3.4.4 The opportunities and problems of entering new markets abroad:

Why enter new markets and what are the risks? Central Question Why enter new markets and what are the risks?

Learning Outcomes To understand the growth potential of new markets in other countries To understand possible problems of entering foreign markets, e.g. cultural differences and lack of knowledge   To evaluate the benefits and limitations of methods to overcome such problems, e.g. joint ventures

New Markets Why would a business decide to enter new markets abroad?

Possible Reasons Declining or saturated domestic market To extend the life cycle of the product To expand and grow the business To gain economies of scale To increase reputation To meet a need or a want Increasing competition in domestic market To gain first mover advantage To spread risks

Potential Problems Communication barriers – language Cultural barriers – religion, working practices Foreign laws – need to adapt Fluctuating exchange rates – can affect demand and profits Possible increased risk of non payments Corruption issues? Ethics – cheap labor, poor working conditions?

Ways to Enter Overseas Markets Selling exports directly to overseas buyers Setting up a business unit in the target country Use an Agent or a local distributor

Failures Wal Mart into Japan Starbucks into France

Successes

How to Reduce Risk Use Local contacts Partial setup e.g. just manufacturing Joint Venture with local business DISCUSS THE STRENGTHS AND LIMITATIONS OF USING THE ABOVE METHODS

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