Firms enter foreign markets for many reasons. Successful entry depends on matching the firm's strategy and competencies to the right kind of market conditions. Choosing which foreign markets to enter will have long-term implications for the success of any business.
Firms have three basic decisions to make: which markets to enter, when to enter those markets, and on what scale they should enter the market. There is no single, correct answer for all firms. Each firm must decide the best approach based on its strategic approaches and the realities of the market.
Read the overview below and complete the activities that follow.
A number of factors must be considered when a firm chooses to enter a foreign market. These elements are interrelated, but separate analyses and decisions must be made. Once these elements become clear, an integrated approach will emerge. Answer the following questions, and then confirm that you've developed a good approach.
Your firm is at a major turning point. You've just sold off a successful division, and you have a substantial amount of cash you can invest back into the firm. You've also decided additional growth for your personal care products will come from outside the country, not domestically. You've had some limited experience doing business internationally, and you're building the competencies you'll need. Your product is innovative though there are competitive products already in the market. It will appeal to a large market, and you and your senior management are willing to take risks to capture a significant market advantage.
1. While the present wealth of customers in a national market is an important factor, the firm must also consider living standards and _______________________.
Select a response.economic growth, total population, current exchange and interest rates
2. The benefit–cost–risk trade-off is likely to be least favorable in developing nations that operate with a mixed or command economy or where _____________________________.
Select a response.private sector debt has not kept pace with expansion, inflation is not a significant factor, speculative financial bubbles have led to excess borrowing
3. One ___________________________ is the ability to preempt rivals and capture demand by establishing a strong brand name.
Select a response.pioneering benefit, entry-timing asset, first-mover advantage
4. Strategic commitments, like ___________________, can have an important influence on the nature of competition.
Select a response.having a number of significant contingency plans, rapid large-scale market entry, scenario planning
5. Small-scale entry gives the firm time to collect information, but it may make it more difficult for the firm to _______________.
Select a response.change its strategic direction in enough time if the entry does not go well, build market share or capture first-mover advantages, capitalize on pioneering costs
1). While the present wealth of customers in a national market is an important factor, the firm must also consider living standards and economic growth.
2). The benefit–cost–risk trade-off is likely to be least favorable in developing nations that operate with a mixed or command economy or where speculative financial bubbles have led to excess borrowing.
3). One first-mover advantage is the ability to preempt rivals and capture demand by establishing a strong brand name.
4). Strategic commitments, like rapid large-scale market entry can have an important influence on the nature of competition.
5). Small-scale entry gives the firm time to collect information, but it may make it more difficult for the firm to build market share or capture first-mover advantages.
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