Response 1: What advantages did Smith ford Pharmaceuticals have by owning manufacturing facilities in Canada prior to NAFTA? NAFTA is the North American free trade Agreement between the United….
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Entering a global market can be difficult because of many of the barriers such as language, culture, and economics. Finch presented five of the most common ways of entering the global economy (2012):
Direct and indirect Exporting – This is helpful for companies selling products that are simple and require little investment in the market they are entering. A product such as toothpaste is great because of the size and general use. The problems associated with this model align with the little investment. Knowledge of the market is limited, and you lack the ability to adjust to changes.
Licensing and Franchising – Franchising offers easy access to other markets and decreases the costs of transporting goods. Some of the disadvantages come for the lack of control over the franchise itself. Franchises aren’t often supervised and can easily drift away from a company value due to different customs or beliefs.
Joint Ventures – Joint venture can be good because of the easy transition into other markets because of a merge into an already established entity. It can also be difficult because each entity can function on their own and controlling the direction can be difficult.
Foreign Direct Investment – One of the best benefits for this is the investment in the community you are selling to. Some may see a benefit in having the good locally and getting support locally instead of having to communicate with someone that may not share the same culture. A disadvantage of this strategy is if the product isn’t controlled then it may lose its identity in the country it is in from where it came.
McDonald has been successful in entering the global market because of the nature of the food that it provides. In just about all countries consume fried food and suffer from the need to eat on the run even if it isn’t preferred. Fast service tends to be successful in every country. Additionally, the franchise model allows it to enter any market and not suffer from the high tariff for importing. They can source their products. The model works fine for them but the McDonalds that I have been to outside of the US is not the same as the ones here. there are small differences because of where they get their products. One distinct difference that I noticed in a South American McDonalds was the bun. The bun being used was not like the normal sesame seed bun used on a normal Bigmac. There will always be positive and negatives when entering the global market.
Numerous corporations that have been successful and dominated the domestic marketplace are able to branch out into the global market, for some this was a great move and for others, not so good as they were not able to effectively trade their products. The decision to expand into a global market must be done with a good strategy plan using social platforms and other variables to consider and take into account are economic, political and cultural (Finch, 2012).
They are strategies available and can be used by a company as it enters the global market. One tactic used by many companies is the joint venture; partnering with a local business to gain access to the region or territory. (Finch, 2012). The benefit of doing using this strategy is the knowledge leverage, access to their brand and status within the local community (Finch, 2012). Though, it may restrain the volume of control over the operation of the company entering the global market (Finch, 2012). The most popular strategy is simple through a website. The benefit of this tactic is money saved by the company as there is no overhead cost (Finch, 2012). The disadvantage lies in the fact that it limits the variety of items that can be sold by the company and not all the segments of the global market are fluent with the internet and computers because of the digital divide (Warren, 2013).
Another strategy available to the business to use as they venture into the global market is to basically create a store and sell directly to those in export territories (direct exporting and importing goods) (Finch, 2012). The advantage of the strategy is the fact that it gives the company more control of the business and operation, but the risk is the great monetary investment needed as the company enters into the market, with the uncertainty of succeeding or not (Finch, 2012).
Licensing is another strategy used by companies desire to move to the next level in the global market but are not ready to assume the risk and additional cost of going global and directly export their goods., The benefit is the easy access to the global market and increases profit with little investment. The disadvantages are the: restricted sharing in markets, not able to control the operation and it builds future competitors
Companies use these strategies as they get ready to participate in the global market and many are successful and are thriving. A very lucrative and successful company participating in the global market is Nike (Emerson, 2001). This well-established company used a combination of the joint venture and direct selling strategies around the world and has become a worldwide household name.
McDonald is a good example of a company that has absolutely become skilled in the global market as they have created a brand recognized worldwide as a good company to invest in. It is known for its consistency, innovation, and resiliency. They have created s sturdy and effective process to do business. Their foundation of consistency in their processes and procedures but yet flexible and creative can be used to influenced other companies with the fast food industry. A lesson that companies can learn from McDonald’s success also n the global marketplace and is transferable across industries is this company never-ending readiness to adjust to numerous cultures as well as its marketing ability to conduct intense research of the market prior to entering it (Allen, 2013). Companies need to be strong and effective in their processes to do business and have a foundation consistent in their processes and procedures but yet flexible and creative like McDonald’s. Any business that can apply these lessons is more likely to succeed in the global marketplace.
Finch, J. (2012). Managerial marketing [Electronic version]. Retrieved from https://ashford.content.edu
The strategies for entering into the global market identified by Finch (2012) include Direct and Indirect Exporting, Licensing and Franchising, Joint Ventures, and Foreign Direct Investment, (Sect. 14.3).
In general, Direct and Indirect exporting involves shipping products manufactured in a company’s current facility to foreign customers. The company, if utilizing an irrevocable letter of credit, has little risk of loss but generally has higher shipping costs by utilizing container transport shipping and customs and brokerage houses.
Licensing and Franchising generally involves a company granting the permission or right for another company to manufacture or use a technique patented or copyrighted by the first company to sell products. The franchisor or licensor receives royalties or commissions from the franchisee or licensee based on units sold, gross profits, or some other mutually agreeable arrangement. Licensing and franchising allow a company to be able to have a global presence without having to sustain manufacturing or corporate locations in that market. On the other hand, some countries use the licensing and franchising route to steal technology and processes without compensating the original owner of the product.
Joint Ventures involve a company partnering with an entity that has a specific talent or ability within the market that the parent company desires to do business. Joint Ventures can be effective in breaking down cultural or trust barriers since the company will have a local ‘expert’ and or presence in the host country. Depending on the political and judicial systems of the foreign company, joint ventures can be akin to the licensing and franchising risks up to and including loss of fixed assets and products in the foreign country.
According to Finch (2012), Foreign Direct Investment can improve sales in new markets by not having to pay tariffs, receiving tax incentives, and reducing currency volatility (sect. 14.3). On the other hand, Finch (2012) disadvantages include: foreign investment is expensive, politically risky, and cultural differences may be too complex, (sect. 14.3).
I believe that McDonald’s success in quality control is one lesson that can transfer across all industries. If you know that you will get the same product no matter what outlet you buy it from then the company, on the whole, will be more profitable and successful.
Finch, J. (2012). Managerial marketing. Retrieved from https://ashford.content.edu