Factors Influencing entry mode Selection
Internal Factors
• Company size/resources
Smaller companies usually have fewer market servicing options (Rugman, 2007), as their very limited own resources may simply not allow, or discourage from, some market entry modes. For example, establishing a fully owned subsidiary often involves very substantial investment and correspondingly high risk levels (Johansson, 2000).
External facts
• Characteristics of the overseas country business environment
While the general characteristics of overseas country business environments are usually very easy to obtain these days, industry and company-specific information is usually more difficult to acquire. Whilst the former category of information is not always free from bias, complete and up-to-date, the latter is considered quite sensitive and usually not provided free of charge (Koch, 2001). Hence it is important to consider the PESTEL factors of the Japanese market.
4.0 SWOT Analysis
The overall evaluation of a business’s strengths, weaknesses, opportunity, and threats is called SWOT analysis. SWOT analysis consists of an analysis of the external and internal environments (Kotler, 2006).
Internal Environments Analysis
4.1.1 Strengths
The main strength of the company is that Fashionable manufactures high quality of garments at very competitive price. Fashionable is backed up by healthy balance sheet, which will prove a great help in investing in assets for long-term growth. The company have strong management and technological know- how. Brandix is one of the most popular reputed and fashionable brands in the Sri Lankan fashion market.
4.1.2 Weaknesses
Limited understanding of Japanese culture and fashion market as Fashionable is an Australian company.
High cost of machinery and increasing cost skilled labors and fashion designers.
Lack of comprehensive manpower planning.
4.2 External Environment Analysis
4.2.1 Opportunities
A marketing opportunity is an area of buyer need in which a company can perform profitably. Opportunities can be classified according to their attractiveness and their success probability. The company's success probability depends on whether its business strengths not only match the key success requirements for operating in the target market, but also exceed those of its competitors. Mere competence does not constitute a competitive advantage. The best-performing company will be the one that can generate the greatest customer value and sustain it over time (Kotler, 2006).
• Japan: A strong economy. Fashionable can earn a large amount of profit from Japan, as it is one of the strongest economies in the world
• Growing Fashion Market: The Japanese readymade fashion garment market is growing rapidly with large number of foreign brands entering the Japanese market
• Market expansion opportunities: After entering into the Japanese market, Fashionable will have opportunities to expand their brand into other countries. It will also have an opportunity to expand their global network of the brand.
4.2.2 Threats
• Competition from other brands: Fashionable will have to face a tough competition from other existing brands and manufacturers in Japan.
• Constantly changing fashion environment: The fashion environment in Japan is constantly changing which may affect the company to sustain their position in the early days of its launch.
• Fluctuations in the apparel industry: The Japanese apparel industry is not stable and it has shown constant changes every year.
5.0 Modes of entry
An entry mode is an institutional arrangement that a firm uses to market its product in a foreign market in the first three to five years, which is generally the length of time it takes a firm to completely enter a foreign market (Rugman, 2007). The selection of an appropriate entry mode in a foreign market can have significant and far-reaching consequences on a firm’s performance and survival (Doole And Lowe). For example, an inappropriate entry mode may block opportunities and substantially limit the range of strategic options open to the firm. It may result in substantial financial losses to the firm, including exit from the foreign market (Rugman, 2007).
5.1 Different types of entry modes are discussed below.
5.2.2 International joint ventures
International joint ventures are business partnerships or alliances jointly owned by two or more firms from different countries, foreign multinational firms and local governments, or foreign multinational firms and local business people. In an international joint venture, each party contributes capital, assets, or equality ownership, but not necessarily on a fifty-fifty basis. This would be much applicable for Brandix as it could help to gain market knowledge and understanding as they are entering first time to the Japaneise market. This also shares the risk of investment thus not affecting the organizations overall profitability.
5.2.3 Exporting
Exporting is when a firm decides to maintain its production facilities at home and export its products to foreign countries. There are two types of exporting: direct and indirect. In direct exporting, export tasks are carried out directly by the company itself. Indirect exporting is when the firm is not engaged in international business operations in the full sense, but delegates this function to outsiders. These can be either agents or export firms. Exporting could be easiest form of entering in to Japanese market and the least riskier method. Since it is the first time for the company entering in to an international market, this could be the stepping stone for the greater internationalization in the future.
5.2.4 Foreign direct investment
Foreign direct investment simply means 100 per cent ownership by the firm of its overseas operations. There are various ways in which a company may establish its production facilities in another country while retaining total ownership. This can be achieved by acquiring foreign production facilities or by establishing a complete manufacturing system or assembly plant through direct investment by the firm in a host country. However this is a very risky approach considering that the organization is very new to the international trade. This metod is not recommend for Brandix Lanaka ltd.
5.2.6 International management contract
An international management contract is an agreement by which a business firm provides managerial assistance to another firm by training its personnel to assume managerial positions in return for a fee for providing such assistance. International management contracts are often operated in combination with turnkey operations. Under this type of agreement, a business firm agrees to construct an entire manufacturing plant or production facility, equip it, and prepare it for operation in a foreign country, and then turns it over to the local owners when it is ready for operation. When a turnkey operation is used in combination with a management contract, the multinational has to provide training and instruction for local personnel. Examples of turnkey projects include road construction, factories, refineries, airports, and dams, and automobile plants (Kahal, 2001).
5.3 Adapting appropriate entry mode
However, whatever the entry mode that is been selected, it is important that the organization adapt to the Japanese context in terms of design, pricing and promotional strategies.
5.4 Market entry mode selection
The holistic model of market entry mode selection process MEMS introduce by Koch(2001) has been designed to accommodate all business contexts and most of the relevant business practice
5.4.1 Internal factors
• Company size/resources
• Management locus of control
• Experience in using MEMs
• Market share targets
• Calculation methods applied
• Profit targets
5.4.2 External facts
• Market barriers
• Industry feasibility/viability of MEM
• Popularity of individual MEMs in the overseas market
• Market growth rate
• Image support requirements
• Global management efficiency requirements(Koch, 2001) (Also See Appendix 1)
5.5 Joint Venture as the Mode of entry
Brandix, cannot enter the diverse Japanese market without the knowledge of the local market scenario. This information is very important for Fashionable for the entry into the market and the local Japanese firms can gain it. Hence joint venture is the best suitable entry mode for Brandix to enter the Japanese market.
In Japan without a local partner, because of the different cultural, legal, economic, and political viewpoints involved was difficult. A joint venture with a well-connected Asian partner has often been considered as the best or indeed the only way to enter the region (Wong and Maher, 1997 as cited in Kahal, 2001).
6.0 Conclusion
Depending upon the situation of the Japanese market, international Joint venture will be the most suitable mode of entry for Brandix to enter the continuously changing Japanese market. This will allow Brandix to study the trend, culture and the choice of the people from which it can take advantage to develop their strategies to compete in the market in a long run. The local partner will be useful to maintain and increase the market share and allow further expansion of Fashionable.
References
Doole, I. and Lowe, R. (2001), International Marketing Strategy - Analysis, Development and Implementation, Thomson Learning, 3rd Ed.
Johansson, J.K. (2000), Global Marketing - Foreign Entry, Local Marketing, and Global Management, Johansson, International Edition.
Cateora, P.R., and Ghauri, P.N. (1999), International Marketing, McGraw-Hill Publishing Company, European Edition.
Muhlbacher, H., Helmuth, L. and Dahringer, L. (2006), International Marketing - A Global Perspective, Thomson, 3rd Ed.
Keegan, W.J., (2002), Global Marketing Management, Prentice Hall, 7th Ed.
http://www.geert-hofstede.com/hofstede_india.shtml
Hofstede, Geert (2001). Culture's Consequences: comparing values, behaviors, institutions, and organizations across nations (2nd ed.). :
Schott, Jeffrey J. (1991). "Trading blocs and the world trading system". World Economy 14 (1): 1-17
http://www.marketingteacher.com/Lessons/lesson_international_marketing_culture.htm
