There are several factors that influence foreign market entry mode of enterprises. The business environment in a foreign country is not the same as that in home country; thus, changes have to be anticipated and strategies drawn. Many SMEs have adopted globalization as an expansion strategy to penetrate new markets and make profits. The expansion strategy is determined by several factors that must be handled beforehand to enable successful market entry. This work expounds on essential factors that should be dealt with by SMEs when entering new international markets.
Most factors influencing the entry mode into international markets can be classified into external and internal ones. External factors are determined by the environment and therefore, they are out of the company’s control; internal factors are related to the company itself and can be controlled easily. The decision-making process is complex and when entry into a foreign market is considered, certain strategies have to be applied. A good example is the “Strategy Tripod” formulated by Peng (Polesello, Amal, & Hoeltgebaum, 2013). It considers three sets of factors which include the institutions, the industry and the company’s resources. However, Polesello et al. (2013) add that networks play an important role in ensuring successful entry into a foreign market. Chand (2014) opines that external factors such as market size, market growth, government regulations, competition from other players in the industry and the level of risk should be factored in before entering a foreign market. Countries with large market size should motivate a long-term commitment investment as the business can be promising. Some established markets, e.g. Europe, the US and Japan have near or saturated markets, therefore, investing in them may not bring the expected exponential growth. High-growth potential markets are thus favored (Nakos & Brouthers, 2002).
Some SMEs with the intention of establishing permanent presence in international markets should consider host country-related factors that may include cultural difference, host market potential, investment risk, trade link and institutional entry barrier (Chuan, 2008). Cultural difference has an effect on product acceptability and other factors such as preferences and tastes. Different communities have different tastes; consequently, a product may need to be changed and possibly rebranded to fit the market preferences. These socio-cultural factors have to be determined before entering a new market (Sea-Jin, 2001). Factors like sequential scheduling should be considered when the company is re-entering the market again. The different variables that may explain and determine a firm’s re-entrance into a market include previous performance, relationship with the customers and the knowledge transfer in the previous entry.
An SME should also factor in investment risks before entering an international market. For instance, political risks such as stability of the country, turmoil and conflicts dissuades multinationals from entering the market. Economic risks include volatility of exchange rates of the targeted market currency, balance of payment situations, and cost of other factors of production (Ripollés, Blesa, & Monferrer, 2012). Operational risks comprise the following factors: the marketing system, understanding the operational problems and transport risks that the SME should factor in to ensure the challenges of new foreign markets are managed. International experience, strategic importance and proprietary know-how contribute significantly to success of such expansionary strategies (Schwens, Eiche, & Kabst, 2011). Important factors to be considered include the internal ones such as the company’s objectives where expansionary visions motivate an organization to venture into new markets. Enough company resources accompanied with commitment has enabled many SMEs to enter foreign markets successfully. Companies need to evaluate various investment alternatives before allocating the scarce resources. International experience can determine the level of marketing and decision making in terms of market reach and product design (Pinho, 2007).
In conclusion, there are a range of factors that should be considered when venturing into expansionary missions. A SME should assess its capacity and commitment prior to foreign market entry. Clearly defined goals are important for success hence the top management should focus on them (Huang, 2000). Both external and internal factors should be taken into account when entering a foreign market.
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