International Market Entry: Factors Influencing Decisions
General Internal Factors
1. Company Objectives: Companies operating in domestic markets with limited aspirations generally enter foreign markets as a result of a reactive approach to international marketing opportunities.
2. Availability of Company Resources: Venturing into international markets needs substantial commitment of financial and human resources. Therefore, the choice of an entry mode depends upon the financial strength of a firm.
3. Level of Commitment: In view of the market potential, the willingness of the company to commit resources in a particular market also determines the entry mode choice.
4. International Experience: A company well exposed to the dynamics of the international marketing environment would be at ease when making a decision regarding entering into international markets with a highly intensive mode of entry such as joint ventures and wholly owned subsidiaries.
5. Flexibility: Companies should also keep in mind exit barriers when entering international markets. A market which presently appears attractive may not necessarily continue to be so in the future. It could be due to:
- Changes in the political and legal structure
- Changes in customer preferences
- Emergence of new market segments
- Changes in the competitive intensity of the market
General External Factors
1. Market Size: Market size is one of the key factors an international marketer has to keep in mind when selecting an entry mode. Countries with a large market size justify the modes of entry with long-term commitment requiring a higher level of investment, such as wholly owned subsidiaries or equity participation.
2. Market Growth: Most of the large, established markets, such as the US, Europe, and Japan, have more or less reached a point of saturation for consumer goods such as automobiles and consumer electronics. Therefore, the growth of markets in these countries is showing a declining trend. From the perspective of long-term growth, firms invest more resources in markets with high growth potential such as African markets.
3. Government Regulations: The selection of a market entry mode is to a great extent affected by the legislative framework of the overseas market. The governments of most of the Gulf countries have made it mandatory for foreign firms to have a local partner. For example, the UAE is a lucrative market for Indian firms, but most firms operate there with a local partner.
4. Level of Competition: The presence of competitors and their level of involvement in an overseas market is another crucial factor in deciding on an entry mode so as to effectively respond to competitive market forces.
5. Physical Infrastructure: The level of development of physical infrastructure such as roads, railways, telecommunications, financial institutions, and marketing channels is a pre-condition for a company to commit more resources to an overseas market.
The level of infrastructure development from Chinese investors in Africa shows their long-term investment as they see Africa as the next China.
6. Level of Risk: From the point of view of entry mode selection, a firm should evaluate the following risks:
a) Political Risk: Political instability and turmoil dissuades firms from committing more resources to a market.
b) Economic Risk: Economic risk may arise due to the volatility of exchange rates of the target market’s currency, upheavals in balance of payments situations that may affect the cost of other inputs for production, and marketing activities in foreign markets. International companies find it difficult to manage their operations in markets wherein the inflation rate is extremely high.
7. Shipping Costs: Markets with substantial shipping costs, as in the case of low-value, high-volume goods, may increase the logistics cost.
8. Lower Cost of Production: It may also be one of the key factors in firms deciding to establish manufacturing operations in foreign countries.
The research ranks each country on a range of dimensions:
- Power Distance – how people respond to power
- Individualism – how much people care about the wellbeing of others
- Masculinity – based on whether a culture believes in male / female equality
- Uncertainty Avoidance – whether people need structure, rules and process or if they are risk takers
- Pragmatism – about respect for tradition
- Indulgence – the extent to which people try to control their desires and impulses