Challenges Faced by Companies Entering Foriegn Markets

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Challenges Faced By Companies Entering Foreign Markets

Case of Rocket Internet’s Sabunta

August 2012

1. INTRODUCTION
Companies move into foreign markets for various reasons. In certain cases, it is towards achieving a required sales volume. In other instances, it might be a bid to increase brand awareness. Other companies go into foreign markets to re-invigorate sales after their products have gone through their life cycle - from inception to decline - in home markets. Regardless of reason, moving into a foreign market tends to portend great opportunities for companies, particularly if it entails serving products in an emerging economy that has recently become wealthy enough to afford such products; or selling a new but needed product or service to a developed and wealthy market. However, in foreign markets, challenges are as numerous as opportunities. Some sources of challenges are discussed below.

a) Socio-Cultural Differences
Companies tend to adopt practices that were successful in home markets without adapting these models to fit the cultural inclinations of markets entered. When large cultural differences exist between the home country and that entered, such practices may result in ineffective business development and partnerships. An example is the now well known Chinese practice of longer meetings in the bid to become acquainted with potential partners, compared to the Anglo-American practice of brief to-the-point meetings. Adopting either approach in a market more inclined to the other, will no doubt hinder business development. Language differences are other examples of socio-cultural differences that posit challenges to companies entering a foreign market. Language differences make effective and efficient communication difficult between companies and local stakeholders. A light example is the Chevrolet Nova which was selling far below expectation in Latin America. Executives of General Motors could not understand why this was so until it was brought to their attention that, in Spanish “no va” means “it doesn’t go”.

b) Differences in Levels of Bureaucracy – Efficiency of Procedures and Processes Company registration, the opening of a bank account, getting import permits, obtaining required licenses, etc, all reflect the ease of doing business in a country as well as the levels of bureaucracy that exist in that country. For companies used to relatively low levels of bureaucracy, entering a market with significantly higher levels of bureaucracy may result in unrealistic project plans translated into unachieved implementation. c) Differences in Availability of Skilled Human Resources Availability of a particular skill in a company’s home market may result in presumptions about the availability of the same skill in the market entered. 4This occurred in Nigeria in 2001 when the first set of GSM licenses were given to foreign companies - MTN and Econet (both from South Africa). At the time, neither entrant foresaw a dearth of local skilled manpower. This ended up costing both companies an unprecedented increase in salaries and other expenses associated with bringing in expatriate workers. The challenge of sourcing skilled labour in foreign markets is further exacerbated when quotas exist on the number expatriates allowed into the country entered despite the dearth of local skill. d) Differences in Infrastructure

Prevailing infrastructure affects how companies operate. Prevailing transportation infrastructure affect how companies move goods and personnel for service delivery; market infrastructure affect how players on a given value chain relate with one another; and the level of basic infrastructure such as power and water affect cost allocations and management. For companies entering a foreign market, failure to take into account the infrastructural base of the market entered may result in ineffective and or inefficient operating plans and processes. e) Legislation...
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