Contents

1. INTRODUCTION....................................................................................................... 1
2. SCOPE OF GLOBALIZATION..................................................................................... 2
3. NEED FOR GLOBAL EXPANSION.............................................................................. 3
4. CHOOSING A GLOBAL STRATEGY............................................................................ 6
5. INTERNATIONAL STRATEGY..................................................................................... 9
6. GLOBAL VS MULTI-DOMESTIC STRATEGY..............................................................12
7. MODES OF ENTRY INTO THE GLOBAL MARKET......................................................14
8. FACTORS INFLUENCING SELECTION OF ENTRY MODE KOCH................................19
INTERNAL FACTORS............................................................................................... 20
EXTERNAL FACTORS.............................................................................................. 22
9. CONCLUSION........................................................................................................ 24
10.REFERENCE......................................................................................................... 25

INTRODUCTION
Globalization is a process of integration and interaction among governments of different
geographical nations, people across the world and companies. International trade, investments
and technology are the factors that drive the process of globalization. Globalization is investing
funds and moving business beyond the national markets.
Basically globalization is a process by which different parts of the world interact economically,
socially and politically.It involves technological, economic, political, and cultural exchanges
made possible largely by advances in communication, transportation, and infrastructure.
Technology is the key driver of globalization. As the technology has been advancing, it has had
an impact on the economies of various nations and it linking them both economically and
socially, making the world a global village.
International Business and Investment is also another key driver that has led to globalization.
International Business is the process of focusing on the resources of the globe and objectives of
the organization on the global business opportunities and threats, in order to produce, exchange
and trade goods and services across the world.
According to the World Trading Organization globalization is defined as, a historical stage of
accelerated expansion of market capitalism, like the one experienced in the 19th century with the
industrial revolution. It is a fundamental transformation in societies because of the recent
technological revolution which has led to a recombining of the economic and social forces on a
new territorial dimension
Globalization has increased economic, cultural, environmental, and social interdependencies.
New financial and political formations arise out of the mobility of capital, labor, and information.
Globalization is about the changing nature of state relations between different communities. It is
about relations between the individual, state, and market and between nation states; education is
positioned in these shifting relations.

Technology and globalization shape the world. It helps determine human preferences, the
economic realities. Standardized consumer products, low price, improvement in export and
import policies and technology are key points for successful globalization.
As coin has two sides, similarly globalization has both a positive and negative impact.
Globalization can be a force for good, it has the potential to improve living standards and
increase the wealth of nations, although the benefits from increased trade, investment and
technological innovation are not fairly distributed across the world. Nobody is safe from global
reach and the irresistible economies of scale (reduction of costs and prices) and scope

SCOPE OF GLOBALIZATION
I.
II.

Domestic competitiveness Globalization enhances the domestic competiveness.

Increase sales, profits and global market share As a company operates in the global
market, the firms sales, profits and market share are likely to increase because now the
firm is serving a wider market, which is more customers.

III.

Exploit international trade technology Globalization enables access to technology.

Encourages Electronic-Business hence access to the global market.

IV.

Stabilize seasonal market fluctuations Globalization stabilizes the seasonal market

fluctuations, especially in the market for agricultural goods. Production of some goods
and services are seasonal, as their production is dependent on climate of the nation.

V.

Expansion of Business Globalization leads to trading outside the domestic markets,

hence there is expansion of business, which in turn enables business to tap new market
leading to increase in product line and therefore profits. Further if the products of the
firms are reaching the end of its life cycle in the domestic market, business can push the
product in the international market.

VI.

Sell excess production capacity Globalization gives a firm opportunity to dispose

excess products in the global market. The surplus products/good have a ready market.
Firms can export their surplus in the global market.

VII.

Maintain cost competitiveness the domestic market - Competition within the domestic
market may be intense so firms push to overseas markets hence tapping global markets to
expand the business.

NEED FOR GLOBAL EXPANSION

Although some would stem the foreign invasion through protective legislation, protectionism in
the long run only raises living costs and protects inefficient domestic firms (national controls).
For some firms, need to venture into global expansion as result of a deliberate policy decision
(exploiting market potential and growth). Other firms need to expand as it is a reaction to a
specific business opportunity (global financial turmoil, etc.) or a competitive challenge
(pressuring competitors).
There are several reasons why there is need for globalization:
a) Profit Maximization
Profit is the key objective of any organization. Firms need to go global because the domestic
markets do not promise high profits. Thus the objective of profits affects and motivates the
business to expand operation to foreign countries.
For example, The PC business is one of the most aggressive in the world, with operating
efficiency a critical factor for success. At the time of the HP/Compaq merger in 2000, both PC
businesses were losing money. Now, seven years later, HP has reported a record first quarter for
PCs, generating $8.7B in revenue, 17% year over year growth and delivering 4.7% in operating.
b) Access to low cost factors of production
Many companies need highly productive labor force that is cheap affordable and efficient. The
unique skills may not be available throughout the world. Manufacturing units in India
have consistently performed well, like the automobile manufacturing (E.g. Hyundai Motor car
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manufacturing plant near Chennai) which helps reduce cost of production to maximize profits to
their advantage.
Some companies have outstanding technology through which they enjoy core Competencies and
can specialize is certain products. There is a need for such technology and exposure to
specialization in all the countries.
c) International Security & Interdependency of nations
International security consists of the measures taken by nations and international organizations,
such as the United Nations, to ensure mutual survival and safety. These measures include
military action and diplomatic agreements such as treaties and conventions. International and
national security is invariably linked. International security is national security or state security
in the global arena.(Buzan and Hansen, 2009).
Developed countries depend on developing countries for primary good, whereas developing
countries depend on developed countries for value added finished products.
d) New Markets and Product Line
Companies need to enter foreign markets and increase their global competitiveness. Firms that
venture abroad find the international marketplace far different from the domestic one. Market
sizes, buyer behavior and marketing practices all vary, meaning that international marketers must
carefully evaluate all market segments in which they expect to compete. Firms can pursue a
global logic or imperative that is new markets and profits. Further to this it enables firms to
exploit product life cycle differences.
For example, Enfield India reached maturity and the declining stage in India for the
350cc Royal Enfield motorcycle. The company entered Kenya, West Indies, Mauritius and
other destinations where the heavy engine two wheeler became popular. The Suzuki 800cc
vehicle reached the last stage of its life cycle in Japan, and entered India in the early 1980s,
where it is still doing good business as the bread and butter model in Maruti Udyog Ltds
stable.
e) Competition

Globalization leads to growing competition on a global basis. While some fear competition, there
are many beneficial effects of competition that can increase production or efficiency.
Competition and the widening of markets can lead to specialization and the division of labor, as
discussed by Adam Smith and other classical economists writing on the benefits of a market
system. Specialization and the division of labor, with their implications for increases in
production, now exist not just in a nation but also on a worldwide basis. It enhances better
quality and utilization of world resources.
f) Reorganization of Businesses
Globalization brings reorganization at the international, national and sub-national levels.
Specifically, it brings the reorganization of production, international trade and the integration of
financial markets. This affects capitalist economic and social relations, via multilateralism and
microeconomic phenomena, such as business competitiveness, at the global level.
The transformation of production systems affects the class structure, the labor process, the
application of technology and the structure and organization of capital. Globalization is now seen
as marginalizing the less educated and low-skilled workers. Business expansion will no longer
automatically imply increased employment. Additionally, it can cause high remuneration of
capital, due to its higher mobility compared to labor (Pologeorgis, 2012).
g) Exploiting different economic growth rates
Foreign Direct Investment's impact on economic growth has a positive growth effect in wealthy
countries and an increase in trade and FDI, resulting in higher growth rates. Empirical research
examining the effects of several components of globalization on growth, using time series and
cross sectional data on trade, FDI and portfolio investment, found that a country tends to have a
lower degree of globalization if it generates higher revenues from trade taxes. Further evidence
indicates that there is a positive growth-effect in countries that are sufficiently rich, as are most
of the developed nations (Pologeorgis, 2012).
Foreign exchange is necessary to balance the payments for imports. Kenya imports crude oil,
defense equipment, essential raw materials and medical equipment for which the payments
have to be made in foreign exchange. If the exports are greater than imports it indicates a
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surplus in the balance of payments, on the other hand if the imports are higher and the
exports are lower as has always been the case with Kenya it indicates an adverse balance of
payment.
h) Geographic Expansion as a growth Strategy
Even if companies expand their business at home, they may still look overseas for new markets
and better prospects. For example, Arvind Mills expanded their business by either
setting up units or opening warehouses abroad. Ranbaxys growth is mainly attributed to
geographic expansion every year to new territories.
i) Spread of Education
One of the most powerful effects of globalization on women and men both is the spread of
education. Today, you can move in the search of the best educational facilities in the world,
without any hindrance. A person living in US can even go to another continent for a new
experience and some courses which one may not find in the home country. If one is interested,
one can even get a specialization in subjects indigenous to a country and spread that knowledge
to the home country.

CHOOSING A GLOBAL STRATEGY

Choosing a global strategy to enter an international market is a difficult process. Different
industries and markets will require different approaches to select the best strategy. To succeed in
global market firms need to look carefully at their geographic expansion.
Firms make a conscious decision about its extent of globalization by choosing a posture that may
range from entirely domestic without any international involvement (domestic focus) to a global
reach where the company devotes its entire marketing strategy to global competition. In choosing
the global strategies firms may decide to be domestic-only, home-country, host-country or
regional/global-oriented.

Each level of globalization will profoundly change the way a company competes and will require
different strategies with respect to firms objectives, planning, organization and control of the
global market. An industry in which firm competes is also important in applying different
strategies.
For example, when a firm which competes in the electronic devices industry which is heavily
globalized, it has to set its own strategies to deal with global competitors, that is constant
innovation, requires high levels of Research and Development.
Tracking the development of the large global corporations today reveals a recurring, sequential
pattern of expansion. The first step is to understand the international/global environment,
particularly the international trade system.
Second, the company must consider what proportion of foreign to total sales to seek, whether to
do business in a few or many countries and what types of countries to enter. The company must
understand the target market. They must analyze the PESTEL factors of the host country. Then,
decide on which particular country to enter and this calls for evaluating the probable rate of
return on investment against the level of risk (market differences).
Within the frames of the social system, globalization takes place under the influence of the
following factors market environment, market mechanisms, competition, state, international
financial system and surrounding natural environment. These are the factors that need to be
analyzed critically.
Firms and Organizations further need to answer the following questions before selecting a global
strategy:
1. Companys goals and Objective What are the Companys goals and objective? Which
strategies will need the goals and objectives of the Company?
2. Size of Company Is the size of the company relevant to expand to the global market?
3. Resources- Does the company have sufficient resources?
4. Competition- The level of competition in the market? The entry strategies the competitors
are using? Which strategy gives the best competitive edge? Is there a need to work
intermediaries if yes is there intermediaries the firm can use.
5. Risk- The level of risk the company will face. Which strategy is less risky?
7

6. Flexibility and Time The time required to enter the global market. Does the company
require strategies that will lead to quick returns? In terms of flexibility the company
needs to determine the level of how much flexibility they need, can they withdraw from
the market in case of threats in the global market.

Further when choosing a global strategy companys need to understand the below factors that is
a)

Pressures for cost reductions - When companies produce commodity products they
need to consider the costs involved. Where differentiation on non-price factors is difficult
and price is the main competitive weapon. Where competitors are based in low-cost
locations. Where there is persistent excess capacity. Where consumers are powerful and
face low switching costs. The liberalization of the world trade and investment

environment
b) Pressures for Local Responsiveness and Culture- Differences in customer tastes and
preferences. Differences in infrastructure and traditional practices. Differences in
distribution channels. Host government demands. In some countries, local partnerships
are a necessity for doing business. These partnerships allow for cost and risk sharing and
access to distribution/ new market networks. They also provide access to local
employees which can help strengthen your potential in that country.
Local partnerships can also help give insight into making country specific changes to
your product, as well as accelerate regulation, conduct translations and ensure packaging
and safety standards meet requirements. (http://www.tradestart.ca/success-factors)
Cultures change dramatically from country to country, like literacy level of the
population, incomes, living standards. Different countries find themselves in different
stages of development that is different scale of economic growth.
c) Government's role in the country to export and investment- A country can impose
tariffs, put quotas for imports and exports, require foreign companies to enter as joint
ventures with local companies, specify a minimum content of local production, prohibit
the foreign investment, or suspend the legal infrastructure investment hence when
choosing a global strategy companys also need to factor the regulatory factors for the
host country.

A global strategy has market dimensions that to create value throughout economic
performance and strategic dimensions of the non-market that aspire to trigger competitive
opportunity. The non-market atmosphere is often a nation or specific region; it is defined by
institutions, culture and individual organization of economic and political interests in
countries or regions. Many existing forces push companies to think more globally and to face
the frontal foreign competition, to serve better in an increasing base of global clients, to
explore diverse capacities and cost advantages, or to benefit from the global regulations changing the customer's expectations is the main reason why many companies need to fortify
their global position and choose effect strategies.

INTERNATIONAL STRATEGY
International strategy involves understanding the PEST factors, which is political, economic,
social, and technological trends that are relevant to operating on a global scale. The firms need to
have a clear set of objectives that will enable strategic planners of the organization to develop the
plans - strategies which enable the organization to focus on global markets.
Global strategic perspectives are important for firms, as globalizations increases. Due to rapid
flow of information across the globe, people have become more aware, they are conscious of the
tastes, preferences and life styles of people in the home and host country. Economies across the
globe have opened their border to deal and invest abroad. There are key factors of their strategy
such as market coverage or product specification which may have led them to become global.
Firms must carefully outline their means for a particular business to go global. The decision will
depend on the industry, product or service and the extent to which success requires an internal
condition in different countries.
International strategies for globalization force a firm to rethink its strategic attempt, the global
architecture, central competitions, and their complete product and service mix. Factors that every
company need to be aware of when going international are dimensions with the goal of
developing and to maintaining competitive advantage in the international market. These factors
are market participation, product/services, intensity and focus of companys activities.
The key elements for International Strategy are:
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1. Resource Deployment
Resource deployment is defined as, Analysis of how scarce resources ('factors of production')
are distributed among producers, and how scarce goods and services are apportioned
among consumers.

This

analysis

takes

into consideration the accounting

cost, economic

cost, opportunity cost, and other costs of resources and goods and services. Allocation of
resources is a central theme in economics (which is essentially a study of how resources are
allocated) and is associated with economic efficiency and maximization of utility.
( http://www.businessdictionary.com/definition/allocation-of-resources.)
Resource deployment answers the question given that the firm going to compete in specific
markets, how will the firm allocate the resources to them? Resources can be allocated along
product lines, geographical lines, or both depending on the competitive advantage the firm has.
The key to have global competitive advantages lies on creating a global resource network
through alliances with suppliers, clients, and even competitors and deploying the resources
effectively and efficiently. Going global takes a lot of time and money. According to the
economist George Yip, experience suggests that the path to overseas expansion is determined by
demand. It could mean though having to expand over a direct opportunity to assure a long-term
competitive advantage. This could make difficult the return on investments made.
2. Synergy
Michael and Ricky (2007) states that, synergy is the degree to which different part of operation
can benefit each other. (Michael and Ricky, 2007) Synergy is help to create a strategic plan and
for the marketing function it can help in the marketing mix
Global strategy in terms of strategies will require a global marketing plan that identifies an
appropriate marketing mix. Marking activities in the global market will involve building loyal
customers to support target markets and out competing the competition across the global market
superior, superior service, reliability and other benefits to the customers
For instance, Disney has theme park, when you enjoy the experience you will get some
information about its movies at the same time. After you watched Disney movies you want to go
to the Disney Park again. Movies and parks help each other.
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3. Distinctive competence
According to Kenneth R Andrews, Distinctive competence of a firm refers to a set of activities
or capabilities that a company is able to perform better than its competitors and which gives it an
advantage over them. Distinctive competence can lie in different area such as technology,
marketing activities, or management capability.
Distinctive competence in simple terms mean the areas the organization has over its competitors,
it may be in terms of technology, skilled labor, finance and etc.
Firms will try highly to developed its distinctive competence before enter other countries. Also
the firm often can take a big market share in the new market. Future strategic success requires
that firms keep their distinct advantages over their rivals. Thus, firms must continuously assess
their surrounding environments
Toyota has a distinctive competency in lean manufacturing. GE has a distinctive competency in
management development. These companies also have core competencies, core to their particular
lines of business. They also have competencies necessary to operate their business but of not of
strategic significance, such as payroll, the processes used to pay their employees. On the other
hand, a company like ADP, which provides payroll and benefits services, certainly has payroll
processing as a core competency, if not a distinctive competency. (Michael and Ricky 2007)

4. Scope of Operations
The scope of operations is where it helps to answer the question where are we going to conduct
business? It is where the company plans to have their operations and work in, in terms of
geographical area and regions

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Scope of operations is the area which the company plans to operate. Scope is the geographical
regions. The firms needs to look at the area geographical where they can strategically maximize
their profits in the markets their operating in, also look at the availability of labor, raw material
and infrastructure so as to support the operation of the business. The firm needs to concentrate on
the regions where the distinctive competence. So that the firm can makes the highest interests
from these areas.

GLOBAL VS MULTI-DOMESTIC STRATEGY

Multi-domestic Strategy
A company that follows a multi-domestic strategy fits its products to each country in which it
does business. The product features are tailored to the local domestic environment, taking into
account different food preferences, religious customs and other characteristics that define the
locality. (Hartman, 2010)
The firms that use multi-domestic strategies are very much decentralized. They have to make
their strategies and decisions based on how the local market they are operating in. This means
that the products in services are designed to meet the customers needs in the local market.
Each subsidiary has to be self-sufficient and have the freedom to adjust to the changing
environment they are working in. This way the company can handle any turbulence that may
take place in the future. (Davidson & H, 1982)
For example, a firm using a multi-domestic strategy can develop different products in different
markets and it will usually leave the marketing in specific countries up to the local offices. Local
offices tend to have a great deal of autonomy and freedom. A multi-domestic strategy is usually
put in place in place if the company is experiencing high transportation costs to get their products
and services into the market,

12

The major advantage of a multi-domestic strategy it gives the flexibility in adjusting their
strategies to the subsidiary to respond to the local needs and responsive to local demand. Also it
is able to have product differentiation in the new markets. Multi-domestic strategy also reduces
political and foreign exchange risks as it is decentralized and the funds and percentages of the
profits are used in the same market. (McLaughlin & Fitzsimmons, 1996)
The drawback of multi-domestic strategy is that they may have difficulties competing with
global businesses that have lower operating costs. This is particularly true in the commodities
business, where prices are more important than local adaptation.

Global Strategy
Global strategy approach is the opposite of multi-domestic strategy. It can be also called the
specialization strategy. In this approach the organization operates in many markets but are
more centralized and the products and services they offer are have only a minor change in the
market they are operating in. In this strategy, the decisions are made from the home country
rather than the country they are operating it, hence the strategies put in place are not tailored
made for the country they are operating in. (Liu, 2007)
A great example is the Coca-Cola Company that uses a global business strategy. It provides the
same product in the markets its operating in and the firm's decision making is centered in the
United States. The Coke you drink in Kenya will have the same taste as the one you will have in
USA.
Under a global strategy, each function is performed in one place, but the functions are not all
performed in the same place. For example, a firm following this strategy might do all its finance
in the US, all its R&D functions in Germany, all its production of components in the U.S. and all
its final assembly in the Philippines. (Rennie, 1993)
The advantage of a global strategy is that it allows for greater efficiency. Because everything is
centralized with a global strategy, there is no duplication of duties. Furthermore, it is possible to
produce goods in one location and to export them worldwide. (Rennie, 1993)

13

The down side of global strategy is that the inflexibility of the strategies put in place from the
home country may not be the best for some of the markets they are operating in. A great example
of products such as clothing and food, that are sensitive to cultural differences, it can be
detrimental for firm to not adapt to local needs. (Davidson & H, 1982)

MODES OF ENTRY INTO THE GLOBAL MARKET

As organizations grow, they realize that they have a need to open into new markets and grow in
the new markets. There are various ways that an organization can use their resources to enter the
markets
1. Licensing
According to Ethier (1996), Licensing is one of the key modes of entry for firms considering
international expansion. A licensing agreement gives a foreign company the rights to produce
and/or sell another firm's goods in their country. The agreement also may include production and
sales in more than one country.
For example of companies using licensing agreements include, McDonald's, Nestl, AnheuserBusch, and KFC
The licensee is the one who pays the royalties and takes the risks of investment in the facilities
for manufacturing, managing the supply chain. And deliver them to the final customer. .
Licensor will offer the firm with access to brands, trademarks, trade secrets or patents associated
with products manufactured. Under licensing, a company assigns the right to a patent (which
protects a product, technology or process) or a trademark (which protects a product name) to
another company for a fee or royalty. (Ethier, 1996)
There are many reasons why an organization may use Licensing as strategy. For one, a company
may not know about the much about the country and its culture. A licensee has the advantage of
adding the licensed product`s volume their ongoing operation thereby reducing the need for a
large investment in new fixed assets. (Berger, 2001)
14

A company with limited resources can gain advantage by having a foreign partner market its
products by signing a licensing contract.
2. Franchising
Franchising and licensing are similar concepts in terms of entry strategies. The deference is that
the franchising organization is more directly involved in the development and control of the
marketing programmer with set given policies. According to Kim & Huang (2003) , The
franchising system can be defined as a system in which semi-independent business owners
(franchisees) pay fees and royalties to a parent company (franchiser) in return for the right to
become identified with its trademark, to sell its products or services, and often to use its business
format and system.
When comparing to licensing, franchising agreements are usually longer and the franchisor
offers a much wider package of rights and resources which usually includes: equipments,
operation manual, managerial systems, site approval, initial trainings,

and all the support

necessary for the franchisee to run its business in the same way it is done by the franchisor. In
addition licensing agreement also involves things such as intellectual property, trade secrets and
others in franchising it is limited to trademarks and operating know-how of the business.
3. Exporting
Indirect Exporting: Indirect exporting is exporting through includes dealing management
companies of foreign agents, merchants or distributors. Several types of intermediaries located in
the domestic market are ready to assist a manufacturer in contacting international markets or
buyers. (Berger, 2001)
The major advantage for managers using a domestic intermediary lies in that individual`s
knowledge of foreign market conditions. Particularly, for companies with little or no experience
in exporting, the use of a domestic.
Direct Exporting: Direct exporting is where the organization sets up an export department or
having the firm`s sales force sell directly to foreign customers or marketing intermediaries. A
company can use direct exporting d when it wants to export through intermediaries located in the
15

foreign markets they want to get into. Also in direct exporting, the exporter has to deal with a
large number of foreign contacts who import from them, possibly one or more for each country.
This method of entry can provide the company exporting with a greater degree of control over its
distribution channels than would indirect exporting compared to indirect exporting. Another
advantage is that the company that is exporting can establish its own sales subsidiary as an
alternative to independent intermediaries. (Berger, 2001)
For example Nike having their own showrooms to sell their products imported from the
organization. The success of direct exporting depends on how the relationship is built up between
the exporting firm and the local distributor or importer.

4. Joint Ventures
A joint venture is the establishment where a firm is jointly owned. The most popular share of
joint venture is a 50/50 venture where each firm owns a 50 percent stake. (Hill, 2003)
The advantages to a joint venture is that there is in-house knowledge of competitive conditions,
culture of the country, language, political systems, and PESTEL. Also the risks and investments
are shared in this mode of entry. Joint ventures are also potentially more politically
recommended than other modes of entry. A great example is Kenya, where a foreign investor
cannot fully own a business and have to use Joint venture as a mode of entry with the local.
(Agarwal, Sanjeev, Ramaswami, & N., 1992)
This type of agreement gives the international firm better control over operations and also
access to local market knowledge. The international firm has access to the network of
relationships of the franchisee and is less exposed to the risk expropriation thanks to the
partnership with the local firm. (Geringer & Hebert, 1989)

5. Wholly-Owned Subsidiary
A firm can directly invest into the country they want to expand and operate in. They can use two
methods for wholly-owned subsidiary. They can first acquire an existing firm which is existing

16

and running, or they can set up a new organization known as a green-field venture. (Kim &
Huang, 2003)
The wholly-owned subsidiaries have high costs and high risks, firms are often attracted by the
high control. Firms engaging in wholly-owned subsidiaries are more capable of protecting
proprietary technology, realize location and experience economies, and engage in global strategic
coordination. (Hill & Charles, 1990)
6. Strategic Alliances
Strategic alliances are collaborative ventures between firms. It is where two or more firms come
together to help each other in attaining their goals. There are three major modes that can be used
in strategic alliances: research-oriented, technology-oriented, and market-orientated. (Lee &
Lieberman, 2010)
The advantages of a strategic alliance include: access to markets, facilitating entry into
unfamiliar markets, cost sharing, access to new technology, and economies of synergy. The
motivations for strategic alliances are often very specific and often are developed between
competitors.
7. Entering Markets Through Mergers and Acquisitions:
The organization looking to go global can also acquire or merge with the local firm exsting in the
market. This is by buying certain shares of the company they want to merge, if it is 100% sale of
the company than it shall be an acquisition.
I the helps to enter markets more quickly rather than starting from scratch or entering some type
of collaboration has made the acquisition route extremely attractive.
International mergers and acquisitions are difficult to make work. A major advantage of
acquisitions is that they can quickly position a firm in a new business. By purchasing an existing
player, a firm does not have to take the time to establish its presence or develop for its the
resources it does not already possess. This can be particularly important when the critical
resources are difficult to imitate or accumulate. Acquiring an existing firm also takes a potential
competitor out of the market. (Dunning & Lundan, 2008)
17

Despite these advantages, acquisitions can have serious drawbacks. First and foremost,
acquisitions can be a very expensive way to enter a market. In addition to the likelihood of
overbidding, acquisitions pose a number of other challenges.
A great example in Kenya is the Guaranty Trust Bank, A Nigerian owned Bank in Kenya who
acquired 80% of the shares of an existing Bank called Fina Bank who had the customer base that
the shareholders where delighted to have.

Source: (http://www.quickmba.com/strategy/global/)

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FACTORS INFLUENCING SELECTION OF ENTRY MODE KOCH

Management decides which market entry mode is the most suitable to penetrate a new market, a
company has to consider different factors, which will determine the right selection of entry
mode.
Koch (2001) categorizes these factors internal and external company size, product and
experience. The size, product and the overseas experience of a firm are very important factors
which determine the different options to acquire a new market for a firm. Alexandrides (1971)
found that, when manufacturing exporters perceived lower trade barriers to internationalizing,
they tended to have a more positive attitude toward expanding globally.
Factors influencing the entry mode selection
Foreign Market
Selection of Entry Mode

External Factors
Internal Factors
Environmental factors
Foreign country market factors
Company Size/Resources
Industry Feasibility/Viability
Management Risk Attitude
Market Growth Rate
International Experience
Image support requirement
Product
Global management efficiency Requirement
Profit objective
Popularity of individual MEM, S
Socio cultural gap

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INTERNAL FACTORS

1. Company Size/ Resources

Smaller companies have limited market servicing alternatives. (Koch, 2001)
The company size matters as an internal factor. As small organizations will have less and limited
resources compares to the larger ones. This will discourage smaller companies to the selection of
entry mode they may desire best. (Koch, 2001)
For example, if a small size company wants decided to fully own a subsidiary, it requires a very
large investments and the risk is also high. Meaning that companies may not have resources to
enter the global markets through establishing fully owned foreign based subsidiaries or
international joint ventures.
2. Product
Koch (2001) states that, differentiated products with obvious advantages compared to
competitors products give the seller a very clear limitation when it comes to price setting. Well
differentiated products can demand high transportation costs; high import taxes still remain
competitive. On the other hand, the standardized products that are not differentiated have to
compete on the price they can offer for the customer. It is only possible with some local
production.
Meaning that the choice of entry will depend on the product differentiation the company is
offering, if the product is highly differentiated so as to meet the customers need, then the entry
mode such as exporting would not be the best option. It would be better to have a fully owned
subsidiary or contract manufacturing to enter the market to avoid high costs of transportation.
Exporting can be encouraged on standard products.
Kindle Berger (1969) states that, when product differentiation through R&D exists, companies
will search to set up control over these benefits and look after them from distribution through the
use of investment of market entry mode.
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Also the technology intensive products are usually licensed to overseas countries, compared to
the other modes of entry. This is because it reduces some of the costs of reduplicating
manufacturing equipment.
3. Management Risk Attitudes
A link between mangers attitudes towards international expansion should not be undervalued.
Management attitudes are the guiding forces of the organization. (Anix, Erin, Gatignon, &
Hubert, 2002)
The dependence on the financial condition will show how much risk needs to be taken to be in
the international markets, its tactical alternatives, the level of competition, the environment and
the companies experience
The lower degree of risk evasion the management, the more likely it is for the company to
choose countries that show higher degree for long-term forecasts and promise to progress the
firms competences. Koch (2001)
4. Profit Objective
The profit target will also be a factor to consider, the company will need to define their profit
targets and then chose an appropriate entry mode. If a company intends to have a high profit
margins than they could consider entry modes such as licensing, contract manufacturing, or even
in-exporting so as to reduce the cost of operations since various modes of entry will have
different margins of profit. (Kim & Huang, 2003)
For example, a company using indirect export and deal will demonstrate several profits
extremely fast and then many soon reduce, the former could indicate denial of profits for three or
four years where it requires time to make all essential market connections, attain/ make required
resources, prepare the sales strength as necessary, extend client base, etc. An extensive time
profit target might choose the practice of savings and a small one will support indirect exporting.

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5. International Experience
According to Root (1994), The more international experience a company has, the higher its
propensity to adopt a high entry mode. The companys experience as per Koch is very key in
making the entry mode choice. The more experience companies will be ready to take the risks of
high entry modes where there are higher risks and investments involved.

EXTERNAL FACTORS
Factors which control the market entry mode selection process fall into three general groups:
internal, external and the mixed.
1. Environmental Factors
This factors refer to the risks and the uncertainties with the host country the company wants to
operate in.
Companies would prefer to choose the non-equity or low investment mode of entry when
operating with high uncertainty in the host countries and will either have to amend their strategy,
or may choose to even exit the market. (Berger, 2001)
According to (Root, 1994), economic, political and socio cultural factors of the foreign country
can affect the selection of entry mode. The most important factor seems to be government
policies and regulations. Strict import rules could be viewed in form of high tariffs and hardly
regulated quotas, these set of laws complicates an export entry mode, and pushes the company to
find other entry modes.
Foreign country market size is major influence on market entry mode. For the small markets, the
mode of entry fit with low break even sales volumes like exporting, agent or distributor,
licensing and other arrangements. (Berger, 2001)
On the other hand, The larger markets that have high potential, companies would prefer the mode
of entry with a high break even sales volumes like subsidiary, branch, and exporting and equity
investment in local production.
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2. Industry Feasibility/ Viability

Koch (2001) states that, some entry modes could be excluded in some countries due to laws and
regulations.
This refer to countries' forbidden and barriers of the entry modes according to their laws on
various entry modes such as on joint ventures and fully owned subsidiaries. Some countries
allow investing in subsidiaries through taxation which avoids the company to pay custom duties.
Different risks and cost associated with different entry modes, some entry modes suitable in the
given situation. (Berger, 2001)
For example, In Kenya, a foreign investor must have a local partner to have a business operation
here, hence it would discourage the bigger companies to come into the Kenyan market and set up
their subsidiaries. The company may choose another mode of enrty such as exporting.
3. Market Growth Rate
Koch (2001) states that, while selecting market entry mode it is used as criteria. When countries
have a high market growth rate and it does not seem consistent for several years. The company
has the opportunity of using entry modes of fast expansion. Otherwise, when growth rate of
demand predicted for several years, the companies establish modes as joint ventures and fully
owned subsidiary.
4. Image Support Requirement
(Koch, 2001), states this factor refers to company repute, it can be help in deciding the market
mode of entry mode.
To keep and maintain a reputable image companies license their products to enhance their role as
world provider of latest technology, thereby enabling the company to influence world standards.
Global Management Efficiency requirement Koch (2001) sates when companies involvement is
high in internalization process. Company resources start decreasing. It is important to overlook
company strategy. Some firms select multi-mode of operation in such situation.

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5. Popularity of Individual Market Entry Mode

This refers to particular nature of a country market. Country markets have certain market entry
modes with popularity than others. New entries in this type of market are influenced by the
experience and degree of success of the former entrants as well as market product situation.
(Anix, Erin, Gatignon, & Hubert, 2002)

CONCLUSION
The world is becoming a global market and as business is growing and they need to expand to
new markets while also looking to reduce their costs and increase their shareholders wealth.
They have to do so as to stay competitive to in the global market.
Since the rate of globalization has been changing the traditional ways of doing business, it is
important for the top level managers to have an effective strategy so as to be effective.
As per (McLaughlin & Fitzsimmons, 1996), A combination of strategic management and
international business will result in strategies for global cooperation. However, there are
obstacles to progress along the way. It clearly shows that the global environment to (Rennie,
1993)operate in will need many considerations before it decides to move into the global market.
We also have to understand the changing environment and the challenges that the organization
will be facing in the new geographical area they want to operate in. Globalization also requires
effective communication and policies to guide their path to their strategic goals.
The firm with the choice of an effective global strategy that takes into consideration its
strengths and weaknesses in the face of the opportunities and threats in the environment, will
survive. (Rennie, 1993)

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