Companies that want to do business internationally should be aware of different entry modes that are appropriate for new markets. The best choice will be informed by specific factors, including the organization’s financial strength, intended objectives, available time, and the regulations and policies implemented in the identified country. Some of the options to choose from when planning to start operations in a foreign region include joint ventures or strategic alliances, distribution with an existing local organization, acquisition, and direct entry. The purpose of this paper is to explain why a joint venture with an existing foreign partner in the targeted market appears to be a good option.
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Strategic Partnerships and Ventures
Business organizations planning to start their operations in a new country can pursue strategic alliances with existing local firms operating in the same industry. This will become a joint venture characterized by contractual agreements that dictate the nature of cooperation and the best ways to achieve the intended aims. Before selecting this option, leaders and HR managers of the organization should consider the potential contributions of the selected partner, its culture and structure, code of ethics, and market share in the selected sector. These aspects will ensure that the final decision is capable of promoting performance and maximizing profitability.
Supporting Strategic Alliances
Detailed knowledge of the unique benefits of establishing a strategic alliance with an existing company can guide investors and leaders to make informed decisions whenever planning to expand their initiatives. The first reason why this is a good choice is that it can make it possible for any given firm to acquire a new edge in technology and ideas in the identified sector. This is true because the company will gain additional advantages from the foreign organization’s business systems, thereby streamlining operations and increasing profits.
The second benefit associated with joint ventures is the availability of human resources and competencies from the selected company. This achievement improves the competitive strengths of the two organizations. Consequently, they will respond to emerging consumer expectations much faster and eventually deliver positive outcomes. The third reason why many corporations select this option is its capability to minimize expansion costs. Since there is no need for new offices or manufacturing spaces, the company will enter a new or foreign market much faster and focus on additional strategies that have the potential to maximize profits. This happens to be the case since the partner firm has established or existing outlets, warehouses, or offices to support the intended objectives.
The fourth aspect many companies that embrace this mode consider is the ability to acquire new markets and customers within the shortest time possible. This strategy makes it possible for many firms to share existing research and development (R&D) procedures, management, manufacturing, and operational costs. Additionally, the organization will expand its production line without the need to incur additional or unnecessary expenses. Although profits will be shared, the chances are high that the organization will achieve its goals in a timely manner.
The fifth benefit associated with this strategy is its ability to maximize production and marketing volumes. This outcome is possible since fixed costs tend to be shared, including distribution and R&D. Companies that pursue this foreign entry option will find it easier to sustain the production of extra quantities and deliver them successfully to the identified potential buyers. The end result is that both partners will record increased profits.
The sixth reason why joint ventures and strategic alliances are appropriate is that they minimize chances of failure. This option creates a new opportunity for a foreign corporation to start its operations successfully without having to purchase new equipment or hire employees. The selected partner will provide such resources and ensure that the main aim is to maximize production, thereby recording additional profits. The available financial resources will be used to attract more customers and expand existing markets.
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The seventh positive aspect of this mode of entry is that makes it empowers different companies to launch their operations in unlikely geographical regions. For instance, a firm operating in America can identify a strategic partner in China and start its functions successfully. Such an initiative will make it possible for the foreign organization to market its products or services to the Chinese with ease and eventually emerge successfully. Chances of opposition to its products or services will reduce significantly.
The eighth reason to support the effectiveness of strategic alliances is that of regional culture. In most cases, companies planning to do their businesses elsewhere identify or select countries in other continents. This is a clear indication that the leaders of such organizations should analyze the issue of cultural differences before establishing their ventures. A joint partnership reduces the risks associated with such indifferences in cultural behaviors and practices. Consequently, the company will be in a position to use its partner’s local employees who are aware of the values and beliefs of local citizens. Similarly, the organization will not find it hard to acquire competent individuals who can deliver desirable outcomes.
The ninth aspect supporting the effectiveness and importance of establishing partnerships with foreign firms is the ability to address existing barriers to entry. In many countries, there are laws and policies that dictate how foreign companies can start their operations who market their products locally. Some of these rules tend to be unfriendly or characterized by increased taxes. International business organizations should, therefore, consider the power of alliances since it has the potential to reduce such barriers and make it easier for them to achieve the targeted goals.
Finally, strategic partnerships are appropriate choices since they deliver the unique benefits associated with mergers. This happens to be the case since the two companies will share resources, ideas, capabilities, and technologies to expand their operations rapidly. This model will minimize the challenges of competition in the selected foreign country. With additional tools and human resources, the firm will achieve its goals and support the changing needs of the targeted customers. Additionally, the host organization will compete directly with its rivals and record increased profits. The company will identify new markets, attract more customers, and become a leader in the identified local market.
The above discussion has indicated that corporations planning to expand their operations globally can examine various entry options before making their final verdicts. The paper has gone further to explain why identifying and formulating a strategic partner is a viable choice since it minimizes operational costs for organizations, presents additional resources and opportunities, and reduces the negative impacts arising from cultural differences. Such a model makes it possible for the host firm to maximize its profits and become a leading player in its industry.