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Entering Foreign Markets
According
to Kotler and Armstrong, “ a global firm is one that, by operating in more than
one country, gains marketing, production, research and development, and financial
advantages that are not available to purely domestic competitors” (p. 563).
However,
the advantages underline above, might not apply for every company that wants to
penetrate foreign markets. In fact, companies must evaluate many situations
before deciding to go global. First, companies must understand the
international trade system. In general, foreign countries design obstacles such
as tariffs, quotas, exchange controls, and many other measures to avoid, and
restrict companies from other countries to penetrate their markets, so they can
protect their domestic industries.
The
company that wants to go global has to evaluate the political environment of
the country that is planning to enter. Some important factors to analyze could
be: the country’s attitudes toward international buying; the government
bureaucracy; the country’s political stability, and the monetary regulations. I
had the opportunity to analyze China’s political environment when I was working
on my practicum presentation for the Marketing class. During the research, I
found a source that indicates that in China the regulatory environment is
complex, according to the source, China has different rules covering industrial
sectors, geographical areas, and types of business and investments (Chinese
Marketing and Communication, n.d.). For example, in some sector the Chinese government
allows greater level of foreign ownership, but with the condition that all
outputs produced by the foreign company have to be exported. This is only one
of the many situations the company has to analyze before taking the decision to
operate abroad. Additionally, the company might study other countries’
characteristics like the economic environment, the impact of culture, and
analyze how the product will be perceived by the people of the nation in study.
Once a company has decided to sell in a foreign country, it
must determine the best mode of entry. According to Kotler and Armstrong, the
company can choose between exporting, join venturing, and direct investment (p.
563). The following illustration describes the different options to enter
foreign markets:
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Exporting
For
some companies, exporting would be the best option. This strategy keeps
operations at domestic level, while exporting company’s surpluses to one or
more countries. Companies can use indirect and direct exporting. In the
indirect exporting, the company pays an international expert or intermediary to
take care of the companies’ exports. Companies can also use direct exporting
and handle their own exports. Both options represent good ways to enter a
foreign market, but they differ in the level of risk. Generally, direct exports
involve more risk, but if they are handled right, the potential return of
investment would be better.
Joint Venturing
Companies
can enter international markets “by joining with foreign companies to produce
or market a product or service” (Kotler and Armstrong, p.564). Joint venturing may
include: licensing, contract manufacturing, management contracting, and join
ownership. Big companies like Coca-Cola, and Budweiser firms agreements with
foreign companies, letting them use the trademark, patent, or company secrets,
this process is called licensing. Other companies use contract manufacturing, by letting foreign companies produce its
products. Like licensing, contract manufacturing offer less risk to the
company, but might lose some control of operations. In management contracting, the company only provides the management’s
knowledge, to the joint venturing company that is investing in other country.
Hilton uses this arrangement in managing hotels globally (Kotler and Armstrong,
p.565). In some cases, companies only are allow to entering foreign markets, if
they Joint Ownership or share the
investment with a domestic investor, once they share the investment, both parts
control and decide about the company’s operations.
Direct Investment
Direct
investment involve, “entering a foreign market by developing foreign-based
assembly or manufacturing facilities” (Kotler and Armstrong, p.565). In the practicum’s
assignment of the Marketing class, I learned that Mars used direct investment
to enter in China. Mars opened two chocolate factories in china. Now, they
produce brand including M&M, SNIKKERS, and DOVE. I realize this strategy requires
a great capital investment and risk. But if conditions are good the company can
gain a lot of competitive advantage at global level. For example, Mars export
M&M and many more products from China to other countries in Asia including
Japan, Korea, Taiwan, and Hong Kong. Also, Mars sells chocolate products
through hundreds of distributors, and a large number of China key accounts (Mars,
2014).
Please click the following link to get more information about the Marketing practicum assignment related to the global market place. Here, my team analyzes the introduction of chocolate M&M in China.