Foreign Market Entry Strategy
International business has assumed new and complex proportions in the recent times on account of globalization of markets and economies. The globalization phenomenon has exposed organizations to new challenges that creates the need for a deeper understanding of global markets and economic environment that shape industry trends. Business in today’s world is guided and affected by the economic, social, financial, technological, political factors and system of any country. So in order for any international brand to be able to flourish and get a hold on the foreign market, it is imperative that all these factors are considered and analyzed. With more and more companies going global the strategic alternatives and practices differ widely from one business to another. The market entry strategy is based on an in-depth assessment of new market environment and an understanding of vital factors driving the industry operations in a global context.
The business world is not limited to trading in any one’s home country only. In order to expand and grow the almost all the countries in today’s world try to venture into the foreign market. The success or the failure would depend on the strategies adopted for a fruitful international business (Ghemawat, 2001). Thus, evaluation of foreign markets and analysis of economic environment is important in determining the feasibility of entering new markets.
Burger King is one of the leading fast food retailer in the United States having a global market presence across 73 countries. The company started its operations in the year 1954 with its first restaurant in Miami, Florida (Burger King website, 2012). As part of its international expansion strategy the company plans to venture into the Indian markets that holds great potential for extended sales and revenue. The country has a vast population and growing economic prosperity has lured many multinational companies to venture into this market.
India has witnessed a tremendous economic growth over the past few decades. In 2006, India’s gross domestic product grew by 9.2% (Martin & Kronstadt, 2007). Many U.S. companies consider India as one of the potential candidates for investment in any business. In spite of this economic growth, most of the rural people are poor and they can afford only the bare minimum necessities of life. Owing to the growing rate of inflation, the economic expansion is still restricted. Unemployment is still a prominent problem. More than half of the population still depend on agriculture (Martin & Kronstadt, 2007).
India is a land of varied demographic and geographical variety. One third of the population lives in urban areas and a significant proportion of the population are dependent on agriculture for their living (Martin & Kronstadt, 2007). The social division in India is based on the regional background, religion, caste and these affect the Indian politics as well. There are more than 22 official regional languages in India. The attitude, set of mind, likings are more or less guided and influenced by these divisions in the caste system.
The competition policy of the Government of India enhances market efficiency and protects the consumer interest as well. India has a complicated and rigid bureaucratic system which poses a problem with regards to implementing new economic policies and programs. The large population also poses problems for India’s environment (Martin & Kronstadt, 2007).
The workforce and the manpower are available at a considerable moderate cost. The intellectual population is also abundantly available. India has a vast population in IT professionals. There is a huge population of skilled and unskilled labor (IPTU, 2011).
In a developing country like India, often the companies fail to reach the scale due to the predominant government failures and market gaps as well. As a result of which the shareholders loose interest and consequently there results in the downturn of the company. The financial viability of a foreign company in the Indian market is very fragile (Pfitzer & Krishnaswamy, 2007).
There has been a significant liberalization of India’s trade and international investment policies. Over the last few years, India has been relaxing its import policies, thus lowering tariffs and eradicating the requirement of import licensing. India is one of the most popular democratic countries. India is a federal republic and mostly all the financial decisions rests with the prime minister and the cabinet. The trade relation between India and United States is also quite cordial (Martin & Kronstadt, 2007).
The concept of globalization is very attractive and lucrative to all the companies but at times the companies underestimate and overestimate the attractiveness of foreign market which may cause them pay a heavy price in future. The two aspects of any business –trade and distance always are inversely proportional to each other. It has been analyzed and studied that there is a negative impact of distance on trade (Ghemawat, 2001). The distances pertaining to any country reflects the diversity in cultural, administrative, geographic and economic aspects. The policies of the government, the size of the country which refer to the population of the country or the patriotism of the country men which inhibit the entry of any foreign country on their soil plays a major role in shaping the fate of a foreign company. Among the other factors the cross border complexity, the availability of natural resources, infrastructure, intellectual property, financial resources also poses a problem if the strategies or the methods chosen cannot solve the added cross border complexity to initiate or sustain the cross border business (Ghemawat, 2001).
The main aim of any international business strategy is to manage the difference which arises at the border of any country. According to Alexander and Korine (2008) there are three effective criteria to the challenges of globalization which reflect the viability of entering foreign markets. These relate to the question of how the company will benefit from this move, if the country has the capabilities to invest and try to expand in the foreign country and last but not the least will the benefit cover the cost incurred. Many companies have been unsuccessful in their pursuit to globalization because of impractical strategies and techniques used by them. This however does not mean that there are only negative side of globalization.
Burger King needs to consider the strategic alternatives that define the success of its market expansion plans through an in-depth assessment of the Indian market. The fast food culture is popular among the younger generation and market trends reflects increased market potential. However, the competitive environment presents increased challenges to the management along with the restrictive trade environment that makes it difficult to establish operations in India. Strategic alternatives may involve alliances and partnership that enable the company to enter the markets easily. Brand presence and market penetration should be the key focus for increased market shares.
Organizations operate in an increasingly competitive environment today and that makes it essential for management to consider strategic options for growth and development. The strategic alternatives for growth and expansion are however, much influenced by the firm’s performance in domestic markets and its core competencies that define its competitive advantage in the defined industry sector (Stonehouse & Campbell, 2004). While the domestic environment forces regulate the success of firms in capturing markets, the performance of firms is to a large extent influenced by managerial capabilities to harness existing potentials and resources to gain competitive advantage (Henry, 2011).
The global markets have assumed new significance in terms of value addition and marketing efforts that involve product differentiation and standardization approach. Every product market like the computers, fast foods have their presence in the global market and thus have foreign competitors. Governments have also played an immense role by lifting the trade barrier, the growth and the demand in the domestic market is also contributing to the expansion and opening the door of one country to invite other countries (Hamel, Doz & Prahalad, 1989).
All the countries across the world reflect different mental set up of the people, diverse attitudes, and numerous rules and regulations supported by the government that result in different type of barriers in the form of cultural, social and economic differences. For any company to be able to establish itself in that country requires difference in approaches as well as solution of the management problems. India is rich in culture and is marked by diversified cultural, social, economic and geographical differences. Owing to the cultural differences the consumers preferences are also very different. The cultural attributes also decides how people interact with one another and their reaction to a company especially to the one which is not local (Alexander & Korine, 2008).
People management plays an important role in defining organizational strengths and capability to handle management challenges. While India provides an extensive source of labor, the employment laws of the country are conservative. Labor management in the country requires efficient management techniques. India has a huge proportion of population whose income can be considered as low as per the international standards. As a result, the tenacity of spending money, living and using the product also differs as per the international standards.
The human resource can be a considerable boon for any foreign country as the cost of the labor is cheap and the intellectual population can also be utilized and nurtured. The different religious beliefs, races, social norms and practices bring differences among countries. The social structure gives rise to the difference in the buying capacity of people (Prahalad & Hamel, 2001). Any company, who is trying to enter the market where the local companies are already in existence, must adopt a reasonable and affordable pricing structure for their products.
There are some benefits of global strategy which are cost reductions, the quality of products and their various programs and last but not the least there is an increase in the competitive edge. For example, the Japanese success in the automobile is the global focus. The potential benefit from the virtue of globalization can be derived from the fact that many countries offer low labour costs, thus by outsourcing the profit margin can also be kept at a considerable low rate (Yip, 1989).
The concept of globalization still holds true as now a days the government has somewhat relaxed its internal tariffs, so the imports, exports and the trade has also become much smoother. Through the virtue of globalization, a continuous flow of learning, better staff accumulation and gaining knowledge in the specified areas and last but not the least it contributes to the increase in the profit margin (Aswathappa, 2010).
Burger King must focus its strengths on gaining industry leadership through adaptation to new product segments and tapping market needs to improve market penetration in the domestic markets. The operating environment in which firms exist are prone to rapid changes marked by shifting trends and emerging ideas that guide market behaviour and consumer needs (Johnson, Scholls & Whittington, 2011). Firms in order to adapt to emerging trends have to adopt new strategic approaches that can help them retain market shares and explore new market opportunities. This kind of strategic approach is referred to as strategic fit that “implies the change of internal strategic capabilities to better fit such opportunities” (Johnson et al., 2010).
Firms in their pursuit of international growth and expansion must re-define their existing strategies to accommodate the needs and demands of the new market region. Initial hiccups are inevitable since differences in cultural, political and economic environment play an important role in defining market behaviour. The effectiveness of strategic approaches lies in their ability to research and understand these differences (Hamel & Prahalad, 1996). Joint ventures and alliances with local partners can help in easing these initial challenges and enter the new markets with improved confidence (Jadhav, 2007).