This paper examined issues surrounding foreign entry decisions. Essentially, the paper determined why and how a company makes a decision to enter a foreign market. The study was descriptive and data were sourced from various books, trade journals, publications and internet sites etc. The study revealed that foreign market entry strategy is an important strategic decision for international business units. The choice of foreign market entry strategy is to be made very cautiously as it has long-term implications, and it cannot be easily reversed. The study found that the future growth of international business unit depends upon the right mode of entry into foreign market.
As revealed in the study there are three main modes of entry into foreign market namely: Trade mode, investment mode and contractual entry mode. In trade route, the entry in foreign market is made through exports. In investment mode, the subsidiary units are set up in the foreign market. This mode is also called foreign direct investment mode. In contractual entry mode, technological collaboration agreements are made with the business units of host nation. In this mode, technical skills/managerial skills are provided by business unit in parent country to business units in host country. Besides these three main strategies for entry into foreign markets. The choice of the appropriate strategy depends upon various factors like availability of resources, level of risk, tariff and non-tariff barriers imposed by other nations, transportation cost, infrastructure facilities, vision of management, restrictions on inflow/outflow of foreign investment.
A key conclusion in the study is that there are different motives for an entry on a foreign market. The different motives that are stated in the study have common denominator which is that they can all lead to increased profit in the long run. The study suggests that in order to make an effective foreign market entry decision, firms and international business practitioners should apply the foreign-market-entry-model. They should also highlight those factors that have been found to be of most importance while entering a foreign market.
Table of Contents
1. Introduction
2. Literature Review
2.1 Timing and Scale
3. Modes of Foreign Entry
4. Foreign Market Exit and Re-Entry
5. DISCUSSION
6. Summary
7. Conclusion
8. Recommendations
Research Objectives and Themes
This study explores the complex decision-making processes involved in entering foreign markets, analyzing the various motives, entry modes, and strategic considerations that firms must navigate to achieve long-term profitability. It specifically addresses how companies weigh factors such as market attractiveness, timing, and scale, while also examining the phenomenon of market exit and potential re-entry.
- Analysis of diverse foreign entry modes (e.g., exporting, joint ventures, acquisitions).
- Evaluation of market entry timing and the impact of large versus small scale entry.
- Examination of the drivers for foreign market expansion and long-term profit goals.
- Investigation into the dynamics of foreign market exit and the strategic rationale for re-entry.
- Assessment of organizational culture and its role in successful international business operations.
Excerpt from the Book
Timing and Scale
After a firm has chosen an attractive market, the next decision to be made is the timing of entry. Entry is considered early, when an international business enters the market prior to other foreign firms and late when it enters after other firms have already established themselves in the market. Entering the market early brings first mover advantages that include the opportunity to establish a strong brand name, acquire demand from the market, increase sales volume, and create switching costs that attach a customer to a given product or service (Kotabe & Kothari, 2016).
However, entering the market early can bring pioneering costs that a firm that enters the market later may be able to avoid. Pioneering costs include the costs of promoting and establishing the product. The probability of a firm surviving in a market increases, if they enter after several other firms have already established the market. Government regulations can also put an early entrant at a disadvantage, because laws can hinder the value of the early entrant’s investment (Hill, 2013).
The next decision that needs to be made is the scale of entry and strategic commitments. Significant assets and resources are needed for a large scale foreign market entry, which commits a firm to the market. Strategic commitments alter the competitive playing field for other firms and produce various changes and inflexibility for the firm. Large scale market entry implies rapid entry and offers the first mover advantages, such as demand acquisition, scale economies, and switching costs.
Summary of Chapters
1. Introduction: This chapter highlights the growing importance of foreign market entry and outlines the primary decisions firms face, such as market selection, timing, and entry mode.
2. Literature Review: This section details the critical strategic decisions regarding the timing and scale of market entry, weighing the advantages of being a first mover against the associated risks and costs.
3. Modes of Foreign Entry: This chapter categorizes and explains eleven distinct strategies for entering foreign markets, ranging from traditional exporting to complex options like strategic alliances and cross-border acquisitions.
4. Foreign Market Exit and Re-Entry: This chapter explores the reasons why firms exit international markets and the theoretical similarities between initial market entry and the process of re-entry.
5. DISCUSSION: This chapter analyzes the empirical findings, emphasizing that economical motives and long-term profit goals are the primary drivers for international expansion.
6. Summary: This section synthesizes the study's findings, reiterating that success depends on effective decision-making, considering external threats, and building a strong organizational culture.
7. Conclusion: This chapter concludes that no single "right" entry strategy exists, and success requires extensive research into the specific political and economic environment of the target country.
8. Recommendations: This chapter provides actionable advice for practitioners, focusing on the importance of the foreign-market-entry-model and the necessity of integrating customer relationship building into company culture.
Keywords
Foreign Entry Decision, Foreign Market, International Business, Mode of Entry, Timing, Scale, Exporting, Joint Ventures, Acquisitions, Market Exit, Re-entry, Global Expansion, Competitive Advantage, Profitability, Strategic Management
Frequently Asked Questions
What is the core focus of this research paper?
The paper examines the strategic issues surrounding foreign entry decisions, specifically determining why and how companies choose to enter and operate in foreign markets.
What are the primary thematic areas covered in the study?
The study covers entry modes, market timing, scale of entry, the dynamics of market exit, and the strategic importance of organizational culture in international business.
What is the main objective or research question of the work?
The primary goal is to understand the decision-making process behind foreign market entry and to identify which strategies and factors lead to long-term profitability and success for international firms.
Which scientific methods were employed for this study?
The study is descriptive in nature, utilizing a comprehensive literature review and qualitative analysis of existing empirical data and business theories to synthesize best practices for foreign market entry.
What content is discussed in the main body of the paper?
The main body treats the various modes of entry (exporting, joint ventures, etc.), the strategic implications of timing and scale, the complexities of market exit and re-entry, and the role of internal organizational factors in international performance.
Which keywords best characterize this work?
The work is best characterized by terms such as Foreign Entry Decision, International Business, Mode of Entry, Competitive Advantage, and Market Strategy.
How do companies determine the best entry mode for a foreign market?
According to the study, there is no single superior strategy; instead, firms must extensively research market attractiveness, political/economic environments, and potential long-term growth to select the mode that best fits their specific resources.
Why is organizational culture considered vital for service firms?
The research emphasizes that a strong company culture helps attract top talent and integrates relationship building with customers, which is a critical asset for success in international service markets.
What is the significance of the "time-out" period in market re-entry?
The time-out period between exit and re-entry is crucial for organizations to digest lessons learned from past ventures, unlearn outdated routines, and prepare for a more successful re-entry.
- Quote paper
- Dr. Newman Enyioko (Author), 2020, Foreign Entry Decision And Global Export Business. Foreing Market Decisions, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/978328
