Firms are going abroad more often than in the past. Nowadays, not just large companies are facing opportunities and threats of globalization, but also smaller firms are involved in this process. The main reasons that firms go abroad are: market seeking (e.g. new consumers), efficiency seeking (e.g. knowledge) and resource seeking (e.g. outsourcing). Once reactive or proactive factors push or pull them to go abroad, the company has to face one of the most important decisions in the expansion strategy: the entry mode choice.
In the entry mode strategy selection, many internal and external factors must be taken into account. First of all, the company has to evaluate the country factors that may affect the decision. They mainly include: potential market attractiveness, cultural distance and country risk. This country evaluation provides hints in deciding between equity and non-equity strategies. Second, an internal company research relating to: desired marketing intensity, knowledge, global strategy, intangible assets experience and size can help decision-makers in determining preferable entry modes. Finally, the most appropriate market entry mode has to be chosen depending on the cost, risk and the degree of control; which can be exercised over them.
The information presented in Tables 1 and 2 outline the potential costs and risks that have to be considered in the process of selecting the most appropriate market entry strategy. The following costs and risks make the market entry decision more complex than home-country operations.
Table 1 Costs involved in entering global markets
|COSTS |CONSEQUENCES | |Start-up |Costs to establish operations in foreign market | |Information and Resources |Assessing viability of market | |Human Resources |High cost of training and recruiting global workforces/expatriates | |Marketing and Promotional |Creation of image takes time, effort and money because brand names are difficult to build | |Government Compliance |Costly to meet government-set standards or adapt business practices to follow host countries | | |regulations | |Enforcement of Contracts (Legal) |Ensuring suppliers/partners comply to agreed contract | |Transaction |Can become a high barrier to international trade | |Logistics |Limit direct monitoring of trade partners | |Infrastructural |Increases of distribution |
Table 2 Risks involved in entering global markets
|RISKS |CONSEQUENCES | |Physical Distance |Less control of operations; limits direct monitoring of trade partners | |Language Barriers |Can create communication problems; limits direct monitoring of trade partners | |Weak Legal Integration |Lack of legal consistency creates delays and communication problems | |International Competition |Anonymity in new market or less brand awareness;...