Essay: Expanding to New Markets: Challenges and Strategies

Expanding to a new market can be a hard decision and even harder to implement after taking the decision, as there are several factors to consider after reaching a peak at the local market. Companies seem to seek international expansion as a part of challenging for new sales, as the product will be introduced to a whole new population, finding new talents hidden in another country that might improve or take the business to a whole new level, and growing profits and market share after there is no more room for expansion locally. In which a company will seek to offer a product or service overseas for a completely different culture with a lot of different rules and standards like language and culture barriers. Each culture has its own set of rules and standards when it comes to business, tax codes and compliance issues as studying government, industry regulations and localisation. Such as label language, or even local competition and similar products or services offered by other companies either identical, similar or even just competitive with your product. There are several modes to enter a foreign market in which I will be discussing, including exporting, strategic alliance, franchising, joint ventures, direct investment, and acquisition as the main strategies concerning foreign market entry.
Furthermore, several factors come into play when considering expanding in a foreign market, Antell & Wallgren(2012) so an organisation would have to do an accurate market research considering more than one aspect. The logistical situation in which to consider how accessible are shipments to a country, how big are maximum shipments considering that will support low cost, not only that but who will distribute your product and how will you reach them while getting the best prices. One more thing is that they will have to study political situations too in each country in which such country as Syria with violent and consistent situation changes would not be a good idea to expand as a branch or even as distribution only. Understanding the full impact caused on your business is a must before expanding in a new market, considering factors; such as market segmentation analysis in which an organisation must choose a target segment based on location, age, income, sex, habits or even all together to understand which type and class of customer they want to peruse. Also, product gap analysis having to compare your product and other local products competing with yours in order to notice pricing, quality expected, and customer demands. Another thing is performing a swot analysis as to measure the opportunities, threats, strengths, and weaknesses of your company in order to estimate certain changes to be made and factors to consider. Also, political and ethical situations in which some countries require a bribe or a strong relationship to succeed, the logistical situation based on shipping, customs or transportation availability and cost. Not to forget hiring local employees with high standards considering salary and performance Antell(2012)
Moreover, a company should set up a business plan and strategy before entering a new market having to consider short, medium, and long-term goals, setting up steps and boundaries in order to reach intended objectives, and evaluating the organisation structure needed to successfully implement your strategy is a must. A company must develop policies, procedures, and handbooks that fulfill local requirements while maintaining overall company policies, develop attractive programs to interest local talents. After considering all these aspects, a business must choose its sales model whether it will use direct, indirect or hybrid distribution, determine sales methodology, whether it is going to create a new brand or stick with the old one, develop a marketing plan and key performance indicators, and evaluate pricing models considering expected prices and demand on product. Another one of the most important factors is building a relationship with a local bank in which it will manage all tax and sales report issues, it might help with intended budget or extra capital needed, also developing an alliance that will help with local relationships and common interests. Not only with a bank but certainly local relationships would be needed in order to fully understand how the market work, where are the cheapest and most reliable suppliers, the standards of employees and where to find the quality the company is looking for, best surroundings, locations, and environment, also what to expect in a new country. There are several modes to expand in a foreign market each has its advantages and disadvantages Antell(2012).
First, export direct and indirect export depends on the number and type of mediators. Direct and indirect export is distinguished by how the exporting company carries out the transaction flow between itself and the host country buyer, so the decision between direct and indirect depends on the exporting companies’ desiring control and involves two types of costs, in which the first one is the cost of actually performing required functions, the second one is the transaction costs that rise in the organization by an activity or contracting with other parties Xaio(2006). It is simple as a company directly ships to shops, agents or distributors in the country they want to expand in and see how the product does in the market yet shipping to direct shops would have more risk, as they are not reliable but with an agent in hand you have all the contacts you need to succeed. Exporting is one of the least risky of all, in which as soon as you ship the product you receive the revenues but the problem would be loss of control as a product might get ruined before it arrives at customer, copied or stolen, yet the problem will mainly be yours as mainly distributors or agents say it was ruined in the first place or whatever to get out of the situation. But indirect export is when a company uses the host organization to test the market’s response to a product or service before market entry. For example, Egypt produces cotton and exports it all over the world while still, it has the made in Egypt logo in it.
Second, franchising your brand is basically letting another owner open their own branch by which he pays a certain fee or an agreed cut of the profits per year, and this happens to be one of the easiest ways to expand as it is time and cost effective Lacoma(2018). Yet, if your brand is not recognised at the foreign market already you will just be another company that just opened which means more marketing costs, and loss of control as the new owner might cut costs by getting lower quality raw materials or offering lower quality product meaning the reputation of your company is in someone else’s hands. Also, profits will be limited to the fixed agreed amounts so even if the company gets more profits you still get the fixed amount meaning you do not benefit from your own companies’ expansion as much as possible. Example: Hardees opened in lots of different countries with a different owner at each branch, yet all the raw materials come from the original branch or agreed with distributors.
Third, strategic alliance simply means an agreement with two or more long or short-term amongst companies or individuals to help with certain tasks while remaining independent, these tasks could be products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property, or even shared capital and profits PhD student(n.d.). But the problems here would be that no one shares the risk with you and you might be giving out valuable information to future competitors or rivals. Example: Hewlett-Packard and Disney this alliance has been there for a long time back when Mr. Hewlett, Mr. Packard, and Mr. Disney were still involved in the main choices of their separate companies, dating back to Fantasia’s creation. Disney understood that the technology was beneficial to the future development of Disney’s innovation. The Imagineering Team at Disney still uses HP platforms till today.
Fourth, joint ventures are separate entities with two or more active firms as partners Harrigan(1998) acquiring a controlling interest, merging both companies. This gives businesses the opportunity to gain immediate market share, customers and brand image while having the government treat them as a local firm, in which everything will be ready except for planned improvements. Also, you gain 100% control but 100% risk if you buy a whole company, but merging gives the chance to share risks and control while still expanding in a foreign market with all the mentioned advantages leaving it to be the best option of all considering all factors, yet this would be the most expensive option of all. Example: General Motors Co. has initiated a joint venture with Al-Mansour Automotive in Egypt a local producer to sell products under the name of Chevrolet.
Fifth, foreign direct investment represents financial and resource flows that cross the legal and economic borders in which the investor provides funds or resources for an intended purpose, they represent financial flows, scientific, technological, informational, equipment and machinery, managerial and organizational experience, which are placed by investors in different countries, known as investment receivers. Thus, direct foreign investment is a lasting investment relationship between a resident entity and a non-resident entity. The basics of direct investment involve the exercise by the investor of significant managerial influence in the undertaking in which he invested. Yet, problems concerning direct investment are rules of foreign exchange rates, high cost and political changes might affect the investment Dinu(2018). Example: Microsoft hiring a Taiwanese to computer programmer to debug some software for it.
Sixth, company acquisition in which a company decides to buy another organization in which it is time efficient as the company will already have the organization, employees, products, brand image, customer base, immediate market share, and the government will treat you like a local firm when it comes to licensing and required legal documents. But this method remains the most expensive and the riskiest in which the company owner is responsible for everything with no one to share or divide the risk with, yet if such experience is successful it will be the most profitable and beneficial. Example: BEIN buying El-jazira sports taking middle east famous sport channels internationally to a whole new level.
Finally, deciding to expand in a foreign country might be one of the most challenging business decisions in which there are several factors that come into play when it comes to expansion as a company will have to consider the foreign economy, market trends, customer behaviour policies and trade agreements as a first, then check culture, language, religion and attitude of the intended country. Moreover, there are several modes that can be applied to enter a foreign market which are direct and indirect export in which a company exports its product to host to sell it either as a test for market response or as a deal for a certain amount of time, franchising in which a company sells its brand to a new owner with a certain fee or agreed profit cut each year in order to carry the brand name, image and products, strategic alliance in which two organizations agree to help each other while both remain independent sharing products, services, methods or even information, joint ventures in which two or more companies with similar interests merge distributing risks and profits in order to reach a certain goals, is a long or short term investment between a local and a non-local entities sharing resources, information or even just finances, company acquisition in which a company buys another company taking its brand image, market share, products, and employees, either keeping the name or changing it goes back to the new owners. Taking all these factors and modes into place buying a new company would be the most costly and risky yet the most profitable, and indirect exporting will be the safest to test a product in a new market and exporting either way, would be the cheapest and least risky compared to all the rest.