What are strategies companies choose when trying to adapt to changes in the foreign marketplace?
What are some advantages large companies have over smaller companies when choosing a mode of entry strategy?
What factors should drive a company to continue in, expand, or exit its chosen market?
Various alternative strategies to tackle a foreign market:
A strategy is a long-term plan of action designed to achieve a particular goal.
1. Acquisition of a local firm
An acquisition can involve a cash and debt combination, or just cash, or a combination of cash and stock of the purchasing entity, or just stock.
The completion of acquisition involves higher commitment of capital and involves higher risk. As acquisition may not ensure the success of the resulting organization; indeed, many (in some industries, the majority) it may result in a net loss of value due to problems. Correcting problems caused by incompatibility-whether of technology, equipment, or corporate culture- diverts resources away from new investment, and these problems may be exacerbated by inadequate research or by concealment of losses or liabilities at one of the partners.
The benefit of acquisition of local firm is that it will have local know how, which will help in achieving the results quickly. It's a high risk and high return strategy.
2. Direct investment in production and distribution assets (Greenfield project)
In Greenfield Projects: A private entity builds and operates a new facility for the period specified in the project contract.
It will involve high commitment of resources as it involves capital investment like purchasing its own assets in an international country. It involves the highest risk and in turns the chances of highest return.
3. Joint venture
A joint venture (often abbreviated JV, and sometimes known by the older term joint adventure) is a strategic alliance between two or more parties to undertake economic activity together. The parties agree to create a new entity together by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship such as the Sony Ericsson joint venture.
A joint venture is often seen as a very viable business alternative in this sector, as the companies can complement their skill sets while it offers the foreign company a geographic presence.
1. Spreading costs and risks
2. Improving access to financial resources
3. Economies of scale and advantages of size
This soution discusses various alternative strategies for tackling new foreign markets in 1,449 words with references for further reading.