PART A: Global-Local Dilemma
As firms look into expanding their operations internationally, they face what is known as the global-local dilemma. Johnson et al (2014, p. 270) defines the global-local dilemma as “the extent to which products and services may be standardised across national boundaries or need to be adapted to meet the needs and requirements of specific national markets”. This involves either adhering to the same product and service in the home country for purposes of brand identity and uniformity and exporting it as is or customising it to fit the market of the host country, taking into account the different cultures and consumer tastes. Standardisation and adaptation are common themes in this dilemma.
Standardisation involves the enactment of a global marketing strategy that comprehensively appeals to different countries, particularly with the product offering, price and promotional mix (Rocha and Silva, 2011). Göransson and Sahlquist (2013) provide that the benefits of standardisation include economies of scale that lead to reduced costs for the firm as they do not have to tailor-make their strategies for every economy they penetrate and the coordination of international operations is easier and manageable. This offers consistent brand communication that helps them to retain their identity. The application of standardisation, however, does not come without its disadvantages. Haron (2016) holds that standardisation will harm the firm if its offerings are inconsistent with the environment of the country that consists of government tariffs and trade restrictions. Additionally, customer tastes and preferences will vary because of the difference in culture of the countries that the firm operates in.
Adaptation is defined by Otuedon (2016) as the modification of marketing strategies to better fit the unique elements of the individual markets globally. Insoluble differences in markets that include culture, consumer tastes, race, climate, society, taxation and many others force firms to adapt to their new host countries’ individual markets. Matricano and Vitagliano (2018) hold that international marketing strategies cannot be uniform and that there is great profitability in catering to different customers’ needs. The dilemma is further exhibited by the global integration versus local responsiveness framework that recognises the need for companies to analyse their external environment and be both globally integrative and locally responsive. The rationale behind this framework is that global integration provides firms with a competitive advantage and efficiency from cost reduction and mass production volumes. Le & Liao (2017) purports that the higher the pressure for global integration is, the more benefits that suppliers and buyers stand to benefit. Local responsiveness needs the firm to adjust their services because host country’s government and consumer diversity can impede the firm’s efficiency should they decide to implement their standard strategy.
Realistically, a firm cannot hinge on just one side, regardless of which market they enter into as different markets will require some form of adjustments. This solution to this dilemma is further buttressed by the “Think Global, Act Local” term, which essentially entails corporations adopting a global perspective in the organisation and altering it to suit every individual market (Parnell, 2006). ?
PART B: ENTRY MODES AND STRATEGIES
Ofili (2016) identified four drivers of internationalisation, the first one being the market driver. Market drivers are explained as the similarity of consumers’ needs across different markets together with the availability of customers for those similar products or services in another market and the transferability of marketing strategies. Cost drivers are characterised by economies of scale which increase volume of production, taking advantage of country-specific differences such as cheap labour, and the cost of logistics to move the products from one place to the next. (Johnson et al, 2014). This will become highly beneficial when initial product development is high and the desired end result is increased volumes, increased sales and recovered costs over time. Sleuwaegen (2001) explains government drivers as favourable laws and policies, enforcement of intellectual property rights and anti-corruption environments are likely to attract foreign direct investment. Lastly, competitive drivers are elements of globalisation which compel companies to diversify and extend their products and services across national borders in response to competition by constructing strong international business strategies.
Firms must first scan their external environment before penetrating any foreign market and the PESTEL analysis is highly appropriate for this purpose. Indiatsy et al (2014) holds that PESTEL, an acronym standing for Political, Economic, Social, Technological, Environmental and Legal, is used to determine how to cope with competition and gain a market share in foreign land. Yuksel (2012) states that PESTEL serves a firm with two functions which are to identify the environment in which the firm now operates and provide it with data that enables the firm to predict future circumstances. Porter’s Five Forces model zooms into the five forces that influence an industry which are threat of new entrants, intensity of rivalry, threat of substitutes, bargaining power of buyers and bargaining power of suppliers (Ogutu, 2015).
Jhamb (2016) discusses Porter’s Diamond Model, a framework to determine how firms in particular geographic locations are able to compete against foreign rivals in certain industries. The four determinants were:
– Factor Conditions- grouped into Physical, Human, Knowledge, Infrastructure and Capital Resources. The basic factors include national resources, geographic location, capital, availability of raw material and labour. Advanced factors include modern infrastructure and availability of highly educated employees. The author cites that the advanced factors are more critical to competitiveness and operations of the company.
– Demand conditions- comprises of the demand, its size and patterns of growth and the internalisation of domestic demand
– Related and supporting industries- presence of suppliers accelerates the process of innovation and upgrades the business of the value chain. It allows them to share information and detect new opportunities.
– Firm strategy, structure and rivalry- The presence of competitors within the value chain leads to innovation and continuous improvement.
Masipa (2018) hails foreign direct investment to be an important factor for a country’s economic development that can lead to job creation and it is led by the search of cost-efficient processes and larger markets by foreign investors. Makoni (2015, p. 161) defines Foreign Direct Investment (FDI) as “operations of an entity resident in a different economy, with the intention of establishing a lasting interest”. The macroeconomic determinants of FDI includie market size, GDP, infrastructure, political stability, economic growth rate and natural resources. Lavanya et al (2017) states that there is more FDI in India’s motor industry as companies like Hyundai, Nissan, Ford and Volkswagen manufacture their cars in India for global export. Mukli et al (2006) states that foreign direct investment can take place in three ways: the establishment of a new branch, acquisition of a control share in an existing firm and joint participation in an existing firm.
Ta?demir and Durmaz (2014) describe Greenfield entry as the establishment of a new firm in the host country by another firm whose headquarters is located in the home country, either alone or with new partners. Nocke and Yeaple (2007) maintain that in Greenfield entry, the firm brings its own skills and resources to set up abroad. A downside to this method of market entry is that the level of technology transfer is low because of high costs, thus better suited for a large market.
Acquisition is the most powerful driving force of FDI, defined as the purchase of stocks in an existing firm to gain complete control (Tang and Liu, 2011). It is the fastest way to build a significant presence in a foreign market, and the downsides are the difficulty to assess the value of the acquired assets coupled with risks of overpayment, and that the firm faces cross-cultural challenges post-acquisition. Ta?demir and Durmaz (2014) hold that good prospects of acquisition strategies may already be seized by competitors and that performing an overhaul on possible contenders may be more costly to the firm as opposed to starting an entirely new operation.
The difference between the two modes of entry are that firstly, an acquisition is an adjustment to the industry, whereas Greenfield investment brings forth new supply into the market which benefits the firm in the case that the supply is less than the demand, equalling high profits for the firm. Where the market is near saturation, an acquisition is more suitable as market share is already secured. Secondly, an acquisition offers the firm the transfer of knowledge, technology and skill directly thus reducing development costs, an option that Greenfield investment proves difficult to implement. Lastly, the firm responds better to changes in demand in the market in an acquisition, which is risky for Greenfield investments (Wang, 2009).
?ivi? ; Sinanagi? (2014) describe the advantages of exporting as a market entry mode include low initial investment since the firm does not need to set up facilities in the foreign market. The firm will have unfettered control over production and most likely, the average cost per unit will decrease. Also, the transfer of technologies allows the firm with little to no experience in that foreign market to gain access. However, it must be noted that the firm stands to incur high transport costs and trade barriers, depending on which international market they are venturing into. In this instance, this mode of entry must be employed when the cost of trade barriers are nominal and when the firm does not need to greatly customise their products or services to adapt to the new market.
Mpofu ; Chigwende (2013) comment that the export strategy is divided into two; direct export and indirect export. With direct import, firms have interrelationships with foreign markets and customers. It is required that the company have a high level of expertise in international marketing. Indirect export takes place with the use of an intermediary, thus not allowing the exporter to have a direct relationship with customers or the market they export to. This is usually a starting point for the exporter and when they see pleasing results, they engage local firms further.
Licensing agreement requires low initial investment from the firm. It provides low risk and low return for the firm. However, it becomes difficult to control the operations of the licensee. The international licensing firm hands the licensee patent rights, copyrights, trademarks and detailed information on the products and services. The licensee then pays licensor fees and royalties that are usually paralleled to the sales volume of the products (Twarowska ; K?kol, 2013). An example is given by Mpofu ; Chigwende (2013) of Delta Beverages in Zimbabwe, a licensed Coca Cola bottler in Zimbabwe. The author purports that licensing is similar to franchising except that for the franchising firm, they are more directly involved and in control of the marketing program for the franchisee. The risk involved is that the licensee, after gaining technical knowledge, may begin to act on its own and therefore the international firm can lose its market.
Joint ventures are described as a form of market entry strategy where two or more firms combining their resources, thus creating a third entity which is separate from the parent companies organisationally, with the objective of establishing a more competitive position (Sammut-Bonnici ; Channon, 2015). In this way, companies join forces and create higher barriers of entry for competitors by way of pooling their financial, technological and production resources. The benefits of a joint venture include the transfer of raw materials and components, share marketing and technology information and the use of specific managerial skills. However, Ahmed ; Ahmed (2013) state that joint ventures will be unlikely to succeed if there are issues such as lack of trust between partners, different and conflicting managerial styles, cultural backgrounds and changes in the initial strategic objectives of the joint venture. AMEC, the international engineering and project Management Company, has formed a joint venture with Samsung Heavy Industries and Samsung Engineering to design engineering for fixed and floating offshore platforms and subsea pipelines for Samsung’s future offshore oil and gas projects. The joint venture has been named AMEC Samsung Oil and Gas LLC (ASOG). Samsung owns 51 percent and AMEC owns 49 percent and it is based in Houston, Texas, United States. (AMEC, 2012)
Alliances differ slightly from joint ventures. They are defined by Mayrhofer and Prange (2015) as cooperation agreements by two or more firms that decide to contribute technological, marketing and production resources while remaining independent entities. An example of a strategic alliance is Louis Vuitton, a French fashion house and luxury retail company and BMW, a German automobile manufacturer. The two companies came together to design a 4-piece luggage line appealing to owners of the high end BMW i8 model. The luggage adds an element of exclusivity to the vehicle, thus increasing awareness and favourable associations with Louis Vuitton’s aesthetic (Greenwald, 2014).
It is imperative that a firm wishing to go global craft a thorough and precise penetrative strategy characterised by a thorough analysis of its operational environment. A firm must adapt to the markets they penetrate whilst remaining true to their identity. Coupled with a suitable market entry mode depending on the conditions of the firm and the industry as a whole, the chances of success will be much higher.