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What are some of the forces that determine firm’s choice of its entry mode for a given product/target country?
A company can mix different entry modes to enter or extend a specific foreign market. Hollensen (2007) indicated that the need to anticipate the strength and direction of these forces make the entry mode decision a complex process with numerous tradeoffs among alternative entry modes. There are two forces that influence the entry mode decision for a given product/target country. These forces include the company’s internal and external forces. The internal forces encompass firm specific factors and international experience. While external forces are attributed to direct and indirect trade barriers and country risk (Hollensen, 2007).
How do you anticipate the strength and direction of those forces as part of the decision-making process?
The decision making process of the choice of entry mode should be based on the expected contribution to profit. According to Hollensen (2007), the need to anticipate the strength and direction of these forces makes the entry decision a complex process with numerous tradeoffs among alternative entry modes. While making the entry mode decisions, one should consider increasing internalization factors such as direct and indirect trade barriers, tacit nature and know-how, firm size and international experience (Hollensen, 2007). Another major anticipation is decreasing externalization which is influenced by factors such as intensity of competition, country risk/demand uncertainty, flexibility and control. Hollensen (2007) says that “because of the complexity of the entry mode decision, the propositions should be made under the condition of other factors being equal” (p. 298).
What are some factors companies must consider before attempting entering foreign markets?
There are four factors that a company should consider before entering foreign markets. These factors include internal and external forces, desired mode characteristics and transaction specific factors. Internal factors encompass aspects such as firm size which is an indicator of the firm’s resource availability. Hollensen (2007) says that increasing resource availability is the basis for increased international involvement over time. The internal factors are also dependent on the firm’s international experience. which reduces the cost and uncertainty of serving a market and in turn increases the probability of firms committing resources to foreign markets. Hollensen (2007) says that “internal factors are also dependent on product and service because physical characteristics of the product or service such as its value/weight ratio perish-ability are important in determining where production is located” (p. 298).
External factors are determined by social cultural distance between home country and host country. This influences industrial practices, common language and comparable educational level and cultural practices. Hollensen (2007) says that external factors are determined by country risk and demand uncertainty, market size and growth, direct and indirect trade barriers. Also the intensity of competition and small number of relevant intermediaries available determine the external factors.
The third factor is the desired mode characteristics. Hollensen (2007) noted that this factor is dependent on other aspects such as risk averse which attributes that minimal levels of resource commitment may result to significant loss of opportunity. Control on the other hand is used to consider the degree of control that management requires over operations in international market. Flexibility is also important because the management must weigh up the plasticity associated with a given mode of entry (Hollensen, 2007). The fourth factor is transaction specific factors. This factor entails aspects such as tacit nature of knowhow, and the opportunistic behavior which may be exhibited by the foreign market. Opportunistic behavior is vital because decreases the cost necessary for monitoring distributors.
Why are marketing channels and intermediaries necessary in foreign markets?
Marketing channels and intermediaries are necessary in foreign markets because they open up new opportunities for companies to cut costs or improve their effectiveness in reaching specific market segments (Hollensen, 2007). Marketing channels also act as the links between producers and final customers. Intermediaries are primarily vehicles for the transfer of knowledge and skills and they create export opportunities in those foreign markets (Hollensen, 2007).
What is the most important function carried out by intermediaries?
According to Hollensen (2007), intermediaries act primarily as vehicles for the transfer of knowledge and skills, although they may also create export opportunities. He further says that an intermediary typically performs the functions of carrying of inventory and demand generation or selling in a foreign market. It also carries out physical distribution, after-sales service and extends credit to customers (Hollensen, 2007).
Assuming you were setting up a marketing program for a product in a foreign country, what should you take into consideration?
While setting up a marketing program it is important to consider the customer characteristics. Hollensen (2007) says that customer groups, size, geographic distribution, shopping habits and outlet preferences must be taken into account when coming up with the marketing program. Secondly it is important to consider nature of product. Hollensen (2007) says that “low-priced, high-turnover convenience products, the requirement are an intensive marketing program” (p. 508). Hollensen further says that the product’s durability, ease of adulteration, amount and type of customer service required, unit costs and special handling requirements (such as cold storage) are also significant (2007).
Thirdly, while coming up with a marketing programme it is important to reflect on the nature of demand and location. The marketing program should capture product perceptions which are influenced by customer’s income, product experience, its life cycle position and the country’s stage of economic development (Hollensen, 2007). The design of a marketing programme should consider competition. This is because programs that seek to serve the same market often compete with one another. Legal regulations and local business practices will play a major role in coming up with marketing programs in a foreign country. Hollensen (2007) says that “marketing channels may be affected by law and exclusive representation may be viewed as a restraint of trade, especially if the product has a dominant market position” (p. 509).
How might international marketing benefit domestic countries?
Through international marketing companies can build and strengthen their competitive position globally. Also companies can expand their activities beyond their domestic markets and benefit from reaching more customers (Hollensen, 2007). Through international marketing, domestic countries can avoid market saturation by lengthening or revitalizing product life cycles in other countries. Hollensen (2007) says that “international marketing opens up opportunities for companies to cut costs and improve their effectiveness in reaching specific market segments in foreign countries” (p. 509). Through international marketing, domestic companies may have agreements with major wholesalers in a foreign country that effectively eliminates barriers and puts the company in the main marketing channels (Hollensen, 2007).