Foreign Market Entry

Foreign Market Entry

A firm’s choice of foreign market entry method will be largely influenced by the economic political, legal and technological environment encountered in the overseas market.?

Discuss this statement using examples from a particular Asia Pacific market to explain your answer.
NOTE: You have to discuss the topic from the perspective of an Australian organisation aiming at entering the market of a

single, specific Asia Pacific country of your choice. All the examples provided need to relate to the single, specific Asia

Pacific market chosen.
The report has to cover a comprehensive review of the literature on the topic, as it relates to current international

marketing issues facing businesses operating between countries.

The audience for this report should be an Australian organisation. You will discuss the theory surrounding the issue and

provide relevant, practical recommendations on how your organisation should manage its exposure to the issue.

The emphasis will be on critical analysis and interpretations, rather than description. No marks will be awarded for merely

summarising the key arguments put forward in the academic articles reviewed.

Suggested report structure:
• Table of Contents
• Executive Summary
• Introduction (aims of the report)
• Literature Review (discussion of theory)
• Management Implications (how does this apply to your selected organisation)
• Recommendations
• References
You need to READ WIDELY first.
• You need to identify the key issues involved.
• You need to explain how the key issues identified would affect the chosen organisation.
• You need to provide recommendations to the chosen organisationon HOW it could face the issues identified (in terms ofminimizing the threats and taking full advantage of the opportunities).

 

Executive Summary

Most companies are currently going global. Choosing the most effective entry strategy ensures that the organization utilizes its resources well. The entry strategy also determines how successful a company will be in the foreign market. The various entry modes have advantages and disadvantages which the top management should consider. Direct investment, joint venture, licensing, franchising and exporting are the key entry modes.

In this report, Kazakhstan in Asia Pacific has been considered as the new market for an Australian organization. The country has a goal of becoming one of the 50 most competitive countries globally. It also participates in most regional organizations. The economy has registered gradual growth. The legal and economic systems have to be strong in Kazakhstan to ensure stability of foreign investors. It is imperative that risks are assesses to avoid failure.


 

 

Contents

  1. Introduction…………………………………………………………………..4
  2. Literature Review…………………………………………………………….5

2.1  Kazakhstan’s political environment……………………………………….5

2.2  Legal environment………………………………………………………..5

2.3  Economic environment …………………………………………………6

2.4  Technological environment………………………………………………6

  1. Management Implications…………………………………………………….7
  2. Recommendations…………………………………………………………….8
  3. References…………………………………………………………………….9

 


 

 

Introduction

Companies want to go global have to consider the most effective foreign market entry mode so as to utilize its resources in the best way possible. Wood and Robertson (2004) argue that globalization’s age has necessitated and facilitated businesses towards internalization of all organizations irrespective of the size. It is therefore, imperative that an organization comprehends a country’s emergence of social, economic and political institutions, its demography, culture, geography and history before strategizing on how to enter the foreign market. The business environment in a foreign country cannot be understood comprehensively until the present political institutions and system, government policies and economic information and data are understood.

There are several modes of a foreign market entry. In general terms, each mode has weaknesses and strengths. However, every single organization is attracted to a particular entry mode depending on its nature, background, resources and strategic objectives.  For companies to be successful in a foreign market, they have to consider copyrights and trademarks, patents, labeling, packaging, environmental, and safety factors so as to emerge successful. Companies encounter many challenges while entering a foreign market (Wood and Robertson, 2000, 21).

After settling on the entry mode, a company consequently decides the marketing commitment and involvement degree (Hollensen, 1998). It is therefore, imperative that the decision reflects a considerable analysis and study of company capabilities and market potential. Furthermore, cultural differences have to be considered to prevent key risks between cultures. Hence, global marketers and business people should be prepared to cope with varying communication styles, dress, food and language. In the light of this discussion, an Australian organization intends to enter an Asian pacific country. The country of choice is Kazakhstan. The economic, legal, political and technological environments in the country are reviewed. Consequently, management implications and recommendations appropriate for the Australian organization to enter the foreign market are discussed.

Literature Review

Kazakhstan’s political environment

The country is a presidential state and has numerous political parties, non- government organizations’ network and two-chamber parliament. There is no adequate strong presidential power balance between the judiciary and legislature. There have been presidential and parliamentary elections in the country over the past two years. International observers argue that there was an improvement in both elections but did not satisfy the international democratic elections’ standards in many respects. Nursultan Nazarbayev won the presidential election in December 2005, thereby securing another 7 years in office. This succession will impact on political developments in the future.

The leadership in the country made it known that the government has a strategy for being among the 50 most competitive countries globally (Root, 1994). This vision encompasses economic aspects as well as a solid democratic principles commitment. However, the latest Media Law amendments raised concerns regarding media freedom. The country is successful externally as it is pursuing a multi- dimensional foreign strategy purposed to maintain balanced neighbor’s relations. The country is also a participant in numerous regional organizations.

Legal environment

During the recent years, Kazakhstan has incorporated prominent reforms to the legal system. However, the country continues to undergo through substantial challenges in establishing the rule of law as well as related institutions, which are the sole determinants of an effective transition to an economy that is market-oriented. There has been a significant improvement in commercial laws during the recent years. Financial markets regulation, bankruptcy laws and secured transactions in Kazakhstan are a clear indication that even comparatively decent laws often suffer as a result of poor implementation. The implementation gap undermines specific laws utility in issue. In addition, it diminishes foreign investors, traders and Kazakhstan’s confidence in the entire legal system (Czinkota and Ronkainen, 1995).

Economic environment

The economic progress level in Kazakhstan does not match with the legal reform progress. It is worth noting that the two pillars are inter- dependent, and experience in transition countries shows that they are mutually reinforcing. Kazakhstan can only maximize the long- term economic capability if its determination for economic advancement matches with legal reform commitment.

The economy in 2004 grew by 9.6%, 9.4% in 2005 and 9.4% during the first six months in 2006. There has been a steady decline in unemployment levels. The monetary policy aims at stemming inflationary pressure via allowing Tenge nominal appreciation against the United States dollar and monetary tightening.

Technological environment

Technology is extremely significant in gaining competitive advantage when a company intends to compete globally. Moreover, technology is considered the key globalization driver since it allows organizations to produce services and products of high quality and cheaply. Technology offers businesses and consumers more innovative services and products which include novel generation mobile phones and internet banking. It is also useful in ensuring companies better serve and distribute customers for instance flight tickets, internet books and online auctions. Lastly, technology improves the communication process outside and inside the company by introducing novel communication ways (Johansson, 1997).

Management Implications

The organization’s expansion strategy will determine the best market entry mode. The main goal is an establishment in the international market. This calls for the formulation of an effective global marketing strategy so as to identify global capabilities, opportunities and explore resources, as well as use core competencies. This ensures that overall international strategies are implemented in a better way.  The new market entry strategy substantially determines the end results. Expansion in to the foreign market can be accomplished through direct investment, joint venture, licensing, franchising and exporting. The top management should consider the advantages and disadvantages of every entry mode. In addition, the management should follow
Charles et al (1990) advice “What entry mode that a multinational company chooses has implications for how much resources the company must commit to its foreign operations, the risk that the company must bear, and the degree of control that the company can exercise over the operations on the new market.”

It is extremely crucial that the Australian organization assesses the risk of the new market entry. This is because targeted markets are faced with high uncertainty levels in regard to government policies continuity and changing political philosophies. It is extremely necessary that a firm considers the internationalization stage strategies to be used so as to avoid political risks. Risks can be assesses through several ways. Johansson (1997) argues that there are four levels of risk analysis flow; general instability, expropriation, operations and finance. If risks are identified at any level, the Australian organization should reconsider the decision to enter Kazakhstan market.

Recommendations

There are several factors that foreign investors in Kazakhstan have to consider before entering the market. These include the underdeveloped infrastructure, widespread corruption, fluctuations in raw material prices, increased political pressure, low purchasing power and a comparatively small domestic market.

References

Wood, V. R. and Robertson, K. J. (2000) Evaluating international markets. International

Marketing Review.Vol. 3, iss.1, 12-34.

 

Charles, W.L.H., Peter, H. and Kim, W.C. (1990) An Eclectic Theory of the Choice of International Entry Mode. Wiley.

 

Johansson, J. K. (1997) Global Marketing: Foreign Entry, Local Marketing and Global

Management. Times Mirror Books.

 

Hollensen, S. (1998) Global Marketing – Market-Respective Approach. Hertfordshire, Prentice Hall.

 

Root, R.F. (1994)Entry Strategies for International Markets. Jossey-Bass, Inc., Publishers.

 

Czinkota, M. and Ronkainen,I. (1995) International Marketing. The Dryden Press.

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