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Market Success and Entry Strategy

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Part I: Market Success Analysis

Market size

As an entrepreneur, it is important to evaluate the number of buyers and sellers in a market. This is because the size of a market will determine the volume of sales that will be made. Thus it is vital to evaluate the economic viability of a niche market is determining the size of the market.

If  the market is too small, then the possibility is that there will not be enough sales to cover expenses while on the other hand if the market potential is big, it may not be a niche market as direct competition in the form of commodity market will prevail. A market share matters a lot because it drives network effects which drive competition out of the market (Tronstad, R.).

Resources

If a country is well endowed with resources, then the probability is that it is a niche market and its citizens will support the organization’s activities. Example is in a free market where resources are privately owed and decision on what to produce or how much and for whom are decided by private producers. The government here has little or no say on economic activities. Thus consumers are likely to demand higher of the organizations products  

Regulations

Any businesses anywhere even if small need to comply with many federal, state and local regulations that govern its operations. Ignoring the regulations may be easy in the short-term but on a long-term basis may come to haunt the business negatively. It is therefore impartial to spend money and time to learn and study the market place and its various regulations. Ignorance to these laws is not an excuse and penalties could cause legal jeopardy, legal fees and even penalties.

Therefore if done rightfully and followed to the letter, business regulations in any country if followed will result to the business being legal and being allowed to transact its business in a conducive atmosphere. On the other hand, if regulations are not followed, then they will result in fines, legal fees and penalties and possibly not guaranteed of a license to operate. Thus it is vital that these regulations are followed if an organization wants to achieve success in its new market (Authority directory).

Possible risks

Business risks may be as a result of internal or external operations of the business that may be evident in most businesses. Possible business risks the organization may face include strategic like a competitor coming onto the market, compliance example is responding to an introduction of new health and safety regulations, financial risks like non-payment by a customer or an increased interest charges on a business loan and other operational risks like the theft or breakdown of key equipments.

Usually business risks have a negative impact on the operation of the organization and its profits.   For those outside factors that can create an element of business risk, then the most significant is that of a change in demand for goods and services. But if the change is positive, then the demand for the company’s goods will increase and thus decreasing the amount of risk.  If negative though, it means that the consumers’ demand will decrease either due to loss of business to competitors or change in economic conditions (Wisegeek).

Part II: Market-Entry Analysis

There are numerous market entry strategies that any business can adopt when setting outside the mother country. A well founded market entry strategy will minimize uncertainties faced by new entrants. We will discuss three strategies to market entry which will allow us to create well supported and objective plans that will increase competitiveness and secure revenue.  Each of these strategies has its own levels of risk, legal obligation, advantages and disadvantages.

Joint ventures

This is a market option in which the exporter and a domestic company in the target country will join together and form a new incorporated company. In this case, both parties will provide equity and resources to the venture and share in management, profits and losses. This option is popular if in the foreign country there are many restrictions on foreign ownership especially china and Vietnam. (Austrade).

Advantages of joint ventures

  • Helps in acquiring competencies or skills not available in-house
  • If there is need to penetrate the market quickly, then joint ventures are the best especially when competitive entry is imminent or rapid technology changes.
  • Helps in spreading risk of a large venture over more than one firm.
  • JV enables faster entry and quick payback
  • JVs also help in avoiding tariff barriers and in satisfying local content requirements.
  • Government regulations may force new entrants into joint ventures.

Disadvantages

  • Partners always have limited control of management
  • Joint ventures may sometimes be impossible to recover capital invested.
  • Due to different partners, they may sometimes collide with different views on expected returns.

 2. Franchising

Franchise is defined as an ongoing business relationship where the franchisor grants the franchisee the right to distribute goods and or services using the franchisor’s brand name and system in exchange for a fee. Usually there is a franchise arrangement where the business format is specified and this ensures a common customer experience throughout all its networks.

Reasons for franchising are that it enables rapid market expansion using the franchisor’s intellectual ability and property as well as capital and enthusiasm of a network of operators (FranExcel).

Disadvantages of a franchise

  • Higher legal fees associated with the necessity of preparing agreements and related documents  represent a large portion expenses that are initially incurred
  • At the beginning of the franchising program, there is a big risk that the trade name may be spoilt by misfits who my not be really into business
  • There is also risk that the franchising exercise may be subjected to undue pressure in order to implement new policies and procedures
  • The franchisor is required to disclose some confidential information to the franchisee which may otherwise constitute a risk to the business.
  • The fear of business venture being terminated anytime.

Advantages of franchise

  • Franchising is one good way of creating another source of income for the franchisor through such payments like franchise fees, royalties. This type of capital injection will provide an improved cash flow and a higher return to investments. 
  • Operational. As a franchisor, it is easier to have to have smaller central organization when compared to such organizations developing themselves.
  • As the franchisor, risk is spread by multiplying the number of locations through other people’s investments in new locations.
  • As a franchisor, smaller and central organizations re easier to run as the business will maintain a more cost effective labor force.

 3. Exporting

Exporting is defined as the marketing and direct sale of domestically manufactured goods in another country. Exporting has been the tradition in entering new markets and is a well established method of reaching foreign markets.

Advantages

  • Minimizes risk and investment
  • Speed of entry
  • Maximizes scale while using existing facilities

Disadvantages

  • Trade barriers and tariffs add to costs and make it expensive
  • Transport costs are very high
  • The company is usually viewed as an outsider
  • Access to local information is limited 

Franchising: The best model to use

Of the above three entry strategies, the best model to use according to me for the company is to franchise. This is because of such lucrative and niche markets like China and India but have restrictive entry levels into their territories. Another reason is that the spending patterns of these countries Russia included have over time resembled those of other European countries as well as the United States. Thus to effectively conquer these markets, whose demand for recognized and quality brands is increasing, is to franchise. Thus franchising enables the organization to can offer extensive and sophisticated support and assistance and franchisees will benefit from purchasing power that will come from joining large and well established networks (Russian-American business).

Part III: Market-Entry Implementation Strategy

There is some list of to-do items in order to effectively implement a franchise because we had earlier found that every country has its local rules and regulations governing the conduct of business.

  • As the first step, it is important that the sales and marketing guidelines are reviewed and revised. Comprehensive internal compliance training is then conducted for all the senior personnel involved.
  • A document review is then done making sure that waivers, integration clauses and disclaimers in the franchise do not apply to franchisor’s disclosure.
  • The other important step involves personnel review and identification for disclosure. It is important to determine of the officials who are responsible for management responsibility and a biographical information for disclosure prepared.
  • Some of the important information that is to be obtained includes all modes of product and service distribution for territorial disclosures.
  • Litigation information and review is then done to help obtain from relevant counsel to prepare materials for litigation.
  • Earnings claims review follows
  • Transfers, terminations and other contact information is to be obtained and all franchise determination reviewed. Other important information here includes substitute heads, names, states and business telephone numbers and analyzed carefully.
  • Disclosure of financial statements to help perform post sale obligations to franchisee on behalf of the franchisor. (Carnahan, F.C.).

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