MODES OF ENTRY IN INTERNATIONAL MARKET

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M.COM First Year Tutor Marked Solved Assignment

Course Code : IBO – 02
Course Title : International Marketing Management
Assignment Code : IBO-02/TMA/2019-20
Coverage : All Blocks

IBO – 02 International Marketing Management Solved Assignment for 2019-20

Q3.) An Indian tractor manufacturing company is planning to enter African markets in collaboration with a local company in Africa. Discuss any two modes of international market entry suitable in this context, and comment on their relative merits and limitations.

Ans : A firm must decide as to how it will enter a foreign market, i.e., it must decide its mode of entering the foreign market. It has to establish an institutional arrangement for selling its products in foreign markets. Various options involve varying levels of investment, risk, control and returns. Firms can choose which mode to use depending on their level of commitment to the international markets. We are selecting following two market strategies where company need not to invest in production rather company need to invest in marketing arrangements : 

1. Contract Manufacturing.

2. Joint Venture

Contract Manufacturing: 

Under the policy of market entry for contract manufacturing, the Indian company arranges for its goods to be manufactured contractually by an African firm. Indian companies will contract with these local companies to manufacture the commodity on the African market, while maintaining their marketing responsibility. The local manufacturer produces and supplies the product to such Indian company, while the sales, promotion and distribution are the responsibility of Indian company. In a way, the Indian company hires the production resources of the local company without setting up its own plant, avoiding imported barriers. This strategy is only feasible if African manufacturers are able to sustain the requisite production capacity and quality. The local supplier carries out production on an order-based basis by the Indian company and the Indian company makes no effort other than placing orders.

Contract manufacturing is commonly used where there is wide availability of production technology and the marketing effort is vital to the success of the company.

Advantages:

 1.The Indian company need no commits its capital to build manufacturing facilities abroad.

 2.This saves the Indian company from the threats of African investment.

The marketer can get started immediately if idle production capacity is readily available in Africa.

 3.The prices of the commodity produced from the manufacture of contracts are often lower than those obtained from the Indian company. If surplus capacity with existing units is usable, the product may be supplied on the basis of marginal costs.

 4.The manufacturing of contracts is a less risky way to begin. If the business does pick up well, it is easy to drop the business. But, if the Indian company built its own manufacturing facilities, it will be difficult to exit.

Disadvantages:

 1.It is not always convenient, to find a local party with the requisite capabilities to produce the product to the specifications of the Indian company.

 2.The Indian company needs to offer the manufacturing profit to local companies.

 3.The local group gains marketing expertise and may pose a danger to the Indian business over the course of time.

Joint Venture:

 An international joint venture is an undertaking in the sense of international business established by an foreign corporation, i.e. Indian business that shares ownership and power in a foreign country with a local company.

If the international marketer is interested in setting up an enterprise in the external sector in countries where entirely foreign companies are not authorized or preferred, the joint undertaking is the alternative. Many foreign firms joined through joint ventures in the communist, socialist and other developing countries. The key advantage of a common business market is that ownership and administration are shared between Indian business and local enterprise. The local business welcomes an external partner, i.e. a joint venture deal. Indian Company, to join as share owner in the new unit. Participation requirements can differ with companies that recognize a minority or majority stake. An Indian company will buy a Joint venture by acquiring an interest in an existing African company or the Indian and African entrepreneurs will jointly form a new enterprise.

When a partner in a joint venture secures part of the operation, the Indian company can no longer work independently, often leading to inefficiencies and liability conflicts.

Advantages :

1.Greater leverage over production and marketing

2.Better customer feedback;

3.Greater foreign marketing expertise

4.The local partner brings in the company shares the risks associated with a new venture.

5.In addition, the JV partner can have skills and connections in the foreign industry within this field of interest. Often the partner may be an significant customer who is willing to subscribe in return for equity contribution to any part of the new unit's output. The partner might in other cases represent important local commercial interests with good communication with consumers

6.A business with state-of - the-art drug technology can also enter the market through the JV direction in collaboration with local distribution companies.

Disadvantages:

1.More risk is associated with joint ventures.

2.More capital spending and financial resources are also needed.

3.There is, on the other hand, a possible conflict of interest with the national partner in a shared company.

4.A joint undertaking can experience many crises, due to either partner's awareness that its requirements have not been met and maybe even denied.