Entry into the international market requires an assessment of various alternatives and the factors influencing such entry. This report seeks to establish the most suitable mode of entry into the Singaporean market by MeatCo Company based in Melbourne whose main activity is meat production. The company intends to enter the Singaporean market in the year 2010 and therefore it needs a clear understanding of the target market and the suitable entry mode.
The company’s profile illustrates that the company was founded in the year 1986 as a meat Distribution Company and over the years, grew to a meat producing company after acquiring abattoirs. The company’s profitability and market penetration have grown rapidly, thanks to advanced technology.
A SWOT analysis of the company was conducted to establish the internal strengths and weaknesses as well as the external opportunities and threats that the company is likely to encounter in its Endeavour. It was derived that the company has strength in managerial and marketing skills, technological advancement, customer relations, and an efficient distribution network. However, the company has weaknesses in capital capacity and international market knowledge.
In addition, external factors such as availability of ready market, low-cost inputs, and favorable trade regulations coupled with cultural, religious, and political factors affect the entry mode choice into the target market. In this analysis, Dunning’s Eclectic Paradigm theory which involves ownership advantage, location advantage, and internalization advantage was applied.
The various modes of entry were analyzed. These include franchising, exporting, licensing, management contracts, joint ventures, and acquisition. The choice of the modes of entry depends on the cost of entry, the risk involved, resource commitment, knowledge of the target market among others.
From the discussion, it was recommended that franchising is the most suitable mode of entry based on the strengths of the company and the benefits accruing from such arrangement.
In the current trend of globalization, the world has leaned towards becoming a global village and business organizations have taken this advantage to market abroad, thus gaining a competitive advantage. Depending on the situation, an organization must decide which entry mode among the various alternatives to employ and develop a marketing strategy around the preferred mode. The decision to go international must be considered carefully with a clear analysis of both internal and external factors that may enhance or hinder the entry process, and also after carrying a comprehensive cost-benefit analysis.
This report aims at identifying the best mode of entry into international business (Singaporean market) by a Melbourne-based meat producing company, MeatCo. A SWOT analysis of the company will be conducted to determine the probability of the company extending its business to the Singaporean market. In addition, the various alternative modes of entry to international trade will be analyzed and the best alternative recommended to the company.
Company profile
MeatCo ltd is a limited private company founded by two brothers, Jake and Tim in 1986. The company deals with the production and supply of meat and meat products primarily in the Australian market. On its establishment, the company had fifteen employees and concentrated on purchasing meat from abattoirs and distributing it to the local market. In 1995, the company’s profits had risen and market response improved due to its efficient services.
To take advantage of the growing market, the company decided to open its abattoirs and bought an additional plant for producing other meat-related products. Since then the company’s profits have been rising at an average of 30% and the current market share stands at 40% with a staff capacity of 3000employees. Due to this growth, MeatCo plans to venture into the Singaporean market in the year 2010.
Factors influencing MeatCo’s International venture
Internal factors
The company’s internal strengths will play a major role in this initiative. Based on Dunning’s Eclectic Paradigm theory, a company must have an ownership advantage over the rival companies in the target market which includes, among others, technological capabilities, managerial and innovation skills, and resources adequacy. First, the company has been experiencing exponential growth over the years, which is an indication of good management practice and internal capabilities.
Entry into the international market requires sound managerial and entrepreneurial skills that will enable the entering company to compete favorably with existing players in the industry (Johnson and Turner 2003). Metso has concentrated most of its efforts in identifying and employing skillful and innovative managers and has also engaged some expatriates from Singapore in its operations.
The availability of adequate resources is important for the growth of a company. Metso has considered human resources as a very important asset or resource in its growth strategy. Indeed, the company has a well-established training program and performance evaluation criteria that ensure its staff is well-armed with relevant skills and capabilities.
In addition, noting the importance of a well-formulated company’s vision and mission statements, MeatCo has ensured that its employees have a good understanding of both the vision and mission and are involved in the decision-making processes especially on marketing strategies. The human resources strength plus their inherent skills are an important determinant of whether the company will enter the international market through internalizing or contracting (Dunning and Gray 2003)
The market share of meat in the local market has risen above other competitors giving the company a competitive advantage. This has resulted from the provision of quality products and an excellent sales staff that has ensured the reputation of the firm is high enough. According to Dunning and Gray (2003), a good customer relationship is important in creating a competitive advantage over rival companies. The entry model adopted by the company will depend on the ownership advantage of the firm especially in terms of customer satisfaction which is the key element in business growth.
The company has demonstrated high capability in its distribution network by establishing efficient and effective distribution channels that ensure that products reach the customers in good time. The availability of distribution centers all over the country and real-time distribution capacity has ensured the market demand is met. This is an ownership advantage that will be very important in the firm’s entry into the Singaporean market especially if the same efficiency will be applied in the international business.
Technological advancement has been the in-thing in the international business. Metso has been able to acquire state-of-the-art equipment in its abattoirs that have ensured high quality and efficient production. The company’s profitability has largely been attributed to its ability to produce a high volume of meat products at a low cost due to enhanced technology. This will be a key factor in determining the entry mode putting in mind that quality control and efficiency are crucial in business growth.
Despite the strengths of MeatCo, there is a limitation of capital to invest in the international market. Although the company has been able to control the local market, it has not been able to reinforce its capital base which is relatively lower than that of its competitors. International business entry, especially through indirect export, tends to be quite expensive especially where setting up of production facilities is concerned and therefore the initial entry should involve the less expensive modes.
The company has never engaged in international trade and therefore does not know the international business. However, the company has tried to tap some information about the Singaporean market by employing foreigners, but the mere lack of first-hand information especially in terms of market demand and consumption patterns of the target market may impede the choice for entry mode to be adopted.
External factors
The entry mode adopted by a company will depend on the opportunities available in the international market and the likely threats that the company is likely to encounter. The decision will be based on whether the company is likely to benefit from the availability of ready market, low labor, enhanced technology, and good international product prices among others. In addition, there will be a need to consider whether the company will be able to counter or cope with foreign trade regulations, political restrictions in the foreign market, environmental factors that may interfere with business, and social-cultural factors among others.
Over the years most Australian meat companies have been exporting meat to Asian countries including Singapore. Due to the exports, the Singapore market has established itself with Australian meat which creates a good opportunity for MeatCo to enter the Singaporean market with ease. This creates an already established market that the form can take advantage of. In addition, the company should strategize to get some important information about the Singaporean market from the rival companies that have been doing business there. This information will; help to decide on whether to internalize or contract foreign partners.
Singapore is on the shores of the Indian Ocean same as Australia, making the distance appropriate for direct trade between the two locations. This provides MeatCo with a location advantage to export its products directly or even set up a plant in the foreign market. The cost of trade will also be low due to the short distance between the two locations.
Melbourne, where MeatCo is located is one of the leading cities in terms of size and richness in the world and is situated in one of the richest countries in the world. This makes it easy to conduct business with external markets and especially Singapore which is one of the emerging markets. The proximity of these two countries makes communication easy and MeatCo is likely to benefit from this by establishing distribution networks with ease and at a low cost.
According to Luo (1999), the understanding of the host country’s demand conditions and infrastructure systems will help to establish the entry mode to employ and the level of resource commitment required. Therefore, the infrastructure system of Singapore and its being a preferred destination by many multinational companies will provide MeatCo with a clear understanding of what to expect in the new market.
The Singaporean market has not adequately utilized the technological advancement and therefore the local market is not quite competitive. This allows MeatCo to utilize its technological strength in clinching a niche in the new market. In addition, the technological advantage will ensure that the company’s products are of higher quality than those of the Singaporean companies giving MeatCo a competitive advantage. This technological advantage coupled with high marketing skills tends to be an asset on part of the company to exploit the Singaporean market either through Foreign Direct Investment (FDI) or through a joint venture with a host’s company.
According to Doherty, (1999) transfer of knowledge should be done with caution to avoid incurring high costs of entry and the possibility of losing ownership advantage of such knowledge or information which is embedded in the patent right of the company.
The legal system in Singapore will play a major role in influencing MeatCo’s entry. The understanding of laws relating to importation and specific laws governing trade in Singapore is important to determine which entry mode will be suitable as a result of such laws. According to Doherty (1999), a legal system should protect the patent rights and innovations of the company to ensure the efficiency of the market. The legal system should also enforce fair competition in the industry.
Political volatility is another likely threat in any international business entry. In the case MeatCo, both countries tend to have a good diplomatic relationship that has enabled many of the other companies to take up international business. However, the company should always be wary of any political instability and should employ an entry mode that will have a simple exit strategy in case such political disturbances occur.
The lifestyle, cultural and religious affiliations of the Singaporean people will influence their entry into the market. There is a mixture of religions that will influence the marketing of the products. Therefore, in choosing the entry mode, sufficient information will be important to understand how the market is segmented.
Modes of entry
The various alternative modes of entry differ in terms of costs, resources requirement, level of control required, and risk involved, host country regulations among others. Some modes of entry are expensive and require companies to be well endowed with resources to be able to compete effectively in the new market.
The company may opt for low control/low-risk options like franchising, licensing, and direct export. According to Luo (1999), the company will minimize its risk exposure especially because it does not have the necessary experience or knowledge of the international business. In franchising, for instance, the company will consult a target market partner; sell outright to use its brand name and trademark, and some management control.
This will make sure that the brand name is carried forward to the target market without change in quality and package. The benefit of this is that the franchisee has knowledge of the target market and allowing the franchiser some element of control over the franchisee. This knowledge will help to reduce the economic uncertainty of entry to the foreign market, in that the company will not commit a lot of resources in this strategy.
Licensing is similar to franchising; only that it involves selling of intellectual property such as patents, copyrights, and trademarks to the licensee in exchange for loyalty or lump-sum payment for the license. The agreement also includes offering technical and managerial training to the licensee. The benefit of this strategy is that the licensor commits little or no resources to gain entry into the target market and is a low-risk strategy.
The direct export mode requires the firm to sell its products directly into the target market. This may take the form of engaging sales representatives from the target market to distribute the products, or sending sales representatives from the home country.
The latter strategy is somehow disadvantaged by a possible lack of appropriate market knowledge or language barrier. In addition, the firm may establish a sales office in the target market run by a combination of employees from both countries, which tends to balance both company knowledge and market knowledge. The direct export mode is beneficial in that it does not require a high capital outlay in terms of plant and equipment. In addition, the company retains low control of operations due to limited knowledge, and therefore there is the likelihood of laxity in market penetration.
Direct Foreign investment especially the joint venture and Greenfield and acquisition require a lot of resource commitment, but allow high control and are riskier. These arrangements are favorable where the economic climate of the host market is stable. The benefits that will arise are that the joint venture partner or acquired company has a clear understanding of the target market, the cultural experience, and established distribution channels within the market. The entering company will have high control of the operations of the subsidiary or joint venture thus increasing the productivity of the venture.
The choice of entry mode to a foreign market will depend on the internal capabilities of the firm and the availability of a conducive external environment to carry out international business. MeatCo Company has strength in brand recognition, customer relationship, technological innovations, and management skills which are essential for entry into the Singaporean market. The company, however, is weakened by a lack of sufficient capital to invest highly into the foreign market and also lacks the experience, information, and knowledge of the international business.
External factors play a great role in entry mode selection especially when the benefits to be derived and challenges to be encountered are put into consideration. The Singaporean market possesses a ready market due to its high demand for imported meat and also due to less restrictive import regulations. In addition, underutilized technology will provide MeatCo with an opportunity to provide higher quality products over rival local companies.
International market entry modes differ from one situation to another. Some modes will be preferred where a company has less knowledge on the target market, others will be preferred depending on the level of resource commitment and others will depend on the risk and costs involved.
Based on the above discussion, MeatCo should adopt the franchising mode of entry as it provides more benefits considering the strengths and weaknesses of the company. Due to its capital constraint, MeatCo will have to commit few resources in engaging a franchisee who will market its products into the Singaporean market. In addition, since the Singaporean partner will have a clear understanding of the market and the consumption patterns, MeatCo will only need to offer management and technical training to the franchisee without incurring setup costs.
References
Doherty, A, M 1999, Explaining international retailers’ market entry mode strategy: internalization theory, agency theory and the importance of information asymmetry. The International Review of Retail, Distribution, and Consumer Research journal, pp. 379-402.
Dunning, J, H & Peter, G 2003, Extending the eclectic paradigm in international business: essays in honor of John Dunning, illustrated, Edward Elgar Publishing. Web.
Hill, C. (2007), International business: competing in the global marketplace, 6th edition, Irwin,Chicago.
Johnson, D & Colin, T 2003, International business: themes and issues in the modern global economy, Routledge, NY.
Luo, Y 1999, Entry and cooperative strategies in international business expansion, Greenwood Publishing Group, CA.