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Market entry and ownership strategy case study

Abstract:
The following paper investigates market entry and ownership strategies for businesses interested in moving abroad or adding to and developing their international presence. The particular case within the paper revolves around an Irish business providing online educational tool (Educate-IT). Throughout the paper, advice on the most desirable country for trading in is also given, this involves country/market and competitive analysis being discussed in regards to Germany. Along with this, examples of Irish companies (Kerry Group & Dunnes Stores) who have successfully managed an overseas business venture are investigated in order to study crucial success factors in the new market entry.

Market entry and ownership strategy case study


In this report Mr. Tom Banks will be advised on his aim to internationalise his company. He will be provided with theories and thoughts, presented with examples of two major companies who have successfully brought their products/services to international markets, and lastly, Tom will be advised on what market Educate-IT should be aimed at as his first overseas venture, i.e.; Germany. International marketing can be defined as The process of conceptualizing and then conveying a final product or service worldwide with the hopes of reaching the international marketing community. Proper global marketing has the ability to catapult a company to the next level, if they do it correctly. Different strategies are implemented based on the region the company is marketing to. For example, the menu at McDonald's varies based on the location of the restaurant. The company focuses on marketing popular items within the country. Global marketing is especially important to companies that provide products or services that have a universal demand such as automobiles and food. *Business Dictionary 2012+ Market analysis may be described as research and evaluation done on a market in order to gauge the potential success of a product/service in that market. This potential success can be based on a number of factors such as demographic characteristics, geographic characteristics, economic factors, technological factors, socio-cultural factors, national goals & plans. When deciding on what market to enter, objectives and policies should be clearly defined. These should be based on some key issues- the volume of sales they company wishes to achieve, the amount of countries they intend on entering, and type of country they want to enter. Analysing a market takes planning and organisation, and a pre-defined process. In this market analysis process, there are seven steps; defining the issue determining the information needed carrying out secondary research designing primary research methods fieldwork analysing and interpreting data found report findings made. According to the Uppsala Model, there are two types of screening that may be carried out - country screening (the country is used as the relevant unit for analysis) & segment screening (done on a sub-national level). A suggestion proposed by Kotler & Armstrong (1994) is that potential global markets should be ranked on a number of factors including: market size, market growth, cost of doing business, competitive advantage, and risk level. A tool proposed by Michael Porter in 1985 in order to create more customer value was the value chain. This depicted nine value creating activities carried out by companies, and within this, there were five primary activities (raw materials, production, distribution, marketing, and service) along with another four supporting activities (firm infrastructure, HR management, technology development, and procurement). By highlighting these areas, a company is enabled to define some sort of competitive advantage in the market. When making international marketing decision, more attention to detail is required in comparison to the domestic market. The marketing mix must be reviewed in terms of price, product, promotion, selling support, financial support, service support, and industry and distribution support.

A number of entry strategies may be used by companies when venturing into new markets. These include: 1. Export-Based method this is the most common and straightforward mode of entry. Firms continue to produce their product in the domestic market but export a proportion of this output to foreign markets. This may be indirect or direct. Indirect exporting- involves intermediaries such as an export house that buys products from domestic firm and sells them abroad, a confirming house which acts on behalf of foreign buyers and paid on commission basis or a buying house which is more aggressive than confirming house, and more active in looking for sellers to match buyers particular needs. Eg: O Neills pub in the UK. Direct exporting with this method the producer may appoint a distributor in the target country/market unit, or, may decide to recruit a locally based sales team. The firm produces its product in the domestic market but distributes and sells the product to the foreign market. Eg: Mazda (Japanese company) has distributors in Ireland. This is the method being recommended to Mr Banks in regards to bringing Educate-IT to the international market of Germany. This is due to a number of factors such as: a local sales force can easily be appointed due to Germanys high level of English language fluency which will eliminate communication/language barriers, Germanys high level of technological know-how and education, the ease of getting to Germany if support is needed by the sales team there, and, a centralised approach to production is easily managed in the domestic market (Ireland). 2. Non-Equity method The company trades in knowledge and expertise. The firm sells technology or know how under some form of contract. This often involves patents, trademarks & copyrights (intellectual property usage). This method has formed a major part of international transactions since the 1980s. It includes the licensing and franchising of products/services. Licensing - A firm grants permission to a foreign concern (licensee) to engage in an activity that would otherwise be legally forbidden. Licensee buys the right to exploit a limited set of technologies and know-how from the licensor. Eg: High School Musical clothes in Dunnes Stores. Franchising This is a specialised form of licensing. A firm grants permission to the franchisee to undertake business activity using the franchisors name or trademark whilst adhering to strict business rules. Eg: Subway the franchisee pays a fee to the company/franchisor and is provided with a well established brand name, marketing materials, and guidelines etc.. 3. Equity method A firm engages in foreign direct investment (FDI). Different approaches can be used. These include: Joint Venture These involves creating a new identity in which the initiating partners take active roles in formulating strategy and making decisions. It is a cooperative effort between 2 or more organisations who share a common business interest. Eg: Sony-Ericsson the Japanese company Sony joined with the Swedish company Ericsson in order to combine Sonys consumer electronics expertise with Ericssons technological and communications leadership. Acquisition & greenfield investment this method deals with wholly owned subsidiaries which may be: (1) Started from the ground up by building new plant on a Greenfield Site. Eg: Kerry Group, or, (2) Merged/acquired through the purchase of a going concern/distributor. In this case, the firm owns 100% of the stock. Eg: Liberty & Quinn insurance. Consortia, keirestsu & chaebols these are sophisticated forms of strategic alliances designed to maximise the potential benefits of Joint Ventures. In this type of strategic alliance situation

two parties, who can often be competitors, will come together to enter a market that neither could or would to on their own. By entering into this alliance both parties are hoping to achieve and derive benefit for the others presence, but often one party may benefit slightly more than the other. Although they are not common in Europe, they work well in Asia, this may be due to the high level of trust Asian companies place in each other. The factors affecting choice of entry mode include (i) external variables such as buyer behaviour and the country environment eg: market size, barriers to importing, and government incentives, and (ii) internal variables like company issues e.g: lack of market information, lack of resources, and limited experience in new market entry. Market segmentation is also an important issue to be dealt with when entering a new market. The segmentation process is as shown in the following six stages - market definition, segmentation base selection, segmentation method selection, segmentation formation and profiling, evaluation, and final selection of target segments. In this case, the segment/target market has been defined (macro segmentation has been used here this means countries are grouped together through the gathering of country specific information, such as political, economic and cultural data, along with this, a multi-domestic strategy has been used, this is regarded as the most natural form of international segmentation, its purpose is to adopt a strategy where each country represents a separate segment Educate-IT currently targets school goers in Ireland that make use of computer aided learning).

Examples of companies who have successfully managed an international marketing strategy: Kerry Group: The company commenced operations in Listowel, Co. Kerry on a Greenfield site in 1972 with a dairy and ingredients plant. Its headquarters is now located in Tralee. At this stage it was a private company with just three shareholders. In 1980, the company created a 5 year plan, and searches for overseas acquisitions started. 1983 was an important year for the company as they established UK and Americas headquarters in London, and Hancock, Chicago. In 1986, after reviewing the corporate structure, the concept of Kerry Group plc emerged, Kerry group launched as a public company. In 1987, Kerry Group opened its first overseas food ingredients manufacturing plant in Jackson, Wisconsin. From then on, Kerry Group proceeded to acquire numerous companies around the world and is now present in 140 countries worldwide, (and five continents) with a presence in EMEA, the Americas, and the Asia-Pacific region (starting in Australia 1994). Kerrys current market sales are made up by 60% coming from Europe, 29% from the Americas, and 11% from Asia-Pacific. They acquired companies such as Aromont in France, FlavourCraft in South Africa,The Geneva Group in the U.S, and KC Foods in Malaysia. The group now represent highly successful brands such as Denny, Galtee, Kerrymaid, LowLow, Cailvita and Charleville cheese.As shown in the graph below, Kerrys sales have gone from 337m in 1986 (when they became a plc and internationalised) to 5,302m in 2011, thats an increase of 683%. The second diagram shows Kerrys corporate structure and what their different locations are responsible for in the group.

[Kerry Group]

Sign in Spain for Dunnes [google images] This is another highly successful Irish company who have managed an international marketing strategy. Ben Dunne opened his first store on March 31st 1944 on Patricks Street, Co. Cork when a property became vacant. It started out as a Better Value quality clothing retail store and was a booming success with consumers at the time. Following the huge success, a store was opened in North Main Street of Cork in 1947, followed by Waterford, Mallow, Limerick and Wexford before opening a store in Henry Street Dublin in 1957, and a super store in South Great Georges Street in 1960. Ben Dunnes stores revolutionised Irish retailing, as previously, products had been protected from consumers, and they could not view them on counters. In 1956, the St Bernard brand was founded, which to this day, represents value in retailing. In the 1960s, grocery was introduced on a small scale basis. As the company continued its great growth and success, the first Northern Irish store was opened in Bangor in 1971. Dunnes Stores then acquired a chain of 11 supermarkets in NI in 1978. The first overseas venture for Dunnes was in 1980 to Fuengirola on the Costa Del Sol in Spain before entering the English market in 1986 with textiles only. In 2000, Dunnes entered the Scottish market by acquiring a store in Glasgow. There are now five stores in southern Spain, six stores in England, five stores in Scotland, 23 stores in Northern Ireland, and 11 in ROI.

PEST analysis: [uhy.com 2010] Political/Legal: Germany is run by a parliamentary democracy and ranks 5th in most attractive investment places (FDI). In regards to legal security, Germany has a modern constitutional state that enforces transparent and reasonable laws. Advantages to this are internationally recognised. Germany ranks fourth in legal security among the other countries. Germany also has a strong Mittelstand, this refers to the privately owned SMEs that characterize the German economy. 85% of businesses in Germany are small - medium-sized. Through this, Germanys industry is mad every flexible, competitive and multifaceted. A number of these highly specialized firms are leaders in their field in the world market. There are no civil unrest or wars/conflict, in regards to this, the country is very stable.

Economic/Environmental: Germanys economic model is based on being a functioning social market economy, in which free market economics are blended with solidarity and social compromise. [uhy.com]. Based on GDP, it is the third largest political economy. Germany is also part of EMU, so their monetary policy is managed by the European system of Central Banks. As Germany also adopt the uro as their currency, by locating here a company would not have to constantly deal with exchange rates. When setting up a business there are two options a branch or a subsidiary. A branch, is considered an unincorporated body, which in turn does not have to pay income tax or corporate income tax; they are only subject to trade tax of about 14%. A the end of each year, firms must prepare their annual financial statement including a balance sheet and income statement, unincorporated companies do not usually have to appoint an external auditor. Germany has an open market and welcomes FDI. 22,000 foreign enterprises have entered into businesses in Germany and there are now 2.7million people employed by them. Practically all areas of Germanys market are open to entrepreneurial investment. State-controlled industries no longer remain. Germanys highly attractive companies and favourable investment conditions/potential has attracts huge attention from private equity firms and hedge funds. Germanys large market the EUs highest populated country with 82million inhabitants, which in turn give it the title of the largest market. It has a GDP of over 2.4 trillion EUR. Along with this, Germany ranks third as the worlds strongest economy, and is actually the largest economy in Europe. Being central in Europe makes Germany a hub for goods and services. EU enlargement is benefiting Germany especially. Among the seven most industrialised countries, Germany is the only country to increase its world trade share since 1995. Social: currently has one of the worlds highest levels of education and highly Qualified personnel Germanys workforce offering exceptionally well-qualified/trained, and graduates and workers. High standard of knowledge and skills brought to the workforce by German employees is recognized internationally. Germanys international location means there are over 7 million foreigners reside in Germany. Prominent foreign communities make up numerous metropolitan areas with their own schools, shops, restaurants, and churches. Eg: in Dsseldorf, there are a large number of Japanese residents, Frankfurt plays host to many Korean residents, and Hamburg has attracted a great number of Chinese dwellers. In regards to language, about 70% of German blue/white-collar workers speak English. A highly developed infrastructure is present in Germany. There is a fantastic road network, along with great railways and international airports such as Frankfurt and Berlin that can guarantee swift connections if needed for support in the host country. Technological: in German schools, there is a high level of usage in regards to e-learning & internet programmes. Global communications are easier than ever with email. Time zone similarity allow for direct phone calls to be used as another method of communication. Germany has a high level of innovation, there are more internationally patented products per million inhabitants there than anywhere else in the world. The figure stands at 277 patents: one million inhabitants. New product ideas have been transformed for the world market through famous research institutions such as the Fraunhofer and Max Planck institutes. The Made in Germany World famous trademark seals the stand for the highest quality goods worldwide. Germanys position as world export champion was secured by this renowned trademark for many years. Sectors such as automobile, mechanical & electrical engineering and the chemical sector are particularly strong with companies such as BMW,

Mercedes, Bosch, and BASF. Future industries such as nanotechnology and green energy are gaining more and more importance with patent applications doubling every two years Competitive analysis Threat of substitution: companies such as Rosetta Stone have been established as e-learning tools for languages, hard copy books can be seen as indirect competition to this technological approach. Threat of new entry: Moodle is a site used by numerous colleges in order to supple students with learning materials online, all in one handy space, there is no reason this type of company could not set up a school goer type of website to assist e-learning. Although Germany welcomes FDI and new trade, once a school adopts a technological system, and built a curriculum around this, there may be resistance to actually change to a new brand. A lot can be said for first mover advantage in this case. Factors to be considered when venturing into a new, overseas market:

Different educational system structure to Ireland. Childrens educational paths laid out at young age. Known for efficiency.

Overview: The International Marketing Context (Baack, Harris & Baack, 2013)
culture
Price market

language
promotion

Official = German, but English spoken by most fluently- thought in schools.

infrastructure

product

place

Political/ legal systems

Highly developed. Easily accessible from Ireland via direct flights. Good internal transport systems trains, buses, motorways, autobahn.

Economic sytstems

Renowned and known for its strong economic state. Banking and financial systems are stable and well developed. Recovered well from world recession. Currency (uro) the same as Ireland Headquarters of the ECB based in Frankfurt.

Parliamentary democracy. Pronounced federal structure. Similar employment law to Ireland. Two avenues for setting up a business branch or subsidiary. Taxation systems favourable for unincorporated companies. FDI received well.

In conclusion, the advice being given to Mr Banks on his Educate-IT mission is to enter Germany using a direct export based method strategy and recruiting a local sales team due to Germanys economic and social status, their technology and e-learning levels, the easily accessible transport, and not having any language/currency/time zone barriers.

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