The global local dilemma businesses firms organisations etc. are ever growing in this day and age this is the result of globalisation which see organisations expanding beyond its local or regional location. The global local dilemma relates to the extent to products and services may be standardised across national boundaries or need to be adapted to meet the requirements of specific national markets. As these organisations grow their products to international markets they have to consider the two approaches of standardization and adaptation in order to formulate their global product strategy.
Following the increase in globalization companies still struggle to decide as to which product strategy to employ in the different markets. in making such a decision three main schools of thought have been discovered over the last decades as observed by doole and lowe 2008 horska e. ubreziova i. and kekäle t. 2007 and keillor hausknecht and parker 2001 these mainly advocate product standardization adaptation or indeed combining both strategies.
Entry modes/ strategies
Albaum g. 2008 mentioned that a market entry strategy consists of an entry and a marketing plan. According to hollensen s. 2007 export entry modes occur when the firms manufacture the products in the domestic market or a third country and then transfer to the foreign market with direct or indirect ways. Under export entry mode there are three major types: indirect export direct export and cooperative export.
Indirect export this export mode is suitable for those firms who have limited recourses to export. Small and medium sized firms who want to have a trial in a new market can use this mode of entry. In this mode the manufacturing or the host firm does not take direct responsibility for exporting activities. Export house broker piggyback and the trading company performs these activities often without the manufacturing firms’ involvement in the foreign sales of its products. In this process the firm cannot study and develop the foreign market and then lose opportunities to grow its business i n the new market. The process of indirect export. Hollensen s. 2007 states that the export buying agent is a representative of foreign buyers who reside in the exporter’s native country. For exporter it is the easiest way to export because prompt payment is usually guaranteed in the exporter’s native country what takes all responsibilities refer movement of goods away.
Direct export direct export is another market entry strategy in which manufacturer sells its product directly to an intermediary in the targeted foreign market. The host firm is directly involved in all the activities like handling documentation physical delivery and pricing policies with the product being sold to agent s and distributors. In this export mode the firm has more control over how to sell whom to sell and where to sell. More research and market strategy is necessary to minimize the risk. Trade restriction and cultural difference can be its drawbacks whereas the exporter who is representing firm has better understating of the local market and its legislation that helps to deal with customers and to maintain a sound relationship. figure 3 the process of direct export hollensen s. 2007 the a gent can be the exclusive representative of the country with exclusive rights semi exclusive when the agent is working with the goods of the exporter and with other non-competing goods from other companies nonexclusive when the agent is working with the goods of exporter as well as with other goods which may compete with the exporters production. Cooperative export cooperative export is another type of market entry strategy in which two or more firms cooperate together to manufacture the product because of limited resources and limited capital. Making collaborating agreements the cooperative firms achieve higher economies of scale and form broader product concept. And also provides the opportunity to study methods and potential of exporting in this export mode all the collaborating cooperatives share risks and reduce the cost of manufacturing and selling. The process starts with finding and extracting the raw materials and dealing with the downstream functions through the same foreign agent. The process of cooperative export intermediate export mode the modes where the products enter to foreign market through agents and distributors with no full ownership are known as an intermediate mode. Although there is no full ownership of the parent firm the ownership and control can be shared with the local partners and agents. In this mode beside the product the firms are also able to transfer the skills and strategies in the foreign market. The risks and rewards are equally shared by the firms which help in better control over the production than in exporting. The intermediate export mode includes licensing franchising contract manufacturing and joint ventures.
Franchising is similar to licensing. The main difference between them is franchising tends to involve longer-term commitments than licensing. Generally, franchising is a specialized form of licensing where franchiser sells its intangible property like trademark, copyrights, designs, and patents to its franchisee. Even the way of doing business and some trade secrets are shared. Besides intangible property, franchisor also provides the right to use its operating system, product reputation and supports the franchise by giving employee training and advertising campaigns. (Hill, 2013)
The franchise is chosen by the franchisor therefore, the franchisor has more control over than the licensor. The franchising is a more renewable entry mode. Normally, agreement tends to between franchisor and franchisee is 5-11 years.
There are two major types of franchising: Product and trade name franchising- The process of distribution in which suppliers make a contract with a dealer to buy and sell its specific product using franchisor’s trade name, trademark and logo is product and trade name franchising. Automobile dealers, hard and soft drinks company are the common examples of product and trade name franchising.
Benefits of franchising are that the firm gets a contractual source of income and which in turn gives it a limited economic and financial exposure. The disadvantage is that, the search and identification of a good partner is very difficult, there is also and issue of loss of competitive advantage and finally there is limited benefits to be received from the home nation.
A firm that is jointly owned by two or more than two firms with a distinct business entity and is legally separated from parents firm is a joint venture. It can also be defined as a foreign operation where the two international company has enough equity to control management but not completely dominate the venture. It is more like parents creating the child. The most common type of joint venture is a 50-50 venture, in which both of the firms owns 50 percent of ownership stake and 50 percent contribution for managerial operation. But in some conditions joint venture shares may vary upon the agreements made by the firm and some of the firms even seeks to have majority shares to have more control. (Hill, 2013)
Formation of Joint venture
The main advantage of the joint venture has shared the risk of failure. As the joint venture is equally owned firm the risk is equally divided between the ventures. It also can access new market distribution network promptly with fast grown and maximum productivity. The knowledge and experience from the ventures will also be the key factor to access new technologies, greater resources and cost minimization.
Despite having above advantages, joint venture also has some disadvantages. While forming joint venture it is very necessary to know the main targeted goal of both partner, otherwise business may move in a different direction. Even the shared ownership arrangement can lead to conflicts between two ventures. Competition for control between the investing ventures also changes the direction and strategy of the joint venture. Whereas, licensing a firm into joint venture gives other venture control over its new technology. And the main disadvantage of the joint venture is lack of tight control over its subsidiaries because of lack of understanding of experience learning and location economies.it is difficult to find a good partner and manage the relationship.
Foreign Direct investment is defined as ownership of shares accumulating to over ten percent of a foreign entity company or organisation. It should be over 10% otherwise if less it is merely seen as a stock portfolio. International Monetary Fund. FDI benefits everyone involved, the recipients and the investors more so the global economy, the money invested FDI is offered to the business with the best growth rate prospect. It gives the rapid market entry through acquisitions. Though it does come with its disadvantages as well, like the need for a substantial investment and commitment, acquisitions may create integration and coordination issues, Greenfield investments are time consuming and unpredictable.