The current state of globalization has opened up different international markets for companies operating in different business industries. The globalisation concept enables companies to invest in foreign markets and expand their market share across the globe.
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One of the clear phenomena following this development is that most of the companies investing in different international markets have to evaluate the target markets for viability. The British company looking to invest in a foreign market requires clear understanding of the potential held by various markets before making the investment.
The most feasible target market is the one with the highest chances of success in the business in both the short-term and long-term basis. The company needs to understand the trends of consumption of its products, and relate this to the business environment in the various potential markets.
The Chinese market is one of the largest producer and consumer of Bicycles. The high population in China influences the citizens to find alternative sources of transportation, and cycling is the most feasible alternative to using automobiles in the overcrowded streets. Statistics reveal that more than half the Chinese population owns a bicycle. This statistic indicates that China would be a potential target nation for the British company.
While China may present a unique opportunity for the British company, it is also apparent that there are many Chinese companies that produce electric bicycles.
Companies like the Zhejiang Jueshuai Electrical & Mechanical Technology Co., Ltd and the Wuxi Hansun Autocycle Co., Ltd have operated in the Chinese market for several years, and their competitiveness could easily knock out the British company out of business (Transportation 2014).
The Chinese market is not feasible for a start-up company because the auto-cycle industry is at an advanced level, and the competition is too stiff. There are many local and international companies in the market, and their prices are quite competitive. Operating in such a market would require the British company to form a partnership, which may result to lower profits.
Netherlands is known as the country of cyclists because the majority of the society cycles to work. Cycling is the most popular mode of transportation in the nation; hence, the society spends a large amount of their individual income in purchasing bicycles. The business environment in the Netherlands is competitive because the society has shifted from looking for affordable bicycles to focusing on the quality of the products.
Some of the wealthiest companies in electric bicycle production in the nation include Sparta Ion GL Blackline, Mother Bike Power, and Gazelle Orange Pure Innergy among many others (Dutch Electric Bicycles 2014).
The companies offer a wide range of prices and qualities for their bicycles; hence, a company at the start-up level would have a rough time harnessing a profitable market share in this market. The German market has similar characteristic with the Netherlands; thus, the British company should consider another market. It needs to invest in an emerging market with high growth potential.
India is one of the fastest growing international markets in the retail business. The globalisation of products leads to an increase in the number of foreign companies looking into investing in the nation, and it is a potential target market for electric bicycles. The large population of people in the nation depends on scooters and bicycles as their main mode of transport.
In the recent years, companies from Europe and Asia have identified the country as a potential market for electric bicycles. There is a substantial demand for the bicycles, with several companies operating in the local market to supply the products. The main competition in India lies in the pricing of the electric bicycles.
Any company with the ability to provide competitive prices enjoys an advantage over other rival companies in the retail market in India. The British company should consider investing in the upcoming market because it offers the best business environment compared to other developed markets like China and Netherlands.
Economic/political and social environment of the potential market
India liberalised its foreign direct investment policies to allow faster development of its economy through the private investors from different parts of the world. The country allows foreign investors to conduct their business processes in the local market as long as they provide healthy competition with the already established business enterprises.
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The technology industry is one of the business sectors that the Indian government invests, and it allows companies from across the globe to invest directly into the market. The competition for market share is not as stiff as it is in other markets because India is an emerging market; hence, the British company in question has the ability to develop a successful company in the market depending on the mode of entry it chooses.
The company should consider venturing into the retail market because the majority of the foreign companies in the business target this lucrative field. The demand for alternative transportation in India is ever growing because the large population in the nation. The majority of the people in the nation owns the traditional bicycles, whereas many people own scooters.
Providing the society with electric bicycles is likely to satisfy the demand for alternative transportation for the many Indians who cannot afford scooters. The electric version of the bicycle is likely to fetch high numbers of customers who would prefer electrically powered bicycles to the peddle-powered products.
The product offered by the British company offers customers the chance to own a fast bicycle that requires less manual effort from the riders. While scooters are the most popular kind of bikes in the Indian society, the introduction of electric bicycles could has a positive reception based on the current companies in the Indian market.
The British producer is a single-brand company; hence, it has the legal requirements for investing in the Indian retail market as well as in the wholesale market. It is, however, advisable for the company to focus on the retail market because it would be more profitable because of the nature of consumption of technological products of the Indian society.
The Indian society is also not too strict with foreign companies as long as the ethical issues like environmental and social sustainability issues are met by foreign companies (Archana, Nayak & Basu 2007).
The best entry mode into the Indian market is through foreign direct investment. The Indian market experienced fundamental changes from the 1990s, and it is developing into a free market for foreign direct investments in a wide range of industrial sectors (Pillania 2012). The technology industry is one of the industries that are free for international companies to exploit fairly.
The British company is at the start-up stage; hence, most consultants would advocate for the formation of a merger with an already existing company in the foreign market. In this case, however, the formation of a merger would be unreasonable because the British company is not likely to face adverse risks at the start-up period.
The Indian government offers investor-friendly policies for foreign direct investors as an incentive to attract more investors (Foreign Direct Investment 2014).The British company should move into the market as a single-brand company and develop its production company in the nation.
Depending on the availability of raw materials, the company should opt for a supply chain that promotes the best prices for the products. The liberal policies in foreign direct investment in India provide a good economic environment for the British company (Chakraborty & Nunnenkamp 2008).
Foreign direct investment in India is a common entry method for many companies in the current business world because the nation has limited competition in some business industries (Benassy-Quere, Coupet & Mayer 2007). The Indian government is looking to develop fair business practices for the local and international companies by developing a free market where the companies can engage in fair competition.
The transportation industry in India faces numerous challenges with relation to the availability of faster modes of transportation for workers. Over the past decade, the Indian government has invested in a railway system that offers transportation for the Indian people, but the system is not sufficient in providing the most effective transportation for people.
Indian streets are overcrowded; hence, most people do not find the need to purchase vehicles. Scooters and bicycles provide the best alternative transportation; thus, companies in the business export bicycles in the nation. The British company should take the opportunity to bring the bicycles to the local market, and develop a production company in India to eliminate the cost of exporting its products.
The social environment is quite demanding, with respect to sustainability and giving back to the society, but this should not be a difficult task for the management in the company (Rajagopalan & Zhang 2008). There are several companies in the Indian market involved with the production and importation of electric bicycles, but the demand is too high to worry about competition.
The British company can harness a bigger market share by offering competitive prices for quality products. There are few production units in the nation; hence, an acquisition may not be possible.
Joint investment into the market may be a plausible entry method, but the government’s policies on foreign direct investment in India dictate against multi-brand product foreign direct investment (Foreign Direct Investment to India 2014). The only viable option is for the company to venture into direct investment into the nation independently.
Independent foreign direct investment provides an advantage to the investor by allowing the management to make independent decisions on how to allocate resources in the new market for the best results (Filatotchev, Strange, Piesse & Lien 2007).
Compared to joint ventures, independent foreign direct investment is better for a company operating in an upcoming market like India because it allows the company in question to make independent decisions. The British company in question will have the chance to make decisions on how to run its production unit in the new market without having to consult other stakeholders (Nocke & Yeaple 2008).
The British company will also have the advantage of independently dealing with its investment budget. In most cases, mergers and other forms of entry into foreign markets fail because of lack of cohesion in goals between partnering companies.
With independent foreign direct investment, the British company will focus on its main objectives without the interference of other parties. With the right information about the business environment in the target nation, the company will be adequately equipped with information to eliminate the risks involved with this type of entry into a foreign market.
Independent foreign direct investment also allows companies to practice their innovative ideas, unlike when they are involved in partnerships (Zhang, Zhang & Liu 2007).
The British company produces innovative products, and operating independently in the Indian market will provide its management function with the chance to evaluate the market and employ strategic business models to eliminate risks. Independent FDI also provides a unique opportunity for companies to attain higher profits because they have absolute control over their business processes.
Embarking on an independent foreign direct investment is costly for a company because it has to bear the entire start-up cost in the target nation. The British company has to incur heavy financial liabilities to develop a production unit in the Indian market.
Starting a manufacturing company in the Indian market is more plausible that the direct exportation of the electric bicycles because it will eliminate the transportation costs and the duties placed on exports by the Indian government. While the strategy may incur high start-up costs for the company, the long-term results will highlight big profit margins.
It will also be easier for the company to operate in India because the production process will be cheaper because of the cheap labour available in the market, and there is a high likelihood that the company will secure an affordable supply chain from the local companies. The method of entry into the target market may also lead to challenges in the management function (Greenaway & Kneller 2007).
The Indian society is quite sensitive to matters of ethics; hence the company will be obliged to observe the social norms in conducting business in the nation to fetch a profitable market share. Independent foreign direct investment also requires more time for a company to reach a breakeven point in business (Dikova & Witteloostuijn 2007).
It will take a long time for the company to become profitable, but since the Indian retail market is gradually growing, the company will have high a high potential of becoming profitable in the future. The presence of stiff competition from the already established companies is also one of the disadvantages of venturing into an independent foreign direct investment.
The Indian market has several players supplying electric bicycles, but most of them import the products from companies in Asia and other parts of Europe. Locating a manufacturing company in the local Indian market will offer the British company a competitive advantage in terms of prices.
The FDI entry method may also attract political issue in a developing market if the investors engage in unfair business (Busse & Hefeker 2007). The British company will have to observe foreign policies strictly.
List of References
Archana, V, Nayak, NC & Basu, P 2007, ‘Foreign Direct Investment in India: Emerging Horizon’, Indian Economic review, vol. 1, no. 1, pp. 255-266.
Benassy‐Quere, A, Coupet, M & Mayer, T 2007, ‘Institutional determinants of foreign direct investment’, The World Economy, vol. 30, no. 5, pp. 764-782.
Busse, M & Hefeker, C 2007, ‘Political risk, institutions and foreign direct investment’, European journal of political economy, vol. 23, no. 2, pp. 397-415.
Chakraborty, C & Nunnenkamp, P 2008, ‘Economic reforms, FDI, and economic growth in India: a sector level analysis’, World development, vol. 36, no. 7, pp. 1192-1212.
Dikova, D & Van Witteloostuijn, A 2007, ‘Foreign direct investment mode choice: entry and establishment modes in transition economies’, Journal of International Business Studies, vol. 38, no. 6, pp. 1013-1033.
Dutch Electric Bicycles 2014. Web.
Filatotchev, I, Strange, R, Piesse, J & Lien, YC 2007, ‘FDI by firms from newly industrialised economies in emerging markets: corporate governance, entry mode and location’, Journal of International Business Studies, vol. 38, no. 4, pp. 556-572.
Foreign Direct Investment 2014. Web.
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Pillania, RK 2012, ‘Foreign Direct Investment in India’, Journal of Applied Research in Finance Bi-Annually, vol. 4, no. 2, pp. 110-121.
Rajagopalan, N & Zhang, Y 2008, ‘Corporate governance reforms in China and India: Challenges and opportunities’, Business Horizons, vol. 51, no. 1, pp. 55-64.
Transportation: Electric Bike & Parts 2014. Web.
Zhang, Y, Zhang, Z & Liu, Z 2007, ‘Choice of entry modes in sequential FDI in an emerging economy’, Management Decision, vol. 45, no. 4, pp. 749-772.