One of the vivid examples of market entry failure is a joint venture of Office Depot (U.S.) and DeoDeo (Japan). The main causes of this failure were inability to differentiate from other products in the same industry and the lack of market research. Market failure was caused by complex political, economic and social factors that affected an industry. The theoretical models provide numerous lessons about the macroeconomic effects of global changes and their impact on a particular market. The example of Office Depot and DeoDeo shows that to the extent that the higher current account deficits and surpluses matching increased capital flows reflect differences between domestic investment over domestic saving, the external balances themselves should not be considered problematic, in and of themselves (Office Deport Home, 2010). The main causes of market failure involve information asymmetries and natural monopolies or decreasing cost industries. Each of these reasons has a separate impact on an industry and market and is involved in complex global processes that affected external environment of every industry (Cowen and Crampton, 2002).
In case of Office Depot and DeoDeo, information asymmetries and kick of market research are cited as the main reason for market failure. The main problem for marketers is that they take into account advantages and opportunities proposed by the industry but do not take attention to disadvantages and threats. Adverse selection and market signaling, moral hazard and principal agent problem lead to market asymmetry. Yet this can be a hazardous route. The selection of test areas representative of future markets and the development of a normal marketing environment are difficult to achieve. Though testing fundamentally new products are complicated, tests do provide much valuable information about product acceptance and the effectiveness of alternative strategies. Simulation is a mathematical technique that companies may find useful in assessing market opportunities. It can provide a means for testing the profitability of available alternatives, thereby providing insight into future operations (Pindyck and Rubinfeld 2000).
This necessitates translating the sales forecast into specific market, customer, product, territory, and volume goals to be realized during some future period. Inability to differentiate its products leads management to inadequate sales forecast and business plans (Pindyck and Rubinfeld 2000). Thus, the sales forecast becomes the foundation for marketing programs, financial budgets, purchasing plans, personnel budgets, production schedules, plant and equipment demands, expansion programs, and other aspects of management programming. That is a question regarding which the economist will inevitably have views, but on which he has no more claim to the final word than have others expert in politics, in ethics, or religion. The industry can usefully produce for consideration the arguments which may be employed to support or to deny the claims of market failures to improve the efficiency of the economic system regarded, first, as a means of organizing the technical production of material goods, second, as a means of securing that those goods are produced in the amounts that are desirable, third, as a means of distributing to individuals the incomes which it is proper that they should enjoy. It is wise to interject a word of caution on the estimated failure rates of new products. Measuring success or failure is a difficult task since problems arise in attempting evaluations through the usual accounting procedures and the allocation of cost. It is also difficult to tell much from the initial rate of sales to customers.
References
Cowen, T., Crampton, E. (2002). Market Failure or Success: The New Debate. Edward Elgar Publishing Ltd.
Office Deport Home. (2010). Retrieved from www.officedepot.com Pindyck, R. S. Rubinfeld, D. L. (2000). Microeconomics. Prentice Hall; 5th edition.