Last Updated 09 Apr 2020

Importance of Foreign Market Entry

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For a business organization to grow, it has to constantly find new opportunities to exploit. Globalisation is a large driving force that has led to the trend of the rising number of business organizations operating beyond their home country. As with globalisation,there is now a decrease in trade barriers which makes doing business abroad easier. Likewise,there is also an increased in the number of competitors in the local market and many a times, a organisation has to expand into a new foreign market so as to achieve a higher market share.

One major pushing force for a organisation to go abroad is the limited opportunities in the local market which could either have no need for the organisation’s offerings or the market could be quite saturated. A global market,on the other hand,offers endless possibilities and a bigger market. Consider a small country like Singapore which only has a population of close to 5 million, a business organisation can do so much more with an expansion overseas whereby the population size is many times the local population.

Local companies like Eu Yan Sang (traditional chinese medicine) or Prima Taste have their products located in different parts of the world where there are definitely a demand for it. Consider the Chinatown in London where many Chinese nationalities are currently residing/studying at. Chinese products that are found in their home countries are bound to appeal to them due to the brand familiarity as well and if there is a demand for such products,business organisations can reap from the benefits by supplying these products.

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This is also the case for many agriculture industries whereby the production of the products are far much more than what the population can consume. The amount of coffeebeans that are harvested in Latin America are more than sufficient for its population and organisations can make a profit out of it by actually selling the excess. The importance about a global expansion is also the competitive advantage the organisation is able to to reap. Firstly, the organisation may become more fficient due to the larger market size. Economies of scales which was previously not attainable due to the limited population size can now be realised as the number of markets and customers increase. Underutilised machinery can also be put to fuller use as the number of orders increases. For another class, we actually visited the Manner production plant in Vienna and we noticed that many of their machines were not running at full capacity.

By exporting overseas and increasing the demand for Manner products,this can actually help increase the production and make better use of these machines. Besides achieving economies of scale, the organisation may be able to reap the benefits of an experience curve and this can further bring cost of productions down or making the organisation a more efficient one. Another advantage of a foreign market entry is that it can actually increase the product life cycle when it is sold in less developed countries.

For a product with a short life cycle(especially technology gadgets),exporting it to other less developed countries can prolong its cycle as the level of sophistication and technology that is demanded might be lower. Consider the case of cellphones in a developed country like Japan. New models of cellphones are constantly introduced and it will not be long before a model is phased out. Manufacturers of the older model can then find a new market in a less developed market (for example, India) that does that require the newest technology but just require the cell phone for its basic functionality.

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