Discuss about the International Business Management for Globally and Venture.
The growing economy makes it a necessity for organizations to operate globally and venture into the emerging international markets. However, it is worth noting that internationalization comes with some inherent risks that need to be given serious attention. Observably, different countries exhibit different economic conditions and political climate. As such, utmost due care is vital when handling the process of entering the emerging global markets. Moreover, before a firm makes a decision of entering into the global market, it should evaluate the available strategies and subsequently chose the one that best suits its situation. This paper examines the various entry strategies into the global market and further discusses the value creation in Merger & Acquisitions and Joint Ventures in the context of Carlsberg’s experience when entering the emerging markets (Rugman 2009).
In this business environment characterized by increasing competition, coming into emerging foreign markets becomes a vital means of survival. However, the process of international should be approached with care as it a carries a significant magnitude of risk. As such, various strategies can be adapted when entering a foreign market. The market entry strategy chosen is crucial to the success of the business in the foreign land as it significantly controls the manner in which the international firms operates and implements their programs. As a result, the managers of an internationalizing firm should thoroughly scan both the internal and external factors to enable a sound decision on the method of entry (Buckley and Ghauri 2004, p.85). There are different techniques of entering an international market as explained below
Exporting is a strategy that entails production of goods and services in the home country with the aim of distributing some portion of the output to the foreign market. This approach significantly reduces the costs that would otherwise be incurred if the products were manufactured in the foreign market and are ideal for firms experiencing limited knowledge and expertise in operations of international businesses. Notably, for exporters, high emphasize should be put in establishing efficient distribution channels in the foreign land to ensure easy access to the products by the customers (Coe et al., 2008). In the case of Carlsberg, the company deployed exporting in the 1890s when drums of beer were exported to Chinese market from Denmark.
The joint venture involves a foreign firm agreeing with a local company to enter into a partnership with the aim of sharing capital, resources and the associated benefits. In circumstances where the international company lacks the needed capital and the managerial capacity to invest alone in the new market, partnering with a local becomes the most viable mode of entry. Joint venture gives the investing firm an avenue to penetrate into the market easily and further allows enough time to strategize on how to venture alone and significantly increase market dominance entirely. Notably, a joint venture benefits both the firms; the investing firm limits possible barriers by making use of the local’s company’s expertise on the prevailing economic and political conditions (Kim et al., 2013, p.334). On the other hand, the local benefits from the exposure to new technological innovations and the additional capital. In 2000, Carlsberg and Thai based company Chang Beverages Pte Ltd entered into a joint venture where they exercised equal share control.
Merger encompasses two existing companies coming together to form one new entity and primarily involves both firms consolidating their assets and liability into a newly created third entity. This strategy is more often deployed to penetrate into the emerging markets, thus, enhancing the market share of the firm. Notably, the merger can take various forms such as vertical, horizontal or a conglomerate (Caiazza and Volpe 2015, p.210). Horizontal merger refers to a combination of enterprises in the industry dealing with the same line of business while vertical merger denotes a situation where two firms along the value chain are brought together. On the other hand, a conglomerate involves two entirely different companies combining, for instance, a beer company merging with a technological firm. In mergers, the two combining companies continue to be in existence, and both take up the responsibility of controlling the activities of the new entity (Lasserre 2012).
Entering the emerging market through acquisition entails the foreign firm organizing funds to purchase the assets and properties of the local firm. The acquired business gets integrated into the purchasing company and more often ceases to be in existence (Bresman et al., 2010, p.11).
When using Merger and Acquisition as a strategy, the foreign firm’s decision process must put a focus on the valuation of the target business and ensure the target firm is accurately valued. Moreover, the management should forecast and ascertain whether the resulting entity after the merger and acquisition has increased value (Verbeke and Asmussen 2016).
Carlsberg’s strategy involved using different entry models to penetrate into the Chinese market. Some of the important strategies used included export, joint venture, and merger & acquisition.
Carlsberg first entered the China market through exportation that helped in creating the awareness of the brand in the emerging market. Further, Carlsberg entered into the joint venture with the Chinese-based firms that enabled them to benefit by using the employees of the local company that had a profound understanding of the industry. Moreover, the joint venture offered additional networks for distribution, greater finance and importantly allowed for the spread of risks with the local companies
Carlsberg experienced a serious challenge arising from the failed joint venture with the Thai-based company Chang Beverages Pte Ltd. The joint venture was unsuccessful because of the disagreements that emerged between the two firms. The disputes adversely affected Carlsberg operations because the company had its assets tied up the Thai company and further suffered a monetary loss in the lawsuit.
Most multinational organization merges with other firms, acquire local entities or agree to operate jointly with the aim of creating an additional value. By merging, the resultant business significantly benefits from economies of scale and further experiences reduced costs of operations that ultimately improve the cash flow of the organization. Notably, most managers cite synergy gains to justify the decisions to the alliance. Nevertheless, it is worth noting that some of the mergers and acquisition at times fail to achieve the targeted results. As such, it is prudent to put emphasize on the issues and challenges that hinder the process of merger. For a merger to be successful, a comprehensive planning and careful execution are vital (Öberg and Tarba 2013, p.472). The following are the various challenges faced in the process of merger and acquisition and joint venture;
The two merging firms in international markets more often have different strategies and goals that may end up conflicting. For in instance, Chang Beverages Pte Ltd had its operations in China while Carlsberg was in the process of penetrating the Chinese market. The different economic and political conditions dictate the type of strategies to formulate therefore resulting into a potential conflict due to the mismatch of the plans and goals.
There is always a risk of paying too much in the case of acquisitions. The managers can find it tricky to evaluate a firm in the foreign land accurately. As such, there is a risk of paying much for the acquisition hence making it impossible to ultimately realize the expected benefits of the merging and procurement process.
The International market is characterized by the prevalence of diverse cultures. For instance, Carlsberg focused into venturing into the Chinese market, a country with different culture. This poses a challenge as the management has to spend more time and resources strategizing on how to eliminate the obstacles presented by the cultural differences (Hennart and Zeng 2002, p.705).
Conclusion
The increased globalization makes it a necessity to venture into the emerging markets. However, the management of the firms should carefully choose the entry strategy to use since the success of the expansion significantly depends on the strategy deployed. Notably, Carlsberg used a mix of strategies to gain dominance of the Chinese market and further improve its competitive advantage. As such, internationalizing firms should comprehensively study the emerging market to identify the target local companies for merging and acquisition purposes.
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Lasserre, P., 2012. Global strategic management. Palgrave Macmillan
Öberg, C. and Tarba, S.Y., 2013. What do we know about post-merger integration following international acquisitions?. Advances in International Management, 26(1), pp.469-492.
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