Solved!! Project 4 Discussion

Discussion Topic 1: What are the factors that influence an organization’s choice of entry mode in a country? Discuss how the chosen mode fits with an organization’s goals and objectives.

Discussion Topic 2: What are the country factors that influence an organization’s decision to enter that country? What is the impact of the culture and geography on the organization’s value-chain activities being relocated to the country?

Expert A+ Answer

Discussion Topic 1: What are the factors that influence an organization’s choice of entry mode in a country? Discuss how the chosen mode fits with an organization’s goals and objectives. 1. internal factors

Experience

Experience, which refers to the extent to which a firm has been involved in operating internationally, can be gained from operating either in a particular country or in the general international environment. (Global marketing, 2009) If one does not have managers with experience or knowledge in the new country, the project will be at risk. The decision to enter a country must be associated with people who can steer the organization in the right direction with prior experience. products/ service.

The physical characteristics of the product or service, such as its value/weight ratio, perishability and composition, are important in determining where production is located. Products with high value/weight ratios, such as expensive watches, are typically used for direct exporting, especially where there are significant production economies of scale, or if management wishes to retain control over production (Global marketing, 2009) In entering a country, the needs and expectations must align with the vision and mission of an organization. An electric vehicle company will not enter a country where electricity to charge vehicles isn’t readily accessible.  2 external factors;

Socio cultural distance between home and host county

The greater the perceived distance between the home and host country in terms of culture, economic systems and business practices, the more likely it is that the firm will shy away from direct investment in favor of joint venture agreements. This is because the latter institutional modes enhance firms’ flexibility to withdraw from the host market, if they should be unable to acclimatize themselves comfortably to the unfamiliar setting (Global marketing, 2009)

Market size and growth

Country size and rate of market growth are key parameters in determining the mode of entry. The larger the country and the size of its market, and the higher the growth rate, the more likely management will be to commit resources to its development, and to consider establishing a wholly owned sales subsidiary or to participate in a majority-owned joint venture (Global marketing, 2009). Companies will enter countries with prospect. The new country must show signs of an emergent market or already established market to be attractive.

Direct/ Indirect Trade barriers

Product or trade regulations and standards, as well as preferences for local suppliers, also have an impact on mode of entry and operation decisions. Preferences for local suppliers, or tendencies to ‘buy national’, often encourage a company to consider a joint venture or other contractual arrangements with a local (Global marketing, 2009). The more trade barriers, the more costly and unlikely it will be for entry. These barriers are seen as do not enter signs for companies. It will cost the company to negotiate agreements.

3 desired mode characteristics

Control

Modes of entry with minimal resource commitment, such as indirect exporting, provide little or no control over the conditions under which the product or service is marketed abroad. In the case of licensing and contract manufacturing management needs to ensure that production meets its quality standards. Joint ventures also limit the degree of management control over international operations and can be a source of considerable conflict where the goals and objectives of partners diverge. Wholly-owned subsidiaries (hierarchical mode) provide the most control, but also require a substantial commitment of resources (Sanchez-Peinado et al., 2007).

Flexibility

Management must also weigh up the flexibility associated with a given mode of entry. The hierarchical modes (involving substantial equity investment) are typically the most costly but the least flexible and most difficult to change in the short run. Intermediate modes

(contractual agreements and joint ventures) limit the firm’s ability to adapt or change strategy when market conditions are changing rapidly.

4 transaction-specific behavior.

Sanchez-Peinado et al. (2007) use the following measures for ‘tacit know-how’:

• the difficulty in understanding the involved skills and knowledge;
• the difficulty in transferring skills and knowledge;
• the difficulty in valuing a priori the exact price of a product/service;  the difficulty in copying skills and knowledge.

References

Sanchez-Peinado, E.S., Pla-Barber, J. and Herbert, L. (2007) ‘Strategic Variables that Influence Entry Mode Choice in Service Firms’, Journal of International Marketing, Vol. 17, No. 1, pp. 67–91.

Global marketing (2009). Retrieved from https://nscpolteksby.ac.id/ebook/files/Ebook/Business

%20Administration/Essentials%20of%20Global%20Marketing

%20(2009)/16.%20Chapter%208%20-%20Some%20approaches%20to%20the

%20choice%20of%20entry%20mode.pdf

Discussion Topic 2: What are the country factors that influence an organization’s decision to enter that country? What is the impact of the culture and geography on the organization’s value-chain activities being relocated to the country?

Economic– Organizations will enter a country that is attractive an can afford its products. The ultimate goal is to make sales and managers will look at what sort of economy they are entering and if it will be profitable

Social/cultural- Countries differ in terms of language, religion and beliefs. This plays a role in a decision to enter. It will be a failure for a pork producing company to enter a predominantly Muslim country since they usually abstain from pork. Thus, this will not align with the goals of the company. The country many have all the qualities to enter but culture is a

barrier that cannot be broken in such a situation.

Political/legal- Each nation has policies that organizations must abide. The entering organization must research to make sure their operations do not break any laws of that country. An example would be an organization that uses employees from the mother country for operations, however, the country they want to enter has laws that state they must use about 30% of locals in the company. If this isn’t feasible for the company, they cannot enter since they will be breaching legal boundaries.

Market attractiveness- If sales is the ultimate goal of an organization, a study of history and trends of the company will reveal if it is attractive or not. If the goal of an organization is to sell 1,000,000 products a month but history shows major companies in that industry barely sell 400,000 monthly, the organization clearly does not belong in that country since their goals do not align with the market capability of the said country.

Capability of company– The company must not only look at the country they want to enter but must also look at themselves. Does the company have the capabilities in terms of personnel, finance, logistics and training capabilities to enter a new country? Each country will have several requirements and financial obligations to enter. Example it will be easier for a company in the USA to enter Canada than it would be to enter Germany in terms of transportation, language barrier and cultural differences. If the company has the finance to bridge all these barriers, then it is feasible but if it doesn’t then such a company is not ready to enter a new country.

The culture and geography of the organizations value chain activities must adapt to those of that country. The Distribution channels should be those available in the country or others if available in that country. Operations model must follow policies of the country and policies of the organization if they don not break any laws. Marketing and sales must be placed in a region where the local customers can afford. Service must be tailored to suit demands of the locals.

• Solved!! MBA 670 Project 4 Individual Analysis