While competitive contest influences all forms of strategies for instance, corporate-level, acquisition and international, its major dominant consequence is connected to the business organization’s business-level strategy or plans of action. (Hitt et al, 2012) Strategic alliances are significant means for many MNEs. Though once regarded marginal to competitive strategy, alliances have moved into the mainstream and should be considered as inherent and compulsory strategic drives. Alliances are much essential for market introduction into fresh geographic locations and can allow strategic adaptability for new business activity. These alliances are made for several strategic causes; certainly most alliances are constituted to represent multiple targets.
• When a firm decides to do international business it faces a lot of decisions. The most basic is making the decision that entering international markets are in the best interest of the company. • There are various criteria used when choosing an international market to enter, they are: proximity, stage of development, geographic region, language , government policies and laws , competitive situation and many other factors. • There are various international entry and expansion strategies they are: exporting, importing, licensing, franchising, inter-firm cooperation and foreign direct investment (FDI). EXPORTING AND IMPORTING • (Czinkota, Ronkainen, Moffett, Marinova, & Marinov, 2005) explains that firms can choose to be involved in exporting and importing in either a direct way or indirect way.
II. THEORETICAL BACKGROUND A) Choice of Entry Modes There are several choices of entry modes for firms trying to globalize, however it should be kept in mind that there is no one method suitable for all the firms under a specific set of conditions. Although there are various entry modes which firms should consider before entering foreign a market? We have a global market and with this we get global competition. This means that more and more firms have decided to go in to new markets and this demands the right type of action in order to be successful (porter 2004:287).
The company’s strategic objective is to acquire 30% market share within the first five years of operation in China. (market seeking). Reed pharmaceutical would adopt a gradual approach through incremental direct investment The process flow to be adopted by the company is to introduce its product into the market via exporting from home country to establish a relationship with local firms in China. Terms and conditions for exporting would be negotiated with the local firms which includes; the price, quantity, frequency of supplies, etc. Where a relationship has been built with respect to product satisfaction, giving discount to local suppliers, and where applicable create a credit line to support the supplier’s business, the company would further establish sales subsidiaries and eventually invest in wholly-owned manufacturing subsidiaries.
3. Stage three: 2001 – present – The acceleration of overseas expansion activities in the form of mergers and acquisitions. It is said to believe that such an acceleration of internationalization can be partly explained by the perceived thought of foreign competition in China after China’s entry to the WTO in 2001. In 2004 alone, Chinese firms entered into 13 cross-border M&As, including Huawei. The approach of the Chinese authorities in relation to the internationalization of Chinese enterprises has drastically changed over time.
This has been as a result as new technologies available to assist companies in reducing their costs and an increase in market diversity. Although it can be argued that to decide which approach is the most superior depends on the circumstances. The benefits of customer-centric behaviour are evident. These include advantages such as efficiency. This is key to any firm.
Due to the higher degree of cultural distance, the ramifications will be that it will be an increase of perceived risk while the perceived benefits will be decreased in terms of internationalization (Eroglu, 1992). Looking on to another article by the name of “The Internationalization Process of the Firm - A Model of Knowledge Development and Increasing Foreign Market Commitments”, the authors Johanson and Vahlne (1977), have developed a model of the process of internationalization. This can be a useful tool in the analysis of different effects of numerous factors on both the outline and the pace of internationalization (Johanson & Vahlne, 1977). Johanson and Vahlne (1977) show a basic mechanism of internationalization, where the main structure is given by the divergence between the state aspects and the change aspects of internationalization variables. The state aspects are the resource obligation to the markets that are foreign, while the change aspects are conclusions to obligate resources and implementation of the business activities that are current at the moment (Johanson & Vahlne,
Autio et al., (2000) argue that those firms that enter international market at a faster pace (early entry) are able to perform better in terms of export sales. A study by Mc Dougall and Oviatt (1996) found that new venture that had an intense international activity exhibited superior performance. Kuivalainen et al., (2007) found rapidly internationalized Finnish smaller firms exhibited better export performance. As a result, SMEs that enter early into the international market might achieve higher degrees of internationalization. However, not much research has been focused on the impact of early internationalization on the export performance of SMEs in the context of emerging
Ownership advantage can be described as some privilege and benefits that a firm has other its competitors. It takes place when a firm has better technology and knowhow (managerial) which enable it to compete on the foreign market though there is the existence of transaction costs. Location advantage is the benefit a firm have when it locates in a particular area. Location advantage can include good infrastructure, possibility of large markets in the host country, government policies, and cultural diversity. Internalisation advantages suggest that firm would engage in foreign production instead of going through licensing or franchising if the internalisation advantage gain from cross border market is bigger.