International Marketing Case
International marketing has allowed the application of marketing principles in different parts of the world. Multinational companies tend to adopt diverse market entry modes including licensing, Greenfield investments, exporting, and collaborations with other similar firms. This essay will focus on direct exporting and licensing. It will also compare and contrast the nature of competitive collaboration and resource-based perspectives on international alliances. Lastly, the essay evaluates reasons for collaboration, the role of firms and national cultures in formation, continuation and dissolution of alliances and the importance of experience in facilitating the success of alliances.
International Market Entry Modes, their Advantages and Disadvantages
The two modes of entry discussed in this paper are direct exporting and licensing.
This is the most basic mode of entry into an international market. It has a number of advantages and disadvantages highlighted below.
One significant advantage is that it allows the company to be in charge of eliminating need for intermediaries. According to Quelch and Laidler (2009), this provides full control of all aspects of the business’s international market and saves cost by eliminating intermediaries. Secondly, direct exporting allows information feedback from customers, aiding the company to build closer ties with them by customers’ identification and its ability enhancement to meet their needs. Another advantage of this entry mode is existence of improved protection of company’s intangible property such as patents, goodwill and trademarks.
One major disadvantage is that it takes time to market the business because the foreign market forces the company to take time to learn it before the complete penetration. Wang (2009) confirms that it also has the disadvantage of having high startup costs and risk. The cost of expanding a business internationally is high and chances of success are limited. Direct exporting equally has the disadvantage of requiring extra commitment at every level of the organization creating a problem to the attention of the business, which becomes concentrated on this single aspect.
This is a permission offered to foreign companies to produce a home company’s product using its technology and expertise in return for payment. This foreign market entry mode has various advantages and disadvantages as stated below.
In line with the views of Quelch and Laidler (2009), one of the most significant advantages of licensing as a mode of foreign market entry is that it allows businesses to reach new markets, which were previously not accessible to them by export. Licensing also has the advantage of minimizing potential political risk. Therefore, if the license fully and locally owned the risks, such as nationalization of assets, are prevented. Thirdly, Wang (2009) opines that licensing has the advantage of paving the way for future investment plans in international business. This is because of its ability to hold on to the already established markets ties. Lastly, licensing enables companies to gain extra income without necessarily physically presence in the foreign market.
One major disadvantage of licensing as an entry mode to the international market is the risk of the foreign partner becoming a competitor, resulting in a loss of business. Secondly, licensing has the drawback in form of the risk of complete control loss of the manufacturing process to the foreign partner resulting in production of products that are of poor quality. Quelch and Laidler (2009) emphasize that licensing has the risk of loss of business reputation, and trademark destruction and brand name due to competent foreign partners. This incompetence by foreign partners can cost business their customers.
Comparing and Contrasting the Learning Race and Resource Based Theories of International Alliances
Alliances are associations whose partners’ primary objective is to learn from one another. They should not be seen as opportunities to benefit from partners skills but rather as opportunities to learn the skills.
Learning Race Theory
This type of alliance theory involves studying the competitor during the period of collaboration with it. Hamel (1991) states that firms learn about each other’s competences when they share information with each other. This learning procedure can be risky in terms of possible exposure of sensitive information to competing firms during the collaboration.
Resource Based Theory
It is can also be viewed as a social exchange theory. Resource based theory implies that a firm’s strategic aspects are influenced by the background of its social context. This background includes both direct and indirect relations with its partners. In tandem with the opinions of Oxley and Sampson (2004), the resource-based theory suggests that the firm is a collection of heterogeneous resources therefore learning about a one is essential to view it as bundles of resources. Resourced-based perspective suggests that firms should use alliances to find resource configuration that allow them to maximize their resources. Consequently, alliances are formed for the purpose of developing a set of value adding resources that firms cannot create on their own.
Collaboration among Firms
Reasons for Collaboration of Firms
Firms collaborate with one another for a number of reasons. One such significant reason for collaboration is inconsistency of skills. Hamel (1991) observes that collaboration is necessary for enabling firms to acquire necessary skills by use of licenses and internalizing of a partner’s skills.
Similarly, firms collaborate for the sake of dividing business risks. Firms collaborate to share risk, especially in the area of research and development due to the high costs and speed of innovation.
The Role of Firms and National Cultures in the Process of Formation, Continuation and Dissolution of Market Alliances
The role of firms in the formation of international alliances is to develop strategies of alliances that are in line with their objectives for the alliances. Hamel (1991) agrees that the national cultures have the role of showing tolerance in each party’s cultural differences to foster peace, which will be essential for formation of alliances.
Firms play their role in the continuation of international alliances by dealing with uncertainties and complexities inherent in managing projects across organizational boundaries. National cultures on the other hand, can contribute to the continuation of international alliances by regulating the cultural practices among partners integrating, building and reconfiguring their ties.
Firms play an equal role in the dissolution of alliances. Oxley and Sampson (2004) point out that if firms feel dominated by other larger partners, then they will begin the process of dissolution of the alliance. Equally if the national cultures vary too much and there is no tolerance, the alliances will also be dissolved.
The Implication of Alliance Experience in Achieving Alliance Success
Alliance experience is vital for the successful formation of relations among members. Firms lacking experience in alliances tend to fail in establishing alliances. Alliance experience is vital since alliances are complicated organizational forms that require deep understanding in their formation and continuation. Hamel (1991) reiterates that it is necessary to acquire alliance experience by studying other firms. The complex nature of alliances makes it difficult to anticipate the contingencies arising from their management, thus the firms lacking alliance experience will find it difficult to successfully build alliances with other firms.
In conclusion, expansion into the international market uses various modes of entries with certain capabilities and drawbacks. Firms should therefore be careful in selecting an entry mode. Moreover, formation of alliances is essential for the success of any firm in the international market.