Introduction
Entry into a new market can either be highly profitable or catastrophic for an organization. There are several factors that have to be considered when trying to enter a new market. Some of the factors include SWOT and PESTLE analysis and an evaluation of the best strategies and mode choices for the specific company and the host country. One can argue that despite the above mentioned, the most crucial element for successful penetration of a market is political goodwill. A positive administration affirmation allows the management and the business, in general, to advertise and sell their products comfortably. The purpose of this essay is to analyze the market entry strategies and mode choices for Siemens in relation to its entry into the Pakistani market.
The evaluation and analysis reveal that the company was primarily successful due to the positive political goodwill. Siemens, which is a German company, is among the largest importers of products from Pakistan. This is especially important to note due to the fact that other investors and businesses are not attracted to the Pakistan market due to the impact of the Kashmir war, despite the huge population the country hosts. The selected country, Pakistan, was selected due to the complicated nature of its political and economic stands. A second notable finding is that the right market entry strategies have enabled the company to remain top in their industry. However, much still has to be done to ensure that Siemens remains the number one choice of electronic brands in the country. It is suggested that the company adds a green field operation in Pakistan. The premise is deemed valid due to the large population size of the country. The paper will have a formal structure starting with this introduction. This will be followed by a brief profile of the company, the host country analysis, the strategy used in the host country, and the conclusion.
Brief Profile of MNE
The selected multinational enterprise is Siemens, which is a German electronic and electric equipment conglomerate. The company was formed in 1847 as a telegraph company (Siemens, n.d). To ensure that the company survived competition at the time, the owners were keen on innovation and improving communication. It was this need for innovation that led to the company developing the use of a needle to point out letters (Siemens, n.d). Initially, competitors used Morse Code to communicate. This revolutionized the way people used technology to communicate with one another, and can be tracked down to how phones are designed today.
It is important to understand the background of the company in order to put its impact into context. A review of the history of the company reveals that by early 1900s it was the largest company in Germany (Siemens, n.d). One way it achieved this was through mergers, which at that time were not common. For example, the company bought the Schuckert & Co., Nuremberg companies to expand its mandate and reach (Siemens, n.d). A part of the company’s history is tied to the Nazi concentration camps as they were accused of exploiting free labor from Jews who were held captive in the stated camps. Due to the fact that the company was already significantly successful by the end of World War II, the management made the decision to move from Berlin in order to avoid further destruction of their assets. This strategic move ensured the survival of the firm after the war whereas many of its competitors were largely affected.
Today, Siemens has ventured into more than just telephones. In fact, their focus has shifted significantly from telecommunications to electronic machines in general. Some of the products that can be found within the Siemens brand include electronic equipment, building products, automated machines for plants and factories and even energy-related products. They have generators, steam turbines, phones, transformers and even speed trains as part of their brands. In an attempt to continue being relevant, the company has also ventured into renewable energy. For example, the firm has various microgrids that it controls and manages as part of its green energy mandate.
It is critical to note that Siemens is a global brand that has clients in all countries of the world. However, the company has offices in 200 countries (Siemens, n.d). It is important to note that these offices do not translate to factories as the company has factories in approximately twenty countries only. The company has employed close to 400,000 people worldwide and has incorporated various cultures, backgrounds and people into their business (Siemens, n.d). Despite this fact, the employees and all the offices, are linked by one main agenda that is determined by the firm’s headquarters.
A core resource and capability of the selected MNE is their technology. As stated, the company has focused on electronic devices and machines. The growth of the industry has ensured the development and innovation of new technology. Siemens has been keen on ensuring that not only does the company innovate its own solutions, but keeps abreast of all the other solutions in the market before their competitors. A second capability is a human resource the company has accumulated over the years. It is critical to note that the human resource ensures the clientele is comfortable with both the products manufactured and with the services received. Additionally, the company has been on the spot on their keenness on data privacy. This has ensured that their clientele is comfortable with sharing their information, as compared to their competitors, and purchasing items from the company.
It can be argued that the issue of data privacy is a competitive advantage for Siemens. Liptak and Eren (2016) note that consumers are keen on what happens to their data when they submit it to businesses. Companies that do not sell or share these data are often trusted and have an easier time ensuring consumer loyalty. Siemens has perfected this art to ensure that their competitors are assumed not to be safe in regards to their data protection policies.
Current Political Situation of Selected Host Country
As per the assignment, the selected host country is Pakistan, a country in South Asia. For the last several decades, the country has been at war with India over the Kashmir area. This has greatly affected the country’s political, social and economic stability. Politically, the country has received both support and criticism over the war. There has been an immense loss of life and property because of the war. It is important to note that the war has impacted some parts of the country more than others. For instance, the capital city, Islamabad, is more developed and more peaceful than Kashmir due to the war interests. Despite the geographical difference, all the cities and towns of the country have been affected by the war in one way or the other.
Political goodwill is a key opportunity for Siemens in the country. It is prudent to note that Pakistan has significantly good relations with Germany. The relationship between the two countries can be traced back to when Pakistan was declared a sovereign nation, with Germany, India and Japan being some of the countries to support the same (Taneja and Dayal, 2016). Additionally, the two countries have had positive trade relations over the years. As stated earlier, Germany is among the top importers of Pakistani products due to their bilateral trade agreements. The good political standing ensures that the government of Pakistan supports businesses with the government of Germany (Siemens, n.d). Therefore, issues such as licenses and other trade deals are easily made between the two countries. In turn, this has a trickle-down effect for multinationals such as Siemens.
A second key opportunity for Siemens in Pakistan is expansion. Malik (2017) notes that the selected country is one of the most populous in the world, with a population of approximately 210 million. Having a manufacturing plant in the country is strategic for Siemens for any of their numerous products. For purpose of this assignment, a focus on medical electronics is suggested. Germany is considered to have better health care than Pakistan. Therefore, an installation of a plant that offers similar quality health electronic products would be taken positively by both the Pakistani government and its public. Additionally, this not only makes it easier for the company to attract clients from the host country population, but it also ensures the availability of affordable labor. As stated, whereas the company has automated its processes, there is still a need for manpower. The large population, coupled with the unstable political environment allow the company to get affordable labor in the country.
Despite this, a key challenge the company faces in the host country is the cumulative impact of the war. It is prudent to note that the war has affected both the economic standing of the country and the people. This has two ramifications, the first being that the country’s instability has led to an increase in unemployment among the population. This means that the larger target population in the country will not be able to afford some of the products developed by Siemens. On the same note, and secondly, the individuals who can afford such products might not see it as a priority due to unstable individual income, for example, companies that would buy the turbines might be affected by war. Despite the challenge, the company can tap on its creativity and innovation to come up with products that will be appreciated by the population despite the instability. For instance, the firm can focus mainly on business-to-business partnerships to ensure that they are more profitable within that specific market.
Strategy and Mode Choices
There are several strategies that can be used when a company enters a foreign market. In the case of Siemen’s entry into Pakistan, it can be argued that the company used the global (standardization) strategy. There are several characteristics that made this the best strategy for the company. The first is the fact that all assembled machines and electronic commodities have to be of the same standard. According to Dhanabalan et al. (2018), the standardization strategy makes it easier for companies to monitor the quality of all their products. There is no room for the factories in the host countries to change anything about the production without confirmation from the headquarters. Additionally, a majority of the parts are developed in the headquarters and only shipped to Pakistan (and other host countries) for assembling. Another advantage of using this specific strategy is that it allows the company to maximize efficiency and minimize costs.
The minimization of operating fees is made possible due to economies of scale. For example, labor is cheaper in Pakistan than in France, yet Siemens might consider having assembling factories in both countries. The lower rates in Pakistan make up for the significantly higher rates in France, thereby, creating a balance. A critical element that ensures the successful implementation of this strategy is research and development. Indeed, one can argue that Siemens has a highly effective research and development department. It is crucial to note that whereas research is done for the different populations (including the Pakistani market), the research and development process is centralized at headquarters. This ensures that the interpretation of the data collected is done in the same fashion to come up with products that are supported by the entire Siemen brand. One can state that this was the best strategy for the company.
The company adopted two main mode choices when entering the host country. The two-mode choices are exports and joint ventures. Dhanabalan et al. (2018) note that the exports mode is best for companies that have also used standardization strategy. One of the benefits of the mode is that it sends the same item/quality of product and service to all its offices or host country factories. It is important to note that there are two types of exports that the company uses for the specific market. Direct exports involve sending a whole car to the market. This is usually made possible by people buying from overseas and transporting the same to the country. Additionally, individual companies also have the leeway of importing Siemen’s products from overseas into the host market and re-selling them. On the same note, the headquarters can send parts of the electronic products that are then assembled in the target market.
One benefit of this mode choice is that, as stated previously, it ensures the same quality is distributed all over the world. Another advantage of exports is that it also allows closer examination of operating costs and revenues (Richardson and Ariffin, 2019). Moreover, it ensures that the company can easily monitor economies of scale and adjust accordingly. Despite the benefits, one pitfall of the mode selected is that it attracts high transportation costs. This is regardless of whether the company is shipping whole electronic products or several parts to the host country. In addition, exports are often viewed as foreign by the locals. This makes it harder to market the products to the Pakistani market as a trusted brand. The impact of this can be minimized through indirect exports of parts as the assembling is done in the host country.
As stated, the second mode choice is a joint venture. Arguably, the first business relationship between Siemens and the government of Pakistan was through the development of the Indo-European telegraph link. This was done through a joint venture between the then smaller Siemens and an even smaller telecommunications company in Pakistan. Additionally, a second joint venture with Telephone Industries of Pakistan was formed to further cement Siemen’s brand in the market. Dhanabalan et al. (2018) argue that joint ventures are helpful in establishing stronger ties among the target population or host country. One of the pitfalls of exports mentioned is the lack of ownership of direct exports by the population. This issue is resolved through joint ventures as it allows locals to be involved in the business.
One advantage of joint ventures is that it lowers the operating costs considerably. This is due to the fact that all the partners involved have to raise funds for the business venture. On the same note, the risks of the business are also shared among the partners, thereby, reducing the impact of the same consideration for all who are involved. Additionally, the model is politically acceptable as it also includes local companies. Richardson and Ariffin (2019) explain that companies that partner with local businesses are more likely to receive positive political goodwill than those that do not engage the local companies. One pitfall of the company, which is also a disadvantage of the model, is that operational control can be difficult to handle if the partnership is not clear. This was, however, not a challenge for Siemens due to the fact that the company was keen on all its ventures.
Taking all this into consideration, one might suggest that the company has exhausted all the relevant strategies and modes for its host market. However, the population is still concerned with the fact that Siemens is a foreign company. To resolve this, the selected MNE developed a small factory for some of its smaller products. Despite this, there is still significant resistance from the community. This can be attributed to the fact that the stated factories are largely managed by Germans. The image exuded, therefore, is that the brand is foreign and locals should not engage with it at any given time. It can be suggested that a greenfield operation should be launched that also targets the employment of locals. Richardson and Ariffin (2019) explain that the premise means the development of a factory in the host country.
One advantage of greenfield operations is that it allows the creation and production of vehicles that are specific to the needs of the host country. Indeed, the research and development sector of Siemens is extensive, however, it does not factor in the minute details of individual countries and how these affect the shape, type and technology of the cars they should develop. Further, as stated, the issue of ownership by the locals has lowered the value of the brand in the country. A significant percentage of the population sees the brand as a foreign company and they are not obliged to see it succeed. The greenfield operations will resolve this due to the fact that it will create more jobs that will compensate for the fact that the brand is not local. It is important to note that for this model to work, the company must have political goodwill.
Conclusion and Summary of Key Findings
In conclusion, the selected multinational enterprise is Siemens, which is headquartered in Germany. The company has assembled units in approximately 20 countries across the globe. Due to the fact that it is one of the largest companies in its country of origin, the firm tries to standardize all its processes, goods and services to allow its target market to experience the same quality all over the world. Critically, the company is hosted in Pakistan, where it has a small factory as well. It is critical to note that Pakistan is one of the most populous countries on earth. The country’s political situation has highly affected businesses such as Siemens, due to the unpredictable nature of war.
One key finding realized is that political goodwill is critical in determining entry strategies in new markets. It can be argued that the company had an easier transition into the host country due to Germany’s relationship with Pakistan, which has been positively supported by the two countries’ modern trade agreements. The firm has also used both exports and joint ventures to capture the market in Pakistan. One of the advantages of the strategies and mode choices used by the company is that it ensures uniformity in terms of standard and quality. However, for purposes of growth and local support, it is recommended that the company consider also incorporating modern greenfield operations that employ locals.
This case is important due to the fact that political instability is viewed as one of the most unsettling situations for businesses. However, from the case, it is clear that companies can still be profitable even when both political and economic instabilities are rife. Bearing this in mind, one can argue that firms can protect their assets and bottom line by incorporating the right strategies when trying to penetrate a new market.
Reference List
Dhanabalan, T. et al. (2018) ‘Factors influencing consumers’ car purchasing decision in Indian automobile industry’, International Journal of Mechanical Engineering and Technology 9, pp. 53-63.
Liptak, G. B. and Eren H. (2016) Instrument engineers’ handbook: process software and digital networks. New York, NY: CRC Press.
Malik, R. A. (2017) ‘Pakistan: the next Asian tiger?’ The Diplomat. Web.
Richardson, C. and Ariffin, S. K. (2019) ‘A leap of faith? managerial religiosity and market entry decisions’, Management International Review, 59, pp. 277–305
Taneja, N. and Dayal, I. (2016) India-Pakistan trade normalization: the unfinished economic agenda. New York, NY: Springer.
Siemens (2020) Our history. Web.