Expanding a company to the international market results in increased employment and healthy financial development. For example, Impact Confections Company can diversify its products by selling them outside the USA. Impact Confections Company is a candy-producing organization established in 1981 in Janesville, Wisconsin city, U.S. (Helton, 2019). Warhead candies are sold solely in the United States by Impact Confection. They are tart candies branded as extreme sweet with a comprehensively sour flavor. There are various approaches the firm may take to expand its operations outside the United States to countries such as the UK. The latter has a history of producing and consuming the sourest candies internationally, usually referred to as the Mega Sours by Barnett’s. The paper examines how Impact Confections Company can expand its product outside the US.
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The Strategic Elements in Selecting the Entry Mode
Impact Confection should consider the availability of resources and the UK government restrictions concerning its market entry by foreign companies.
Availability of Company Resources
Venturing into an international market demands the substantial dedication of human and financial resources, and hence the choice of market entry mode relies on a financial capacity of an organization. Impact Confection possesses 200 total workforces and generates $21.7M in revenues and $52.67 million in sales annually (Helton, 2019). The firm must examine its financial and human resources to determine the UK candy market’s appropriate entry mode.
The selection of a market entry approach is hugely affected by the oversee markets’ legislative structure. The UK government has no restrictions on foreign investment. However, non-residents investing in the country are only subject to UK tax on constrained UK source income and gains (Young et al., 2017). Impact Confections should select the market entry mode with fewer government restrictions on foreign investment when entering the UK market.
Two Entry Modes and Their Advantages and Disadvantages
Partnering and Greenfield investments are critical entry modes into a foreign market for organizations such as the Impact Confection Company. Partnership refers to a formal organization by two or more parties to regulate and operate an enterprise, and all partners impartially share profits, liabilities, and in other cases, partners possess limited liability (Stoian et al., 2017). A partnership’s advantages include ease of creating and running the business since the start-up costs are low and the shared-decision making process among partners facilitates sound business decisions (Ahi et al., 2017). However, the partnering firms lose full business autonomy and liabilities where partners share enterprise losses and accountability for any debts even when the other partner causes them.
Subsequently, greenfield investment entry mode demands optimal participation in the global business. A greenfield investor purchases the land, builds the company facility, and operates the enterprise on a progressing basis in a foreign market. Greenfield investment entry mode provides the investor with optimal control over its operations, staffing, and brand image (Harms & Méon, 2018). Nevertheless, it is highly cost-oriented, has the biggest investment risk, and is suitable where the foreign country has severe government restrictions concerning foreign investment.
Partnership as a Better Entry Mode than Greenfield Entry Mode
A partnership is a better foreign market entry mode than a Greenfield investment because it is cost-efficient and permits sharing business risks with the business partner. For instance, partnership entry mode is appropriate for Impact Confection Company since it has limited human resources (200 employees) and finances ($21.7M in revenues). The resources are insufficient to manage the current organization and start a new firm in the UK.
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Ahi, A., Baronchelli, G., Kuivalainen, O., & Piantoni, M. (2017). International market entry: How do small and medium-sized enterprises make decisions? Journal of International Marketing, 25(1), 1−21. Web.
Harms, P., & Méon, P. G. (2018). Good and useless FDI: The growth effects of greenfield investment and mergers and acquisitions. Review of International Economics, 26(1), 37−59. Web.
Helton, H. (2019). U.S. Patent Application No. 29/607,164.
Stoian, M.-C., Rialp, J., & Dimitratos, P. (2017). SME networks and international performance: Unveiling the significance of foreign market entry mode. Journal of Small Business Management, 55(1), 128−148. Web.
Young, S., Hood, N., & Hamill, J. (2017). Foreign multinationals and the British economy: Impact and policy. Routledge.