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Essay: Entry into a foreign market – Burberry

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  • Published: 1 October 2022*
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Porter’s Diamond of Competitive Advantage is an example of modern theories of trade used to determine which target market a firm should enter. The model also helps to consider future items and administrations and the new suppliers of items and administrations that may enter the business and rival existing contributions (Harper, 2013).

The first factor is Factor endowments; it discuss about the factors of production such as skilled labor or infrastructure it has at its disposal. There are two factors Basic factors that include the country natural resources, climate, geographic location, and demographics. Whereas the second one is advanced factor; it is the result of investment by people, companies, and government are more likely to lead to competitive advantage(Hill & Hult, 2019).

Based on eia.gov, Oman is one of the richest countries and by far the largest producer of crude oil in the Middle East that is not a member of the Organization of the Petroleum Exporting Countries. On the other hand, Liechtenstein is known for its’ hydroelectric potential and agriculture.

Oman is one of the Middle Eastern countries with 309,501 km², makes it easier to find a low cost rental store in a good location. Whereas Liechtenstein is smaller than Oman around 160 km²; it will be more challenging to find a good store location that is strategic.

Education is well managed by the government in Liechtenstein as they provide financial support and has the system in order to look after the educational system. Similarly, education is free but it is not a must in Oman (Baporikar & Shah, 2012).

Firms typically lean toward contracting reasonable workers to bring down their working expenses and capital consumption. The labour force in Oman are qualified and experienced (TVET program) and can enter to the luxury sectors easily (Rajasekar & Al Raee, 2013). As for in Liechtenstein, they are highly educated due to the educational system. Burberry will not experience any difficulty to find employees for their new store, as the labor costs are not too high.

Second factor is the demand condition; it gives crucial information for updating the competitive advantage and would affect the quality and innovation of the products in a certain area.

The younger generations nowadays can control and have the power to make absolute buying decisions. Moreover, counterfeit goods usually have meaningful value to satisfy the needs of consumers who are seeking for social prestige (Nia & Zaichkowsky, 2000). As the value of the products given by the retailers meet customers’ quality expectations, they will become less price sensitive (Deepa & Chitramani, 2016).

Similarly, Liechtenstein and Oman market are not too big. The consumers may consider mass-advertise items as choices to put a firm under strain and power it to decrease its costs, but mass items are never considered as an option in contrast to luxury items. Therefore, Burberry still has the power in both of the market.

Relating and supporting industries is the next factor. It is important to know about the presence or absence of supplier industries and related industries that are competing internationally (Porter, 2001).

According to Omzest.com, Oman Textile Mills Company L.L.C. (OTM) is a certified public limited company possessed 100% by Omani nationals. It is known for production of textiles that can support Burberry. Apart from that, supporting industries in Liechtenstein would be their web based business market. Therefore, sellers in Liechtenstein should consider selling in the e commerce or web based business. Based on webinterpret.com, there are 36,183 Internet clients in Liechtenstein and Internet entrance adds up to 95.80%.

2.1.4 FIRM STRATEGY, STRUCTURE, AND RIVALRY

The next dimension is the firm strategy, structure, and rivalry; it refers to the conditions governing how companies are created, organized, and managed, and the nature of domestic rivalry.

The cost of entry is relatively low in Oman; hence, Burberry will face no difficulties to enter the market. A high rivalry may decrease the productivity of a market (Rajasekar and Al Raee, 2013). Competition is not high both in Oman and Liechtenstein because there isn’t any other luxury product available in the market; which increases the chance of success, yet it may expand the opportunity of risks.

2.1.5 GOVERNMENT INTERVENTION

Last but not least is government intervention, which has impact on the demand due to the high standard of the product. There are some arguments about government intervention, for instance; some observed government intervention in the form of labor, employment and training (Ng, 1982). More than that, it seems reasonable to recommend that the legislatives be at a phase where withdrawal from interventions is practically unthinkable (Cheun, 1998).

According to WTO.com, the custom tariff that apply in Liechtenstein for clothing is currently at a normal bound rate, estimated by the advertisement valorem reciprocals (AVEs) of the particular taxes, is around 12%. While at Oman, according to export.gov, there is no more tariffs on clothing products by the end of 2018 due to the U.S.-Oman Free Trade Agreement.

2.1.6 SUITABLE TARGET MARKET

By considering all the facts above utilizing the Porter’s Diamond, Oman appears to be more agreeable than Liechtenstein. Our firm has arrived at a resolution that Oman’s conduct toward outside items will give Burberry an extraordinary possibility of succeeding.

2.2 INTERNATIONALIZATION STRATEGY

There are stacks of concerns and constraint when a firm tries to grow globally. Bartlett and Ghoshal theory gives potential strategy for Burberry that incorporates; international, localization, global standardization, and transnational strategy. (Leong & Tan, 1993). Bartlett and Ghoshal initially did exclude international in their typologies. More than that, development around the world depends on the capacity of associations to abuse the few closest opportunities in the outside business sector.

The experience gained in the worldwide condition made Burberry progressively decided and proposed on a fast worldwide development, regardless of cultural or geographical proximity. With the company’s experience gained in comparative markets, the apparent risk, related with the internationalization procedure (Burt, 1993), was diminished. Therefore, the most suitable strategy for Burberry is the global standardization.

For this situation, Burberry won’t change the things as required by the individuals in the specific zone, as the firm will at present make their original items. Burberry won’t cause the scarfs to rely upon a nation. Despite the fact that the nation is cold, the company won’t supplant to thicker material and vice versa; Burberry won’t change to more slender material in hotter regions.

2.3 ENTRY MODE

Foreign direct investment is a condition where a firm invests directly in facilities to produce or market a product in a foreign country. There are two types of investment. Horizontal, a business extends its residential activities to another nation. For this situation, the business leads similar exercises but in an outside nation. Second one is vertical, a business ventures into other nation by moving to an alternate degree of the store network. By the end of the day, a firm leads various exercises abroad yet these exercises are as yet identified with the principle business.

The government often sees FDI as a key to brings out the capital, technology, and knowledge needed to shift the economies from conventional to better quality assembling and administrations, not only to compete actively but also to be more liberalized (Harding & Javorcik, 2007). Fund limitations adversely influence private and altogether owned, however not state-claimed firms, which appreciate special access to residential money related assets. These outcomes recommend a connection between access to fund and firms’ capacity to profit by flat overflows from FDI.

Firms can use six different modes to enter a foreign market; exporting, turnkey projects, licensing, franchising, joint venture, and last but not least is wholly owned subsidiaries.

Exporting is an approach to expand market size and benefits; it is because of lower exchange boundaries under the WTO and local financial understandings, for example, the EU and NAFTA.

The subsequent one is turnkey projects where the temporary worker consents to deal with everything about the task for a remote customer, including preparing working faculty.

Licensing is a course of action where a licensor awards the rights to impalpable property (for example licenses, developments, recipes and so forth.) to another element (for example licensee) for a particular period, and gets an eminence charge consequently.

Then there is a special form of licensing which is known as franchising. It is regular use to sell immaterial property (for example trademark) to the franchisee; the franchiser demands the franchisee consenting to keep severe guidelines on business tasks.

The next entry mode is called joint endeavor is setting up a firm that is together possessed by at least two generally autonomous firms (most common is 50‐50 joint endeavor).

Last but not least is wholly owned subsidiary, which the firm owns 100% of the stock. There are two forms of wholly owned subsidiary; Greenfield investment, where a firm sets up a new operation in a foreign country and the second one is firm acquires an established firm in the host nation and uses it to promote its products or also known as acquisition. Firms that are pursuing global standardization or transnational strategies commonly use wholly owned subsidiaries.

Dunning’s paradigm created in 1975 by Dunning and Narula, with the fundamental speculation that, when nations build up, there are 3 conditions that need to be recognize for foreign direct investment to occur: Ownership, location and internalization as its’ points of interest experience will change (Rugman, 2010). However, internalization seems to be the most developing as the Caesar of the OLI triumvirate (Ethier, 1986).

Ownership and location identifies with the manner in which a firm sorts out the age and utilization of assets, abilities in various areas. Level of remote worth included exercises makes or endeavor possession favorable circumstances that are indispensable and such focal points referred to as Internalization (Sharmiladevi, 2017).

Ownership advantage focuses on the asset of the firms that would make the firm differ and worth more than the other products, this could be trademark, patent, or copyright. Burberry possesses the trademarks for varieties of a check design that it utilizes on its’ clothing items. For example; target started to sell several products such as scarves copying the Burberry check trademark (Chadwick & Peterson, 2019).

The location advantage would be the cost entering Oman, as mentioned before, there is no more tariff on clothing in Oman. This would be one of the location advantages because Burberry can save up by not paying for the export.

For internalisation, it can be said that the products are better produced domestically. However, when entering a new market, a local expert is needed in order for the business to settle in.

As needs be, the firm(s) will likely to pick a wholly own subsidiary to move their particular resources inside when their benefit explicitness and the accomplice advantage are high (Erramilli and Rao, 1993; Madhok, 1997).

Oman has a low cost of entry; therefore wholly owned subsidiary (greenfield investment) might be the best option to enter the market. Firms entering nations with a few of lawful limitations on entry mode will in general use wholly owned subsidiary; while firms entering nations with numerous lawful confinements on method of section will in general utilize joint endeavor modes (Brouthers, 2002).

Other than that, it also capitalizes on market opportunities as Burberry has already experienced huge success with its’ widely spread branches. For global development, retailers more often than not keep on diversifying in the worldwide condition, which additionally relies upon the involvement in the new condition (Quinn and Alexander, 2002). For instance, in China, the company is developing rapidly to meet the demands of the Chinese luxury market (Burberry, n.d.).

So, it is suggested to use the wholly own subsidiary (greenfield investment) strategy for entering the market in Oman. It has advantages such as : no danger of losing specialized ability to a contender, tight control of activities and also having the expectation to absorb information and area economies’. However, the firm might have to deal with the costs and risk of setting up overseas operation.

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