Running Head: FOREIGN MARKET ENTRY STRATEGIES 1

A report on the most effective strategy to adopt in a foreign market

The most effective strategy to adopt in a foreign market

The modern world has been influenced by a number of advancements in different fields

such as agriculture, industrialization, education systems among others. One significant

advancement has to be the growth of technology which has transformed the world into a 'village.'

The use of technology has increased significantly due to the growth of businesses which in turn

seek to adopt new approaches to venture into new markets although most of them have proved

unsuccessful. This has led to multinational companies such as Microsoft to set base in many

countries of the world, for example, Microsoft Egypt.

Our Company of Choice

Microsoft Egypt is a technology firm in Egypt and has its headquarters in Cairo. It's a

branch of Microsoft and seeks to promote the use of technology in the country and help solve

any problems arising in the markets. It was established as an official representative in 1995 but

grew to a limited liability company in 1997. It's important to note that the success of the

company has been attributed to different factors which revolve around the citizens of Egypt as

well as the government efforts to promote economic growth in the country. The Egyptians had

earlier been affected by social and cultural disparities caused by the political crisis, but

government efforts have led to booming businesses in the country. The entry of new companies

such as Microsoft has led to massive revenue for the state hence economic growth at large.

Advantages and disadvantages of various market entry strategies

There are a number of ways that a company may choose to enter into a new market based

on the kind of choices that they need to make and their overall goals and objectives in the long

run. Some of these approaches to entry into a new market include joint venture, mergers,
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acquisitions, and alliances. They also have specific and common advantages and disadvantages

as listed below:

1. Joint ventures

Joint ventures are a partnership between two or more parties who agree to share their

markets, intellectual property, assets, knowledge, and profits without the transfer of ownership.

The advantages of joint ventures include; an opportunity for new insights and expertise as you

get to work with other people with different knowledge and abilities hence increasing the

potential for success of the business. Joint ventures are also not a permanent commitment, and

therefore any party is free to leave one the business cycle is over all the parties bearing the risks

and costs hence making the partnership easy to manage as one is not overburdened by the

initiative (Mpofu & Chigwende, 2019). The disadvantages of joint ventures include; some

objectives may not be clear or easy to understand leading to miscommunication which may

inhibit the achievement of the organizational goals, need for focus so that both the individual

businesses and the venture don't fail especially in cases where some parents are unreliable,

imbalance caused by different expertise and investments (Farag, 2009). This diversity may, in

turn, lead to conflicts among the partners when they cannot agree on a particular decision or

strategy, and the rigidity of a joint venture in cases where a contract was signed makes it hard to

leave the partnership before it time period elapses.

2. Mergers

This involves two or more companies coming together to operate as a common business.

A good example is the merger between Sony and Ericsson that led to new products under the

name Sony Ericson. Extensive planning and implementation is necessary for this strategy. The

advantages of mergers include; improved economies of scale as the larger firm can increase
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organizational inputs, allows firms to compete in global markets with rivals due to improved

productivity, more efficient due to reduced redundancies at the workplace, diversification at the

merged firms allows for the sharing of information, skills, and competencies (Arasa, 2015). The

disadvantages of mergers include; reduced competition which gives a firm monopoly power

hence increasing the price of goods, asset stripping may mean that some employees need to be

fired so as to cut production costs while for a large firm, the company may fail to exercise

control as before and therefore workers end up demotivated.

3. Acquisition

Acquisitions refer to a situation where one firm considered to be better than another

smaller firm in terms of its scale purchases the smaller firm and introduces its aspects of

operation into the firm. The larger firm takes ownership of the smaller one. The advantages of

acquisitions include; reduced risks of operation as it is easy to acquire resources and core

competencies from the acquiring organization, increase in revenue and long term financial

growth for a business and reduced entry barriers since it is easier to build a client base from the

existing company through acquisition (Rani, Yadav & Jain, 2015). The disadvantages of

acquisitions include; returns in profits may not be as expected hence it may lead to stakeholder’s

disappointment, the acquiring firm need a lot of funds to acquire the business and run it

efficiently. Integration as a result of the acquisition may also lead to conflicts among employees

due to differences in ideologies and difficulties in managing resources and competencies hence

depleting the value of the move.

4. Alliances

An alliance is a formal agreement between two or more firms to work together towards

the achievement of a common aim. The advantages of alliances include; acquiring new skills and
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capabilities from partners hence promoting value addition due to a combination of

specializations, creation of synergy when both partners produce unique goods that complement

one another and increased credibility and legitimacy if one of the partners is respected and well

known. The companies involved also get to enjoy greater economies of scale due to an increase

in the production level (Farag, 2009). The disadvantages of alliances include; a party may fail to

honor the agreement hence putting the alliance at the risk of failing and their secrets being

exposed and the partners become potential competitors, in the long run. Differences in decision

making where the weaker party is forced to accept a decision made by a stronger party may also

come to play while if the alliance is in a foreign country, the government may choose to seize its

assets in favor of a local business.

In conclusion, the differences in industries, political and cultural settings in different

countries make it hard to settle on a single strategy as the best entry approach into a new market.

For instance, it's crucial for a firm to gauge the kind of business they want to engage in and

conduct market research beforehand so as to determine whether there is a niche in the market.

The development of an appropriate strategy of entry into the market follows.

Recommendations

By considering that our company of choice, Microsoft Egypt was to be established at this

moment, I would advocate for the use of acquisitions as the acquiring company will have a ready

client base and an established brand in Egypt from the acquired company (Mpofu & Chigwende,

2019). The government will also be able to offer them support by considering them as a local

firm. Regardless of this, Microsoft should expect the venture to be costly and therefore calls for

the need to practice due diligence and commitment in running the business at the Egyptian

branch for it to be successful.

References

Arasa, R. (2015). International Journal Of Economics, Commerce And Management, 3(9), 371-

374. Retrieved from http://ijecm.co.uk/wp-content/uploads/2015/09/3926.pdf

Farag, H. (2009). Collaborative Value Creation: An Empirical Analysis of the European

Biotechnology Industry (pp. 35-39). Springer Science & Business Media.

Mpofu, T., & Chigwende, S. (2019). An Exploration of Foreign Market Entry Modes for

Zimbabwean Companies. Developing Country Studies, 3(11), 12-16. Retrieved from

https://www.iiste.org/Journals/index.php/DCS/article/viewFile/8169/8263

Rani, N., Yadav, S., & Jain, P. (2015). Impact of Mergers and Acquisitions on Shareholders’

Wealth in the Short Run: An Event Study Approach. Vikalpa, 40(3), 293-312. doi:

10.1177/0256090915600842