Introduction
As many firms in the emerging markets across the globe seek to engage in international business, the need for strategic reasoning is ever increasing. Decision-making mechanisms have to remain detailed to ensure that all actions taken align with the company`s goal of increasing its sales, thus maximizing its profitability. (Helm, 2014, pg 72)Company`s specializing in production in the various industries have to take into account the diverse nature of the global market. At the base of making an entry into a foreign country, lies the focus of deciding what market to venture into and selection of the best entry mode. An entry strategy includes all the processes that the company undertakes in the entry procedure while the entry mode refers to the specific entry protocol. Researchers have hypothesized that entry strategy into a new market involves a stream of planned decisions that facilitate the entire entry process. (Bekaert, 2004, pg 113)
A business entity wishing to venture into foreign markets faces several issues that determine the selection of an appropriate entry criterion. The marketing issues involves determining which country are more economical to enter, with decisions ranging from availability of necessary materials to the presence of a ready market.(Pride 2014, pg 224) The companies then come up with a management plan that will then proceed with arrangement of the entry process. The marketing research on the new market will involve all intermediaries and investigate the nature of business in that industry. A valuation of competitors and the possibility of taking over some market share is a major consideration. The company determines whether they will source production materials in the foreign country by making its production in the market location, or they would bring finished goods for sale. The investment environment evaluation will take into account necessity of making joint ventures with other players in the specific industry. The global partnership would ensure that the company taps into the information from the players who have already worked in the foreign country.
There exist many ways of making an entry for businesses wishing to make a venture in a foreign environment. The company may choose to use direct exports, indirect exports or even make production in the foreign country. The strategies include piggybacking, exporting and countertrade. Piggybacking is an application for organizations that have little skills in the exporting field. The process may include consolidating orders by different companies as a means of taking advantage of buying in bulk. Companies are dealing in similar products and are making ventures in a geographically adjacent location would serve using this mutual process. (Bekaert 2004, pg 114)Licensing is a method of foreign operation where a company of a certain country agrees to permit another company to use its` production, processing procedures, and trademark. Licensing as a means of foreign market entry involves little expenses and is a good way of starting anew operation. Countertrade is an indirect method of exporting. The business organizations expand the activities in less competitive environments where the currency-based exchange is impossible.
Exporting
This is the most established means that major economic players in the different industries have taken in introducing their operations into foreign markets. Exporting has a more accurate definitionas a marketing of goods produces in an individual country, usually one with production capability and locally available raw materials, into another. Direct manufacturing of the company`s product would prove very costly, and its economic evaluation should show minimal profitability. Companies would rather utilize the already available production plants in the local country, and then transport finished products to the ready market. Establishing a manufacturing plant would require huge amounts of capital and costs of continued servicing and payment of wages. Elimination of direct production in the overseas country, however, does notimply easy entry into the market. Significant investments in the marketing process and establishing the brand name in the country will take a toll on the company`s resources. The saved costs do not negate in any way the eminent need to make a detailed plan of the marketing strategy. The company should ensure they obtain the most detailed information about their production industry.
Export paths
Foreign investors can choose between passive and aggressive tradingways in their new venture. An inactiveexport characterized by the company awaiting orders or may even come across them by chance. An aggressive exporter will work from the base of the foreign market by developing marketing strategies that provide a broad view of what it intend to perform.
Automobile Industry
PT Asian Auto International is an automobile company based in Indonesia with its headquarters in Kota Bogor. It has remained a key player in Southeast Asia, which is an emerging market. The company has developed different makes of automobiles including passenger vehicles, trucks, and buses. The company is famed for its production of “Made in Indonesia” Komodo buses that have made significant sales on the continent.(Hollensen 2009, pg 117) The company has continually made effort to make more sales on overseas markets to meet the ever-rising demand for automobiles. Within the last five years, the country has ventured to make sales in countries in sub-Sahara Africa. It has adopted an export entry strategy where the automobiles manufactured in local production plants in Indonesia, are transportedby different means to the destined sales region.
The company has identified the vast potential markets in Africa. The market will impose low labor cost in the assembly and distribution of the automobiles because of the immense pool of unemployed persons in the countries. The costs of transportation and communication that facilitate the company`s operation are low as compared to other countries. Pt Asian Auto International has targeted South Africa, which ranked the richest state in Africa. It has also made exports to Nigeria since it is a stable country with the biggest population in the continent. The GDP of South Africa, which was 3.9% in 2013, has attracted major players in the automobile industry. (Great Britain, 2009, pg 54) It has made exports to Ethiopia, which is the second most populous country, thus providing a large pool of ready market. The company`s management has shortlisted Algeria, Egypt and other countries like Kenya in its African entry strategy. Most of the countries in the African subcontinent shortlisted based on their current Gross Domestic Product, the stability of the political environment and calculated Purchasing Power Parity index. The countries that exhibit the best levels of these characteristics form a target for the company`s export plan. (Hill 2014, pg 97) Business Monitor Index has shown the tremendous potential of the African market for automotive parts and automobiles businesses. PT AAI has taken vantage of the great heights of automobile demand, both the cars and the bikes.
Strategy Adopted by PT Asian Auto International
The motors company entered the South African market in 2010 where it opened a location for assembling the imported parts.
The company has made joint ventures with international players in the automotive industry. In their major partnerships, the companies share ownership and control the property rights and operation mechanisms. AAI has worked some ventures with Maruti Suzuki Udyog Limited. (Great Britain, 1998, pg 56) The partners had had the advantage of taking the market of the right-handed drivers in South Africa. They have well-established plants in African Subcontinentthat produce large number of automobiles. The joint ventures that the company has undertaken boost on the effectiveness of its export strategy. The investments add to many advantages to the company making the exports.
AAI will now share the risk associated with marketing its product with the partners in the joint venture. The combined financial strength will work towards the partners pulling out more strategic capital-intensive projects, which increase their profitability in this competitive industry. Export through joint ventures ensures that the parties share information and proportionally split activities geared at penetrating the foreign market. The main pull back to automobile companies participating in the joint venture form of exportation is that disagreements may arise. (Kenworthy 1999, pg 87) Individual partners such as AAI do not have full control over the management of the business activities. If different views on means of delivering the products arise, the companies will conflict resulting in reduced growth. If a need arises, it may be impossible to recover funds committed to the joint venture undertakings. AAI PT and its partners have clearly mapped out their intended advance strategy and stated their objectives within the new market.
The Adopted Export Marketing Mix
PT Asian Auto International followed a detailed export strategy that had seen it make sales in the foreign markets. It started with a product management checklist where it identified the possibility of penetrating the market. The management ensured that they obtained manufacturing specifications that best fitted the locals of the new market, and they put consideration on culture diversity (Hollensen 2009, pg 126).The company deployed data analysts to obtain market information pertaining the sales patterns and consumer trends. Product sourcing identified as overseas plants, but they assembled automobile parts in the market country.
A team worked on price support as relating to the automobile industry. They established the rates that ranged in the market in comparison to the value they wished to offer to the new population. Time analysis of the price trends would enable the company identifies whether there was seasonal variation in the sales.(Pride, 2014, pg 226) Competitive information gathered by the experts and the company further trains its agents to align with the new country`s mechanisms.
A plan of promotions and effective advertisements will ensure that the company`s brand remains of focus by locals forming the potential market. The company made strategic plans by participating in foreign exhibitions to show its prowess in manufacturing automobiles. Management of AAI worked at building a qualified sales force that would distribute the products to different selling locations. (Pride, 2014, pg 226) They ensured all sales agents were well commissioned to work at the vantage of the company.
On the distribution of automobile products, the company allocated sufficient funds to ensure deep penetration of the ready market. An order processing procedure that shows when and where to make the company`s assets distribution in regard to variability of the markets conditions. The company applied for insurance cover, which is a necessary condition set by the local government. Export preparation was always and remains well governed and documented, to prevent unnecessary delays that implicate sales in the foreign market. The company works on freight forwarding procedures as other means of working on its distribution guidelines.
The success of this entry strategy has mainly arisen from service support. Management uses market information that they have gathered and intelligence relating to mechanisms of the new market. The company has employees staff to work with the technical assistance as means of keeping the plans up-to-date with ever-changing market conditions.(Kenworthy 1999, pg 58) Capital and cost budgeting employed by AAI in evaluating proceeds from exporting its products into the new market has ensured that it maintains an upper edge. They have continuously worked on modern data processing systems that are secure and guaranteed not to fail operation of the company.
A mechanism for generating sales reports on a regular basis, usually monthly, before then compiling annual sales in evaluating the profitability of the exporting venture. A system of legal services to ensure the company always complies with international guidelines in the export process and local legislation when operating in the foreign market. The tax services will ensure that they also comply with dues meant for both the home government and that of the new country. The company offers after sales services to its customers such as delivery when needed. In designing the service departments, PT AAI was strategic in establishing a customer care department. Human resource in the customer care department listens to views of the customers relating to the company`s product. (Kowale 2009, pg 86)
PT Asian Auto International has worked with its financial support to retain its roots in the foreign markets. It has continually provided billing services and established means of collecting invoices. Effective financial planning leads to efficient performance while avoiding misappropriation of funds. The company always schedules its budget data in accordance with modern accounting procedures. Since the company does not have all equipment required to effect operation in the new market, they have devised plans for hires of locally available machinery when necessary. Rentals of stores in various location is more profitable that deploying construction of stores in different localities. All these factors gathered in the detailed processes included in the financial reports of the company for evaluation. The company can either perform internal auditing if it has the necessary infrastructure and personnel skilled in that field.
Advantages and disadvantages of an export strategy
Operation of all manufacturing processes in the home country makes the entire process less risky. The local investor more carefullykeeps watch of the performance of the company and remains aware of ground issues affecting the production process. The management is more averse with the rules and regulations of the country that govern the production procedures. Establishment of a new plant in a foreign country would require that the company comply with certain rules. (Elsner 2014, pg 146) Exporting saves the company the hustle of determining the legal mechanisms in the new country. There is a profound time for the company to make necessary gauges of the foreign market, before deciding on the establishment of a production plant. The companies learn how the new market operates and can thus value the profitability of making a full stage brick and mortar investment.
The main disadvantage of the exporting strategy is that the operation of the company in the foreign market remains at the mercy of the overseas agents. The investing company lacks total control over the sales process of its products in the new market. (Elsener 2014, pg 147) Management of the business weighs the disadvantages against the advantages.
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