the business extends its business plan to include exporting as a new activity and gathers knowledge and workers to execute the plan, i.e., locating foreign buyers, labelling product, making transportation arrangements, and invoicing. If the avenue of direct exporting is unavailable, firms can can consider indirect exporting via a foreign distributor.

Barriers to trade, Depth of localized knowledge, price localization, competitors, and export subsidies are some of the relevant factors MNCs consider when deciding which entry strategy to pursue.

Joint ventures

A joint venture is a strategic alliance where 2 or more parties, usually businesses, form a alliance to share markets, assets, intellectual property, knowledge, and profits.

The distinct difference between a joint venture and a merger is there is no transfer of ownership in the partnership.

This partnership can happen between titans in an industry. Samsung siltronic (Singapore), for example, is a strategic alliance between Samsung and Siltronic. It can also materialise between two smaller businesses that believe coming together as one will allow for synegistic effect to ward off bigger competitors.

Companies with similar products and services in their portfolio can also come together to enter markets they wouldn’t or couldn’t consider without investing large amount of capital. In addition, due to local regulations, some markets can only be entered through a joint venture with a local business. Example would be Delphi Automotive Systems & Hasu Industries Sdn Bhd went into a joint venture to form Delphi Packard Electric Malaysia Sdn Bhd.

In certain scenarios, a huge company can decide to form a joint venture with a smaller business. Its main objectives are to promptly acquire important intellectual property, technology, or resources otherwise difficult to acquire despiting having abundance of capital at their disposal.

A few studies have been conducted. Their main findings revealed that most joint ventures have a failure rate corresponding to about 60% within a time span of 5 years. Experts concurr that the key attribute for success here is the human factor, such as the integration of human resources and the sharing of knowledge, rather than geographical or financial factors.

Merger & acquisition

This approach is particularly enticing to companies in turbulent times. The reason why larger companies will attempt to takeover other companies is to initiate a more agressive, cost-efficient company. The companies coming together aims to attain a larger share of the market or to accomphlish greater efficiencies. Due to the potential benefits that is associated with the acquisition, target companies tend to agree to be purchased when they know the likelihood of their survival is low.

When one company assumes control over another and distinctively established itself asthe new owner, the purchase is an acquisition. From a legal point of view, the targeted firm ceases to exist, the buyer devours the business and the buyer’sstock continues to be traded.

A merger occurs when 2 firms, commonly of the same magnitude, agree to surge ahead as a singlenew entity rather than remain separately owned and operated. Both companies’ stocks cease to exist and new company stock is issued in its place. For instance, when Daimler-Benz and Chrysler merged, a new company, DaimlerChrysler, was born.

Greenfield ventures

Greenfield ventures is a form of foreign direct investment where a parent company sets up new operations in a foreign country by the construction of new plants and factories from scratch. In addition to constucting new facilities, new long-term jobs are created in the foreign country by the employment of new workers.

Green field investments materialise when multinational corporations gain access into developing countries to construct new factories or stores. Developing countries tend to provide prospective companies tax rebates, subsidies and other types of incentives to entice MNCs to invest in their country. Governments rationale is that losing corporate tax revenue is a worthwhile tradeoff if jobs are created and knowledge, management know hows and technology is obtained to amplify the country’s human capita.