In the modern business world the market has become more competitive than ever. This is as a result of entry of many players in the business industry. As a result, every organization is determined in implementing strategies that can help increase their customer base. One of these strategies is venturing into the global market. Before venturing into the foreign market, it is important to analyze various methods of entry. This should be determined by the nature of the new market. It is important to choose the entry mode that is most feasible with the new market. The success and the ability of an organization to adapt fast in the new environment will largely be determined by the feasibility of the entry mode. Each of the entry method is suitable in certain circumstances.
What are Keiretsu? How does this form of industrial structure affect companies that com-Pete with Japan or that is trying to enter the Japanese market?
Keiretsu is a form of corporate organization in Japan where several organizations forms an alliance with mutual benefit for each of these companies. This may also include the intimate relationship between businesses and the government, which results to mutual benefit. Business may develop relationships by having stakes on each other. They may also develop a close relationship with one another through many other activities. For instance, organizations may be related as suppliers, manufacturers or even distributors. The idea behind Keiretsu is that organizations can significantly benefit from each other by maintaining an arm length relationship with each other.
Despite of the benefit of Keiretsu to the organizations joining such relationships, this system has received many critics. For instance, the American official opposed this system arguing that it was a restraint to trade. However, the system has been intensively applied in Japan.
Keiretsu has a significant effect on the companies that compete with Japan as well as those trying to enter into the Japanese market. In this form of business alliance, many organizations come together unlike their American counterparts that operate solely. The Japanese organizations with a close relationship with each other are able to lower their operational costs. As a result, they will under price their competitors. This tends to eliminate these companies in the market because they may end up running at losses.
In this form of alliance, companies are usually controlled from the centre. Every large investor usually dictates on everything. This includes the prices to the suppliers. As result, they are able to reduce operational costs effectively. Again, this poses a great competition to the companies intending to enter into such markets.
This system also helped to protect the Japanese companies from takeovers. Therefore, the chances of merging with the international companies are very rare. As a result, it makes it very difficult for companies intending to join through a merger or an acquisition.
There are a number of ways through which an organization can enter into a new market. However, this will depend on the size of the organization as well as the prevailing conditions.
Licensing is a common method of foreign market entry that has been widely used. In this case, an organization signs contracts with the foreign businesses (Lymbersky 2008). These are referred to as licenses. This allows the overseas companies to manufacture and also sell the company’s products in the target market. Through licensing, a company is allowed to use the property of the licensor. However, most of this property is usually in intangible form. These include the property rights and patents, trademarks and certain technological production techniques (Ireland, Hitt and Hoskisson 2011).
The main advantage associated with this method is that it has the potential of yielding very high levels of returns on investment. Therefore, this method has promising good returns on the investments made. This method also opens the door for a low risk manufacturing environment in the foreign country.
Joint Venture is a very common method which has been applied by a number of organizations in their effort to venture into an overseas market. In this form of entry, two businesses combine their resources to sell their goods and services in a foreign market (Tielmann 2010). Joint ventures are very common in the countries where the economy is tightly controlled. In such economies, an organization may be forced to partner with the foreign companies in the target market in order to sell its products to the residents.
The main advantage with this method lies on the fact that an organization is able to partner with a company that is experienced in the foreign market. This makes it easier and cheaper to market the product in the new market.
Joint ventures also suffer a number of limitations. To start with, these partnerships may be very difficult to manage. This is because they are mostly formed by two companies with varying cultural backgrounds whose management may differ significantly. Therefore, these differences may make it difficult to manage such partnerships. Another shortcoming of this method is that the partners are supposed to share the profits. This reduces the share received by every company. This leads to shrinking of the profit margins.
Joint ventures are most favourable for the markets where there are import barriers. By joining a foreign company in the target market, an organization is able to overcome the barriers posed on imports in the target markets. This method is also suitable in situations where there is large cultural distance. In such a case, joint venture becomes more suitable. The local companies can also provide the necessary resources, distribution networks and skills that are necessary in any market. An organization is also able to get a brand name whose loyalty has already been developed in the target market. This significantly increases the level of sales in the new market.
Foreign Direct Investment
This is a method of market entry in which an organization owns the assets in the target country. In this case, resources are transferred in the target country. An organization may choose to acquire an already existing entity or even establish a new enterprise (Wolfe 2011). One of the main advantages of this method is that an organization has more control. It can be able to know customers and competitive environment. However, this requires an organization to have a significant amount of resources.
Which strategic option for market entry or expansion would a small company be likely to pursue?
A large company
As already noted, the choice of entry mode will be determined by a number of factors. These include the size of the company or the prevailing conditions. For instance, the presence of entry barriers will have a significant impact on the choice of entry.
For a small company, it is necessary to pursue an entry mode or a form of expansion that is feasible with the nature of its operations. In this case, the most likely entry mode that a small company is likely to pursue is a joint venture or strategic alliances. By pursuing this method of entry, a small organization will be able to merge with an organization whose operations have already developed in the market (Decke and Zhao 2004). Therefore, the organization will be able to enjoy the benefits of an already established brand. This will help an organization in marketing its products in the new market.
On the other hand, large organizations can enter into the foreign market through licensing. This is because a large organization can afford a large amount of investment required. Therefore, this method will help a large organization to manufacture and sell its products in the foreign market.
Decker, R. and Zhao, X., 2004. SMEs’ Choice of Foreign Market Entry Mode: A Normative Approach. International Journal of Business and Economics, 2004, Vol. 3, No. 3, 181-200.
Ireland D, Hitt M. A. and Hoskisson, R. E., 2011. Understanding Business Strategy: Concepts and Cases. New York, Cengage Learning.
Lymbersky, C. 2008. Market Entry Strategies: Text, Cases and Readings in Market Entry Management. New York, Christoph Lymbersky.
Tielmann, V. 2010. Market Entry Strategies: International Marketing Management. Germany, GRIN Verlag.
Wolfe, M. 2011. Five Modes of Entry into Foreign Markets. Web.