There are several useful sources of information listed below for firms considering entering international market:
- The World Trade Organization
- Hoovers Online
- Foreign Investment Advisory Service
- The International Trade Centre
- Global Edge
To PK Electrics, the first useful source of information is The World Trade Organization. Since China has joined the WTO, it is of paramount importance for Chinese firms who plan to enter international market to completely understand the principles and regulations of the WTO, operating business in a proper way. The second one is Global Edge. “Global Edge is a collection of international business and global trade resources on the web. It includes annotated resources on world regions, countries, governments, statistics, news, travel, cultures, finance and trade.” (SQA, 2005:89) PK Electrics will get a comprehensive understanding about markets in different countries by using Global Edge website.
2.3 Opportunities and Threats of International Market Entry
Opportunities of international market entry may lie within several aspects showed below:
- A More Open Market
- Favorable Policies
- Highly-Developed Communication Technology
- Low level of competition in some countries
Threats of international market entry may lie within following aspects:
- Political risk
- Trade barriers
- Threats of new entrants
- Threats of substitutes
To PK Electrics, since China has joined the WTO, Chinese government and enterprises will form a closer relationship with various foreign countries and enterprises, the firm faces a great opportunity of operating in a more open and wider market. It is possible for PK Electrics to explore a market with larger scale and reach more customers. “Market saturation can be avoided by lengthening or rejuvenating product life cycles in other countries.” (Czinkota & Ronkanien 2004:10) However, to protect domestic products, some governments will impose protectionist measures, such as tariffs, import quotas and subsidies for domestic producers, to discourage imports. (SQA, 2005)
3. PROCESS OF MARKET SELECTION
How to make a market selection is always a key problem that a firm should solve. A wise market selection will be beneficial to a firm because it is an essential premise to a firm’s success in this market. PK Electrics may go through following process to finally choose the most appropriate market to enter:
3.1 Information Collection
Before making any decisions and assessments, to better analyze the situation of potential market(s), a large amount of relevant secondary information about a country’s external environment and target industry situation is necessary. This information often is available on the Internet, trade magazines, libraries, government agencies, and universities. “A search in library will often reveal published information on the industry, competitors, trends in consumer tastes and strategies now being employed by competitors already in the market. The internet can also provide extensive information on competitors, the industry, and even provide insightful primary information directly from potential consumers who respond to chat groups.” (Hisrich & Peters, 1998: 260)
3.2 External Environment Analysis
External environment of a country has considerable influence on any organization’s marketing activities. It is recommended that PK Electrics conducts these two analyses below to gain a general overview about a country.
SPELT analysis: By analyzing a country’s overall environment involving political factors, economic factors, social-cultural factors, technologic factors, environmental factors and legal factors, PK Electrics may get a general idea about the situation of the country that will largely affect the nation’s market.
Country characteristics: “A key characteristic is the market size and growth. Large countries and those with higher growth rates are more likely to be seen as good places to make significant investment. A second country factor is the political and environmental risk. Companies are understandably reluctant to make substantial investments in countries with high levels of political instability. The third country factor is the economic and market infrastructure.” (Winer, 2000:450)
3.3 Industry Situation Analysis
In order to understand the dynamics of competitive structure in an industry, using Porter’s Five Forces Model, PK Electrics may assess the nature in an industry. These five forces are:
- The threat of entry new competitors;
- The threat of substitutes;
- The bargaining power of buyers;
- The bargaining power of suppliers;
- The degree of rivalry between existing competitors.
Figure 2. Porter’s Five Forces Model
Source: Porter, M (1998), Competitive Strategy
3.4 Organizational Internal Environment Analysis
Organizational internal environment largely decides the whole status and situation of a firm. Clearly examining and identifying internal environment, a firm can properly formulate its marketing program. PK Electrics may analyze two aspects below to identify its status and situation.
Nonmarketing resources: A company’s internal, nonmarketing resources influence and support its marketing program. Internal forces in an organization are controllable by management.
Figure 3. Internal Nonmarketing Resources
Source: Etzel, M J & Walker, B J & Stanton, W J (1997), Marketing, 11th ed.
The McGraw-Hill Companies, Inc. p.46
Strengths and weaknesses: SWOT Analysis, a method for assessing organization’s current and position in order to plan action and resources appropriately, consists of four elements, namely, strengths, weaknesses, opportunities, and threats. Applying SWOT Analysis, PK Electrics may identify its strengths and weaknesses to seize opportunities and avoid threats. (SQA, 2005) For example, the biggest strength of PK Electrics is the competitive price of products. (SQA, 2005)
3.5 Reassessment
After finishing the analyses of external environment, industry situation, and internal forces, PK Electrics shall reassess its analysis of internal forces with analyses of external environment and industry situation so that conditions fulfilled and unfulfilled for a certain market entry can be identified. On one hand, those conditions fulfilled and strengths analyzed by using SWOT Analysis may largely contribute to the success factors of a certain market entry. On the other hand, conditions unfulfilled and weaknesses probably induce failures of a certain market entry.
3.6 Comparisons and Evaluation
By comparing results of these analyses from several potential markets, a decision about the selection of market(s) can be made more easily. Normally, it is recommended that PK Electrics should choose a market with the most success factors, including conditions fulfilled and company’s strengths but the least failure factors, namely, conditions unfulfilled and company’s weaknesses.
Generally, PK Electrics can finally select one or several markets to enter by conducting analyses through the process above. As a firm lack of international marketing experience, PK Electrics is advised not to enter several markets simultaneously but focus on one market, for that there exists more risks and uncertainties in the international market.
4. MARKET ENTRY MODE SELECTION
After market selection, a firm has to consider carefully choosing the most appropriate mode to enter a foreign target market, effectively contributing to a feasible marketing strategy.
4.1 Options for Foreign Market Entry
Export entry modes
- Indirect
- Direct agent/ distributor
- Direct branch/ subsidiary
Resource-transferring modes: Contractual entry modes
- Licensing
- Franchising
- Technical agreements
- Service contracts
- Management contracts
- Construction/ turnkey contracts
- Contract manufacture
- Countertrade arrangement
Resource-transferring modes: Investment entry modes
- Sole venture: new establishment
- Sole venture: acquisition
- Joint venture: new establishment/ acquisition
Source: Root, F R (1994), Entry Strategies for International Markets, Lexington Books, p.26
4.2 Evaluation of Market Entry Modes
The figure below illustrates a general process for a firm to decide on the right entry mode:
Figure 4 Deciding on the Right Entry Mode
Source: SQA, (2005) International Marketing: An Introduction, first published by CMEPH, p.161
To PK Electrics, first of all, the firm has to consider about the external factors from both home country and foreign target country. Since Chinese economy becomes more market-based and China has joined the WTO, it provides a wonderful opportunity to Chinese enterprises to operate in a more open and free market. Meanwhile, Chinese government encourages international trade between domestic enterprises and foreign firms, thus creating a favorable macro environment for PK Electrics. Analyzing external factors from foreign target country, PK Electrics can use SPELT analysis and find out the country’s characteristics mentioned before in order to get an overall view about the country.
Secondly, PK Electrics should examine its internal factors in terms of financial resources, human resources, production facilities, company image, location, and capability of research and development. Whether these factors can match and support its marketing activities or not will definitely influence the selection of the right entry mode. Since PK Electrics operates only three factories, we can infer that the scale of the firm is not big. That is to say, its resources and capability are limited.
After examining both external and internal factors, PK Electrics can abandon some entry modes that are not appropriated for the firm at current stage. Specifically, investment entry modes can be deducted initially because such entry modes require a large amount of capital and are accompanied with high risks. However, it is impossible for PK Electrics to bear such a high degree of capital requirement and risks. Therefore, investment entry modes are not feasible.
In addition, contractual entry modes do not suit PK Electrics very well, either. Currently, what PK Electrics provide are electrical supplies including cables, sockets, switches and light fittings that are not involved with many advanced technologies and manufacturing skills, to our common sense. Furthermore, neither is PK Electrics a service or management know-how provider nor a high technology owner. As a result, contractual entry modes that perfectly suit business in a specific sector such as service, construction, management and operation modes are not appropriate for PK Electrics.
Finally, export entry modes, including indirect exporting, direct agent/ distributor exporting, and direct branch/ subsidiary exporting, are available ones for PK Electrics. In order to figure out the most appropriate entry mode, criteria listed below present a method of comparisons for entry modes:
- Sales
- Costs
- Profit Contribution
- Market Share
- Reversibility
- Control
- Risk
- Other
Source: Root, F R (1994), Entry Strategies for International Markets, Jossey-Bass
“In indirect exporting, the exporter is not involved in the actual export process. Instead, the export process is undertaken by a third party.” (SQA, 2005:109). Small firms that do not have resources to set up their own sales offices or subsidiaries may rely on intermediaries. Compared with direct exporting, the level of investment, costs, control, and risk are lower in indirect exporting. Meanwhile, sales potential, market share, and profit contribution may also be smaller. While concerning with the present situation of PK Electrics, which is still a firm with little international marketing experience and limited scale, to start an entry to a foreign market, it is recommended that the firm should use indirect exporting at the initial stage in international market as it will largely assure the safety of the first international market entry. Undoubtedly, as PK Electrics develops constantly and gains more experience about international marketing, other entry modes will be used in different situation afterwards.
5. CONCLUSION
5.1 Findings and Contribution
This report has provided a fundamental process for a firm to enter international market, including the preparation for international market entry, the process of market selection, and market entry mode selection. Based on the case material, applying a number of theories and models, the report has specifically pointed out the characteristics of PK Electrics and analyzed the business situation it, providing some suggestions that may be useful and realistic for its international marketing operation.
5.2 Limitation of the Report
This report only outlines a general process of international market entry for PK Electrics, but it does not help the firm build a complete international marketing plan. Besides, detailed explanation for some theories is ignored and some other alternative theories and models are not introduced.
5.3 Recommendation
The report shall concentrate more on a comparison of different theories and models related to a same problem in order to draw a scientific and practical conclusion towards the problem. In addition, detailed information that can better enhance an understanding about theories and terminologies shall be supplemented in the report.
Reference
SQA, (2005) International Marketing: An Introduction, First published by CMEPH, China.
SQA, (2005) Business Culture and Strategy: An Introduction, First published by CMEPH, China.
Czinkota, M R & Ronkanien, I A, (2004) International Marketing, 7th ed, Peking University Press, China.
Hisrich, R D & Peters, M P, (1998) Entrepreneurship, 4th ed, The McGraw-Hill Companies, Inc. U.S.A.
Winer, R S (2001) Marketing Management, Tsinghua University Press, China.
Content Page
1. Introduction ---------------------------------------------------------------------------1
1.1 Background Information about PK Electrics --------------------------- 1
1.2 Purpose and Structure of the Report ------------------------------------- 1
2. Preparation for International Market Entry ---------------------------------- 1
2.1 Reasons for International Market Entry --------------------------------- 2
2.2 Sources of Informational for International Market Entry ------------3
2.3 Opportunities and Threats of International Market Entry -----------4
3. Process of Market Selection ------------------------------------------------------- 5
3.1 Information Collection ------------------------------------------------------- 5
3.2 External Environment Analysis -------------------------------------------- 5
3.3 Industry Situation Analysis ------------------------------------------------- 6
3.4 Organizational Internal Environment Analysis -------------------------7
3.5 Reassessment ------------------------------------------------------------------- 8
3.6 Comparisons and Evaluation ----------------------------------------------- 9
4. Market Entry Mode Selection ---------------------------------------------------- 9
- Options for Foreign Market Entry --------------------------------------- 9
- Evaluation of Market Entry Modes --------------------------------------10
- Conclusion ----------------------------------------------------------------------------13
- Findings and Contribution -------------------------------------------------13
- Limitation of the Report ----------------------------------------------------14
- Recommendation -------------------------------------------------------------14
Reference ------------------------------------------------------------------------------ 15
