International Market Entry
International Market Entry
International Market Entry
Description of the Company and Industry
Best Buy Corporation is a retail company involved in the sale of electronic products and services. The organization mainly provides customers with a wide range of electronic products, which include household electronics, mobile phone devices, computers, appliances, entertainment products, as well as home office products (Best Buy Corporation, 2018). Best Buy also offers consultation services related to electronics enquiries such as designing, set-ups, protection plans, technical support, educational classes, delivery and installation of electronic products and appliances for home use, and provision of mobile audio appliances. There are various brands through which the organization offers its products and services such as Future Shop, Best Buy, Geek Squad, Magnolia, as well as Best Buy Mobile. In the 2018 fiscal year, the organization generated revenues of $ 42,151 million (Best Buy Corporation, 2018). The figure represents a 7 percent increase from the 2017 fiscal year. Headquartered in Richfield, Minnesota in the United States, the organization has been unsuccessful in its attempts to expand its operations to some parts of the world.
While Best Buy appeals to many Americans, the company has been struggling to make its headway in various foreign markets. For instance, the organization’s plans to establish in Europe were bungled as a result of poor marketing strategies. In this respect, the company failed to understand that Europeans often prefer smaller shops to large box stores and retail outlets. While the firm has been successful in some Asian markets, it has been closing and reopening its Chinese outlets due to unpredictability in the country’s market performance. The organization has also been unsuccessful in the Turkish market, resulting in closure of all the branches in the country. Observers attribute Best Buy’s lackluster performance to its failure to differentiate its product and service lines from both local retail companies and not embracing the local customers’ shopping and buying behaviors and preferences. In light of the above, the organization is seeking a market entry strategy to expand its operations to new foreign and existing markets in which it has been unsuccessful in the past.
The Recommended Entry Strategy
The organization will use a mixture of direct investment and franchising strategies to expand its operations to foreign markets. The choice of entry mode will depend on the target market to which the organization seeks to enter. For instance, in markets located in the Middle East, Africa, and Latin American, the company will utilize direct investment mode. The entry strategy is characterized by the company establishing a physical presence in the foreign markets by putting in place its foreign subsidiaries. Subsidiaries will not be established in Europe because Europeans like shopping in small outlets. On the other hand, customers located in Latin America, Africa, and the Middle East often prefer doing their shopping in large outlets where they can find all the products that they are looking for. However, the company may consider attracting local investors to put in place partially owned subsidiaries. The subsidiaries will operate as separate legal entities under the laws of the countries of operation. Nonetheless, in legal terms, the subsidiaries are often established in one of the legal forms of the economic activities that take place in the host nation. As a result of a wide range of activities that the company will be involved in, it will have a strategic level of independence for all its subsidiaries.
Apart from direct entry strategy, the company will use franchising in Asian and European markets. The strategy works as a derivative of licensing through which the trademarks, names, and other forms of intellectual properties are often involved in different mixtures in the franchising package (Belu & Caragin, 2008). Franchising serves as a form of marketing and distribution in which the franchisor provides an individual or organization (franchisee) with the right to do business in a prescribed way over a certain period of time and in specified places. The franchisor has the obligation to offer rights and support to the franchisees.
There are various reasons franchising is the right mode of entry for the organization to use in the target host country. The company failed to succeed using direct entry because of failure to understand the dynamics of each market. However, franchising can help to address this problem since the local partner (franchisee) understands the cultural and behavioral patterns of the host nation’s customers. Furthermore, entry into certain markets may be challenging for the organization if it decides to choose direct mode. As such, the franchisor can be in a better position to negotiate with government agencies and private investors. Moreover, a master franchisee is in a better position than the parent company to handle the cultural differences between the host country and the parent country. Having an understanding of the cultural patterns of the host country can enable the company to design appropriate mechanisms through which it can formulate its promotional and advertising programs and activities.
Franchising has been chosen as the right entry mode for the company due to its ability to cut costs of entry. The transactional cost analysis theory can be used to understand the benefits gained with the adoption and implementation of franchising. According to this theory, companies often internalize activities that have the ability to perform more efficiently and outsource others that external providers can provide at lower costs. Therefore, the choice of entry for the company requires a detailed comparison of the coordination costs related to expansion to foreign markets, as well as the transactional costs that emerge from the search for, negotiating with, and coordinating with a local partner.
There are interdependent groups of transactional costs associated with franchising into the host market such as monitoring and evaluation, research and development to asses prospective buyers, property right protection to prevent contracted parties from operating similar businesses in the same territory, and government agreement expenses. Other costs that might be incurred in franchising include servicing expenses meant to transfer the franchisor’s technology and mode of operation to the franchisees. Since these are the main costs that the company is likely to incur during franchising, then the organization should consider franchising as a mode of entry as opposed to other entry strategies such as a direct entry in which it has to incur additional costs associated with developing new business premises across all its branches and subsidiaries.
European and Asian markets are ideal for franchising due to their international experience. Franchise chains that have stronger international experiences are more capable of identifying the most qualified franchisees. In particular, greater franchising experiences can enable the company to select the most suitable agents by allowing them to identify ideal franchisees and rule out requests from interested parties that are still not conversant with the target local markets or their business uses. These strategies can be important in minimizing possible bad selections. Therefore, franchisors that score high levels of international experiences do not need support from local agents or may need less of such assistance. They have sufficient knowledge and experience related to doing business in foreign countries. However, Best Buy has been unsuccessful in its efforts to internationalize. Therefore, it will utilize franchising from experienced franchisees in Europe and other markets in order to establish their presence there.
New Markets in Specific Geographical Entities
The process of identifying target foreign markets will be undertaken through geographic segmentation, which classifies target customers depending on their location (Pride et al., 2012). As such, there are various geographic segmentation variables that an organization can apply to reach out to prospective foreign markets (Pride et al. 2012) such as national, regional, continental, as well as state levels. Other variables that the company is going to utilize to identify its target customers include climatic conditions, terrains, city, population, as well as urban or rural areas. While Best Buy has established a high presence in the United States, China, Mexico, and Canada, the organization has not yet explored other markets that have the potential to provide prospects for growth. For instance, the organization has not yet expanded its operations to the Middle East, Europe, Africa, and South America. As such, the company is going to identify the major markets within these regions where it can establish its operations. For instance, in the Middle East, the organization is considering putting in place markets in countries such as Qatar and Turkey. In the African region, the company plans to expand its presence in South Africa, Nigeria, and Egypt. Further, the company will operate in Latin American countries such as Brazil, Uruguay, as well as Argentina. These markets have been selected because they have a high population of middle class compared to other countries within the same continents. In addition, the countries are showing prospects of economic development. For instance, the countries have supportive of businesses environments, including advanced transport and telecommunication infrastructures, cheap labor, and low costs of putting up businesses.
- Present and Future Strategic Model of Operating the Business
The strategic model of an organization can be described as the systems manifested in the components and related materials and cognitive aspects. Some of the key components of an organization’s strategic model include organizational networks of relationships, operations and activities embodied in the firm’s business processes, and the resource base (Ordóñez de Pablos, 2013). Furthermore, the financial and accounting concepts form an essential part of a strategic business model. In light of these definitions, an organization’s business model reflects the ways in which it has embraced its core value propositions for customers, its configured value networks, and strategic capabilities. The objectives of a company’s business model are to perform various functions including creating and capturing value to customers (Ordóñez de Pablos, 2013). Moreover, value is created through a series of activities ranging from procuring raw materials to satisfying the final consumer. Therefore, Best Buy’s strategic business models for the present and future are meant to develop and maintain its products and brands to ensure that there is a net value created throughout its activities.
Present Strategic Models of Operating the Business
There are various strategic models that the organization should utilize now and in the future. Presently, the company plans to expand its operations to different parts of the world without incurring a lot of financial resources. Therefore, the present strategic business model that the organization should embrace includes strategic financial and enterprise models. In the short-run, the strategic model is often dependent upon the performance that requires optimization for its business totality (Haslam et al. 2012). The strategic model is important for assessing an organization to maximize profits and capital. The utilization of strategic financial business model provides an organization with a perspective for the optimization of both short-term profits and long-term capital appreciation through rationalization of sakes and proper use of resources. Since this perspective on the totality of the organization emphasizes on optimization of profits and capital, the financial strategy is critical in dominating the strategic policies set by the company.
While the organization is going to operate in different business environments, it considers the strategic financial model crucial in its effort to optimize profits and sales. As such, the firm’s strategic financial model will go a long way in ensuring that its suppliers are transformed into profits and capital (Haslam et al., 2012). In addition, the company seeks to translate its profits to innovation, research, and development for its expansion to different parts of the world. The strategic finance model will also enable the organization to rationalize its product lines and brands to cover the electronic retail market without competition between brands. Furthermore, since financial issues are critical to the survival of the organization, Best Buy is going to establish uniform accounting practices across all its electronic retail divisions and outlets. These efforts will include transferring its pricing of components purchased from different suppliers. From the company’s corporate perspective, the strategic policies that it is going to embrace will attempt to control the effects of all the independent divisions and departments. Thus, putting in place a set of uniform policies will enable the company to maximize its profits and capital appreciation.
The company’s second short term strategic business model will go beyond financial issues to include the strategic enterprise model to meet its management needs of subsidiary and divisional managers. Generally, the production function of a business should consider the business in a way that can result in the optimization of production efficiency. In order to realize this short-term objective, the company has embraced the strategic enterprise model in combination with the strategic finance model. The current model is important since it regards sales and profits as outputs and capital and resources as inputs. The strategic enterprise model offers the company perspectives for the optimization of short-term sales and long-term profits through the rationalization of capital and resource utilization. The firm considers the strategic enterprise model important in its strategic expansion programs because it provides insights on how to change and maximize its production operations. Since the center of the strategic model’s description of transformation processes is production, the model is strategically significant to the utilization of operations and production.
Future Strategic Business Model
The company’s future strategic business model should emphasize on re-engineering to respond to different competitive dynamics of foreign markets. Best Buy operates in an environment characterized by stiff competition as key players scramble for the already exhausted market share. Examples of these competitors include both globally established multinational corporations and local small businesses established by investors of host nations. Multinational competitors include Wal-Mart, Amazon, as well as eBay. Therefore, the best way that the company can gain a sustainable competitive advantage is to differentiate itself from the mode of operations embraced by rivals. Therefore, the firm’s long-term and future strategic business model is innovation. Apart from using different short-term models, the company should recognize that some strategic business models can only be utilized temporarily. Therefore, the company needs to embrace strategic innovation model to focus on its international business growth. The strategic innovation approach employs capital to finance early market growth. In so doing, it provides an organization with the opportunity to optimize short-term resources and long-term sales using profits and capital to implement innovation.
The electronics retail sector is increasingly becoming an important part of the global economy. As such, the organization can utilize innovation as a tool to gain market shares in target foreign countries (Pantano, 2015). Innovation can be used to change the company into a multichannel firm that provides customers with the opportunity to visit the retailer through different channels for different purposes. Through research and development programs, the company can develop platforms for making offline purchases or getting information online (Pantano, 2015). Moreover, innovation can be applied to embrace modern retail practices that encompass a wide range of activities such as retailers expanding the boundaries of their target markets and developing new ways of interacting with customers and channel partners.
The company specifically enquires innovation in marketing channels. More precisely, the evolution of information technologies such as the internet can be used to provide important distribution channels for the company. For instance, many products such as electronics and their accessories are increasingly being purchased online by customers. The company can implement its innovation practices, concept, flow, and organizational levels (Castaldo, Grosso, & Premazzi, 2013). At the concept levels, the company should focus on front office and ensure that it has a significant competitive advantage in the way it interacts with customers. At the business flow levels, the company should focus on improving its vertical channel relationships (back office). For instance, innovations should be developed to cut costs and increase efficiency in areas such as logistics, financial, and informational flows (Castaldo, Grosso, & Premazzi, 2013). Finally, the organizational level of innovation should emphasize on improving the company’s management and profitability network. The scope of innovation at the organizational level should also incorporate improvements in the supply chain through better functioning, intra- and inert- organizational relationships and coordination.
Business expansion programs are some of the most challenging activities that organizations engage in, especially companies that operate in the electronics retail sector. Expansion strategies should focus on improving a company’s competitive status and market share in foreign markets. Therefore, there are various strategies that the company can embrace to gain a strong position in foreign markets. First, the company should adapt to changes in new business environments and markets.
Transitional models can be designed to enable the company to adapt its offerings closer to the times and locations of customer demands (Wolcott, 2016). This approach will require anticipation of the directions of customer demands. Finally, the organization should establish a strong brand presence before it has decided to expand to target markets. The strategy will make potential customers to anticipate its entry, which can help it get loyal customers. The firm should ensure that the potential customers get all information related to its products and service to make it easier to attract them. Brand presence can be built by strengthening brand awareness through advertising and active promotions in the target nation (Wolcott, 2016). By creating a strong brand presence through awareness, the company will easily transition itself to the new target markets for its products and services.
Finally, efforts to internationalize should take into account the skills and capabilities of members of the target countries. For instance, it is recommended that the organization should consider expanding to countries with nationals who have high levels of skills and competence to work for it. However, company levels of skills are not enough for expansion. In some situations, factors such as labor costs can influence the organization’s decisions on which country provides the most viable conditions for the company to establish markets there. Even though the levels of skills of the target markets might be significantly low, the company can utilize international human resource approaches to boost their levels of skills and competence to work with the organization. For instance, the organization can dispatch expatriates who are skilled and talented to perform training exercises in the host nation in order to improve their ability to operate in accordance with the company’s culture and structures (Dolan & Kawamura, 2015). Finally, in areas where expatriates may be needed, the organization should improve their cross-cultural competencies to enable them to easily adapt to the new cultural environments.
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