Entry to Foreign Market

Introduction

In economics, when the term foreign market is present, the two common features of business rises; the exportation and importation. When a business is engaged in the foreign trade, there is too much risk that the business must endure. The very first thing that a business should consider is how to enter the foreign market. If the business is new to the international marketing world, it is expected that the business will find some troubles in the first step. How to get the way to the foreign market? A business should be ready in facing the challenge. The road to the foreign market is often less taken because of the failure that a business encounters and the probability of greater loss. The possible reason for this failure is because the business forgot the route on how to get the way to the foreign market.

The Study

A business should know the different models of analysis that are available to use before entering a foreign market. The business should not only gather the information in the foreign land where they are planning to establish a business but as always learn to analyze what does the data are trying to convey.

The first is determining the SWOT and PEST market analysis. Then what are the difference in them and how they can help the business in its entry mode in the foreign market.

SWOT - measures a business unit, a proposition or idea.

S – trengths. They can be reputation of the business in the local market because of the product in long run.

W – eaknesses. They can be shortage of materials needed or more expensive purchase of materials in the target country.

O – pportunities. They can be a well established position when the business successfully landed in the foreign market.

T – hreats. They can be large competitors that are waiting for the business that were undiscovered before conducting the study. This possibility is not that new.

On the other hand

PEST - most commonly measures a market;

P – olitical Factors such as tax policy, labor law, environmental law, trade restrictions, tariff, and political stability.

E – conomic Factors includes economic growth, interest rates, exchange rates and the inflation rate.

S – ocial Factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety.

T – echnological Factors includes ecological and environmental aspects, like R&D (Research and Development) activity, automation, technology incentives and the rate of technological change.

Entering Foreign Markets

There are suggestions available for the business that can give a big impact before the business enter the foreign market.

1. Explore the three basic decisions that a firm contemplating foreign expansion must make: which markets to enter, when to enter those markets, and on what scale.

2. Review the different modes that firms use to enter a foreign market.

3. Understand the advantages and disadvantages of each entry mode.

4. Appreciate the relationship between strategy and a firm’s choice of entry model.

5. Appreciate some pitfalls of exporting.

6. Be familiar with the steps a firm can take to improve its export performance.

7. Understand the mechanics of export and import financing.

Why go abroad?

Ø To reach larger economies of scale by selling to more customers in other countries.

Ø To reduce the risk of over dependence on one country by spreading sales in multiple countries.

Ø To replicate the success at home in new settings.

The PEST analysis and SWOT analysis are both simple, quick, and uses four key perspectives. The passport for the easy access on the foreign is set cleared. Whatever analysis will always forecast the future of the business, not unless it was manipulated. After all, there’s nothing wrong in establishing a business in other country.

References:

Chapman, A., (n.d.) SWOT Analysis [Online] Available at: http://www.businessballs.com/swotanalysisfreetemplate.htm [Accessed 24 July 2009].

Entering Foreign Markets [Online] Available at: http://highered.mcgraw-hill.com/sites/0070984115/student_view0/chapter12/ [Accessed 24 July 2009]

Peng, M., (2005) Global Strategy. Entering Foreign Markets Part II: Business-Level Strategies. [Online] Available at: www.utdallas.edu/~sxl029100/BA4373_chapter 6.ppt [Accessed 24 July 2009]