Market entry strategy:
An organization strategy for entering a foreign market:
Small and medium sized companies have couple of ways to become involved internationally. One is to seek cheaper sources of supply offshore, which is called outsourcing . Another is to develop markets for finished products outside their home countries, which may include exporting, licensing and direct investing. These are called market entry strategies because they represent alternative ways to sell products and services in foreign markets. Most forms begin with exporting and work up to direct investment. Exhibit shows the strategies companies can use to enter foreign markets.
Global outsourcing sometimes called global sourcing, means engaging in the international division of labor so that manufacturing can be done in countries with the cheapest sources of labor and supplies. A company may take away a contract from a domestic supplier and place it with a company in the Far east, 8,000 miles away .Many manufacturers in Asia and Latin America are now wired into the Internet to help them compete in an e-business world. Large companies outsource to companies all over Asia, and they like the convenience, speed and efficiency of handling business by electronic transactions. Singapore based Advanced Manufacturing Online uses a system that enables both suppliers and clients to send orders and solicit price quotes over the Web.
A unique variation of global outsourcing is the Maquiladora Industry along the Texas- Mexico border. In the beginning twin plants were set up, with the US plant manufacturing components with sophisticated machinery and the Mexican plant assembling components using cheap labor. With increasing sophistication in Mexico, new factories with high tech equipment are being built farther south of the border, with assembled products imported in to the United States at highly competitive prices. General Electric for example, employs more than 30,000 people in appliance factories in Mexico and is now shifting some of its engineering work to that country as well as to India, Brazil, and Turkey. Service companies are taking advantage of the Maquiladora concept as well. US data processing companies use high speed data lines to ship document images to Mexico and India where 45,000 workers do everything from processing airline tickets to screening credit card applications. British banks have transferred back office operations to companies in China and India as well. As we discussed earlier, high level knowledge work is also increasingly being outsourced to lower wage countries.
While exporting the corporation maintains its production facilities within the home nation and transfers its product for sale in foreign countries. Exporting enables a country to market its products in other countries at modest cost and with limited risk. Exporting does entail numerous problems based on physical distances, government regulations, foreign currencies and cultural differences but it is less expensive than committing the firm’s own capital to building plants in host countries . For example a high tech equipment supplier called Gerber Scientific Inc prefers not to get involved directly in foreign country operations. Because machinery and machine tools are hot areas of export, executives are happy to ship overseas. Small to mid size US companies are benefiting from increased exporting Multiplex Co., a St Louis manufacturer of beverage dispensing equipment for fast food service exports about 40 percent of its product. National Graphics a specialty coater of papers and films. Ships 60 percent of its products overseas and national’s CEO believe exports helped to save the company.
A form of exporting to less developed countries is called counter trade which is the barter of products rather than the sale of products for currency. Many less developed countries have products to exchange but have no foreign currency. An estimated 20 percent of world trade is counter trade.
Excerpts from Richard L Daft