A
Report
On
Mode of entry for International Business
A Study On
Submitted To
Ms. Sharmin Sultana
Lecturer, Department of Management, Faculty of Business
Bangladesh University of Business & Technology (BUBT)
Submitted By
Abida Sultana Keya ID: 206
Sorifa Khan ID: 204
Nusrat Nueri Islam ID: 223
Bangladesh University of Business & Technology (BUBT)
Date of Submission: 17/09/2012
Letter of Transmittal
Date: September 17, 2012
Ms. Sharmin Sultana
Lecturer, Department of Management, Faculty of Business
Bangladesh University of Business & Technology (BUBT)
Sub: Submission of Report
Dear Sir:
With due respect we would like to inform you that we have completed our report on “International
Business, A Study on Walmart” and have the pleasure to submit herewith the references for your
kind consideration.
The report gave us the opportunity to enrich our theoretical knowledge. We had to learn and work
to know the overall about “International Busines” and get the relevant data to prepare this. We
express our deep gratitude to you kindly give the scope and help us to prepare this report properly.
We have tried our best to complete the pertinent information as comprehensively as possible.
Moreover, if you require any further clarification on this report, we will be delighted to make us
available to you immediately.
Sincerely Yours,
Abida Sultana Keya ID: 206
Sorifa Khan ID: 204
Nusrat nueri Islam ID: 223
19th Intake
Sec: 5
Program: BBA
Acknowledgement
Acknowledgement
At first we take the opportunity to thank the almighty. Next we would like to pay
our gratitude to Ms. Sharmin Sultana, Lecturer, Department of Management,
Faculty of Business (BUBT). The content guidance and advice of our faculty
advisor played the pivotal role in making the execution of the report. She always
gave us her suggestions that were crucial in making this report as flower as
possible. Then we express our thanks to our department and authorities for
granting us such opportunity in this level. First we would like to express our wish
and liberal supervision we were able to complete our report. We are deeply
indebted to her for removing some of our great confusion during our report-making
period. We are also thankful and grateful to her for her skilled effort and
contribution to build up our report methodological knowledge.
At last we would also like to convey our thanks to all of our well wishers and
relations for their voluntary and cooperation.
Table of contents
No.
Subject
Executive Summary
1.
Introduction
1.1
Origin of the Report
1.2
Significance
1.3
objective
1.4
Methodology
1.5
Data Collection
1.6
Limitations
2.
Company Profile
3.
Theoretical Aspects
3.1
Reasons for International Business
3.2
Mode of Entry
4.
Analysis & Findings
5.
Conclusion
6.
Reference
Page No.
Executive Summary
This report is prepared as a requirement of BBA program on the course MGT-405,
Business Policy and Strategy. This report focuses on International Business.
The total report can be divided into six broad head. The introduction part includes
origin of the report, objective, and methodology of the study. This part also
includes the data collection procedure and limitation of the study.
In second part, we have discussed about the overall company profile, Company’s
current situation, how it goes global, what strategy it follows and how much
successful it is in international business.
In the third chapter we discuss about the theoretical aspects that includes the
discussion about the international business, reasons of international business and
mode of entry.
In the final three parts, we have tried to include analysis and findings, draw a
conclusion on the above analysis and references.
Introduction
1.1 Origin of the report:As a part of the course- “Business Policy and Strategy” we were assigned for
doing our group report on the International Business. The report will definitely
benefit us in after graduation period to have an idea about the international
business and how to conduct business globally in the perspective of Bangladesh.
1.2 Significance:Discovering the reasons of international business and knowing the modes of entry
is a vital part of gathering knowledge about international business. The support of
most business organization for doing business globally in host country is important
to gain above average return.
This report helps us to broaden our knowledge about the reasons and mode of entry
for international business and we gather a short experience about how it affects a
company’s business as well as its profit.
1.3 Objective:Try to know about the overall situation & development of Walmart due to going
international, which will help us to know about the effective & necessity of
exporting, licensing, franchising etc.
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1.4 Methodology:a) Sources of information: Primary sources: There were no primary sources. We used all secondary
sources.
 Secondary sources: We used secondary data to prepare this report. We
browsed the wikipedia & the official websites to gather more information
about the topic.
b) Data collection:
We used only the secondary data for preparing this report.
1.5 Limitation:There might be some biases, as lack of knowledge & depth of understanding might
hinder us to produce an absolutely authentic & meaningful report. Lack of sources
of information is the main challenges that we faced while doing this project. So the
project has its own limitation factors.
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 WBgcocga aghnrBgsudhgfreegaosBga gd adBaaenaBg ag uegw ek.
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i mmoreB.
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 Time constraint was another limitation restricting this report from being
more detailed & analytical.
Company Profile: About Walmart
01. Market Development:
The decision of Wal-Mart to expand into other countries
reflects the Market Development cell of Ansoff’s strategic
opportunities matrix (also known as the Marketing
Opportunities Matrix). In this situation, the company is taking
its current market offering and setting up, essentially, as is, in a
new geographic area. The major characteristic of market
development is a change in the target market, whether it is
based on a different geographic area or another characteristic of
the selected target market.
02. Business Model:
A business model is a description of how the business operates, indicating the
major participants (company, suppliers/markets), product flow, revenue sources
and uses, structural relationships among participants, facilities, etc. In the WalMart case, there are suppliers, company headquarters, distribution centers,
transportation facilities, retail outlets, customers, etc. Revenue is based on direct
payment (versus commission, royalties, etc.). Read through the case and draw a
flow chart showing the different components and relationships (i.e., how things
work) are there future plans indicated that can be added to the model.
03. Channel Captain:
Because of the size and economic power of Wal-Mart in the channel of distribution
involving its suppliers, Wal-Mart has assumed the role of channel captain. A
Channel Captain is defined as a member of a channel that exercises authority or
power over other members of the channel. In this case, a retailer is the channel
captain.
04. Monopolistic Competition:
Since there are a number of retail operations that are similar to Wal-Mart,
competing in the same consumer market, the economic structure of the industry is
that of Monopolistic Competition. While such stores compete on a number of retail
mix dimensions, each store has a degree of uniqueness that allows it to attract
certain customers because of a degree of “monopoly” in this area (e.g., unique
location, image, location, and price). [Other economic structure forms include
monopoly, oligopoly, duopoly, and pure competition.]
05. Strategy:
Strategy refers to the nature of the policy structure of the firm. In this situation,
Wal-Mart (WM) has established very specific policies with respect to their
dealings with suppliers. A policy indicates what the general approach of the firm is
like [e.g., a skimming pricing policy indicates that the firm will set a very high
price when the product is first introduced, but, over time, the price will come
down. The actual price set is a tactic.]
06. Tactics:
Tactics refer to the detailed aspects pertaining to the implementation of a strategy
(e.g., actual prices, color and design of the store, details of exchange and return
policies, delivery requirements of suppliers).
07. Conflict:
When one party in a channel relationship takes action that jeopardizes the goal
attainment (e.g., sales, profit) of another party in a channel, then channel conflict is
said to exist. Requiring suppliers to meet the price demands set by Wal-Mart
places the two parties [i.e., the buyer (Wal-Mart) and the seller (i.e., the supplier)
into conflict. The possibility of a push-back by the suppliers because of WM’s
continued pressure to have the suppliers reduces their prices indicates the presence
of conflict.
08. Power:
In a channel relationship, when one channel member seeks to get the other channel
member to do something they would not otherwise do, then the former has Power
over the other channel member. The different types of power that can be identified
in a channel relationship include the following: Reward, Coercion (i.e.,
punishment), and Expert (one channel member wants the knowledge of the other
channel member), Referent (want to identify, be part of the channel, involving the
other channel member), and Legitimate (legal base - contract) power.
09. Competitive Advantage:
If one firm has a characteristic that is viewed as more positive or more acceptable
by the market, such that it attracts the customers, particularly to the detriment of
the competition, then the former firm has a competitive advantage (e.g., low price,
location). Such characteristics, however, can often be easily matched, and
neutralized, by the competition, particularly, price (e.g., air fares).
10. Sustainable Competitive Advantage:
If the characteristic on which a firm establishes a competitive advantage cannot
easily and readily be copied by competing firms, then the former firm is said to
have a sustainable competitive advantage (e.g., patent, location).
11. External Environment:
The external environment in which a firm operates consists of the following
primary categories - Competition, Economic Environment, Regulatory
Environment, Technological Environment, Social Environment (CERTS). The
latter environment, Deals with the cultural and political nature of the environment.
12. Certainty/Uncertainty/Risk:
WM is performing well, despite the overall weakness in the world economy and
the uncertain market environment. Risk means there is a possibility of loss.
Uncertainty means that the actual outcome for the situation is uncertain - i.e., there
is doubt as to the outcome. Certainty means that the actual outcome for the
situation is certain - i.e., there is no doubt as to the outcome.
13. Economic Environment (CERTS):
The world economy is one aspect of the Economic Environment.
14. Growth Stage of the Retail Life Cycle (RLC)/Product Life Cycle (PLC):
In Q2 of 2003, WM had an increase in sales, indicating that it is in the Growth
Stage of the Product Life Cycle (or it could be in the Maturity Stage as an
institution, since it does not indicate whether sales are increasing at an increasing
rate (Growth) or increasing at a decreasing rate (Maturity). The concept of Retail
Life Cycle indicates that retail institutions, like products and services, pass through
very distinct stages: Innovation, Accelerated Development, Maturity, and Decline.
The parallel stages for the Product Life Cycle are Introductory, Growth, Maturity,
and Decline. In each case, there is actually a Saturation stage (between the
Maturity and Decline stages), where sales are constant.
15. Marketing Opportunities Matrix:
Company has expanded into Germany, South Korea, China, and the UK. This
indicates that WM has engaged in Market Development (taken its current operation
as is into a new (geographic) market or at the most, has engaged in minimal
Diversification (new market offering in a new geographic market). There is a range
of Diversification that a firm can follow: from a slight change in the product or
market offering (e.g., alter some policies to meet market situation) to a significant
change (totally new product in a new market). The other two cells of the Marketing
Opportunities Matrix are Product Development (create a new product for the
current market) and Market Penetration (attempt to increase sales of the current
products to the current target market).
16. Retail Life Cycle:
The store started 3 decades ago; this was the beginning of its Retail Life Cycle Innovation.
17. Accelerated Development (RLC)/Growth Stage (PLC):
There is concern whether WM can sustain the pace of growth of the past. This
indicates WM is concerned about what would happen once it entered the Maturity
stage, when growth is slower.
18. Attitude/Social Environment (CERTS):
The backlash against big-box retailers deals with the Social Environment and
indicates a changing Attitude by members of society toward such stores.
19. Intra-Type Horizontal Competition (Conflict):
Dollar General is a retail firm that is expected to compete directly with WM,
thereby creating a conflict situation between the firms. Intra-Type (Horizontal)
Competition means the firms are at the same level in the channel (i.e., retail) and
are of the same type (i.e., general merchandise stores). Any competition that is at
the same level (i.e., retail) but of a different type (e.g., drug store or supermarket)
that competes with WM reflects Inter-Type (Horizontal) Competition (Conflict).
The concept of conflict applies in the case of competition since when one store
gets a sale from a customer the other store does not get the sale; hence, only one of
the firms achieves the sales/profit goal.
20. RLC (Innovation):
Since Dollar General is a recent market entry; it is in the Innovation Stage of the
RLC.
21. Perception (Belief) –> Attitude –> Behavior Model:
The new competition indicates that customers get lost in WM stores because they
are too big (cavernous). This belief, and resulting Attitude [i.e., an organized
configuration of cognitions (beliefs)] is expected to lead customers to the new
competition, since the stores are smaller and the prices (th0e main drawing card of
WM) are comparable. Thus, Attitude leads to Behavior, based on consumers’
Perception of the stores. In this way, the consumer increases the level of utility
(i.e., that which results from the satisfaction of needs and wants) received from
shopping. [Needs relate to desires of the human organism (see Maslow’s Hierarchy
of Needs); wants channel needs toward available market options (e.g., you need
food but want a Big Mac!)].
22. Neutralize Competitive Advantage:
WM’s strongest weapon is low price, generally giving it a Competitive Advantage.
However, since Dollar General offers comparable low prices, the price advantage
of WM is neutralized, putting both firms on the same ground. Price is one of the
easiest Marketing Mix components to match, particularly for comparable firms.
23. Retailing Mix:
A retailing strategy comprises a target market and a retailing mix (parallel to the
concept of Marketing Mix and Marketing Strategy). The store facilities (size and
resulting atmosphere) are one component of the Retailing Mix. The size of the
WM stores is believed to be too big for some customers.
24. Economies of Scale/Competitive Advantage:
While WM stores are larger than the Dollar General stores, is WM able to take
advantage of Economies of Scale with the larger stores? Are the fixed and variable
costs per dollar of sale lower for WM than for Dollar General, since these costs can
be spread over higher square footage? If WM can achieve such lower costs, then it
would have a Competitive Advantage over the competition, even if prices are
comparable, and would have a higher profit margin. Or does WM face
Diseconomies of Scale with the larger stores (i.e., too large to efficiently operate)?
What is the optimal size for a WM store?
25. Monopolistic Competition:
WM has other competitors (Carefour, Metro, Auchan, Ahold, and Tesco) in the
emerging markets that compete directly for the same target market; for this reason,
WM is in a Monopolistic Competition Environment.
26. Experience Curve/Competitive Advantage:
Since the competition had entered the emerging markets before WM, these firms
have had time to learn the nature of this market. This gives these firms a
competitive advantage over WM, until WM moves along the Experience Curve
and gains the same understanding.
27. Reward Power and Coercive Power:
WM has the use of Reward Power and Coercive Power over the Manufacturers. By
offering a manufacturer, WM rewards the company with sales and potential profit;
by denying the manufacturer a contract of sale for not following the dictates of
WM (use of Coercive Power (punishment), the manufacturer loses sales and
potential profit. Because of the volume of sales achieved by WM, WM has a strong
base of Power over the suppliers.
28. Dealer (Store) Brands and Manufacturer Brands:
Promoting its own labels and store brands (aka: Dealer Brands) gives WM another
source of market power. These brands do not identify the actual manufacturer of
the product on the label; the label only indicates that it was made for the Retailer,
or some other Channel Intermediary (e.g., Broker, Wholesaler). [Retailers,
Wholesalers, and Brokers are examples of Channel Intermediaries - they exist
between the Manufacturer level and the Consumer level. Manufacturers are not
channel intermediaries. Since WM controls the shelf space in its stores, it can
determine where and how many shelf facings (number of rows of a given brand a
customer sees on the shelf) to allocate to its brands. Space within a store is a
limited resource, a resource a store wants to utilize efficiently. Dealer brands tend
to cost the retailer less than Manufacturer Brands [brands that identify the name of
the manufacturer on the label (e.g., Tide Detergent - Procter & Gamble, Diet Coke
- Coca- Cola)] and offer a higher profit margin. Allocation (how much space given
to a brand) and Arrangement (where brand is placed on a shelf - e.g., top shelf, eye
level, and bottom shelf) are two important areas for retailers.
29. Conflict and Power/Gatekeeper:
In order for suppliers to ensure contracts with WM, price concessions are required.
This causes a Conflict between the two levels of the Indirect Marketing Channel
(manufacturers sell to retailers who then sell directly to final consumers, but
indirectly on behave of manufacturers): WM wants to achieve its goals of higher
sales and profits and the manufacturers want to achieve the same; but it is not a
zero-sum game, since both parties cannot maximize the attainment of their
respective goals, someone needs to make a concession.
This is accomplished by offering some form of reward to the Retailer (e.g., lower
price). Thus, any party to a transaction can make use of the different forms of
Power. In the current situation, WM is demanding price concessions (a component
of the Marketing Mix, generally, a controllable variable on the part of the firm). If
the suppliers comply, they will be rewarded; if they do not comply, they will face
punishment in terms of lost sale (i.e., use of Coercion on the part of WM).
30. Contract Manufacturers/Competitive Advantage/Sustainable
Competitive Advantage:
Contract manufacturers are firms that produce product-brands for Channel
Intermediaries (retailers, brokers, wholesalers). The label of the product only
indicates that the product was made for the contracting channel intermediary; it
does not directly indicate the actual manufacturer. Channel Intermediaries with
dealer brands that have strong consumer demand obtain a Competitive Advantage
over the competition, since such brands (i.e., label) are only available from that
dealer. Most manufacturer brands are available from a wide variety of retail
outlets, thereby neutralizing any stocking advantage a retailer may seek to achieve.
In a sense, by developing a dealer brand, such an advantage can achieve the level
of a Sustainable Competitive Advantage, since no one else can offer the same
product-brand (e.g., Kenmore brand by Sears), as long as there is strong market
demand for the brand. Of course, competitors (i.e., other dealers and
manufacturers) can weaken such a market position by coming out with their own
similar brands. Offering dealer brands also shifts market power from the
manufacturer to the channel intermediary.
Theoretical Aspects
Reasons for International Business:
THE EXACTING DEMANDS OF A BUYER’S MARKET
The compulsion to become Price Competitive: In the past, shortage was
one of the regular features pervading the Indian economy. There was shortage
practically in every sector, consumer goods, industrial goods and services. It was
basically a case of production not being raised to meet the growing demand. There
were several reasons for this. Many companies were going on with old plants and
outdated processes, and therefore, could not increase production. Many others
could not increase production though endowed with better production facilities
because of the licensing restrictions. Addition of fresh capacity also was out of the
question because of the license regime. In many cases, price control by the
government acted as an additional cause of production shortfall. Often, price
control served as a disincentive for production. This is nicely explained by T.
Thomas, a well-known Indian industry leader and former chairman of HLL.
Describing the travails of those days, he says, As the rigors of price control
continue, honest manufacturers will find it unviable to continue the manufacture of
products. They will even try to minimize their losses by reducing their production.
This happened in the soap and vanaspati industries in the 1970s, which created
widespread shortages and rampant black marketing.
The trade was able to sell the product at an unofficial premium of 100%, the
manufacturers were forced to sell at highly controlled prices which were not
remunerative. They had to discontinue production in order to curtail cash losses
incurred on every ton of product. Black marketers among the manufacturers
thrived o the shortages and amassed unaccounted tax-free money, which they
shared happily with those who could be of use to them. To make things worse,
some manufacturers, with their vested interests in shortage, deliberately promoted
the shortage, creating artificial scarcities. A sellers market prevailed in every
segment. The barriers to entry into industries and the limits on growth of firms had
led to an accentuation of the seller’s market conditions. In many cases, the controls
served the interests of such sellers rather than those of the buyers. There was very
little emphasis on cost reduction, technology up gradation and improvement of
quality and customer convenience. The buyers suffered as a result of these vested
interest sellers.
From rationing to marketing:
A shift from shortage to surplus and from rationing to marketing has been a major
development of the post-liberalization regime. The government has removed the
controls on capacity creation and capacity utilization. Industries have been given
total freedom for expansion and diversification. Decisions on investments have
been left to the entrepreneurs. Controls on prices of products have also been
removed. Investments have now been taking place in areas of demand as a result of
removal of restrictions. Production automatically increased to meet demand.
In fact, the country has already started experiencing a transition from rationing to
marketing. In several products, increased availability became a reality even before
any expansion of capacities and production took place. The liberalization of
imports and the reduction in import tariffs did the trick. It expedited the
changeover to a buyer market by instantly enhancing supplies.
The new buyers market amounted to a major challenge to Indian challenge to
Indian industry and business because it enjoined on them a number of exacting
demands. The developments have already exposed the weakness of companies,
especially the ones who were till now in a near monopoly situation, with customer
at their mercy in all matters such as product availability, pricing and quality. The
companies now face challenge on all these fronts.
The challenge in pricing is particularly formidable. All these years, they could
blindly follow a cost plus pricing policy, with attractive profits built in. In the new
buyers market, it will no longer be possible for firms to follow this practice and
pass on all cost escalations automatically to the buyers. This reality throws up new
pressures on margins and profits of the companies. Now they have to be price
competitive.
The new super markets in the real sense like Big Bazaar or Giant with their
establishments spread over 20,000 to more than 50,000 are able to give the
consumers products at less than even whole sale prices. They are able to do it
making a pricing contract with Importers or producers directly without any middle
men. The display of products in their stores is made on the state of the art shelves
and the prices are displayed giving a comparison with normal market prices.
Buyers are also given incentives like buy 5 kg and get 5 kg free (Rice or sugar).
DOMESTIC TO INTERNATIONAL BUSINESS
Export business is different in many ways from domestic business; especially the
risks and complexities associated with exports tend to be higher. Therefore, the
decision to enter foreign markets must be based on strong economic factors.
Temperamental decision to export is transient in character and is totally unsuitable
for export marketing. Success in exporting requires total involvement and
determination which can come only out of basic economic necessity as perceived
by the corporate unit.
Pre-Export behavior: Every firm at some point of time starts as a non-exporter.
The point to be studied is what made some of these firms get involved in export
business. This might give a clue to the question as to whether a present nonexporter will become an exporter and if so why and when.
The factors which influence a non-exporting firm’s decision to go in for export
business can be classified under the following categories:
Firm Characteristics: These characteristics include (a) product characteristics (b)
size and growth of the domestic market, (c) optimal scale of production, and (d)
potential export markets. If the firm is manufacturing a product which is
internationally marketable and the present and future market prospects in the
domestic market are not encouraging, the motivation of the firm to get involved in
export business will be considerable.
Perceived external Export stimuli: Under these falls the management recognition
of the external market conditions. This will include (a) fortuitous order, (b) market
opportunity, and (c) government’s stimulation/assistance.
Perceived Internal Export Stimuli: These refer to the management expectations
about the effects of exports on the firm’s business. This covers (a) the level of
capacity utilization, (b) the higher level of profit, and (c) the growth objectives of
the firm.
Level of organizational Commitment: The decision makers must agree on the
level of export commitment. This is crucial because it will determine whether
adequate resources will be made available for embarking on international
marketing. Resources will be required for hiring new staff specialized in
international marketing, hiring of consultants for carrying out overseas market
potential studies.
Motivation to Export: There are some basic economic reasons which influence a
company decision regarding export business. These are:
1. Relative Profitability:
The rate of profit to be earned from export business may be higher than the
corresponding rate on the domestic sales. Further experience shows that there has
been a progressive improvement in the unit value realization of certain export
products.
2. Insufficiency of Domestic Demand:
The level of domestic demand, either at a point of time or over time, may be
insufficient for utilizing the installed capacity in full. Export business offers a
suitable mechanism for utilizing the unused capacity. This will reduce costs and
improve the overall profitability of the firm. Recession in the domestic market
often serves as a stimulus to export ventures. In fact, export of engineering goods
from India picked up momentum at the time of recession in the Indian economy
during 1967-69 when manufacturing units faced with large inventories and weak
order book position, turned to export markets. Developing diversified export
markets thus provides a firm with a degree of protection against cynical domestic
economic slowdown. But it must be emphasized that there is an inherent danger in
looking at exports to merely supplement the domestic business at the time of crisis.
Penetrating foreign markets is a difficult job but sustaining them is even more
onerous. Therefore, once a decision is taken to enter international markets, every
effort will have to be made to retain them. And this can be done only when export
marketing operations are recognized as an integral part of the total corporate
activity.
MARKET COVERAGE STRATEGIES IN INTERNATIONAL
BUSINESS
One of the important decisions to be made in international business is the market
coverage strategy. Like other strategic decisions, this is also determined by
consideration of external and internal factors.
A company should decide whether it should concentrate on one or a few markets
or should spread over all the markets (or the major part of it). If it decides for all
the markets then it has to take the next decision whether the whole market be
reached with a single marketing mix or whether each of the different markets be
reached with a separate marketing mix.
There are, thus, three alternate market coverage strategies namely,
1. Concentrated marketing strategy
2.Undifferentiated marketing strategy
3.Differentiated marketing strategy.
The concentrated marketing approach is based on a decision to achieve a
maximum penetration in one or more segments to the exclusion of the rest of the
market. Instead of spreading itself thinly in many parts of the world, it decides to
concentrate its forces on a few clearly defined areas. The company may be able to
attain a strong position in this market by concentrating its resources and
competencies over it. As Stanton observes, a small firm limited resources might
compete effectively in one or two market segments, whereas the same firm would
be buried if it aimed for the market. By employing the strategy of market
segmentation, a company can design products that really match the markets
demands.
Companies with ethnocentric may sometimes adopt a concentrated marketing
strategy in respect of the foreign markets by the product extension strategy, i.e. the
company may concentrate on those foreign market / markets or segments where it
can sell the same products as sold in the home market.
Concentrated marketing may sometimes go well with polycentric orientation also.
The advantages of concentrated marketing have already been indicated above. The
major disadvantages of it are the risks of keeping all the eggs in one basket.
Niche Marketing:
The concentrated marketing strategy sometimes takes the form of niche marketing
i.e. concentrating on a market segment that is not satisfactorily served or which is
ignored by the major players. Such a strategy avoids a direct and immediate
competition with major firms. There may also be niche markets with virtually no
competition. Market niching is a strategy very successfully employed by many
Japanese companies in the foreign market. This was in fact a foreign market entry
strategy resorted to in the past by several large Japanese companies of today. After
consolidating its position in the niche market and after gaining experience and
resources, a company may enter other segments and may even become a major
player in due course. A number of Indian companies have also niching as a foreign
entry strategy. For example, in the US toothpaste market, dominated by large
multinationals, Balsara identified a niche for a herbal dental product. Similarly the
Vicco identified a niche in the overseas market for a sugar free toothpaste
(ViccoSF). Several Indian companies have found a niche in the ethnic population
abroad. In many cases the nicher achieves high margin whereas the mass marketer
achieves a high volume. The main reason is that the market nicher ends up
knowing the target customer group so well that it meets their needs better than
other firms that are casually selling to this niche. As a result, the nicher can charge
a substantial mark up over costs because of added value.
While selecting a niche, the firm should ensure that:
1. The niche should be of sufficient size to be profitable and it has growth
potential.
2. There is no much competition and that it is not of interest to major competitors.
3. The firm has the capabilities to serve the segments so well that it will have an
edge over other firms.
4. The firm will be capable of defending its domain.
Nichers have three tasks: creating niches, expanding niches and protecting niches.
When a niche proves to be very profitable it is likely to attract a lot of competition
both from small and large firms. A nicher should, therefore, try to maintain its
dominance by innovation and maximum customer satisfaction.
Niching has become so popular that many large firms are adopting this strategy. A
number of them like Johnson & Johnson, EG &G and Illinois Tool works have set
up business units or companies to serve niches.
ENVIRONMENTAL ISSUES IN INTERNATIONAL BUSINESS
Environmental issues have been engaging increasing discussion in the international
business horizon. As in the case of some other social issues in the fore, the
environmental issues raised are mostly which disadvantage the developing
countries, ignoring or relegating to the background several serious which hold the
developed nations or firms from such nations guilty.
Some countries prohibit the import of goods which cause ecological damage. For
example, the US has banned the import of shrimp harvested without turtle excluder
devise because of its concern for the endangered sea turtles. Countries like India
are affected by it. Developing countries are affected by the relocation of polluting
industries from the developed it the developing ones. Similarly, several products
which are banned in the developed nations are marketed in the under developed
world.
The dumping of nuclear and hazardous wastes in developing countries and the
shifting of polluting industries to the developing countries impose heavy social
costs on them. The exploitation of the natural resources of the developing countries
to satisfy the global demand also often causes ecological problems. When the
multinationals employ in the developing nations polluting technologies which are
not allowed in the developed countries or do not care for the ecology as much as
they do in the developed nations, it is essentially a question of ethics. Another
serious problem is that developed nations sometimes raise environmental issues as
a trade barrier or a coercive measure rather than for genuine reasons.
The debate has intensified in recent years on the links between trade and the
environment, and the role the WTO should play in promoting environmental
friendly trade. A central concern of those who have raised the profile of this issue
in the WTO is that there are circumstances where trade and the pursuit of trade
liberalization may have harmful environmental effects. There main arguments are
forwarded as to how this might occur. First, trade can have adverse consequences
on the environment when property rights in environmental resources are ill defined
or prices do not reflect scarcity This situation results in production or consumption
‘externalities’ and can lead to the abuse of scarce environmental resources and
degradation, which is exacerbated through trade. Some of the pollution can be
purely local, such as a very noisy factory. Other pollution can have global
repercussions, for example, the excessive emission of greenhouse gases, the
destruction of rainforests, and so on. Critics argue that trade liberalization which
encourage trade in products creating global pollution is undesirable.
The second argument linking trade and the environment is related to the first one.
If some countries have low environmental standards, industry is likely to shift
production of environment-intensive or highly polluting products so called
pollution havens. Trade liberalization can make the shift of ‘smoke stack’
industries across borders to pollution havens even more attractive. If these
industries then create pollution with global adverse effects, trade liberalization,
indirectly, promote environmental degradation. Worse trade induced competitive
pressure may force countries to lower their environmental standards. The argument
in other words, is that trade liberalization leads to a race to the bottom in
environmental standards.
The third concern about environmental issues is the role of trade relating to more
social preferences. Some practices may simply be unacceptable for certain people
or societies, so they oppose trade in products which encourage such practice. These
can include killing dolphins in the process of catching tuna, using leg hold traps for
catching animals for their furs, or the use of polluting production methods which
have only local effects.
On the other hand, it has also been pointed out that trade liberalization may
improve the quality of the environment rather than promote degradation. First,
trade stimulates economic growth and growing prosperity is one of the key factors
in societies demand for a cleaner environment. Growth also provides the resources
to deal with environmental problems at hand – resource which poor countries often
do not have. Second, trade and growth can encourage the development and
dissemination of environmental friendly production techniques as the demand for
cleaner products grows and trade increases the size of markets. International
companies may also contribute to a cleaner environment by using the most modern
and environmentally clean technology in all their operations.
Mode of Entry:
A mode of entry into an international market is the channel which your
organization employs to gain entry to a new international market. This lesson
considers a number of key alternatives, but recognizes that alternatives are many
and diverse. Here you will be consider modes of entry into international markets
such as the Internet, Exporting, Licensing, International Agents, International
Distributors, Strategic Alliances, Joint Ventures, Overseas Manufacture and
International Sales Subsidiaries. Finally we consider the Stages of
Internationalization. There are some basic decisions that the firm must take before
foreign expansion like: which markets to enter, when to enter those markets, and
on what scale.
Which foreign markets?
-The choice based on nation’s long run profit potential.-Look in detail at
economic and political factors which influence foreign markets.-Long run benefits
of doing business in a country depends on following factors:- Size of market (in
terms of demographics)- The present wealth of consumer markets (purchasing
power)- Nature of competition By considering such factors firm can rank countries
in terms of their attractiveness and long-run profit.
Timing of entry:It is important to consider the timing of entry. Entry is early when an international
business enters a foreign market before other foreign firms. The advantage is
when firms enter early in the foreign market commonly known as first-mover
advantages.
First mover advantage;1. it’s the ability to prevent rivals and capture demand by establishing a strong
brand name.
2. Ability to build sales volume in that country, so that they can drive them out of
market.
3. Ability to create customer relationship
Disadvantage:
1. Firm has to devote effort, time and expense to learning the rules of the country.
2. Risk is high for business failure (probability increases if business enters a national
market after several other firms they can learn from other early firms mistakes)
Modes of entry:1. Exporting
2. Licensing
3. Franchising
4. Turnkey Project
5. Mergers & Acquisitions
6. Joint Venture
7. Acquisitions & Mergers
8. Wholly Owned Subsidiary
1. Exporting:
It means the sale abroad of an item produced, stored or processed in the supplying
firm’s home country. It is a convenient method to increase the sales. Passive
exporting occurs when a firm receives canvassed them. Active exporting
conversely results from a strategic decision to establish proper systems for
organizing the export factions and for procuring foreign sales.
Advantages of Exporting:
Need for limited finance; if the company selects a company in the host country
to distribute the company can enter international market with no or less
financial resources but this amount would be quite less compared to that
would be necessary under other modes.
Less Risks; Exporting involves less risk as the company understands the
culture, customer and the market of the host country gradually. Later
after understanding the host country the company can enter on a full scale.
Motivation for exporting: Motivation for exporting is proactive and reactive.
Proactive motivations are opportunities available in the host country.
Reactive motivators are those efforts taken by the company to export
the product to a foreign country due to the decline in demand for its product
in the home country.
2. Licensing :
In this mode of entry, the domestic manufacturer leases the right to use its
intellectual property like technology, copy rights, brand name etc to a manufacturer
in a foreign country for a fee. Here the manufacturer in the domestic country is
called licensor and the manufacturer in the foreign is called licensee. The cost
of entering market through this mode is less costly. The domestic company can
choose any international location and enjoy the advantages without incurring
any obligations and responsibilities of ownership, managerial, investment etc.
Advantages:
Low investment on the part of licensor
Low financial risk to the licensor
Licensor can investigate the foreign market without much efforts on his part
Licensee gets the benefits with less investment on research and development
Licensee escapes himself from the risk of product failure.
Disadvantages:
It reduces market opportunities for both
Both parties have to maintain the product quality and promote the product.
Therefore one party can affect the other through their improper acts
Chance for misunderstanding between the parties
Chance for leakages of the trade secrets of the licensor
Licensee may develop his reputation
Licensee may sell the product outside the agreed territory and after the
expiry of the contract.
3. Franchising
Under franchising an independent organization called the franchisee operates the
business under the name of another company called the franchisor under this
agreement the franchisee pays a fee to the franchisor. The franchisor provides the
following services to the franchisee:
Trade marks
Operating System
Product reputation
Continuous support system like advertising, employee training, and
reservation services quality assurances program etc.
Advantages:
Low investment and low risk
Franchisor can get the information regarding the market culture, customs
and environment of the host country
Franchisor learns more from the experience of the franchisees
Franchisee get the benefits of R& D with low cost
Franchisee escapes from the risk of product failure.
Disadvantages:
It may be more complicating than domestic franchising
It is difficult to control the international franchisee
It reduce the market opportunities for both
Both the parties have the responsibilities to maintain product quality and
product promotion
There is a problem of leakage of trade secrets.
4. Turnkey Project:
A turnkey project is a contract under which a firm agrees to fully design, construct
and equip a manufacturing/ business/services facility and turn the project over to
the purchase when it is ready for operation for remuneration like a fixed price,
payment on cost plus basis. This form of pricing allows the company to shift
the risk of inflation enhanced costs to the purchaser. E.g. nuclear power plants,
airports, oil refinery, national highways, railway line etc. Hence they are multiyear
project.
5. Mergers & Acquisitions:
A domestic company selects a foreign company and merger itself with foreign
company in order to enter international business. Alternatively the domestic
company may purchase the foreign company and acquires it ownership and
control. It provides immediate access to international manufacturing facilities and
marketing network.
Advantages
The company immediately gets the ownership and control over the acquired
firm’s factories, employee, technology, brand name and distribution
networks
The company can formulate international strategy and generate more
revenues
If the industry already reached the stage of optimum capacity level
or overcapacity level in the host country.
Disadvantages:
Acquiring a firm in a foreign country is a complex task
This strategy adds no capacity to the industry
Sometimes host countries imposed restrictions on acquisition of local
companies by the foreign companies
Labor problem of the host country’s companies are also transferred to the
acquired company.
6. Joint Venture
Two or more firm join together to create a new business entity that is legally
separate and distinct from its parents. It involves shared ownership. Various
environmental factors like social, technological economic and political encourage
the formation of joint ventures. It provides strength in terms of required capital.
Latest technology required human talent etc. and enable the companies to share the
risk in the foreign markets. This act improves the local image in the host country
and also satisfies the governmental joint venture.
Advantages
Joint venture provides large capital funds suitable for major projects
It spread the risk between or among partners
It provide skills like technical skills, technology, human skill , expertise ,
marketing skills
It make large projects and turn key projects feasible and possible
It synergy due to combined efforts of varied parties.
Disadvantages:
Conflict may arise
Partner delay the decision making once the dispute arises. Then the
operations become unresponsive and inefficient
Life cycle of a joint venture is hindered by many causes of collapse
Scope for collapse of a joint venture is more due to entry of competitors
changes in the partners strength
The decision making is slowed down in joint ventures due to the
involvement of a number of parties.
7. Acquisitions & Mergers
A merger is a voluntary and permanent combination of business whereby one or
more firms integrate their operations and identities with those of another and
henceforth work under a common name and in the interests of the newly formed
amalgamations.
Motives for acquisitions:
Removal of competitor
Reduction of the Co failure through spreading risk over a wider range of
activities
The desire to acquire business already trading in certain markets &
possessing certain specialist employees &equipments
Obtaining patents, license & intellectual property
Economies of scale possibly made through more extensive operations
Acquisition of land, building & other fixed asset that can be profitably sold
off
The ability to control supplies of raw materials
Expert use of resources
Tax consideration
Desire to become involved with new technologies &management method
particularly in high risk industries.
8. Wholly Owned Subsidiary
Subsidiary means individual body under parent body. This Subsidiary or individual
body as per their own generates revenue. They give their own rent, salary to
employees, etc. But policies and trademark will be implemented from the Parent
body. There are no branches here. Only the certain percentage of the profit will
be given to the parent body. A subsidiary, in business matters, is an entity that is
controlled by a bigger and more powerful entity. The controlled entity is called a
company, corporation, or limited liability company, and the controlling entity is
call edits parent (or the parent company). The reason for this distinction is that
alone company cannot be a subsidiary of any organization; only an entity
representing a legal fiction as a separate entity can be a subsidiary. While
individuals have the capacity to act on their own initiative, a business entity can
only act through its directors, officers and employees. The most common way
that control of a subsidiary is achieved is through the ownership of shares in the
subsidiary by the parent. These shares give the parent the necessary votes
to determine the composition of the board of the subsidiary and so exercise control.
Analysis & Findings
U.S. retail giant Wal-Mart is keeping a close eye on Southeast Asia for expansion
as it continues to expand its presence in India, China and Japan.
Scott Price, president and CEO of Wal-Mart Asia, said the company was keen to
maintain its position as a major retailer. “We will capture 10 to 15 markets in Asia
in ten years. At present, expansion plans for India alone is the full time job for us,”
Price said it would be wrong to compare India and China, but that India has a lot of
potential and a highly educated workforce, which Wal-Mart is concentrating on as
a means of increasing sourcing for their stores all over the world. “The government
should take care of issues related to FDI, GST and providing infrastructure
support. Wal-Mart will keep persisting because its efforts in India are critical to its
global growth strategy,” Price said. “Wal-Mart needs to develop a larger presence
in emerging markets like India, “where modern stores make up just 5 percent of the
country’s retail industry.”Wal-Mart, which is currently working in a joint venture
with Bharti group in India, is moving towards contract farming in the country,
starting with their direct farm initiative. Establishing good relations with farmers
has been a keystone of the company’s India strategy according to Price. At present,
the JV has tied up 110 farmers at Malerkotla which is expected to be expanded in
an effort to reduce the net food miles
Some analysts were looking for less glitz and more details about how it would
improve its U.S. business and boost its stock price. "This had less meat," said Brian
Sozzi, an analyst with Wall Street Strategies. "They've cut costs. They've cut
inventory. But something isn't working. What else can they do to get traffic up?"
Wal-Mart shares are trading less than $2 higher than during last June's shareholder
meeting. They closed Thursday at $51.72, down almost 5 percent from where they
closed the first day of trading this year.
Wal-Mart shares slipped more than $1.05, or 2 percent, to $50.67 in afternoon
trading Friday. Duke focused on long-term issues, saying he wants to expand WalMart's influence in social issues and "become a truly global company."
Duke also said the company, the target of a class-action lawsuit alleging gender
bias, is committed to training women "everywhere in our company and at all levels
of our company." The lawsuit, with more than 1 million potential members,
accuses Wal-Mart of discriminating against women in hiring and promotions. The
New York Times reported Friday that Wal-Mart had hired a prominent law firm
more than six years before the largest sex discrimination lawsuit in history was
filed to examine its vulnerability. The firm's report found widespread disparities in
pay and promotion, the Times reported. Duke also said the company must further
tighten its expenses to keep its hallmark low prices lower than the competition.
"Wal-Mart must widen the gap here. We will win on price leadership, and we will
win big," he said.
References
www.faeriekeeper.net
www.questgarden.com
www.scholar.google.com
www.betterprojects.net
www.pmtoolbox.com
Meredith, Jack R and Mantel, Samuel J, “Project Management: A
managerial Approach”.
Michael A. Hitt, R, Duane Ireland, Robart. E. Hoiskisson. “Strategic
Management”