Choice of foreign market entry mode: Journal of International Business Studies, 23 1
Factors affecting the selection of entry mode are as follows: Market size of the market is one of the key factors an international marketer has to keep in mind when selecting an entry mode.
Countries with a large market size justify the modes of entry with long-term commitment requiring higher level of investment, such as wholly owned subsidiaries or equity participation.
Most of the large, established markets, such as the US, Europe, and Japan, has more or less reached a point of saturation for consumer goods such as automobiles, consumer electronics. Therefore, the growth of markets in these countries is showing a declining trend.
Therefore, from the perspective of long-term growth, firms invest more resources in markets with high growth potential. The selection of a market entry mode is to a great extent affected by the legislative framework of the overseas market.
The governments of most of the Gulf countries have made it mandatory for foreign firms to have a local partner. For example, the UAE is a lucrative market for Indian firms but most firms operate there with a local partner.
Presence of competitors and their level of involvement in an overseas market is another crucial factor in deciding on an entry mode so as to effectively respond to competitive market forces. This is one of the major reasons behind auto companies setting up their operations in India and other emerging markets so as to effectively respond to global competition.
The level of development of physical infrastructure such as roads, railways, telecommunications, financial institutions, and marketing channels is a pre-condition for a company to commit more resources to an overseas market.
The level of infrastructure development both physical and institutional has been responsible for major investments in Singapore, Dubai, and Hong Kong. As a result, these places have developed as international marketing hubs in the Asian region. From the point of view of entry mode selection, a firm should evaluate the following risks: Political instability and turmoil dissuades firms from committing more resources to a market.
International companies find it difficult to manage their operations in markets wherein the inflation rate is extremely high.
Markets with substantial cost of shipping as in the case of low-value high-volume goods may increase the logistics cost. It may also be one of the key factors in firms deciding to establish manufacturing operations in foreign countries. Companies operating in domestic markets with limited aspirations generally enter foreign markets as a result of a reactive approach to international marketing opportunities.
In such cases, companies receive unsolicited orders from acquaintances, firms, and relatives based abroad, and they attempt to fulfill these export orders. Venturing into international markets needs substantial commitment of financial and human resources and therefore choice of an entry mode depends upon the financial strength of a firm.
It may be observed that Indian firms with good financial strength have entered international markets by way of wholly owned subsidiaries or equity participation.
In view of the market potential, the willingness of the company to commit resources in a particular market also determines the entry mode choice. Companies need to evaluate various investment alternatives for allocating scarce resources. However, the commitment of resources in a particular market also depends upon the way the company is willing to perceive and respond to competitive forces.
A company well exposed to the dynamics of the international marketing environment would be at ease when making a decision regarding entering into international markets with a highly intensive mode of entry such as Joint ventures and wholly owned subsidiaries.
Companies should also keep in mind exit barriers when entering international markets. A market which presently appears attractive may not necessarily continue to be so, say over the next 10 years.
It could be due to changes in the political and legal structure, changes in the customer preferences, emergence of new market segments, or changes in the competitive intensity of the market.Foreign markets entry mode decision for SMEs.
Key factors and role of industrial districts. Musso, Fabio and Francioni, Barbara (): Foreign markets entry mode decision for SMEs. The most crucial decision that an MNC has to make when entering a foreign market is the choice of the most optimal mode of entry as it will have a bearing on the company’s success.
A firm must assess a number of internal and external factors while. Abstract. This paper argues that the ownership and control dimensions of foreign market entry mode choice should be separated, and that foreign market entry mode decisions should be expanded to business activities beyond production and distribution.
A company well exposed to the dynamics of the international marketing environment would be at ease when making a decision regarding entering into international markets with a highly intensive mode of entry such as Joint ventures and wholly owned subsidiaries. Apparently. the decision of a high commitment entry mode is the result of a strategic decision process where more attention to the firm’s internal variables and to the foreign markets variables is paid by firms.
firms become more autonomous and less dependent on the district environment.5/5(1). A Framework for Foreign Market Entry. With the decision process of entry, the modes of entry, the internal and external factors governing the decision process and the risks associated well defined, we can now consolidate all this information in a framework which can then be used to formulate the entry decision process.