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Entrepreneurial Marketing
Jones, R., & Rowley, J. (2011). Entrepreneurial marketing in small businesses: A conceptual exploration. International Small Business Journal, 21(1): 25-36
This is the article which has made a substantial contribution to my enjoyment and understanding of entrepreneurial marketing. I chose this article as it recommends further development of the notion of entrepreneurial marketing toward the notion of entrepreneurial marketing orientation. The authors draw on the previous research and scales in the entrepreneurial orientation, customer orientation, market orientation, and innovation orientation literatures to propose a conceptual model for entrepreneurial marketing which identifies the elements of such a model, alongside particular signs of the overlap between scales in the dissimilar areas (Jones & Rowley, 2011).
According to this model, marketing in Small and Medium-sized Enterprises is interlinked with other behaviours and activities within the small business. The new conceptual model states that to understand marketing in Small and Medium-sized Enterprises, it is important to understand its context particularly relative to customer engagement, innovation as well as entrepreneurial approaches to marketing (Jones & Rowley, 2011). For this reason, the selected article has made a substantial contribution to the entrepreneurial marketing concept and has been very enlightening to me.
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The key themes include entrepreneurial marketing, importance of small businesses to a country’s economy, and entrepreneurial marketing orientation. An acknowledgment of the importance of the interaction between marketing and entrepreneurship has resulted in the proposal of the notion of entrepreneurship marketing. The key messages of this article pertain to further exploration and development of the notion of entrepreneurial marketing.
The authors point out that the concept of entrepreneurial marketing is especially vital to the context of small business (Jones & Rowley, 2011). The authors of this article suggest that the entrepreneurial marketing paradigm has to be advanced to incorporate an approach to marketing which is grounded not just in the knowledge bases of marketing, but also of entrepreneurship, innovation, as well as customer relationships and engagement.
The authors particularly argue for the inclusion of the concept of customer orientation as a separate and distinctive aspect of entrepreneurial marketing instead of this concept being included under market orientation (Jones & Rowley, 2011).
The argument that Jones and Rowley (2011) make is well balanced since it is objective, reasonable, and sensible. To evaluate their argument in the context of the wider literature, other researchers have been cited adequately and properly throughout the article. In the section of the article titled Reviewing the orientation literature, Rowley and Jones (2011) have summarized and conceptualized previous work on entrepreneurial orientation, customer orientation, market orientation, and innovation orientation scales with respect to Small and Medium-sized Enterprises.
Additionally, the scales which were utilized in informing the elements in the proposed Entrepreneurial Marketing Orientation model are identified and discussed in an exhaustive manner, citing various authors. For instance, they have pointed out that market orientation is recognized extensively as having a positive effect on the performance of businesses (Narver & Slater, 2010; Deshpande, 2010). As a result of their validity, reliability and robustness, the MARKOR Scale which was developed by Kohli, Jaworski and Kumar (2011) and the Narver and Slater’s (2010) market orientation scale are utilized in the market orientation component of the proposed Entrepreneurial Marketing orientation.
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The notion of customer orientation is considered by some authors as the pillar of marketing (Jaworski & Kohli, 2010). The marketing advantage of a small company is precisely connected to the close correlations between the clients and the entrepreneur unlike in bigger companies in which it is somewhat harder to embed entrepreneurship and a customer orientation into its organizational culture (Zontanos & Anderson, 2010).
The authors of the selected article also point out that investigation of entrepreneurial orientation pertaining to research in Small and Medium-sized Enterprises includes the investigation of technological posture, market focus and entrepreneurial orientation by Salavou and Lioukas (2011). Additionally, Kreiser, Marino & Weaver (2010) suggest that research on entrepreneurial orientation has to include pro-activeness, risk taking, innovation and culture. The scales developed by Matsuno, Mentzer and Özsomer (2011) and the one developed by Knight (2010) are a reflection of the consensus viewpoint of the entrepreneurial orientation literature preferring valid and reliable orientation scales.
Thanks to the strong focus on innovation as an output and not as a firm behaviour, there are few innovation orientation measures to draw upon. The innovation orientation scale developed by Siguaw, Simpson and Enz (2010) is suitable for Jones and Rowley’s entrepreneurial marketing orientation model. Dimensions derived from this scale which are included into Jones and Rowley’s entrepreneurial marketing orientation model are as follows: stimulating, encouraging and sustaining innovation; and overarching knowledge infrastructure (Siguaw, Simpson & Enz, 2010).
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As clearly shown above, the authors that are cited by Jones and Rowley in their article say a lot about scales in the entrepreneurial orientation, customer orientation, market orientation, and innovation orientation. On the whole, what is important in this article is that the authors have integrated discussion of entrepreneurial marketing activities in Small and Medium-sized Enterprises into the broader conceptual basis and frameworks of the field of small businesses and have also proposed a new model for entrepreneurial marketing orientation.
Conclusion
In conclusion, in practice, this article can help an SME to perform better in that it encourages SMEs to embrace and integrate the themes of entrepreneurial orientation, customer orientation, market orientation, and innovation orientation in the developing paradigm of entrepreneurial marketing. The SME firms should acknowledge that these orientations interact and operate dynamically depending on the market sector, size of the company, as well as development stage.
Jaworski, B. J & Kohli, A. K. (2010). Market orientation: Antecedents and consequences. Journal of Marketing, 57(3): 53–70.
Jones, R., & Rowley, J. (2011). Entrepreneurial marketing in small businesses: A conceptual exploration. International Small Business Journal, 21(1): 25-36
Kohli, A. K., Jaworski, B. J & Kumar, A. (2011). MARKOR: A measure of market orientation. Journal of Marketing Research, 30(4): 467–477.
Kreiser, P., Marino, L. D & Weaver, K. M (2010). Assessing the psychometric properties of the entrepreneurial scale: A multi-country analysis. Entrepreneurship, Theory and Practice, 26(4): 71–94.
Matsuno, K., Mentzer, J. T & Özsomer, A. (2011). The effects of entrepreneurial proclivity on business performance. Journal of Marketing, 66(3): 18–32.
Narver, J. C & Slater, S. F (2010). The effect of a market orientation on business profitability. Journal of Marketing, 54: 20–35.
Salavou, H & Lioukas, S. (2011). Radical product innovations in SMEs: The dominance of entrepreneurial innovation. Creativity and Innovation Management, 12(2): 94–108.
Siguaw, J. A., Simpson, P. M & Enz, C. A. (2010). Conceptualizing innovation orientation: A scale for study and integration of innovation research. Journal of Product Innovation Management, 23(6): 556–574.
Zontanos, G., & Anderson, A. R. (2012). Relationships, marketing and small business: An exploration of links in theory and practice. Qualitative Market Research: An International Journal, 7(3): 228–236.
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New Product Development Process
The main components of a New Product Development process and the benefits of using the Stage-Gate Product Innovation system in the New Product Development Process
New product development (NPD) is an important cornerstone to the success of any firm. To remain competitive, companies cannot bury their head and seem less concerned about developing new products that add value to their customers (Salgado, Salomon & Mello, 2012). Because of these, new product development process is important to businesses and the reason why companies should invest in it. NPD ensures that a new product is introduced in the market to meet the needs of the customers. The paper critically evaluates main components of a NPD process as well as benefits of using Stage-Gate product innovation system.
Before a new product is introduced in the market, it has to go through different processes or stages. The major components of NPD include; opportunity identification and idea generation, product concept development, concept testing, design and engineering of products and lastly is the prototype development and testing (Hauser & Dahan, 2007).
Opportunity identification and idea generation is the first component of NPD process. This is a the most important component that kick-starts the process of development of a new product (Hauser & Dahan, 2007). The new product opportunities are identified or new ideas emerge based on the customer unmet needs. Customers are the major source of inspiration and therefore, any new idea generated must focus on meeting their needs. At this stage, it is important to embrace and consider the views or ideas of other stakeholders such as customers, suppliers, and employees’ point of view.
Communication of this view is expected in good time and no one should be left out (Salgado, Salomon & Mello, 2012). Some challenges may be experienced when gathering information from customers such as possibility of change of mind when the final product comes out, difficult in forming opinions and expressing preference because of a lack of sense of product features, and lastly biasness on the side of information gatherer due to biasness.
To avoid these, it requires use of appropriate methods of data collections for the target customers such as experiential interviews and user observation. In this age of technological advancement, use of web-based methods for the fuzzy front end can apply (Hauser & Dahan, 2007). Virtual groups participate on new product concept by providing their view and opinions. Many firms are finding such groups and individuals that browse on new product stimuli as rewarding.
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The second component is product concept development that begins after identification and grouping of customer needs (Hauser & Dahan, 2007). The journey on how to address the needs of the customer commences. Not all ideas generated are considered. Nevertheless, some of these ideas at the start seem unconventional and impractical but are refined and share into viable opportunities (Salgado, Salomon & Mello, 2012).
Different ideation methods have been proposed. They include system approaches, forced relationships, incentive compatible ideation, brainstorming, varied perspectives, morphological analysis, and archival analysis. For instance, in brainstorming, members are at liberty to generate their ideas regardless whether they are good or unrealistic.
The third component is concept testing. This is also a critical step in the process of new product development process. At this stage, the new products concepts are screened as potential customers use qualitative and quantitative research methods (Hauser & Dahan, 2007). During this process, it is also critical to carry out evaluations by asking oneself whether indeed the idea or concept is important to the consumer. Other attributes to evaluate are the purchase interest of the customers, dissatisfaction with the available products help to prioritize ideas for further testing, and funding.
The concept is defined in the form of a promise to the consumers that indeed the firm understands the relevant needs of the customers (Hauser & Dahan, 2007). It also provides a proof on how the company is prepared to address the needs of the consumers in a better way than any other (Hauser & Dahan, 2007). It is also important to provide an emotional or rational reason why the customer should try the company product, definition, and communication of the concepts core benefit proposition (CBP).
The concept is evaluated through laboratory test markets (LTMs) and survey research. The prediction need to be highly accurate for the product team to evaluate them and make improvement on them. At this stage, the setting should be realistic and concept of marketing such as consideration of marketing mix should be utilized (Hauser & Dahan, 2007).
For example, advertisement of the concepts such as storyboards as opposed to finished advertising with prototype products should be used. Forecasting should be done as the concept moves through the process. This is because, resources are being utilized and it is important to have an estimate of the profit and revenue potential of the concept early in the process.
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The fourth component also stage is the designing and engineering products (Hauser & Dahan, 2007). This stage ensures that few but highly concepts that are proven viable are designed and engineered in order to meet the needs of the customers at profitable costs (Salgado, Salomon & Mello, 2012). The company cannot afford to design and engineer a concept if they have no value to the customer as well as to the company. The techniques they use to design and engineer products are value Engineering and conjoint analysis.
In conjoint analysis, the team optimizes the quantity or level of attributes or features that will be able to satisfy the customers and at the same time accrue profits to the company (Hauser & Dahan, 2007). For example, a company that produces marker cameras will be interested in knowing the optimal values of all the features that will go into its production such as the megapixel, the size, optimal zoom and the price of the camera when completed. In addition, they may also want to put to consideration situations where customers would make tradeoffs with other features.
Different methods of conjoint models are applicable such as hybrid, newer adaptive and discrete (Hauser & Dahan, 2007). On the other hand, value engineering is the integration of both the firm and customer perspectives when making cost and feasibility tradeoffs- in respect to the product (Hauser & Dahan, 2007). The team should consider the importance customers place on every function that the product performs in relation to the cost of the parts that are contributing to that function.
The underlying principle of value engineering is that the marginal cost of every part of the product need to not to exceed the marginal contribution to customer value. With advancement of new information and communication technologies web based methods for deigning and engineering product concepts have been embraced in most companies (Hauser & Dahan, 2007). Use of web based conjoint analysis is preferred because of the many benefits it offers such as capability to be demonstrated in a contextual manner.
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The last component is the prototype development and testing. The main aim or goal of this stage is evaluating the designed and engineered concepts to make the launch easier. At this stage, various prototypes are developed and then tested. The techniques used for testing automatically generate many solutions on the product concept theme (Hauser & Dahan, 2007).
Furthermore, at this stage, it is also important to test the marketing role by testing multiple designs with customers. Realistic testing is also required at this stage. The NPD team can simulate product acceptance in the marketplace that experiences or is affected by different variables such as sales force presentations, word of mouth, and advertising among other.
As globalization increases, the level of competition is increasing and this has seen decrease in product life cycles in most of the technology intensive industries ( Jou et al. 2010). This means that companies have to produce new products that will be of higher value to the customer to win over the competition. This therefore, forces innovators and thinkers to think about the most flexible ways to manage NPD without compromising on efficiency.
One of the methods of management NPD that companies are using is the Stage—gate processes. However, other avenues of adapting Agile methods for software development and integrating them with others are also underway. Little research on integration of the Agile and stage-gate processes has made it difficult for many companies to try the same because this may affect on their performance.
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Stage-Gate product innovation systems are one of the methods that many industries rely on. This method is linear in nature and it depends on documentation on fixed set of activities (Sommer, Hedegaard, Dukovska-Popovska & Steger-Jensen, 2015). The method has a series of product development stages and it starts from the generation of idea, the development of the idea, and then implementation phases which is then followed with product launch or the evaluation stage that comes at the end.
According to Sommer, Hedegaard, Dukovska-Popovska & Steger-Jensen (2015), this method has a number of advantages to the organization. One of the advantages of using this method is that it increases the speed of development. This ensures that the company achieves its objectives within a short period. This increased speed as well cuts the costs incurred as it takes less time to come up with an idea and to take the same through the stages to the final stage of product launch.
The method is also able to produce better quality (Sommer, Hedegaard, Dukovska-Popovska & Steger-Jensen, 2015). Quality is important especially when it comes to the products that consumers want. Quality is a strategy that companies use to achieve a competitive edge over their competitors. Therefore, it is very good method to ensure that high standards of quality are achieved. The other advantage of the method is that it ensures greater discipline and better performance overall compared to other informal development processes (Sommer, Hedegaard, Dukovska-Popovska & Steger-Jensen, 2015).
Using the tool as well decreases iterations, as the entire process is predictable from the commencement to the final product. The method has been established to help improve performances at the fuzzy front end stage through development processes (Sommer, Hedegaard, Dukovska-Popovska & Steger-Jensen, 2015). Fuzzy from end is set of activities done even before the process of defining requirements specification is over. This stage therefore requires the team to deliberate on what the product should do to meet or satisfy the perceived business needs.
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According to (Grönlund, Sjödin, & Frishammar, 2010), stage-gate methodologies are known across the world and are mostly used in industries all over the world to help bring order to chaotic process of product innovation. In a survey carried out, it was found out that 60 percent of those responding NPD functions were in one way or another using Stage – Gate methodology. The methodology coined by Robert Cooper was to help achieve efficiency.
It is therefore both an operational and a conceptual model that helps to move product across all the phases of development (Grönlund, Sjödin & Frishammar, 2010). It achieves effectiveness and efficiency through integrating in a process known as ad-hoc that is lacking in many industries. The gates function as top and go and they as well help to prioritize points for decisions for the future of the project are to be made (Grönlund, Sjödin & Frishammar, 2010).
The functional groups known as gatekeepers are the ones that man them and they help in project evaluation on the basis of business rationale, quality of execution, and quality of action plan. This therefore, indicates the magnitude of scrutiny and gate keeping involved in using the methodology (Grönlund, Sjödin & Frishammar, 2010). All this is done to avoid errors. For instance, the execution must be of high quality. The business rationale is also put to consideration. Understanding the purpose of the business is key to ensure that implementation is done in a good manner to have positive impacts on the project.
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Research has shown that this method is highly appreciated by many industries for its potential to energize and to speed up the new product development initiatives (Grönlund, Sjödin & Frishammar, 2010). Despite, this, there have been criticism from other quarters leveled against using Stage-Gate method. Critics argue that the method is time consuming, and this leads to time wasting (Grönlund, Sjödin & Frishammar, 2010). The time wasted could have been used in a valuable venture.
Others criticism of the method include no provision of focus, it requires that one follows bureaucratic procedures and it restricts learning opportunities (Grönlund, Sjödin & Frishammar, 2010). The bureaucratic procedures are evidenced as the methodology adherse to the process of NPD from start to the final stage. This too is not pleasing and they feel that it should be modified. The restriction of learning opportunity is also a weakness that should be addressed quickly. The method is linear and it does not provide a better platform for other to learn.
Next generation stage-gate process method has been developed in response to the criticism against this method (Grönlund, Sjödin, & Frishammar, 2010). The motivation for developing is for improving efficiency and speeding up of processes through incorporation of fluid stage with fuzzy and series of overlapping or confrontational go decisions. More developments on the method have focused on making it faster, flexible, adaptable, and effective (Grönlund, Sjödin & Frishammar, 2010). Some of the companies that have used State-Gate processes have also begun to accommodate open innovation activities.
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The development in the NPD process demonstrates the importance of proper tools and methodologies to rely on during NPD process. Many companies have utilized stage-Gate method and they have succeeded in their NPD process. The level of speed has increased with the method. Level of efficiency and effectiveness has also increased and these are some of the reasons that still compel firms to rely on the same.
Constructive criticism against the method has also emerged. Nevertheless, instead it is important and constructive to receive criticism so that the inspiration to create a more appealing and active methodology is reached. The most important thing is that researchers are producing new advanced methods to help improve management of NPD process. Such improvements method makes management of NPD process even more productive and plausible.
As I conclude, new product development process is very important and has to be taken serious if companies are concerned about the future. It is through NPD that companies and industries are able to survive the competition and even manage to achieve a competitive edge. Competition has become high and the only way to avoid the same is to create products that are unique to the market. This process of development must therefore go through different stages to ensure that the final product is of high quality, it meets the expectation of the customer, it also adds value to the customers, and that it has to bring returns to the company.
A venture that the company investments on should have tangible benefits to be of value. In NPD, it is important to understand that it involves different components that that are of great important to the success of the entire process. These components also phases include generation of ideas and opportunities, product concept development, concept setting, design and engineer of the products and lastly, prototype development as well as testing.
Various methods are as well used for management of these processes. Stage-gate is one of the methods that I would use in the project. The method has quite a number of benefits that firms accrue. Even though, the method has some weaknesses, efforts are underway to ensure that the method is improved to offer value to the firm.
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Reference
Ale Ebrahim, N, Ahmed, S, & Taha, Z 2010, ‘Critical factors for new product developments in SMEs virtual team’, African Journal of Business Management, vol. 4 no.11, pp. 2247-2257
Grönlund, J., Sjödin, D. R., & Frishammar, J. (2010). Open Innovation and the Stage-Gate Process: A revised model for new product development. California Management Review, 52(3), 106-131.
Jou, Y. T., Chen, C. H„ Hwang, C. H., Lin, W. T., and Huang, S. J 2010, ‘A study on the improvements of new product development procedure performance: An application of design for Six Sigma in a semiconductor equipment manufacturer’, International Journal of Production Research, vol. 48 no. 19, pp.573-5591.
Salgado, E, Salomon, V, & Mello, C 2012, ‘Analytic hierarchy prioritisation of new product development activities for electronics manufacturing’, International Journal Of Production Research, 50, 17, pp. 4860-4866, Business Source Complete, EBSCOhost, viewed 27 November 2015.
Sommer, A, Hedegaard, C, Dukovska-Popovska, I, & Steger-Jensen, K 2015, ‘Improved Product Development Performance through Agile/Stage-Gate Hybrids’, Research Technology Management, 58, 1, pp. 34-44, Business Source Complete, EBSCOhost, viewed 27 November 2015.
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Uses of Porter five forces
Introduction
Porter five forces model helps the entrepreneur to look at the type of work that is happening and make a sound decision concerning where the power of the business lies in their organisation. Once an entrepreneur has identified the source of strength in the industry he can venture in the right direction. An entrepreneur is better positioned using Porter five forces as he will identify the competition taking place in the market and identify what is expected of him to emerge more competitive (Cheng, 2013).
Identification of where the power of the business lies helps an entrepreneur in improving his situations of weakness, and all wrong steps that could have led the business in the undesired direction are avoided accordingly. When an entrepreneur wants to know if a business is profitable as he perceived, the use of Porter five forces can be of great use in gauging whether products and services produced are of better quality. The balance of power can be well understood from the use of Porter five forces by an upcoming entrepreneur (Dobbs, 2014). This paper explains how an entrepreneur can use the porter five forces and the disadvantages of using them as well.
Figure 1: A Graphical Representation of Porters Five Forces. Source:(Dobbs, 2014)
The bargaining power of the suppliers
Whenever and entrepreneur uses Porter five forces, he gets to understand better about the five forces that make a business more competitive as expected. An entrepreneur has to access how easy it is for business suppliers to drive up prices. One of the most important aspects of the luxury goods industry is suppliers. They are the business entities that take part in the manufacture of different products sold by various industries; hence, the entrepreneur should consider them accordingly (Dobbs, 2012).
For these products to be valued, it is important that they maintain a very high build quality, remain aesthetically appealing and most importantly have an element of uniqueness. An entrepreneur ought to ensure that suppliers have the ability to produce goods that meet such specifications and at the same time do them at a cost low enough to leave room for profit. Whenever suppliers are few, they will have the courage that they are in high demand, and they will tend to increase their bargaining power (Grigore, 2014). However, when suppliers are many the entrepreneur will be sure that their bargaining power is very low in the market.
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The Threat of Substitute Products
An entrepreneur has to know that substitute products accessible to the market are those which customers can use in place of what a particular brand has to offer. The middle and the high-income population of the market seeks out goods that help to portray their status and wealth. As such the demand for products like high-end electronics, designer perfumes and also designer clothes is only bound to remain (Kirchner, 2012). An entrepreneur ought to know that a company producing products that are found in other companies will reduce the threat of substitutes and make more sales.
Demand for accessing items will, therefore, remain sustained for a long time as the middle income to high-income segments of the population will maintain the need to display their affluence through these products. The majority of customers are youths who are concerned with luxury goods; hence, an entrepreneur ought to focus more on internet marketing to attract the youths who are active on social networking sites.
An entrepreneur should use the porter five forces to develop an attractive, and an appealing website that can help the youths to sell their product by taking advantage of the internet selling platforms (Sutherland, 2014). The use of porter five forces will make the entrepreneur ensure that the given company continues developing unique brands that are appealing to the youths and sell them in small quantities that are affordable to the youths.
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The Customers’ Bargaining Power
The entrepreneurs should make use of the Porter five forces analysis to ensure that the customer bargain power is reduced. An activity like this will mostly take place where major companies employ the mergers and acquisition program. They will end up merging with smaller companies and make them more powerful than before. After merging and acquisitions of various companies has taken, place customers bargaining power will be reduced and the formed company will now have the power to determine prices of different goods in the market (Wilson, 2015).
The company will now determine the market price whereby; the customers will have no say rather than purchasing goods and services at the given price. The competition will be reduced to such a level as the competitors will have now emerged; hence, work towards achieving the same goal of success. Any entrepreneur should not let the customers determine the prices in the market, but he ought to struggle to be the determinant through reducing the competition taking place. When the bargaining power of the customers is very high, then it will imply that the industry is less attractive, and this should not be the case.
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The Competitive Rivalry within the industry
The fact that there is a group of about 10 to 15 companies that have established themselves in the accessible market is a clear indication that this industry is subject to a very high intensity of the competitive rivalry between the players. An entrepreneur must ensure that his company is involved in the supply of certain products is keen to put its best foot forward to reduce the competition from its rivalry. Different companies, however, have different strengths in different aspects of the accessible market.
A well enticing entrepreneur will have a lot of success in the American market; since, it is spreading its tentacles to Asian markets such as Japan and China whose middle-high income populations are increasing fast. An entrepreneur ought to ensure that his company has the considerable market to emerge best in the supply of goods and services that are in high demand in the market (Alrawashdeh, 2013). An entrepreneur must take note of the upcoming opportunities through the use of Porter five forces in the market to reduce the competition rivalry that is highly evident.
Production of quality products helps a company to have lower competition rivalry. People will tend to love products that are durable and of high quality; hence, such an organisation will emerge successful in with fewer competitors. If a company makes many products and services that cater to the needs of its consumers at any given time, it will be more competitive due to its reliability.
The cost of products also determines if a company will be more competitive in its production whereby; if its prices are too high such that people are struggling to afford them, the customer will be very few (Fitzpatrick, Anh-Nguyen & Cayan, 2015). The entrepreneur ought to consider some potential factors that will make the industry more competitive like; having a powerful competitive strategy and a high degree of transparency.
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The Threat of New Entrants
An entrepreneur ought to make use of the porter five forces to ensure that the company invests in millions of dollars on various aspects of the operation that will be more productive in the very end. At the same time, the company needs to develop brand recognition in the market for better recognition (Prasad, 2010). While the former is difficult to achieve, the latter is even more complicated given its abstract and intangible nature of the task to block new entrants in the industry.
Middle to high-income earners will be attracted by brands that are perceived to be more famous and attain better quality. The only way that a new entrant can achieve fame and market access of established names is by having a virtually unlimited financial budget. An entrepreneur ought to use porter five forces analysis to motivate smaller players are increasingly finding it possible to circumvent these barriers and instead employ web-based platforms such as Facebook and Amazon sell their products (Rajasekar & Raee, 2013).
The presence of established companies controlling the larger market shares the possibility of others entering the market is very minimal; since, the established firms will fight back to protect their market share. An entrepreneur should struggle to ensure that the industry has a higher threat to the entrant to reduce the completion and many people from entering the industry anyhow.
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The limitations of using the Porter five forces
Porter five forces were established in a more different environment as compared to the one that the industries are operating in today. In the current world, the pace of change is more rapid, and this fact affects the use of the porter five forces. The porter five forces is a model that provides the entrepreneur with only a snapshot of what is expected yet, there is still more that he does not know.
The use of porter five forces makes it more difficult for an entrepreneur to define the industry that he is handling and make the better specialization of the outcome results. An entrepreneur should know that all the non-market forces that are taking place are not considered in the use of porter five forces. Porter five forces in most case are not well applicable in for the analysis of simple market structure rather they only cater for big markets alone.
It is prudent for an entrepreneur to know that porter five forces majors its argument on competition matter, and this shows that it is narrow not much wide as required (McCann, 2011). An entrepreneur might find it hard in analysing simple markets using the porter five forces as it does not cater for smaller markets. Technology is changing too fast to extend that shopping and marketing are done online; hence, an entrepreneur must perfect this to accommodate everyone with his or her needs and capture the market.
An entrepreneur should be aware that the use of porter five forces in the current world has contributed to only very few market structures remaining static as they were before. The use of porter five forces has made an entrepreneur learn that there are needs required in changing radically to suit the market position of any given company. The use of porter five forces has led to technology, reducing the length of a time of any given product to reach the market. Most of the products get to the market before the maturity time is near to cater for the needs of the fastest growing population.
Technology that is used in different industries makes these products get to the market immaturely, thus the increased cases of disease like cancer among others. An entrepreneur should be aware that the use of porter five forces is contributing to technology that affects the production of goods in industries (McMillan, 2010). An entrepreneur must know that use of porter five forces has increased the burden of information as the response of the organization is done for more than just the market forces.
There is a high need for all organizations to respond to the country’s legislation, corporate ethics and all the required social responsibilities to cater for the needs of all in the society. The use of porter five forces makes it more difficult to incorporate all the required implication of strategic alliances like sharing of skills as well as responding to given opportunities.
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An entrepreneur should be aware that the use of porter five forces has reduced the rate of change in most industries leading to changes in the stability of the market structure and industry experiences. Regular updates are necessary in making sure that the knowledge obtained through the use of porter five forces is transferred to other generations, failure to which it will be eroded completely.
An entrepreneur ought to be aware of the fact that the use of porter five forces has led to difficulties of integrating complexities that are evident in the market today with the use of product groups of organization and various interrelations taking place (Ortega, Jalón, ,M.Luisa & Menéndez, 2014). Also, an entrepreneur should be aware that if his organization defines the market segment to be very slow, then some of the key elements of prosperity might be overlooked.
The legislation that exist among buyers and sellers ought to be looked accordingly in making sure that all activities are well coordinated. The use of porter five forces has changed the way transactions between sellers and buyer were transacted to extend that most of the communications and transaction are done online.
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Conclusion
When an entrepreneur wants to know if a business is profitable as he perceived, the use of porter five forces can be of great use in gauging whether products and services produced are of better quality. This paper explains how an entrepreneur can use the porter five forces and the disadvantages of using them as well. Demand for accessing items will, therefore, remain sustained for a long time as the middle income to high-income segments of the population will maintain the need to display their affluence through these products. The merged companies will now determine the market price whereby; the customers will have no say rather than purchasing goods and services at the given price.
Fitzpatrick, B.D., Anh Nguyen, Q.Q. & Cayan, Z. 2015, “An Upgrade To Competitive Corporate Analysis: Creation Of A “Personal Finance Platform” To Strengthen Porter’s Five Competitive Forces Model In Utilizing”, Journal of Business & Economics Research (Online), vol. 13, no. 1, pp. 54-n/a.
Grigore, A. 2014, “Book Publishing Business in Romania – An Analysis from the Perspective of Porter’s Five Force Model”, Revista de Management Comparat International, vol. 15, no. 1, pp. 31-47.
Kirchner, M. 2012, “Porter’s Five Forces in the Finishing Industry”, Products Finishing, vol. 76, no. 12, pp. 52-53.
McCann, J. 2011, “China’s Textile and Apparel Industry and the Global Market: Five Competitive Forces”, S.A.M.Advanced Management Journal, vol. 76, no. 1, pp. 33-42,54,2.
McMillan, C. 2010, “Five competitive forces of effective leadership and innovation”, The Journal of business strategy, vol. 31, no. 1, pp. 11-22.
Ortega, A.G., Jalón, ,M.Luisa Delgado & Menéndez, J.Á.R. 2014, “A strategic analysis of collective urban transport in Spain using the Five Forces Model/Un análisis estratégico de transporte urbano colectivo en España usando el modelo de las Cinco Fuerzas”, Investigaciones Europeas de Direccion y Economia de la Empresa, vol. 20, no. 1, pp. 5-15
Prasad, A. 2010, “Strategy as “Inferior” Choice: A Re-interpretation of Porter’s “What is Strategy?””, Journal of Management Research, vol. 10, no. 1, pp. 15-24.
Rajasekar, J. & Raee, M.A. 2013, “An analysis of the telecommunication industry in the Sultanate of Oman using Michael Porter’s competitive strategy model”, Competitiveness Review, vol. 23, no. 3, pp. 234-259.
Sutherland, E. 2014, “Lobbying and litigation in telecommunications markets – reapplying Porter’s five forces”, Info : the Journal of Policy, Regulation and Strategy for Telecommunications, Information and Media, vol. 16, no. 5, pp. 1.
Wilson, R.C. 2015, “Mayhem: A Hands-on Case Playing Activity for Teaching Porter’s Five Forces to Undergraduate Business Students”, Small Business Institute Journal, vol. 11, no. 2, pp. 48-59
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New market entry
Next plc is a leading British manufacturer and seller of products ranging from clothing, footwear, and other home products. Within the past years, it has realized a very big increase in sales. This is as a result of its massive marketing strategies. Despite this increase in profits, Next plc has not achieved an optimum returns scale. It still needs to come up with a strategy of expansion to increase its markets internationally so as to increase its sales. The main foster behind this is the increased competition from other manufacturers in the same line of business.
However, Next’s operations have faced challenges in the recent past, and it has faced criticism over alleges of breaking consumer protection regulations resulting from customer billings even if the products were returned a week earlier. This report seeks to analyze the market potential of Next plc including its adaptation to entry into international markets. It further identifies possible markets for expansion. As a result of the impressive results, Next plc has resorted to increasing its full prices and impress net sales gain compared to other companies embracing discounting. Its online sales have increased due to the brand and thus, trusted in UK fashion brands.
Macro factors affecting retail markets
The business has less impact itself on these factors and thus, a minimal impact when trying to change them. One of a key factor here affecting Next plc is consumer behavior. These include consumer cultures, lifestyles, norms, population changes and other demographic factors. Given that the company deals in the clothing business, it needs the company to create styles that are appealing to all different cultures.
Contrary to this, the manufacturer may ignore creating a fashion that existed let’s say 100 years ago. A growing population may also demand a different fashion compared to a young population (Fall Diallo, et’ al.,2013). Another macro factor is technology. Next anticipates reaching a large target population through online sales. Unavailability of resources and low demand and production is a derailing factor (Lusch et’ al., 2015).
There could be the scarcity of an essential material such as leather while their highs demand from a certain market. A competitor, for example, Primark clothing, can introduce a product thus shifting demand for the product thus reducing sales at Next plc. It is recommended that massive online marketing is carried out targeting customers.
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Legal and political factors can also impact sales in the retail market. These factors include worker’s rights and laws preventing child labor. The union members within the clothing industry may decide to picket their employers as the case of Primark. This may also affect Next plc. This negatively impacts production and thus a decline in sales. This causes negative publicity because employees may also choose to picket suppliers and customers.
Economic factors also affect the retail market (Russo et’ al.,2012). They both may bring out positive or negative results. An example is during the economic boom where customers have much income at their disposal hence an increase in sales. However, recessions may bring a negative effect due to the low sales. Consumers normally choose to shop on cheap products and as for Next plc, it sales fashion clothes.
Micro factors affecting retail markets
These factors affect the business operations directly. One of a key factor here is the suppliers. Suppliers play a key role in the success of the business. Their supplies are useful in the production of a final product. Thus, they should be accorded the power to be the sole supplier to prevent counter supplies. A new market may lack certain supplies thus making penetration harder.
The resellers also play a key role in the market. Identifying an effective reseller brings a challenge to the new business (Russo et’ al.,2012). These can be intermediaries in the market and resellers who if their reputation is good, and their net sales will increase due to the good public image. Next plc is planning to expand its markets and achieving this can be facilitated by the use of mock-marketing where resellers are identified, and evaluation of net sales carried out.
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The customers determine the market strategies. International customers should not be treated the same way as local customers. Their reasons for buying Next’s products play a major role in marketing the products. The general public must be satisfied by the product. Any action of the company must be analyzed on how it might affect the public. These results from the fact that the public has the power in helping the company reach its goals. A satisfied public will assist in the marketing of a product (Lusch et’ al., 2015).
Because the targeted marketing strategy is online sales through the internet, the followers of the brand will share the strategy. The competitors are an internal factor impacting the retail market too. An example of the competitors is Primark Company. They sell similar products but have many outlet stores across the world. Therefore, the impact of price and product differentiation should be taken into account so as to outplay the competitors.
Effective market potential evaluation
When evaluating an effective market, several factors need to be put into consideration. One of the approaches used is an approach is to estimate demand in the market. This is normally based on the population size. This can be achieved by predicting the market potential by either population or their purchasing power (Hu, et’ al.,2015). However, a developing economy can change rapidly over time.
The understanding of these new markets requires learning the variation in the structure of the economy and its performance in the past. There could also be changes in the business environment. This can be approached comprehensively thus needed in making a meaningful assessment of the potential of a market now and in the future (Goworek, et’ al.,2012).
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It is recommended that various markets which include China, The United States, Italy, South Africa and Switzerland be considered for expansion. However, changes in recent economic structures should not have caused a tremendous impact on their economic performance (Schneider, et’ al.,2014, January). Spectrum approach to the study of policies can be used and the market opportunities available. Also, their market potential was evaluated describing the specific geographic areas to serve in. The market share revenue of these identified markets are seemingly high and thus expected returns are higher with a leading potential market identified.
Recommended markets
The United States market
The US advantage in per capita output, apparently in the recent years, can be attributed to its large domestic market. Despite the decline in mall traffic in the US clothing sector, it sets up a good market potential for entry. The US’s disposable income and consumer sentiment are increasingly on the rise hence driving in an increased for high-end products carried by international companies. The industry’s growth expectation is to increase in the next five years facilitated by the rise in high-income households. The current players in the market give less of discounts and have not invested much in online sales thus giving Next plc a great go-through.
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Furthermore, the cost of capital that is associated with establishing clothing stores is relatively low, and the only barrier that can reduce entry is brand awareness and competition. The challenge in the US market is that existing players have already established their brand names, and thus Next plc might need to invest their money and time to sway consumers into preceding other products and buying their products as per Odell, J. S. (2014).
The US marketing is cost effective because of the improved technology and thus, minimal time is wasted in marketing the new product. Next plc has a unique blend of fashions for children, women and men. This makes it easy to make shopping within one stall. It is proposed that Next plc opens a store in two states of America. These will act as the supply center to other sub stores and online orders.
There are very few legal requirements for the entry into US market and thus making it less costly for Next plc. The US has an extremely large population that creates a very large market for these goods. The unique blend of fashion from Next plc is sure to win the US market over a short period. It is therefore proposed that the US be chosen for expansion.
China
Despite the harsh climatic conditions of the economy in European countries, the United States, and Africa, China’s economy has been growing over the past few years. By the year 2020, China is expected to be the largest economy in the world. China has a large demography, increased consumer spending and rising incomes. Also, the business environment here is open thus making it attractive for investment. It is proposed that Next plc opens a branch in the main cities of China that are economic blocks.
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With a population that exceeds 1.3 billion people, it presents a good market for cloth, footwear, and household goods. Although China is a leading foreign seller, it mainly deals with machinery products and thus should not be viewed as a hard to enter the market. China’s consumers spend most of their incomes on food and clothing (Hu, et’ al.,2015). This brings in an opportunity to present the fashion by Next plc. China’s regulations do not limit the operation of a clothing business.
It, however, has regulations on industrial and mechanical practices. With the increased Chinese technology, Next’s online sales will be easily accessible. It is proposed that after an entry into the market, a massive online advertisement is carried out. The investment in tier towns of China will facilitate this.
The Chinese government is focused on rapid economic growth, and the presence of a gap in the clothing sector presents an opportunity to Next Plc to carry out business. The huge population will present a good market. It is proposed that a trial store is opened in one of the tier cities of China. The expansion plan will start from one of these cities before expanding the business to other parts of the country.
Justified market entry strategies
When entering the proposed international markets, it is proposed that Next plc uses a variety of entry strategies. Direct entry strategies can be adopted whereby the products are sold directly to the buyers in the target markets. Achievement of this can be through the use of local sales distributors or representatives who may choose to sell the products by not taking the title to the merchandise.
Indirect strategies involve the use of intermediaries such as trading companies or trade agents. They will in turn be paid in commission. This strategy is most applicable where the agent has a clear knowledge of the market due to its complexity (Johnson, et’ al.,2013). The agents will be required to gather market information and provide any promotional advice to Next Plc. This will simplify the entry and the risks associated with exporting.
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An overseas company can also be selected to own permission of sales through licensing. This can be through patents, designs, and brand names. This helps reduce the appearance of Next’s products on the black market. Next plc can also come up with strategic alliances with an international business dealing with the same line of business. It is proposed that the strategic alliance is carried out for a short period until it is fully adapted to the new market. Also, joint ventures can play a key role.
A business with the same objectives is chosen to enhance easy expansion and make it possible to enter a complex market like the Chinese market. A wholly owned subsidiary can be opened in the proposed markets as per Majaro, S. (2013). It will be controlled directly by the mother company through foreign direct investment. A new investment store can be purchased or rented in the new country. However, the cost can be higher because of the substantial costs involved.
Export processing zones can work well in some markets. It is proposed that it will form an investment incentive while creating employment thus, transfers of skills. This provides a base for transfer of skills thus providing a line for transfer of goods in and out of a country as per De Mooij, M. (2013). These market entry strategies need to be weighted so as to come up with alternatives that will best suit Next plc. Every approach should pay attention to marketing, the risks involved and the control and management available. A matrix of the entry strategy can be drawn so as to choose the best approach
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Adaptation of Next’s marketing mixes to the new markets
In the face of the increasing importance of an international market for many businesses to survive and increase profitability, several factors such as economies of scale and competitive strike are key areas of concern. The marketing mix concept is a key area of concern in international marketing and penetration (Cavusgil, et’ al.,2014). This helps the Next plc’s products to adapt and suit the country they are carrying out their business. Having had a thorough understanding of the global markets, the promotion strategies need to be defined and analyzed if a change is needed. Next plc is adapted to the new market in its marketing mix as illustrated below.
Product support: Next plc has a good product support and helpline for assisting its customers. This helps in critical areas like product sourcing. The company’s existing products match the markets due to their new product development. Next plc has a product testing and management department where products are tested to match the international markets. The unique labeling, packaging, and production control put Next plc at a forefront.
Price support: prices from a key factor because most of the competing businesses depend on it to win customers. Next plc has well-established prices to suit all classes of customers. Discounts should be given to loyal customers in the new market. The price lists are nearly constant thus improving customer trust. The customers and agents are provided with training on the use of products thus easy penetration to a new market.
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Promotion/selling support: Next plc has invested on promotional strategies making new market entry easy. Through their sophisticated advertising machinery and sales force, the company can reach out to the targeted customers in the new market over a short period. Product promotion helps the product gain knowledge from the new customers. New markets such as China require massive advertisement.
Inventory support: Next plc has a well-established inventory control system. Inventory management forms the basis for controlling the level of production of the company. The large number of stores and warehouses of Next plc gives it a nice stand. The supply procedure is easy, and one can make online orders.
Distribution support: Next plc provides distribution support to its customers through various ways. There is fund provision to agents and orders are also processed within a short time. This means that order delivery is timely thus winning the customers in the new market. There are a fast export preparation and documentation. It also provides insurance to a product purchased by a customer that is rare among competitors.
Service support: Next plc provides a range of services to its customers. The services that will contribute to easy entry to the market vary depending on customer needs. Next plc processes quote within a short time. After-sales service is offered to customers, which is a rare ingredient between many competitors. There are guarantees and warranties that cover any sales thus improving customer trust. Next plc always publishes sales reports and catalogs to be distributed citing the good performance of the company. This helps in publicity and improving the company image.
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Therefore, before designing any international marketing mix of the business, Next plc should design an analysis of every country they would like to open or start the business. This helps in determining the items that are to be included in the marketing mix. The ones to be standardized and those to be adjusted to suit local needs are analyzed. Every country may need its different marketing mix.
It is, therefore, proposed that Next plc used both online presences for marketing in the new markets and built a store or stores for presence. This helps facilitates the process of supply of goods to the customers. Next plc can achieve its projected anticipated increase in their profits and market if they adopt this report. It is proposed that some parts of this report may need amendments over time.
However, it is upon the management to consider following the guidelines herein. The SWOT analysis of Next plc puts it in a greater position of becoming a leading clothes seller both locally and in the global market. It is proposed that due to Next plc’s market potential, it will easily adapt to the new business and expect less competition. The sales procedure and the marketing plus supply affectivity of Next plc will help in winning large international markets. The customers can make purchase and payments online with instant delivery.
Bibliography
Lusch, R. F., Serpkenci, R. R., & Orvis, B. T. (2015). Determinants of retail store performance: a partial examination of selected elements of retailer conduct. In Proceedings of the 1995 World Marketing Congress (pp. 495-504). Springer International Publishing.
Russo Spena, T., Caridà, A., Colurcio, M., & Melia, M. (2012). Store experience and co-creation: the case of temporary shop. International Journal of Retail & Distribution Management, 40(1), 21-40.
Goworek, H., Fisher, T., Cooper, T., Woodward, S., & Hiller, A. (2012). The sustainable clothing market: an evaluation of potential strategies for UK retailers. International Journal of Retail & Distribution Management, 40(12), 935-955.
Hu, H., & Jasper, C. (2015). A Revisit of Theoretic Model of Store Image Formation and its Application in Chinese Consumers. In Revolution in Marketing: Market Driving Changes (pp. 125-125). Springer International Publishing.
Schneider, S., Seifert, F., & Sunyaev, A. (2014, January). Market Potential Analysis and Branch Network Planning: Application in a German Retail Bank. InSystem Sciences (HICSS), 2014 47th Hawaii International Conference on (pp. 1122-1131). IEEE.
Johnson, G., Whittington, R., Angwin, D., Regner, P., Scholes, K., & Pyle, S. (2013). Exploring strategy: text and cases. Pearson.
Odell, J. S. (2014). US international monetary policy: Markets, power, and ideas as sources of change. Princeton University Press.
Majaro, S. (2013). International Marketing (RLE International Business): A Strategic Approach to World Markets. Routledge.
Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International business. Pearson Australia.
De Mooij, M. (2013). Global marketing and advertising: Understanding cultural paradoxes. Sage Publications.
Barrett, H., & Weinstein, A. (2015). Corporate entrepreneurship, the marketing mix, and business performance. In Proceedings of the 1997 Academy of Marketing Science (AMS) Annual Conference (pp. 144-150). Springer International Publishing.
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Distance concepts and their effects on bilateral FDI flows
Definition of distance
Distance is an important aspect to note in business. It is the difference in perspective of several aspects between two or more parties in any business. Distance is more significant in an international business platform than in a local or domestic set up. As developed by Pankaj Ghemawat (2011), the CAGE framework is used to define the different concepts of distance between countries in international business. CAGE, an acronym standing for Cultural, Administrative, and Economic distances. The definitions of this concept in the perspective of bilateral factors are as follows below.
Cultural distance
Whenever a pair of countries is involved in the trade, there is a likelihood to have distinguishing factors based on the diverse cultures of each party. This may include differences in; languages, ethnicities (this includes lack of social or connective ethnic networks), religious beliefs, norms, dispositions and values. Cultural distance is also often characterized by the lack of trust. The cultural background of customers affects their tastes and preferences that maybe much more significant especially when it comes to consumer goods.
Choices are often determined by individual’s social norms, for instance in the Chinese have a liking copyright violations, and this is deep in their history. Ceteris paribus, trade between two countries with a common language, e.g., the USA and Canada is likely to boom unlike where there is no common language. The cultural aspects also create a distance through impelling the decision made on substitute goods. Research reveals that tastes and colour are also linked to culture. Japan natives have a preference for small house appliances and automobiles, and this is their social norm (Berry et al., 2010).
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Administrative distance
Administrative distance is characterized by hostility in politics, lack of a common regional trade bloc, the disparity in the currency, differences in colonial history and other administrative matters. Policies created by individual governments may create a barrier to their cross-border trading. In the USA, bribery is illegal for companies and individuals, this has impacts the nation’s multinational business.
Barriers may also be raised through the creation of trade quotas, tariffs, restrictions on FDI and local enterprises preference regarding favoritism, subsidies, and regulations. A target nation’s institutional stability also influences their trade activities across the borders. Corporations shun from investing in corrupt nations (Siegal et al., 2012).
Geographic distance
It encompasses the physical distance between countries. How far a country is from another physically really impacts their trading activities. Differences may include lack of a clear land border, different zones in time due to the longitudes and different environments, whether and climatic conditions. The physical distance directly affects the transportation cost of goods and services.
For instance, the cost of oil in America may be higher if it was being imported from the Middle East. Geographic distance has a direct impact on the trade and FDI flows between any two given countries. It is, therefore, vital for an enterprise to consider the transport networks and information before engaging in any trade (Siegal et al., 2012).
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Economic distance
Every country in business has its unique economic factors. The poverty/ rich levels between countries are never similar. The more prosperous a country is, the more their involvement in the cross-border economic activities, unlike their poorer counterparts. Other differences may include the quality of the resources as well as their cost, for instance financial, natural and human resources.
The infrastructure, knowledge or information levels may also differ between two or more countries. Corporations tend to invest in foreign countries with similar economic patterns to that of their home country a good example is Indonesia and south Korea where Nike inc. and Reebok have heavily invested (Berry et al., 2010).
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Factors that influence acquisition of an existent corporation
A green field venture means starting off an enterprise from scratch, which is from a green field (Klimek, 2011). Acquisition of an existent corporation as opposed to Greenfield venture, has several merits. Firstly, it is faster. If the investor wanted the company to take a shorter time for their presence to be noted as well as compete well at entry level in the market, then this would be the best option. Greenfield ventures demand a longer period of physical construction and developing the company.
The acquisition is one of the cost-effective means for the investment to realize a competitive mileage in technology, brand name, distribution and logistical advantages as it gets rid of the local competitor. International political, economic and foreign exchange state may cause imperfections in the market thus causing the target companies to be underestimated. Several MNEs in Asia have been targeted in the recent past due to the economic crisis in the region that consequently impacts on their financial wellbeing.
Acquisition of an existent corporation
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This has left many companies in a state of desperation for capital injections to survive competitively. The acquisition is the best strategy to solve such challenges as maneuvering through the local distribution channels, recruitment of the local employees, and it also creates a platform with a readily established market with a customer base. Such factors shorten the time needed for the venture to break even. On the other hand, cross-border acquisitions have their shortcomings that the investor needs to consider before making the bold step.
The costs of acquisition and financing are relatively too high. It can be difficult to mesh diverse corporate cultures. It may force the management to consider slimming down in order to up the economies of scale. The outcomes of such a step may not be productive to the firm since there is a tendency for individuals to try saving their jobs. Other difficulties may emanate from the host nation’s interference with financing, pricing, market segmentation; employment guarantees favoritism and overall nationalism.
An investor may decide on acquiring a joint venture. In such a form the investor accesses the local partner’s experience and skills, the government contacts and the knowledge about the local market. A joint venture is thus regarded the best way of investment (Becker & Fuest, 2011).
References
Becker, J. and Fuest, C., 2011. Tax competition-Greenfield investment versus mergers and acquisitions. Regional Science and Urban Economics, 41(5), pp.476-486.
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The Liability of Foreignness Concept Definition
Liability of foreignness is the total of costs, which comprises of the unseen costs associated with the engagement with new legislatures and cultures when doing business abroad unlike home.
How the LOF affects the balance between the costs and benefits of international diversification
Elango (2009) asserts in his definition of LOF that it results in a disadvantageous competition for any multinational company. Generally, according to Elango, the costs incurred by an enterprise abroad would not be incurred by a similar local company. The genesis of such costs could be cultural, geographical, economic and institutional distances that lead to an increment in costs and makes it hard to succeed abroad. LOF majors on the social expenditures of transactions overseas.
Such costs are gotten from the relational, unfamiliarity and discrimination challenges faced by the foreign companies, unlike their domestic counterparts. They are innately uncertain and may be incurred even in future. Unfamiliarity costs are a reflection of poor experience or knowledge in the foreign country hence a setback to the foreign companies as likened to the local enterprises. There is a tendency for the foreign investors to pay handsomely for what the locals acquire cheaply or at zero cost.
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For instance, local banks in Germany are likely to have a sigh of relief if the Bundesbank lowers the interest rates in a day’s time but British-based banks in the country may have nothing to celebrate. Such an LOF is related to the durability of its existence in the host nation. Short-term resolutions in the foreign country result to unexpected challenges that are covered in the additional costs incurred by the multinational company to realize a similar level of host-market awareness as the domestic company.
Unfamiliarity hazards result to a rise in the average cost of the foreign company, but the production level remains constant. Such building market awareness costs should be gotten rid of with time, although they may persist if the multinational corporation managers continue adhering to the global strategy and fail to involve themselves in the civic learning (Barnard, 2010).
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The importance of selecting a business location
Business location selection is a practice that entails finding a new business facility site. The business location is critical for any venture to realize growth as well as experience successful operations (Hair Jr et al., 2015).
The criterion for selecting a business location
Choosing a business location requires precision in market research and planning. Location selection entails assessment of the needs for a new venture and measuring them against the advantages of the potential sites. Therefore, it is imperative to put into consideration several factors when making a choice for the company’s location. The selection procedure involves steps such as; definition of the business idea, evaluation of the communities, real estate site analysis, tax incentive negotiation and finally acquisition of the site.
Several aspects are involved such as assessment of the supply chain, observation of the demographics, understanding state legislature, staying on budget and scoping the competition. Some other factors to focus on in the research include; the company needs, employees, customers, the equipment required to deliver services among others (Cavusgil et al., 2014).
Company and customer needs assessment
Talking of the company needs, most enterprises make a location choice that gives them accessibility to their customers. On this note, it is vital to consider the brand image and ask whether the location is going to be consistent with the intended brand. Establish whether the companies around are complementing or competing for the venture. It is very necessary mostly where shopping comparisons are common.
If the competitor is likely to make the environment tougher then it is advisable to shift the location. There is a need to find out whether the target area has potential employees and the rates of labor. If the business has a prospect of growth, then one should look for a building that offers room for expansion. The business should also be located at a place where suppliers can quickly find you. In cases where the customer base is local one is required to find out whether the population matches the customer profile for the business support.
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Find out whether the community has a stable economy for the company’s well-being. It is vital to be cautious with a community that solely dependent on a particular company for their economy since this could lead to a downturn that is not healthy for any business. One has to think also of safety too, thus, questions about the crime rate in the select area need be asked. (Cavusgil et al., 2014).
Business style of operation and the legislature
The business location should be consistent with one’s style of operation. There is a need to determine whether the intended operation is going to be formal or informal. Having the knowledge about the legislature on businesses in a given location is very essential. Look into hidden costs because not many spaces are business ready thus requiring a lot of initial work be done before start-up.
Determine also whether the select location qualifies you to access the government economic incentives. Zoning regulations; these help determine whether one may conduct their type of venture in a given building or location. This may be found out through holding the local planning agencies (Hair Jr et al., 2015).
References
Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. and Rose, E.L., 2014. International business. Pearson Australia.
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Business and Marketing Personal Statement Admission Essay
INSTRUCTIONS:
How do you hope to see your career developing over the next five years? Which a turning point in your life — an accomplishment, event, or other critical moments – that helped you understand yourself and in what ways do you hope to inspire change and create lasting value?
All of us go through regular cycles in our careers. A career Turning Point is a time in our lives when we are looking for new direction. A Turning Point typically shows up about every 7 to 10 years of adult life between ages 18 and 85. These are critical times in your life where big decisions could lead to big change, both in work and in life.
The hallmarks of a Turning Point are reflection, asking yourself questions about your current level of enjoyment, or wondering about other options. A Turning Point can feel like a crisis whether or not it is precipitated by a specific event.
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