Executive Summary
Multinational corporations are known all over the globe because of their strong presence in almost all the continents. However, penetrating these markets has not been an easy ride for these corporations. Due to these obstacles, multinational corporations use different strategies to access global markets. The strategies used principally depend on the resources available. The main objective of this report is to explore various strategies used by Multinational Corporation to penetrate different market segments. The study will highlight a number of these strategies and how they have been successfully used to penetrate foreign markets. In addition, the study will carry out a case study analysis of the Adidas Multinational Corporation. The case study analysis will explore the strategies used by the company to maintain its dominance in the global footwear and apparel industry.
Overview
Multinational corporations are widely known all over the world because of their strong presence in as many countries as possible. However, these corporations normally find it very difficult to penetrate foreign markets due to numerous reasons, for instance, bureaucratic procedures and domestic politics. Because of these hurdles, multinational corporations use different strategies to access foreign markets (McDonald, Fred and Peter 47). At a theoretical level, there are several resemblances between local strategies and international strategies. In both cases, strategic planning has to respond to a number of significant questions linked to the products and services offered by the company. The questions include how to produce the products or services, where and how to market them, where to get essential resources and how the rivals would respond (McDonald, Fred and Peter 48).
Taking all these aspects into account, it is very clear that the development of global strategies is relatively an intricate process compared to the local strategies. First and foremost, those in charge of the development of the global plans across divesity. In addition, the planners have to harmonize and execute the strategies in the company’s branches, situated in different parts of the globe, with diverse socioeconomic and cultural backgrounds. Regardless of all this, the strategists normally deem the above aspects as only intrinsic challenges when bearing in mind the prospects of increasing global coverage (McDonald, Fred and Peter 48).
Madura Jeff stressed the significance of carrying out market study and analysis before venturing into foreign markets (5). The Greenfield investment strategy was used to penetrate foreign markets, especially less developed economies by taking advantage of the green nature of these markets. However, the ascendancy of mergers and acquisitions has superseded the popularity of the green investment strategy.
Purpose of the Report
The main focus of this report is to explore different Strategies used by Multinational Corporation to penetrate different market segments. The study will highlight a number of these strategies and how they have been successfully used to penetrate foreign markets. In addition, the study will carry out a case study analysis of the Adidas Multinational Corporation to divulge the kind of strategies used by the company.
Multinational Corporation’s strategies
There are numerous strategies that are used by different multinational companies across the globe to penetrate the existing and emerging markets taking into consideration the challenges and the opportunity they present. The strategies used mainly depend on the amount of resources available to the company. The penetration of Multinational Corporations in many parts of the world is attributed to two classes of strategies namely: non-equity mode and equity modes (McDonald, Fred and Peter 46). The two classes of strategies make it possible for Multinational Corporations penetrate foreign markets with ease. None-equity mode of penetration include: overseas exports, contractual agreements and licensing. On the other hand, the equity means of penetration includes: partnerships, acquisitions and mergers (McDonald, Fred and Peter 47).
Exports and contractual agreements
Through exports, Multination Corporations normally sell their products and services directly or indirectly to countries’ of interest. Direct export is very advantageous especially when exporting products or services in small quantity. Direct export is regarded as an essential means of export that benefit most on economies of scale. It can be instigated by employing sales agents or deploying export distributors. The sales agents act as a link between the company and foreign producers or suppliers, thus provides significant information regarding promotional activities, legal requirements and sales orientations. On the other hand, distributors normally engage in wholesale or retail activities in the foreign market and therefore help the company’s products or services penetrate the foreign markets (McDonald, Fred and Peter 48).
According to Madura Jeff, direct exports necessitate efficient flow of information to and from the company’s headquarter (107). In addition, it provides the multinational corporations with enough power to control overseas markets by raising the volume of sales. However, direct exports have a number of limitations. For example, it takes considerably longer time for the company to penetrate foreign markets through this mode. Plenty of information regarding the target market is required before taking part in such ventures (McDonald, Fred and Peter 48).
Quite the opposite, indirect export entails the use of middlemen based in the foreign market. In this case, the company has limited power over its products or services in the foreign market. Indirect export involve the use of export merchants who buy products from the company in large quantities, repackage them under their own brand and sell them in the foreign market which is often their home country. Therefore, the export merchants carry out promotional activities on behalf of the company. However, these merchants can face competition from other merchants who buy the similar products from the company and sell them under a different trademark and at a competitive price (McDonald, Fred and Peter 48).
Besides the export merchants, multinational corporations can seek the services of export trading companies. Export trading companies normally provide adequate support for the foreign companies entering their markets. They establish potential foreign trade relations with multinational corporations. They introduce the foreign products in the local markets and bear all the risks related to export business. For that reason, indirect exports help multinational corporations to penetrate foreign markets at a faster rate and with minimal financial obligation. Nonetheless, indirect exports expose the multinational corporations to numerous types of risks throughout the export process. For example, the use of intermediaries means that the company has limited contact with the target market. Therefore, if the company engages the service of the unscrupulous export middleman they might end up using the wrong information concerning the target market to make investment decisions. In addition, indirect exports always realize lower sales volume compared to direct export (McDonald, Fred and Peter 48).
Licensing
Generally, licenses give multinational corporations permission to establish themselves in the foreign markets through associates or partners. Therefore, licenses are also used by these companies to expand their operations beyond the domestic borders. The host countries are the licensors for these companies. They usually lay down rules and regulations governing the operations of all the foreign companies within their borders, thus limits their rights and resources to protect local companies dealing with the same products or services. These rights and resources include: skilled personnel, trademarks, and technical know-how among others. Licenses are very flexible means of entry into foreign markets since they are frequently re-evaluated to take care of the interest of both parties (Madura 150).
The principal benefit of using licenses to access global market is the motive to explore new markets that cannot be exploited by many other foreign companies. For that reason, it puts the company in a proper position to benefit from potential investments from different stakeholders. Licenses enable companies to expand and enhance their market share in the foreign market and to minimize political interferences (McDonald, Fred and Peter 48). Nonetheless, international licensing as a mode of entry into the foreign market also has some setbacks. For example, increases the risks of a company’s name being discredited in the event that it contacts incompetent associates. As a matter of fact, the foreign associates can opt to be a rival by trading its products in areas that have not been exploited by the company. Furthermore, many foreign companies do not prefer this mode of entry since it offers lower income compared to other modes (McDonald, Fred and Peter 49).
Joint Venture
The formation of the joint venture as a means of penetrating foreign markets has been embraced by many multinational corporations. It involves the sharing of risks, production technologies, market share, and state resources. In this case, the main objective of forming joint ventures is to penetrate foreign markets. Through this, multinational corporations are capable of formulating an appropriate channel of distribution for their goods or services. Multinational corporations normally form joint ventures with foreign companies when their strategic goals are in line. In addition, multinational corporations can form joint ventures when it has more financial power or resources than its foreign counterpart. In this case, the main driving forces are market penetration, resource base, ownership and control. However, this mode of entry also presents various setbacks which include cultural differences, differences in ideology, lack of conviction and insufficient support from the parent company (McDonald, Fred and Peter 50). Joint ventures are normally controlled through concession and synchronization process. The resources accrued are shared equitably, even though each company has the right to develop and preserve its administrative resources. Players in the joint venture not only benefits from the shared earnings but also from the attained competitive advantage due to market expansion (Madura 155).
Entirely owned branches
This method of entry into the overseas market revolves around two strategies namely: establishment of subsidiaries from the scratch (Greenfield investment) or acquisitions of subsidiaries. As regards Greenfield investment strategy, a company completely gets hold of a subsidiary by building it from the scratch. On the other hand, mergers and acquisitions entail buying a stake or completely acquiring a business in the target market. In cases where resources are highly concentrated, the Greenfield investment is more appropriate and pertinent. Nonetheless, high cost of starting businesses in foreign markets is a major obstacle in setting up Greenfield investments. Moreover, Green field investment has proved to be an overbearing process for most foreign companies for many years due to the official procedures required for this mode of entry. Furthermore, it is important to study and analyze different market strategies and methods of competing in global markets before adopting the model.
Over the recent past, acquisition has gained popularity because of its capacity to realize considerable market power and supremacy. As a result, many multinational corporations have resorted to using acquisition as a model of penetrating foreign markets. Acquisitions involve buying out foreign suppliers or distributors or pertinent businesses with the aim of attaining a competitive edge in the global market (McDonald, Fred and Peter 48). Acquisitions pose less threat compared to establishment of subsidiaries from the scratch since it is essentially simple to precisely estimate the result of acquisitions than to approximate the result of the former. Additionally, it is easier for a multinational corporation to establish itself in a foreign market by acquiring an already existing company that is related to the parent company in terms of production line (McDonald, Fred and Peter 49).
However, this mode of entry into the foreign markets also has setbacks like other modes. For instance, acquisitions can increase the company’s debt levels. In addition, the acquired company and the parent company can have differences in term of organizational culture and systems of management among other factors. For this reason, it may make it considerably difficult for multinational corporations to synchronize the companies in a more ideal manner. This may pose a major challenge to both companies (McDonald, Fred and Peter 49).
Case study: Adidas Group
Marketing strategy of the Group
Over the last two decades, Adidas Group has been pursuing friendly takeovers of other major brands to enhance its market power and to obtain a competitive edge over rivals in sports footwear and apparel industry, for instance, the acquisition of the Reebok company in 2005 (Kriemadis and Chioteris 27). The endorsement deal signed by Reebok Company and American’s major sporting franchise boosted Adidas Group’s market expanse. This saw the addition of big names in Reebok’s endorsement list, for example, Yao Ming (NBA superstar), JZ ( Hip Hop star and business mogul) and Christina Ricci (Hollywood actor) among others. The deal added the Americans Sports Leagues into the Adidas Group increasing its brand’s popularity in the American market (Kriemadis and Chioteris 28).
The company also entered into joint venture with Samsung in developing products that uses the latest technologies. In addition, the company resorted to package it footwear with other products, for instance, eye glasses, garments, balls and many more. Furthermore, the company sells products signed by famous sports icons and clubs, for example Liverpool of England and Real Madrid of Spain to attract loyal fans of these clubs/personalities. These clubs or personalities have fans all over the globe, thus increases the company’s market coverage (Kriemadis and Chioteris 30).
The company has built a very strong brand image and promoted its brand value among its miscellaneous brand names to increase its market share among diverse demographics. The company is also widely known for incorporation of technology in its product line. At the moment, the company is working on a new product line that incorporate advanced technology to improve the performance of athletes. For instance, introducing athlete shoes with fixed microprocessor to monitor measures and provide data on the athlete’s body, terrain and body impact. The weight of the electronic gadget will be minimized as possible to maintain athlete’s comfort. The company plans to make this gadget reusable in shoes using similar generation of electronics. The electronic gadget will also incorporate the GPS system for tracking distance and location plus a USB link to the PC. The issue of cost will be very insignificant since Adidas has already developed Adidas 1, which incorporates a microprocessor. The innovative nature of Adidas products has helped the Adidas brand maintain its technological prowess in the global market (Kriemadis and Chioteris 33).
Adidas is putting a lot of emphasis on the emerging new markets in Asia and Latin America. Adidas has already beaten Nike in some of the Asian markets such as Japan and India. However, they are still divided over the Chinese market. The group has also seen the rise in its sales volume in Latin America (Kriemadis and Chioteris 34). Adidas group has achieved this by collaborating with the local apparel manufacturers, sports clubs and sports personalities. These collaborations have enabled them to easily acquire vital information of different market segments. For instance, in China most of the commercials and advertisements include the Chinese-American Basketball icon Yao Ming which has enabled the Adidas to gain inroad among the Chinese Youths. Adidas is also teaming with the local sports franchise. Initially, such gestures do not create plenty of demand, but in the long-run it generates interest in sports and markets Adidas brands (Kriemadis and Chioteris 35).
Brand image and status play a very important role towards the development of a competitive edge in the sports apparel and footwear industry. Many studies have shown that intangible resources are the most likely source of sustainable competitive advantage since they are invisible and intricate to replicate. Brand image and brand reputation are among the most recognized significant intangible resources a company organization can ever have (Kriemadis and Chioteris 36). Research studies of different sports apparel and footwear companies have also identified three major elements that influence both brand image and brand reputation; these are sponsorship, product quality and media. The above three elements affects how the consumers identify a company’s brand image which consequently over the long – run creates brand reputation. These studies have also established that brand image potentially results in competitive advantage while brand reputation leads to sustainable competitive advantage (Kriemadis and Chioteris 39).
Conclusion
Multinational corporations are known all over the globe because of their strong presence in almost all the continents. However, penetrating these markets has not been an easy ride for these corporations. Due to these obstacles, multinational corporations use different strategies to access global markets. The strategies used principally depend on the resources available. The penetration of Multinational Corporations in many parts of the world is attributed to two classes of strategies namely: non-equity mode and equity modes. The two classes of strategies have facilitated the entry of multinational corporations in the existing and emerging markets with ease. None-equity mode of penetration include: overseas exports and contractual agreements. On the other hand, the equity mode of penetration includes: joint ventures or establishment of subsidiaries. However, in the recent past joint ventures and acquisitions have been the most dominant strategies used by multinational corporations due to its low risks level.
Works Cited
Kriemadis, Thanos and Chioteris Terzoudis. “Strategic Marketing Planning in the Sport Sector”. Sport Management International Journal 3.1 (2007): 27-45. Print.
Madura, Jeff. International Financial Management.8th ed. 2007. Mason, OH: Thomson South-Western. Print.
McDonald, Frank, Fred Burton and Peter Dowling. International Business, Stamford, Connecticut: Cengage Learning EMEA, 2002. Print.