NMIMS Global Access

 School for Continuing Education (NGA-SCE)

Course : India’s Foreign Trade
Internal Assignment Applicable for December 2022 Examination 

ANS.1. When it comes to investing in Vietnam, foreign investors have been deluged
with information on the prospects of the local economy in terms of the long-known
indicators such as political stability, a young population, coupled with a fast-growing
middle class, trade openness, and so on. These factors together contribute to Vietnam
as an attractive investment destination for international businesses looking for market
expansion, or supply chain diversification.

Nevertheless, the majority of articles on investment in Vietnam have focused on

exploiting Vietnam’s economic potential rather than informing foreign investors of major
market entry decisions they must be aware of to achieve long-term success.

With local teams on the ground in Vietnam and offices across Asia, we provide some
key insights into what foreign investors should be aware of, to fully capitalize on
Vietnam’s market prospects. 

Firm strategy and firm resources that matter 

Chronically speaking, no issue in doing business in Vietnam has attracted the same
level of attention from investors as the market entry mode. Yet, decision-makers often
hesitate to determine a decisive choice of market entry, which is directly linked to the
firm’s future in-market strategies such as marketing, production, and so on.

Firstly, there is no exact formula for a successful market entry strategy. The entry
performance of foreign-related enterprises in Vietnam is significantly dependent on a
variety of factors, necessitating investors’ astute execution, tailor-made to perfectly
match the firm’s own resources for long-term competition.

In a research paper conducted in 2007 examining the drivers of success and failure for
market entry into the world’s most popular markets at the time  – China and India,
Joseph Johnson and Gerard J. Tellis came up with some significant findings in relation
to the strategies in international entry, which mainly focused on the entry mode and the
entry timing. Such concepts, are still relevant to the current context of Vietnam’s market
and might be valuable to foreign investors’ consideration for more decisive actions.

There are typically a significant number of market entry methods, currently being
addressed under various names by investors. These modes, generally speaking, may
be grouped into five broad classes, listed in order of increasing control as follows:

1. Export
2. License and franchise
3. Alliance
4. Joint venture
5. Wholly owned subsidiary

To say the least, deciding which of these options to choose may be extremely
challenging. As we know, a proper organizational structure is important for investors to
efficiently manage their international operations and any mistakes, in the beginning,
could be costly at a later stage.

Therefore, these decisions should not be based on a single mode of entry but may
incorporate a combination of factors. The distinction between these forms resides in the
degree of control, or the extent to which they allow entrepreneurs to control key
resources, and also in the level of risks the firm bears in the host country.

In light of firm differentiation, it turns out that there is no black-and-white answer to the
best entry mix, but the following ideas may provide several useful hints:

 An increase in the degree of control enables the firm to better manage its
complementary resources, such as its own distribution channel, while still
 improving internal operational control. However, due to the high level of resource
commitment, this could be exceedingly costly.
 A decrease in the degree of control, on the other hand, entails an outcome
opposing the above-said analysis.

Take one of the most popular market entry modes in Vietnam, a limited liability
company (LLC, categorized as a wholly-owned subsidiary). This provides foreign
investors with significant benefits in terms of being able to completely control most of
the firm’s internal management concerns from the start.

Still, the setup expenses and procedures that the investor must go through are
significantly expensive and cumbersome. These higher costs imply that higher levels of
investments are required for the firm to reach a break-even point and then start making
a profit.

The race to attract customers

The paint market has accompanied the development of the building materials
industry and thrived in the last 10 years. With hundreds of brands from foreign
to domestic, paint products are increasingly diverse in types, features, colors...
Mr. Nguyen Tien Quan - owner of a paint agent on Phung Khoang street (Nam
Tu Liem, Ha Noi). Noi) said that the current paint market is a race to attract
customers of domestic and foreign enterprises. From the "big guys" like Jotun,
Dulux, Nippon Paint, 4 Oranges to many small and medium brands like Galaxy,
Alex, Kavic, Joton, Jymec... are all trying to establish a foothold in the market,
continuously improved, diversified in types, features, colors... making the
competition somewhat fierce.

 A nontariff barrier is a way to restrict trade using trade barriers in a form other

than a tariff. Nontariff barriers include quotas, embargoes, sanctions, and levies.
As part of their political or economic strategy, some countries frequently use
nontariff barriers to restrict the amount of trade they conduct with other countries.
Countries commonly use nontariff barriers in international trade. Decisions about when
to impose nontariff barriers are influenced by the political alliances of a country and the
overall availability of goods and services.

In general, any barrier to international trade–including tariffs and non-tariff barriers–

influences the global economy because it limits the functions of the free market. The
lost revenue that some companies may experience from these barriers to trade may be
considered an economic loss, especially for proponents of laissez-faire capitalism.
Advocates of laissez-faire capitalism believe that governments should abstain from
interfering in the workings of the free market.

Countries can use nontariff barriers in place of, or in conjunction with, conventional
tariff barriers, which are taxes that an exporting country pays to an importing
country for goods or services. Tariffs are the most common type of trade barrier, and
they increase the cost of products and services in an importing country.

ANS.2 Market entry strategies are methods companies use to plan, distribute and
deliver goods to international markets. The cost and level of a company's control over
distribution can vary depending on the strategy it chooses. Companies usually choose a
strategy based on the type of product they sell, the value of the product and whether
shipping it requires special handling procedures. Companies may also consider their
current competition and consumer needs.

To select an effective strategy, companies align their budgets with their product
considerations, which often improves their chances of increasing revenue. The three
primary factors that affect a company's choice of international market entry strategy are:

 Marketing:  Companies consider which countries contain their target

market and how they would market their product to this segment.
 Sourcing:  Companies choose whether to produce the products, buy
them or work with a manufacturer overseas.
 Control: Companies decide whether to enter the market independently
or partner with other businesses when presenting their products to
international markets.

market entry strategies important

Market entry strategies are important because selling a product in an international
market requires precise planning and maintenance processes. These strategies enable
companies to stay organized before, during and after entering new markets. Since
every company has its own goals for entering an international market, having the option
to choose from various types of strategies can give a company the opportunity to find
one that fits its needs.

10 market entry strategies for international markets

Here are 10 market entry strategies you can use to sell your product internationally:

1. Exporting

Exporting involves marketing the products you produce in the countries in which you
intend to sell them. Some companies use direct exporting, in which they sell the product
they manufacture in international markets without third-party involvement. Companies
that sell luxury products or have sold their goods in global markets in the past often
choose this method.

Alternatively, a company may export indirectly by using the services of agents, such as
international distributors. Businesses often choose indirect exporting if they're just
beginning to distribute internationally. While companies pay agents for their services,
indirect exporting often results in a return on investment (ROI) because the agents know
what it takes to succeed in the markets in which they work.

2. Piggybacking

If your company has contacts who work for organizations that currently sell products
overseas, you may want to consider piggybacking. This market entry strategy involves
asking other businesses whether you can add your product to their overseas inventory.
If your company and an international company agree to this arrangement, both parties
share the profit for each sale. Your company can also manage the risk of selling
overseas by allowing its partner to handle international marketing while your company
focuses on domestic retail.

3. Countertrade

Countertrade is a common form of indirect international marketing. Countertrading

functions as a barter system in which companies trade each other's goods instead of
offering their products for purchase. While legal, the system does not have specific legal
regulations like other forms of market entry do. This means companies may solve
problems like ensuring other companies understand the value of their products and
attempting to acquire goods at a similar level of quality. Countertrading is a cost-
effective choice for many businesses because the practice may exempt them from
import quotas.

4. Licensing

Licensing occurs when one company transfers the right to use or sell a product to
another company. A company may choose this method if it has a product that's in
demand and the company to which it plans to license the product has a large market.
For example, a movie production company may sell a school supply company the right
to use images of movie characters on backpacks, lunchboxes and notebooks.

5. Joint ventures

Some companies attempt to minimize the risk of entering an international market by

creating joint ventures with other companies that plan to sell in the global marketplace.
Since joint ventures often function like large, independent companies rather than a
combination of two smaller companies, they have the potential to earn more revenue
than individual companies. This market entry strategy carries the risk of an imbalance in
company involvement, but both parties can work together to establish fair processes
and help prevent this issue.

6. Company ownership

If your company plans to sell a product internationally without managing the shipment
and distribution of the goods you produce, you might consider purchasing an existing
company in the country in which you want to do business. Owning a company
established in your international market gives your organization credibility as a local
business, which can help boost sales. Company ownership costs more than most
market entry strategies, but it has the potential to lead to a high ROI.

7. Franchising

A franchise is a chain retail company in which an individual or group buyer pays for the
right to manage company branches on the company's behalf. Franchises occur most
commonly in North America, but they exist globally and offer businesses the opportunity
to expand overseas. Franchising typically requires strong brand recognition, as
consumers in your target market should know what you offer and have a desire to
purchase it. For well-known brands, franchising offers companies a way to earn a profit
while taking an indirect management approach.

8. Outsourcing

Outsourcing involves hiring another company to manage certain aspects of business

operations for your company. As a market entry strategy, it refers to making an
agreement with another company to handle international product sales on your
company's behalf. Companies that choose to outsource may relinquish a certain
amount of control over the sale of their products, but they may justify this risk with the
revenue they save on employment costs.

9. Greenfield investments

Greenfield investments are complex market entry strategies that some companies
choose to use. These investments involve buying the land and resources to build a
facility internationally and hiring a staff to run it. Greenfield investments may subject a
company to high risks and significant costs, but they can also help companies comply
with government regulations in a new market. These investments typically benefit large,
established organizations as opposed to new enterprises.

10. Turnkey projects

Turnkey projects apply specifically to companies that plan, develop and construct new
buildings for their clients. The term "turnkey" refers to the idea that the client can simply
turn a key in a lock and enter a fully operational facility. You might consider this market
entry strategy if your clients comprise foreign government agencies. International
financial agencies usually manage arrangements between companies and their
overseas clients to ensure the companies provide high-quality service and the client
pays the full amount due.

ANS.3.A EPCs are government organisations that aim to promote the exports of

commodities from India across the globe. Each country aims to increase its exports. To

do so, they establish EPCs. Apparel Promotion Export Council serve as a bridge

between the Government and the exporters, with a primary goal to enhance the

exporting capability of the country. These councils assist the Indian exporters in

increasing their exports by promoting and providing them access to international

markets.

EPCs Are There in India

There are about 27 EPCs in India. Each of these councils caters to the needs of

different segments and categories of products that are to be exported. Such a

categorisation provides each of the EPCs a clear focus to promote the products and

offer better assistance to exporters. 

Apart from these, there are 6 commodity boards and 2 development authorities. All of

these are registering authorities that grant the Registration Cum Membership

Certificates to appropriate export businesses. Some examples of EPCs in India include

APECs, Handicraft EPC, Handloom EPCs, and the Gem and Jewellery EPCs, among

others.
Important to Register Your Export Business With an EPCs

The Government of India rolls out various schemes, programs, concessions, and

benefits intending to enhance export capabilities in the country. Registering with an

EPC will:
 Make your export business eligible to fetch all the perks launched under the Foreign
Trade Policy (FTP)
 Entitle your export firm to attend seminars and international affairs conducted by the
EPCs. Such fairs can serve as a great opportunity to meet prospective foreign buyers
 Help your business reach new foreign markets as the EPCs create demand in
international markets for domestically manufactured goods through various activities
 Permit you to make use of the ample support and assistance provided by EPCs for
the continuous promotion of your products.
 Allow you to utilise various schemes, incentives, and concessions launched by the
councils. For example, the APEC often rolls out schemes such as duty
exemptions, Technology Upgradation Funds Scheme (TUFS), Textile Centre
Infrastructure Development Scheme, and interest subvention scheme, among others
 Make you eligible to access various market reports and data gathered and surveyed
by the EPCs
 Get access to the magazine or website of the EPC, which has updated information
on all the government rules, procedures, and schemes to keep its registered
members updated with the latest information
 Get you facilitation and support from the APEC on issues related to GST
 Be able to deal with unforeseen situations from programs of the EPC. For example,
the Virtual Exhibition Platform was launched by the APEC to combat the effect of the
pandemic on garment businesses
 Make sure you are legally advised on the labour laws of India, by the Legal Advisor
of the EPC.
 Access to the subsidies like the Market Access Initiative (MAI) subsidy. The APEC
arranges mega roadshows and other such activities for which it receives a subsidy.
Such subsidy is utilised by the council to reduce the cost of stalls of the exporters at
Buyer-Seller Meetings and international fairs.

If you are into the export business, you might want to obtain a Registration Cum

Membership Certificate (RCMC) from the subsidy schemes for apparel exporters to

be able to grasp the aforementioned benefits or any other schemes launched by the

Government of India from time to time.

ANS.3.B OEM By partnering with an OEM, a manufacturer or reseller can reduce

costs. Companies don’t need to build manufacturing facilities or handle OEM production
in-house. They simply integrate the OEM parts into their system and sell under their
own brand name.
OEM products can be cheaper due to economies of scale. “The OEM excels in building
one product and one product only, and thrives by building hundreds of thousands, or
even millions of those products on a cost-effective, streamlined basis,” says TheStreet.
⁽¹⁾
What’s more, OEMs may provide a good return on investment. “OEM parts,
components and products extend the life of the partnering company's product, thus
maintaining top performance and saving money with replacement parts and increasing
the company's financial bottom line.” ⁽²⁾
The cost savings are usually passed along to the customer who purchases the bundled
product or system.

 Key features of effective OEM support

An IT support provider offers services to help a customer with

its multivendor environment. The provider can manage relationships with multiple OEM
and third-party vendors on behalf of the organization – from a single point of contact.
A services partner can support multivendor products, offer simplified invoicing and
maintain consistent service levels. As well, the provider handles replacement logistics
with suppliers, making sure components or parts are available when required.
The right support partner also uses technology innovations such as artificial intelligence
(AI) and analytics to proactively monitor, diagnose and resolve product or system
problems.