Exploring international entry modes that enhance a firm’s competitiveness during the COVID -19 Pandemic Era.
The COVID-19 Pandemic has affected organisational competitiveness, growth, and performance throughout the whole world. Therefore, for firms to remain competitive they need to explore international entry modes to enhance business sustainability.
It is from this background that firms which explore strong international marketing management are likely to sustain their business models. In addition, firms with poor international marketing strategies, tend to face going concern challenges which ultimately result in business closure.
Agile firms around the globe including ABC Company have begun to explore and implement the international entry modes which assist in outperforming competitors. Doole and Lowe (2012) argue that a company or organization should best prepare itself to achieve a competitive advantage in the marketplace.
The aim of this blog is to explore international entry modes which may result in firms gaining a competitive edge towards their business rivalries. Furthermore, this blog discusses the benefits of international entry modes based on the ABC case study.
What is international marketing management?
Doole and Lowe (2012) refer to international marketing as a strategy that involves a firm in making one or more marketing mix decisions across national boundaries as a way of achieving a competitive edge in the marketplace. International marketing involves a firm setting up and establishing manufacturing or processing facilities around the world and coordinating strategic marketing activities across the globe (Kotler & Keller, 2016).
Proponents for international and global marketing such as (Kotabe and Helsen, 2008) define international marketing as a strategy that requires a firm to operate across several foreign country markets in an effort of achieving a competitive advantage. The accessibility of the open world economy, the globalization of consumer experiences and the unlimited expansion of the internet of things have increased the interdependency and connectedness of economies across the globe (Doole & Lowe, 2012).
Agile companies such as ABC focus on the selection and exploitation of international marketing opportunities and utilizes resources around the globe with a view of achieving a global competitive advantage. The subsequent section discusses international entry modes.
What are international entry modes?
International entry modes are the different ways or mechanisms in which a firm may enter and operate in foreign economies in an effort of gaining a competitive advantage (Hennart, 2009).
What are the different types of international entry modes?
The following are the common different types of international entry modes based on the works of Hennart (2009), they include but are not limited to exporting; acquisitions; licensing; franchising, joint venture, and strategic partnership (See Figure 1.1).
Figure 1.1: The common different types of international entry modes
Source: Own Source, (2021) based on the works of Hennart (2009).
The following are brief explanations of each international entry mode.
Exporting: is an international marketing entry strategy that involves the direct sale of domestically produced goods or services into another country (Wei, Zheng, Liu & Lu, 2014). Exporting is associated with low risk, substantial costs, and limited control.
Exporting is perceived to be typically the easiest strategy for entering international markets and therefore, most firms including ABC Company started their international expansion using this model of entry.
Acquisitions: this is an international marketing entry strategy that involves the purchase or acquisition of foreign firms by a parent company that invest in a form of equity to the associate or subsidiary company (Xie & Li, 2017).
The acquisition is famous for high risk and high return as it is subjected to high costs. In addition, the parent company may control the subsidiary if it has 51% majority shares in the sister company. Acquisitions are believed to be popular with multinational corporations as they are perceived to have funds to invest around the globe in an effort of achieving global competitiveness.
Licensing: According to Ling (2017) licensing is mostly applied to the technological industry. It is perceived that the licensor offers know-how, shares technology and brand name with the licensee. On the other hand, the licensee pays royalties. The licensing mode is known as a lower-risk entry mode, and it limits exposure to economic, financial, and political instability.
Franchising: Ling (2017) argues that franchising is commonly used in hotels and fast-food outlets. A franchisor gives the franchisee right to use the brand name, trademarks, and business know-how.
Examples of companies involved in franchising are McDonald’s, KFC, Pizza Hut, Coca Cola and ABC company is not an exception. The franchising entry mode is known as a very fast marketing penetration strategy, with less risk and associated with a high level of control.
Joint venture and strategic partnership: According to Robson, Leonidou and Katsikeas (2002) joint venture and strategic partnership are a strategy whereby a foreign company and local company establish a jointly owned new company to gain a strategic alliance competitive advantage.
The joint venture and strategic partnership are a preferred entry mode with some of the Governments in the developing countries as they assist in developing expertise. In addition, if production is exported this helps with the country’s balance of trade. The parties for the joint venture and strategic partnership contribute resources in form of equity, equipment, and labour.
The profits from the jointly owned company are shared using the agreed profit-sharing ratios. The subsequent section discusses the benefits of international entry modes.
The benefits for international entry modes
There are benefits of international entry modes to customers, companies, and countries at large. The customers get access to the goods and services at a low price because of competition. In addition, the customers benefit from a wider range of goods and services.
Companies will benefit from exporting surplus production through the expansion of markets in foreign countries. International marketing initiatives reduce business risks, through the increase in production that ultimately led to generating more sales and result in more profits.
The international entry modes promote the country’s economic growth through increases in total production and export earnings. The international marketing entry strategies enhance knowledge, cultural diversity, an extension of the industry supply chain, optimum utilization of resources and progress towards technological advancement.
The following section focuses on recommendations and lessons learnt from international entry initiatives.
Recommendations and lessons learnt from international entry modes
It is imperative for firms to examine the advantages and disadvantages of each of the international entry modes before deciding on which one to implement. However, it is common sense that firms should select and prefer international entry modes which are less risky and associated with low costs.
Finally, for firms to remain competitive like companies such as ABC, KFC, McDonald’s, Coca Cola, and many others should be proactive in selecting any one of the international entry modes, including exporting; acquisitions; licensing; franchising, joint venture, and strategic partnership.
Therefore, in this context, the ABC company managed to attract customers during the COVID-19 Era, through embracing a business model which incorporates some of the international entry modes initiatives.
Written By: Dr Robert P Machera (PhD)
Dean Faculty of Business and Accounting Botho University: Botswana & Visiting Senior Faculty: Eaton Business School and Exeed School of Business & Finance LLC
Doole, I. and Lowe, R., 2012. International marketing strategy. Cengage Learning.
Hennart, J.F., 2009. Down with MNE-centric theories! Market entry and expansion as the bundling of MNE and local assets. Journal of international business studies, 40(9), pp.1432-1454.
Kotabe, M.M. and Helsen, K., 2020. Global marketing management. John Wiley & Sons.
Kotler, P. and Keller, K.L., 2016. A framework for marketing management (p. 352). Boston, MA: Pearson.
Ling, Z., 2007. Franchising and/or licensing as foreign market entry strategies in the Chinese hotel industry (Doctoral dissertation, Dublin Business School).
Robson, M.J., Leonidou, L.C. and Katsikeas, C.S., 2002. Factors influencing international joint venture performance: Theoretical perspectives, assessment, and future directions. MIR: Management International Review, pp.385-418.
Wei, Y., Zheng, N., Liu, X. and Lu, J., 2014. Expanding to outward foreign direct investment or not? A multi-dimensional analysis of entry mode transformation of Chinese private exporting firms. International Business Review, 23(2), pp.356-370.
Xie, Z. and Li, J., 2017. Selective imitation of compatriot firms: Entry mode decisions of emerging market multinationals in cross-border acquisitions. Asia Pacific Journal of Management, 34(1), pp.47-68.