Panasonic- Participation Strategy in Brazil - Essay Example

? Panasonic- Participation Strategy in Brazil [Team members’ full numbers] [Group number] [Module [Seminar [Date of submission] Word count: 1253 3. Panasonic- Participation Strategy in Brazil 3.1. Initial Market Entry Modes Entry into a market encompasses the notion of making institutional arrangements which allow the business to supply goods in the target market. It is through the entry mode that an organization is able to pave way for the entry of its labour force, resources and goods and services in the international business arena. Thereby, the choice for an entry mode carries a lot of importance and has long term effects on the functioning of the organization (Schmidt 2010, p.17). Organizations have a range of entry modes to choose from when entering a foreign market. The choice of entry mode depends on the specific requirements of the business. Primarily, it depends on the degree of control the business wants over its operations and the risk that the mode implies (Schmidt 2010, p.18). Depending on the level of control, entry modes can be grouped into high/full controls or low/shared controls. There are advantages and disadvantages to each mode of entry, which would be discussed subsequently. 3.1.1. Exporting Exporting is done by businesses who are intending to sell home-produced products in foreign countries. It is one of the most widely used modes of entry because of its simplicity. It saves the business the cost of setting up a production facility in the target country. It is preferable because it allows the business to penetrate the market slowly and steadily, without risking much. Although it gives an insight into future expansion, exporting, however, does not allow for a quick feedback to its customers. Exported products have tariffs levied on them and there are a number of logistical obstructions in delivering the product from the producer to the consumer (Ireland, Hoskisson and Hitt 2011, p.176). 3.1.2. Licensing Licensing is another choice, offering benefits such as lesser capital investment and evasion of trade barriers. It allows a firm operating in the target country to use the company’s intellectual property and resources for introducing the business; albeit under the control of the licensor. Thereby, licensing does not offering autonomy over operations; in fact it makes the licensee rely more on the licensor. Licensing has lesser risks associated with it but it does not promote profitability in the long run nor ensures if the licensor would not exploit the company’s resources, becoming a competitor itself (Ireland et al 2011, p.177). 3.1.3. Strategic alliances Strategic alliances are yet another form of entry mode whereby the business works together with a company based in the local market. On the foremost basis, it allows the firm to gain strategic advantages, bypass trade barriers and to gain economies of scale. However, it requires that a lot of research is undertaken to find a company with which to corroborate with. The consequences of working with a company whose values and core objectives are not aligned with the company expanding abroad can completely undermine the purpose of such a venture. The degree of control can also cause significant ripples (Anonym 2008, p.16). 3.1.4. Foreign Direct Investment Compared to other entry modes, this mode of entry is generally feasible and allows the organisation to gain complete ownership rights of the facility without any share with a partner. It offers the organisation greater control over its operations and allows a deeper insight into consumer behaviour in the target country. Companies which cannot export products due to their characteristic nature benefit greatly from such direct investment (Cullen and Parboteeah 2008, p.283). However a major drawback of such a venture is that it is time-consuming and not only requires extensive knowledge and skills transfer, but is also demanding in terms of capital and management (Ireland et al 2009, p.159). It is also takes time to establish the brand name and to build upon a significant consumer base. 3.2. Choice of entry mode Most of the modes described before were nit an ideal fit since the preference was for a mode of entry which was generally feasible. The choice for the ideal mode can be made by analyzing the external and internal environment in which Panasonic operates in as well as the market for Brazil. The market in Brazil today is a major area of interest for organisations based in the electronic industry. Current trends show that the currency of Brazil has reached a record-high in the past decade, with inflation under check and an encouraging increase in the percentage of the middle class of the country (KPMG, 2010). The decision to break into an international market is based on several factors and Brazil offered its own unique set (Cullen and Parboteeah 2008, p.282). The late 1950s had seen a greater emphasis on augmenting exports. The leadership at Panasonic also embraced a similar philosophy. However, it must be noted that at that time, increasing exports was already a prime motive for the company as documented by the expansion of Matsushita Electric US (former name for Panasonic) and the development of a local sales company for promotion of exports in USA. Thereby the internal environment at Panasonic reflected a general trend to expand operations globally. The external environment in Brazil also favoured the entry of Panasonic in the country. Firstly, Brazil held the potential to turn into a major profit zone since it was amongst the fastest growing economies in the 1960s and 1970s (Stajano 2008, p.49). Moreover, Brazil had always laid a great emphasis on the development of technology. Following changes in import laws to promote technology, the country legalized the import of technology in early 1960s (Sridharan 1996, p.88). Another motive behind expanding into Brazil was to take advantage of the low wage costs available, leading to greater sales volume and a reduction in the overall production costs (Strange 2002, p.296). Thereby, Panasonic opted for the establishment of an overseas factory as an entry mode in Brazil. There are many advantages of a Greenfield venture such as this, as discussed previously. Fortunately Panasonic had the resources and the experience it needed to set up an overseas plant in Brazil. The change in the policy favouring the entry of foreign firms, along with the capital at disposable, made establishment of the plant a preferred mode of entry. However, the drawback of this mode of entry, as explained theoretically, manifested itself practically in the operations of Panasonic. Reference List Anonym (2008). An Analysis of Market Entry Into the People’s Republic of China Under Consideration of Cultural Value Dimensions: Diversification and Internationalisation. GRIN Verlag. Cullen, J.B. & Parboteeah, K.P. (2008). Multinational Management: A Strategic Approach. (4th ed.). Ohio: Thomson Higher Education. Ireland, R.D., Hoskisson, R.E & Hitt, M.A. (2011). Understanding Business Strategy: Concept Plus. Mason: Cengage Learning. Ireland, R.D., Hoskisson, R.E. & Hitt, M.A. (2009). Understanding Business Strategy: Concepts and Cases. Ohio: Cengage Learning. KPMG. (2010). Developing a Market Entry Strategy for Brazil. [online]. Available from: http://www.kpmg.de/docs/Folder_Market_Entry_ing-Final.pdf. [Accessed 10 May 2012]. Schmidt, B.B. (2010). The Dynamics of M&A Strategy: Mastering the Outbound M&A Wave of Chinese Banks. Germany: Peter Lang. Sridharan, E. (1996). The Political Economy of Industrial Promotion: Indian, Brazilian, and Korean Electronics in Comparative Perspective 1969-1994. Connecticut: Greenwood Publishing Group. Stajano, A. (2008). Research, Quality, Competitiveness: European Union Technology Policy for the Knowledge-Based Society. New York: Springer. Strange, R. (2002). Japanese Manufacturing Investment in Europe: Its Impact on the UK Economy. New York: Routledge. Read More