Organizations Are Increasingly Becoming Global - Term Paper Example

?Introduction Organizations are increasingly becoming global in nature due to strong pressures on reducing the costs as well as improve profitabilityof the firm. International firms also continue to look for markets in order to expand and penetrate into new markets and improve their global presence. There are two key strategic objectives which are served when a firm makes an entry into the global markets i.e. reduce costs to add more value to the firm and to achieve more profitability and secondly to enter into new markets. Since firms tend to reach a particular stage of their life cycle in a particular market therefore firms need to make an effort to enter new markets. However, entry into a new market requires comprehensive study and exploration of different factors in order to make more informed decision before entering the market. As such the development of a framework for entering into new foreign market can provide critical insight to a firm to make better decision to enter the market. A comprehensive framework therefore may include the exploration of factors such as decision of identifying foreign market, overall timing of entry into that market, deciding on the scale and commitment and entry mode are some of the factors which should be covered to make a better decision. This paper will develop and construct a comprehensive framework for making entry in the Mobile Phones Market in India. Based on the different factors identified in the framework, paper will than present an analysis of these factors in order to make more informed decision to enter into this market Strategic Reasons As a prelude to the use of any strategic framework to enter into a market, it is always important for the global firms to identify the strategic reasons for which entry into a foreign market is made. Firms adapting a transnational strategy often remain in search for simultaneously achieving low cost advantage through the location and experience economies while at the same time enjoying economies of scale and taking advantage of learning curve. Firms adapting such strategy therefore often enter into different geographical markets in order to take advantage of cost reduction and achieve diversification. (Hill) India being one of the growing economies of the world therefore can provide firm some clearly identified competitive advantage. Considering the transnational strategy of the firm, entering into India market will not only allow to achieve economies of scale but also enjoy the benefit of location and experience economies. Since developed markets are leading towards maturity stage in mobile phone industry therefore it is critical for global firms to continue to look for growing markets such as India in order to take advantage of the economic growth made by such countries. It is also significant to note that firms working at the global level could only compete if they enjoy low cost manufacturing or services set up. Consistent focus on reducing the costs could only allow the firm to remain profitable in global market therefore markets like India can offer this opportunity. This is based upon the fact that India has well established technological base as well as qualified human resource. These resources therefore can encourage any international firm to look for entering the market and enjoy low cost operations while at the same time penetrate into a new and growing market with potential to earn higher returns. Comprehensive Framework Following elements will be included in the comprehensive framework in order to analyze the decision of making an entry into Mobile Phones market in India: Identification of foreign market This parameter will be used to identify as to which market to be considered for making an entry into the market. A comprehensive Analysis of political, economic, social as well as technological factors will be performed in order to evaluate different factors which may pose direct and indirect risks to the firm. Timing of Entry This parameter will be used in order to evaluate whether there are already other players in the market and whether the firm will be making early or late entry into the market. Issues such as first mover advantage will also be explored under this parameter. Scale of entry and Commitment This parameter will allow exploring the overall level of commitment of the firm and the extent and scale of making entry into the Indian market. This will be done in order to identify the resources required to make a successful entry into this market. Entry Mode This parameter will be used to explore and evaluate as to which mode of entry could be cost effective and strategically feasible for the firm. Different modes of entry such as licensing, exporting, formation of joint ventures, development of Greenfield projects etc would be explored before making a final decision on deciding on the mode of entry. This framework will be used to explore and assess Indian market for mobile phones. Identification of Foreign Market India is one of the leading economies in the BRIC block sharing its economic progress with the countries like Brazil, China and Russia. The overall economic progress made during the last few years suggest that India can serve as one of the lucrative markets. Political factors in India India is the largest democracy in the world with stable government and democratic institutions in place. (Darlington). Though corruption in the government owned organizations is relatively higher however, India is opening up for foreign investors to invest and capitalize on its rapid economic growth and the higher population. It is important to note that India has only recently opened up its markets to the external world therefore the overall influence of government and bureaucratic hurdles may be relatively still high as compared to other countries. Economic Progress From 2005 onwards the real economic growth rates in India remained over 6% indicating that the country has registered significant economic progress over the period of time.1 Such consistent economic growth has been laid by progress made in different sectors of economy specially its IT industry. Mobile Phones industry is also in its growth phases as new firms are entering the industry to cash on the booming market of India. It is also important to note that India’s dependence on agriculture is still high and agriculture contributes significantly in total GDP of the country. However, India is making its transition towards industrial and services based economy. Social Factors India has one of the largest populations in the world which is not only heterogeneous in nature but is also divided between rural and urban population. India has many cultures and sub-cultures whereas it also shares different religions. Though there is no official religion of the State however, more than 80% of the population is Hindu whereas Muslims form the largest minority in the country. (Agarwala) It is also important to note that India is the largest producers of films in the world and has a very well established entertainment industry in place. These factors therefore outline that the Indian population is critically fond of the new ways of communicating as well as having entertainment. According to some estimates there are more than 360 million mobile phones in use in India2. Considering this estimate, India is the third largest region in terms of mobile phone use and this number is growing as the penetration of mobile phone companies and their services increase in the rural areas of India. The overall population of India is well over 1 billion suggesting that there is still a large market which still remains untapped. Technological factors India is considered as the information technology hub of the world as it has made great progress in information technology over the period of time. The advancements in the information and communication technology therefore have placed India in perfect place to have mobile phones industry in place. It is also critical to note that India has a developed labor market in terms of information and communication technology.3 Any firm willing to enter into this market therefore can have ready access to the qualified and skilled labor base at relatively low cost. Thus firms can have access to the cheap labor force as well as technology in order to avail cost advantage over other firms. The above discussion suggests that India as a country presents enough opportunities to explore the possibility of making an entry into its mobile phone services industry. Timing of Entry There are different players which are already working and offering their service in the mobile phone services industry of the country. This industry is already dominated by the local firms such as Bharti Airtel, Reliance, Hutch, BSNL, TATA, MTNL etc are already in the industry. It is however, important to note that market is principally dominated by Bharti Airtel and Reliance. It is also important to note that foreign firms such as Vodafone also entered the market and faring against the local competition. The presence of local as well as foreign firms therefore suggests that the firm will have to make a late entry and penetrate the market which is already dominated by the local firms. What is significant however is the fact that late entry into market would allow the firm not to incur the pioneering cost and get access to the market which is already well developed? It is also critical to understand that this industry is largely focused on the urban areas however, there is still a lot of potential available in the rural areas of the country where a cost effective and cheap mobile phones services could allow the firm to enjoy significant cost advantage over others. (Timmons). Penetration into rural areas can also provide access to large chunk of untapped market segment. Firm will therefore make a late entry into the market and capitalize on the market developed by existing firms. Scale of entry and Commitment Considering the overall concentration in the market of few firms, the overall scale of entry in Indian market may be limited in initial phase. Since industry is already dominated by the local firms controlling significant market therefore the overall scale of entry as well as strategic commitments to be made by the firm have to be limited. (Rodriguez-Pinto, Gutierrez-Cillan and Rodriguez-Escudero) Since strategic commitments require long term commitment of resources and firm’s abilities, it is critical to understand that resources should be deployed in moderation. Since focus will be on offering low cost services to the rural customers therefore the emphasis will be on the deployment of resources which can help the firm to leverage its presence in the market. Since India is already a hub of technology as well as has well developed and skilled labor force, therefore the firm may not be required to commit international resources in order to make a successful entry into the market. The potential access to the qualified human resource base therefore can allow the firm to identify local resources required to make a successful entry into the market. This will also potentially determine the mode of entry which the firm undertakes to enter into this market. Commitment of large level of resources may require that the firm will have to contemplate upon entering the market through a Greenfield project. However, formation of joint venture can also serve as one of the key strategic decisions to be made in order to make a successful entry into Indian market. Mode of Entry Another important factor outlining the decision to make an entry into a foreign market is to decide on the mode of entry. The overall significance of a market can also be outlined from the mode of entry and the overall difficulties involved in making such entry into the market. Considering different factors associated with the Indian market, it would be more beneficial to develop a Greenfield project as compared to using other modes of entry into the market. Greenfield projects require the development of new facilities from the scratch without involving any local partners or adapting any other mode of entry. It is to be noted that India is still a developing country in search for foreign investment therefore foreign firms are given special considerations to make an entry into the market. Entering through Greenfield project will not only allow the firm to built the kind of environment and facilities as it requires to built but will also allow it to have first hand experience of the local knowledge and culture. (Hill) Since firm will be based upon the use and development of technologically sophisticated services therefore in order to protect the technology and coordinate the global strategy of the firm, an entry through Greenfield project would allow the firm to align its strategy with its global strategy and adapt the same standardized strategy in India also. Entering through wholly owned subsidiary developed through Greenfield project would also allow firm to take advantage of the location and experience economies. Since India is in regional proximity with other developing markets such as Pakistan, SriLanka and Bangladesh therefore it can allow firm to learn about the local culture and monitor the trends in these countries for future growth prospects in the region. Further, firm has already made successful entry in other markets through Greenfield projects therefore firm can take advantage of its project management and other experience to develop a purpose built business in Indian market. (Blomstermo, Sharma and Sallis) One of the strategic objectives of the firm to enter into the Indian market is based upon the notion of achieving better cost efficiency. Since India can provide access to cheap labor and technological equipments therefore entering the market through Greenfield project would allow the firm to actually identify the resources to better manage its costs. Since in acquisition, or formation of joint ventures, firms may have to carry the burden of inefficient human resource base of the host organization therefore it is critical that in order to better control the costs a wholly owned subsidiary should be developed. Conclusion Making an entry into a foreign market is one of the key strategic decisions made by any firm. Such decisions are often made in order to achieve low cost advantage or tap into growth prospects of a growing economy. However, in order to take such advantages, it is important to develop a framework to properly evaluate and explore different factors before a decision could be made. This paper focused on the decision to enter Indian market and taken into consideration a comprehensive framework identifying and exploring factors such as identification of foreign market, its political environment, economic and technological progress made over the period of time. Once such factors are identified and explored, the next parameters involve deciding the timing of the entry. Entry timings depend largely upon the presence of local as well as presence firms in the industry. Considering the overall situation of the industry, firm could make an early or late entry into the market. The timings of entry also define the scale and extent to which resources could be committed to make such entry. Finally, Greenfield projects i.e. developing wholly owned subsidiary has been discussed with reference to Indian mobile phones market and how firm can advantage of the same. Works Cited Agarwala, Ramgopal. Catching up with China: India needs to focus on social factors. 2008. 4 May 2011 . Blomstermo, Anders, D. Deo Sharma and James Sallis. "Choice of foreign market entry mode in service firms." International Marketing Review 23.2 (2006): 211 - 229. Darlington, Roger. A SHORT GUIDE TO THE INDIAN POLITICAL SYSTEM. 10 December 2010. 3 May 2011 . Hill, Charles W. L. Global Business Today. New York: McGraw-Hill/Irwin, 2011. Rodriguez-Pinto, Javier, Jesus Gutierrez-Cillan and Ana I. Rodriguez-Escudero. "Order and scale of market entry, firm resources, and performance." European Journal of Marketing 41.5 (2007): 590 - 607. Timmons, Heather. For the rural poor, cellphones come calling. 06 May 2007. 05 May 2011 . Read More