First, in today’s global economy, many companies are vying for a presence in the global markets. There are several ways to gain entry into a foreign market but many questions must be answered first to make sure there is a return on investment or an exit strategy. In the Foley Company case, Joanne has to determine what are her Company strategies advantages and disadvantages of entering Brazilian market for soybeans harvesters:
First, she has to determine whether the Company is considering a standalone entry or entry through alliances. This could be a pivotal point in their decision because on one hand the lack of experience with foreign manufacturing operations could prove to be costly in a standalone entry for example. But as Mr. Osborne point it out this is also a “too good to lose” market, so an equity-base method of entry through alliances seemed to be a none-starter for Foley Company. But eventually, Ms. Poe has other options to consider for entry strategies: Contract Manufacturing, Licensing, Franchising or Exporting.
Contract manufacturing has a flexibility element to it as an entry method as it can be used as an added value to other method of entry. This is a major advantage. Ms. Poe could recommend this option in conjunction with franchising for example. Contract Manufacturing would also give the Foley Company a new look at the market in Brazil because the company has not seen this aspect of business in Brazil. Here, the company could focus on R&D and other improvement to its machinery to gain competitive advantage. The advantages of this method of entry could be: low capital required, low risk, manageable exit strategy, easy to structure and direct the process. The disadvantages of this method could be: the Company could lose some control due to lack of international experience, difficult to account for the cultural and differences in quality of work and standards, locally accepted practices can be hard to gauge when selecting vendors of supplies of parts etc. can be a problem for a new entrant in the market especially when there is potential for major capital investment.
Licensing method of entry for companies could be reinsuring for the Foley Company because the Company would be able to legally protect its assets while in the process conducting market establishing its name in Brazil. But this is more to prepare the “field” by licensing its rights and expertize to local companies conduct to business on its behalf. The important elements here are protection by the local regulations. The advantages here could be: Less hurdles to enter in case of import complexities in Brazil, fast entry into the market, no capital upfront required to establish a presence. But the disadvantages could be: Decrease in sales (not fully engage yet), culture differences and interpretations, and more importantly, the licensee could collaborate with competitors or become competitors themselves which would complicate future deals in Brazil. Franchising
By recommending franchising a method of entry, Ms. Poe could emphasize the fact in this case rapid expansion, where a franchise would maintain a business relationship with Foley Company which would grant it the right to distribute its soybeans harvesters using Foley’s brand in exchange for a fee. The creation of a network of owner operated dealers would increase its market share and expanded territories. Less advertising programs and costs, market penetration at high rate, brand equity. The disadvantage of this method of entry could be the cost of engaging locals by Foley Company and potential lack of connection between the company goals in US and it Brazilian counterpart might cause frictions because the local might not be fully vested into the “bigger picture”. My recommendation would be:
Wholly Owned Subsidiaries:
Like many Companies, The Foley Company could establish itself fully in Brazil. This would give the company ownership through wholly owned subsidiaries. This method would allow Foley Company to gain control over manufacturing operations and any profits centers completely without sharing with any potential partners. The drawback to this method of entry would be the high initial investment. There can’t be guarantees here because of other intangible like politics, social, economical facts can complicate matters sometimes. But in the long-run, this method of entry which can be done through Acquisition or Greenfield investment (building entirely new facility), would yield many advantages for the company, for example brand equity, increase its competitiveness in the market. With the right synergies, the economic benefits, in my opinion would outweigh the costs while expanding the market.
Buckley, P.J., and Casson, M.C. 1998. Analyzing Foreign Market Entry Strategies: Extending the Internationalization Approach. Journal of International Business Studies: 539-561.