Expansion for a U.S. firm is an excellent opportunity to increase the brand’s strength as well as develop its potential for increasing profitability. However, there are a plethora of factors that could undermine the success of an American firm abroad if it does not take into account certain crucial aspects of internationalization. This essay will list and briefly discuss ten barriers to entry and crucial considerations in order to assist organizational decision-making.
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Barriers towards Entry
- The first important barrier to entering a foreign market is culture. Nuances such as collectivism-individualism dichotomy could significantly influence the perceptions about the company and its product. Ultimately, inappropriate marketing campaign or product placement could undermine the positions on the market of choice. Thus, this barrier is one of the most significant as many countries may have substantial worldview differences with the U.S.
- The second complication companies may face is the need for the product. A firm may experience misconception of the market demand based on the domestic experience. Overconfidence from initial success at home might create a false idea that there is an established customer base for the goods a company produces.
- A third barrier that one could encounter during entry is language. It is tightly connected with culture as a source of cultural cues, but there might be certain nuances such as name translation, fair pronunciation, associations and other linguistic aspects that can directly influence success on the market. Thus, one would want to hire a translator or a native that could offer consultation on these matters.
- The next crucial obstacle that needs to be eliminated is the cost of entry. The price of internationalization depends on many factors including personnel, technology, rent, legal costs, marketing, localization, and many more. Underestimating any of those could result in a failure to establish oneself as an international business entity.
- Another possible limitation could be in business contacts. Certain nations’ protective policies require foreign firms to establish a partnership with local firms to trade in their domestic markets. The indirect costs of this element of entry could be rather significant and require careful calculation. Failure to establish such contacts could prevent internationalization in the country of choice.
- Among the list of barriers, one could also mention logistics. Occasionally, the cost of transportation might substantially increase the final market price of a product making it less competitive. Therefore, businesses should seek ways to limit their transportation costs in order to enter the market and excel in establishing a customer base.
- There is a further addition to the number of possible restrictions in the face of the legal system. Products or its components may be banned for entry or need to be registered, taxed or legalized otherwise. Strict policies for international trade could be the crucial barrier towards market penetration as the cost of abiding the rules may make the product less efficcient.
- Another paramount entry barrier is political instability. Recent elections that change foreign policy agenda, overall insecurity and improper functioning of governmental institutions and banks could be crucial barriers towards successful operation and result in severe losses.
- The foreign labor market in the place of entry could be another prominent limitation. A strategy to hire competent professionals might face difficulties in the expected degree of expertise, level of development in the field and anticipated remuneration.
- Finally, a company might want to take into account domestic competition. This barrier could easily be underestimated due to market research difficulties connected to the availability of reliable information, poor language knowledge or local informant incompetence.
- One of the most crucial aspects to consider is the mode of entry. There is a variety of ways to penetrate a local market including partnerships, franchising agreement, joint ventures, and so forth. Each of them could be suitable under the particular situation and should match the business model.
- Another prominent element of internationalization is the business license. The U.S. standards and codes may not apply elsewhere in the world, so it is crucial to have knowledge of that beforehand.
- An important consideration is the adjustment of the supply chain. The foreign market may pose specific requirements to quality, price, and other items so businesses may be forced to adapt to local conditions. Such a process may require calculations and research for devising an optimal supply chain management strategy, as well as the right tools.
- Furthermore, one should also pay special attention to is employees. Company owners and executives might plan and anticipate the expansion, but the latter could be associated with stress and additional workload for staff. Therefore, training motivation and additional hiring might be required.
- Planning aspect of expansion could be crucial to consider as well. While it may be argued that plans rarely can be implemented on 100%, especially in the case of internationalization, but they can still provide an element of the organization. Goals, measurements, responsible parties, items to consider, and other elements could be included in order to have a better understanding of the upcoming challenges and address at least some of them in advance.
- A choice of a first product to expand with is also an important decision to process. It should not be simply the best selling piece in the U.S. but something that would fit a local consumer. A fruitful discussion on this matter could help the company leaders to adjust their penetration strategy better.
- The next item on the list of considerations is target market research. A profile of consumers of the same product may differ radically in different cultures. Thus, a company needs to develop a set of unique tactics that would localize the product to fit for a target buyer. Otherwise, a company risks decreasing its sales and failing to anchor in the market.
- Another crucial element of foreign market entry is to find appropriate advisors knowledgeable of the local market. Hiring several consultants on legal, financial, cultural and other matters surrounding expansion might be worth considering due to the high cost of entry failure. Those people could save a lot of time and effort on research and produce better evidence as well as assist in strategizing.
- What is also important to consider is matters in the domestic branch. Planning internationalization oftentimes is based on the solid foundation and good operation in the home region. Ensuring that preparation for expansion does not cause major disruptions in key areas of business is crucial for the success of the endeavor.
- In addition, the long-term strategy might also be instrumental in developing a plan for opening a foreign branch. Reviewing the path farther ahead might supply the owners with critical insights into establishing a strong foundation if a company plans to stay competitive for long.
Overall, there are much more nuances to be aware of before venturing into foreign markets. The crucial barriers and considerations reviewed here present aspects of marketing, planning, sourcing, human resource, legal, political and cultural domains of international business. Having knowledge on how to account for each of them might increase the chances of success in establishing an operation in another country.