The Process of Expansion of the Business into a New Region or Country

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Institution

Introduction

Today, business organizations are operating in increasingly competitive business environments. This is more prevalent in cases where many business organizations offering similar products and/or services operate in the same domestic market. In order to significantly increase market share and increase their sales and profits, it has become imperative for business organizations to seek new markets in new regions or foreign countries. However, business organizations experience various hurdles in the process of expanding to new regions or foreign countries. The aim of this paper is to evaluate the process of expanding to other regions or foreign countries and to explain the hurdles that are faced by many business organizations.

Body

There are many strategies that a business organization can use to penetrate into a new region or foreign country. However, in order to be successful in the penetration process, a business organization needs to choose the most suitable strategy. One of the strategies is direct exporting. In direct exporting, a business organization produces goods in the domestic country and ships them to a new region or foreign country. The exporting firm then sells the products to a local firm in the targeted market. Then, the local firm sells the products to the local consumers in the local market. This is a low-cost option and thus, it is used by many small firms. Licensing is also common, in which an expanding firm gives a foreign firm the right to produce and sell its products and/or services in exchange for some financial benefits. A good example is how American Motor firms gave Japanese firms licenses to produce Jeeps and other motor vehicle models in 1950s. Franchising is also common, in which a firm gives foreign organizations the right to use its brand name, processes and products in another market, in exchange for financial benefits. Strategic alliance is also common, in which two or more firms join to create a new firm that has extensions to the targeted foreign market.

Firms experience challenges in the expansion process depending on the strategy adopted. Although direct exporting is opted for by small firms due to the low costs incurred, the exporting firm loses control of the products once they are in the hands of the distributor in the foreign country. Creating own subsidiary in the foreign market is expensive and there is a high risk that a firm may not recover their investments in volatile countries such as Iraq and Pakistan. In franchising, a franchise may produce some of a firm’s products without approval. For instance, franchises for Kentucky Fried Chicken in Asia produced and sold fish dishes without approval of that company. In Joint venture, the exporting firm may experience difficulties in establishing itself in case there is a clash in the national cultures of the different countries or regions. Another major problem is that laws in the foreign countries or regions usually favor local organizations to foreign firms. Significantly, expanding firms have to deal with economic factors such as exchange rates, tariffs and quotas.

Conclusion

Overall, a business organization should adopt the most appropriate option for expanding to a new region or foreign market. Among the common options for business organizations are direct exporting, licensing, creating own subsidiary in the targeted market, franchising and forming a strategic alliance. An expanding firm should weigh the challenges that are associated with each of the available options before selecting the most suitable strategy.

Bibliography

Peng, Mike Global Strategy (New York: Cengage Learning, 2013), p. 141

Boone, Louis and David Kurtz. Contemporary Marketing. New York: Cengage Learning, 2013), 253