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“A firm that already has sustained competitive advantage in its domestic market may not have the same advantage in an overseas market. Discuss the issues that this creates for a firm, and how it might exploit its resource advantages to secure successful market entry and create competitive advantage in a new overseas market.”
With the global trade network more integrated, according to Pearce and Robinson (2009), firms tend to enter foreign market to gain more profit due to the maturity of domestic market, excess capability, and potential purchasing power in foreign market.
Therefore, as a firm has already achieved success in its domestic country it might consider enter a new market.
Before it operates in a new market, it has to consider the barrier of market entry, such as the barrier of political, social, economic or technology in a new market. And as foreign entry decision (Peng, 2009) model presents three aspects: where, when and how should be considered before enter in a new market. In addition, as a manager of a company should adjust its competitive advantage to adapt different market. Based on the study of Hill (2013), changes in the forces which include macroeconomics, social, technological, global, political and legal, and demographic may give great influence in competitive force model.
Therefore, the ability of a firm to solve problems by the impact of different forces then build new competitive advantage by its resource advantage and competences significant as it enters a new overseas market. This essay will present some specific example of the firms which may enter a new overseas market and face different issues during the process of entering a new market and offer solutions to each issue.
Price wars are common in any industry which is a common issue to be considered before enter a new overseas market, moreover, base on five force framework, in order to increase the ability of competing with rivals in industry, the ability of rivalry among competitors is one of the forces. Primark is one of the most successful fashion retailers in British. Its competitive advantage is from its low price. In another word, it gains profit from the cost leader strategy. (Hooley & Piercy ,2008). India is one of the biggest developing countries in the world. It has large population which means India has a huge potential market for Primark. As reported by BBC (2013) Recently, India government has opened up its retail market to foreign companies to stimulate its economic. Assume Primark enter the market of India, it may face competitive rivals, such as H&M and Gap.
It has to maintain its competitive advantage and improves the ability of efficiency of cost .However, as a company which relies on low cost supplier, first of all, it has to decrease the barging power of supplier, thanks to the large population in India, it is not only providing a huge market for Primark but also offering a powerful labor resource to it. It offer an exactly social force to exploit its resource advantage and strategic fit in market of India.(Grant,2007) According to value chain study, reducing the cost of individual cost driver and reemployment could offer cost advantage to a firm. (Thompson & Martin, 2010) Primark could outsource to different local manufactures and create competition among them. In order to reduce the bargaining power of local supplier, Primark should deduce the dependence of a certain supplier. A good experience of Wal-Mart (Peng, 2009) could be used to Primark, it set up a policy within company which prevents any supplier offer more than 3% of its purchase. Furthermore, Primark should constrain those factories by contracts to prevent them copy the product and become both supplier and rivals. Primark might gain profit from controlling the cost and matching the opportunities in the external environment eventually enter a new overseas market. Before enter a new overseas market, the culture is always a considerable problem for a firm.
Different countries have different belief, values, and behavior depend on their national culture.(Rugman & Collison) Furthermore, a firm should think about where to enter, base on Institution-based considerations on country risk.(Peng, 2009) It should evaluate the culture distance from its domestic country to a oversea market, moreover, taking advantage of common cultural, language, and historical ties.(Makino& Tsang,2011) If a firm enters a different cultural environment from its domestic and it may lose its competitive advantage. Therefore, when a firm enters a new market, it should not only focus it competitive advantage but also match the requirement of local people and adjust its strategy to current situation. Disneyland built the sixth Disneyland in Shanghai and it will operate in 2015. Consider it is as a cross culture theme park, it should learn the experience of other Disneyland in other countries. French Disneyland (Trigg, 1995) which has not reach its expectation.
It failed in France because it used English as official language in it which annoyed French, alcohol was forbidden in French Disneyland and this policy against the behavior of local people. What is more, it had conflict with farmers for land expropriation and caused opposition in France. Another example to support the argument is Tesco. Tesco lost 1.8 billion in USA, a lot of factors led to its failure, and one of the most important factors is Americans having different eating habits from European. Tesco has not considered it and eventually fail in a different culture environment. In order to gain profit in different culture markets, a firm should improve its abilities of adaption to a specific national market and blend global standardization and local adaption. For example, McDonald’s gained great competitive advantage from its global strategy (Grant, 2010). Although the menus of McDonald’s include globally items, likes happy meals, however, in different counties it has locally items.
Considering about local relevance and find a balance point between global standardization and local adaption could maintain competitive advantage in a new culture market. In addition, to compete with first-mover in a new market is an important risk to a firm. Late entrants may face entry barrier which set by first-mover and hard to gain market share. Furthermore, the relationship between first-mover and local government maybe stable. (Peng, 2009) Kindle e-book reader is an electronic product was launched by Amazon from 2007 which linked to the electronic books. If Kindle enters Korean market, it would face some powerful competitors. The most competitive rivals is Galaxy Tab of Samsung as well as it have already gained great market share in Korea. In order to compete with Samsung, differentiation strategy could be used by Kindle. Innovation is the most competitive advantage of the technology industry. In another word, kindle should focus on its unique resource which is the large amount of e-resources of Amazon.
This tangible source could attract customer and create the demand of customer. By increasing its dynamic capabilities by updating its organizational knowledge, accepting different ideas and developing the blend of tacit and explicit knowledge in a new market. (Wall, et al.2010). Besides, Kindle can evaluate the market of Korea which based on the current situation of Samsung before it enters this market and predicts the potential risk and makes some measures in advance. Moreover, late entrances could cooperate with the first- mover to share the fixed assets to reduce the cost of entering a new market. As for small-medium companies, one of the biggest problems is the scale of the companies cannot support high risk of entering overseas market and they can afford the huge capital. P.van Dam & Zn. BV is family business with less than 30 staff which exports fresh flower and wholesale company in Netherlands. The competitive advantage of P.van Dam & Zn. BV is flexible to response the requirement of customer. Customer could order flowers by their official website, telephone or E-mail them and customer can contact specialize staff in each step, in other word, P.van Dam & Zn. BV contact customers personally. It can react rapidly and fit the demand of customers.
If it wants to enter UK market, it may export directly since the size of it is really small and it prefer to take whole controlling of distribution. The small scale of entry is suitable for them and the best entry mode of this kind of small companies is exporting. It is not only reducing the cost of entering overseas but also get better control over distribution. (Peng, 2009) After a company enters a new market, According to Industry-based consideration on the degree of competitiveness (Peng, 2009), one of potential risks is substitute. For example, Lipton is one of the most competitive brands in China and became the best sale in tea market in five years. The core competence of Lipton is the sensitivity of the requirement of customer (Chanston, 2012). Lipton invests a lot on researching the tendency of tea and the preferences of customer as well as setting up a data base and in different countries. It combined the tea and the life of target customers together.
Base on the VRIO framework (Peng , 2009), value, rarity, robustness and Non-substitutability to keep sustainable competitive advantage, Lipton brings a health and new style of drinking tea to Chinese market which also brings value to its brand. Besides, it is will cost a lot to copy the operating model of Lipton. In addition, the healthy image has been accepted by costumers, some substitutes such as coke, juice can’t take place of it. Therefore, increasing the ability of each element in VRIO framework and improve the sustainable competitive could avoid the threat of potential substitute in new market.
In conclusion, this essay has covered some major issues when a firm enters a new market, price issue, culture issue, first-mover issue small-medium size company issue and substitute issue. And give some specific companies as examples to explain how to gain competitive advantage to response to each issue. For example, Shanghai Disney should blend global standardization and local adaption to get competitive advantage in a new market. A firm should change or improve its competitive advantage as it enter a foreign market, otherwise, it will loss the opportunities and fail in a new overseas market.
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