The methods to enter a given market are significant for any firm willing to diversify its operations while increasing and expanding its operations. MNEs corporations are mainly large and dominant in their domestic markets and often seek ways to diversify in order to increase their scale of operations while minimizing risks in domestic markets.
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On their part, SMEs are still growing and seek opportunity to diversify their activities while growing to full potential. As they seek to undertake a manufacturing venture in a foreign market, both SMEs and MNEs utilize some entry techniques as examined in this paper (Doole & Lowe 2008, p. 57).
Local manufacturing is the activity in which the firms involved produces goods and services for local or domestic use. The firms manufacture products with the aim of domestic consumption. For local manufacturing to happen, the domestic market must be large enough to provide the market for manufactured goods.
The market must be large enough for the involved corporations to make profit since the big investment is involved. Although the intention of manufacturing is for local consumption, in some situations, the firm produces surplus that could be sold outside the intended market (Rajesh et al., 2008, p. 316).
Exporting Market Entry Strategy
MNEs are dominant corporations in their domestic markets and seek diversification into other markets for different reasons including availability of resources for such form of diversification. Therefore, as noted by Peng (2008, p. 173), MNEs have enough resources to undertake a local manufacturing diversification in another country. The success of the diversification depends on the method of entry chosen by the firm.
According to Hamid et al. (2008, p. 45), most MNEs are involved in exporting strategy with the firms venturing into new markets either directly or indirectly. Therefore, exporting is the most common form of entry strategy for local manufacturing.
In the exporting strategy, the firms involved ship or sell goods in the domestic economy and it is a common strategy for small and medium enterprises to venture into new markets. As noted by Demirbag and Ekrem (2009, p.161), exporting could be either direct or indirect.
This could be through established outlets of the firm in the foreign market. On the contrary, indirect exporting involves the exporting firm to sell another buyer (importer) the products and the buyer then exports the products to other foreign markets (Wölfl 2004, p. 73).
Exporting could also take the form of internet marketing where business transactions take place online. With the manufacturing firm continuing manufacturing in its domestic economy, it could export its products to another market through the internet. International internet marketing has gained growth with firms receiving orders from other overseas markets.
Exporting is commonly undertaken by both MNEs and SMEs because the strategy is easy to implement. Under exporting, a firm has the opportunity of having its products sold in a foreign market without tying up much of its capital. The method has fewer risks involved and MNEs may exploit the mode to establish their economies of scale (Doole & Lowe 2008, p. 65).
According to Al-Kaabi et al. (2010, p. 153), the most common form of exporting for SMEs is indirect exporting in which an intermediary is involved. In this case, the SME sells its products to an intermediary who them undertakes the initiative to transport the goods across borders to another country.
However, the case of MNEs, they always have enough resources to undertake direct exporting for local manufacturing. They establish links in the foreign economy and export their manufactured products while directly selling them to the consumers (Doole & Lowe 2008, p. 76).
Advantages and disadvantages of Entry strategies of MNEs
As noted by Thompson, Strickland and Gamble (2010, p. 56), MNEs are endowed with enough resources that could enable the firm to undertake any entry strategy into a given market given an opportunity.
The availability of resources enables MNEs to exploit the first mover advantage as compared to SMEs that may not have enough resources to undertake the move immediately the manufacturing opportunity is established.
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Such strategies help MNEs preempt the movements of rivals in the manufacturing sector while enabling the firm to capture customers fast. While creating switching costs that tie the customers into the products and services, the methods employed by MNEs help the firms develop large sales volumes (Tufts 2006, p. 350).
Despite the entry efforts undertaken by MNEs, they always stumble to wasting of much time and efforts in learning the exporting and manufacturing regulations in the foreign country. Therefore, MNEs that move fast are bound to make mistakes due to ignorance while suffering the liability of being a foreigner (Peng 2008, p. 165).
SMEs are cautious in undertaking the export strategy and this makes them minimize the involved risks. The cautious nature of the exporting strategy undertaken by SMEs is because the firms in this category usually have fewer resources that could enable them to undertake the strategy themselves.
They therefore involve intermediaries that purchase their products and export them to other international destinations. Therefore, when the indirect exporting of SMEs is compared to that of MNEs, it is clear that SMEs minimize risks while engaging little capital therefore being able to realize increased revenue (Agility Emerging Markets Logistics Index, 2012).
The only limitation with indirect exporting strategy undertaken by SMEs is that it takes time and by the time the goods reach the market, the market could be dominated by the MNEs, who enjoy first mover advantage. However, the slow moves of SMEs could enable them to learn from the mistakes made by MNEs.
List of References
Agility Emerging Markets Logistics Index 2012, A detailed ranking and analysis of the world’s major developing logistics markets. Web.
Al-Kaabi, M. et al. 2010, ‘International market entry strategies of emerging market MNEs: A case study of Qatar Telecom’, Journal of East-West Business, vol. 16, no. 2, pp. 146-170. EBSCOHOST, DOI: 10.1080/10669868.2010.486104.
Demirbag, M. & Ekrem, T. 2009, ‘Guest Editorial: MNEs entry and operational strategies in transitional and emerging markets’, Journal of East-West Business, vol. 15, no. ¾, pp. 157-163. EBSCOHOST, DOI: 10.1080/10669860903435905.
Doole, I. & Lowe, R. 2008, International Marketing Strategy: Analysis, Development and Implementation, 5 ed., Cengage Learning EMEA, Cheriton House.
Hamid, M. et al., 2008, ‘Foreign Market entry: The case of SMEs in the Republic of Czech Republic’, Journal of East West Business, vol. 14, no. 1, pp. 41-64. EBSCOHOST, DOI: 10.1300/J097v14n01_03.
Peng, W. 2008, Global strategy, 2 ed. Cengage Learning, Southwestern.
Rajesh, S. et al., 2008, ‘Competency and performance analysis of Indian SMEs and large organizations’, Competitiveness Review, vol. 18, no. 4, pp. 308-321. EBSCOHOST, DOI: 10.1108/10595420810920798.
Thompson, A., Strickland, A. & Gamble, J. 2010, Crafting and Executing Strategy: Text and Reading, McGraw-Hill Irwin, New York.
Tufts, S. 2006, ‘We make it work: the cultural transformation of hotel workers in the city’, Antipode, vol. 38, no. 2, pp. 350-73.
Wölfl, A. 2004, ‘Productivity growth in services industries: is there a role for measurement?’ International Productivity Monitor, vol. 8, pp. 66-80.