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Internationalizing a business helps entrepreneurs to create innovative and strong brands and make more profits. In recent times, companies have faced difficult decisions regarding business entry strategies to adopt when attempting to go international. Entrepreneurs have to address several issues in their approaches to ensure that their brands will be successful once they expand internationally; such challenges are differences in economic, cultural, social and political environments around the world (Luigi & Simona, 2010). Most companies should adapt to local marketplace conditions. Therefore, for establishing its presence in foreign counries, a cookware business should adopt a good global business entry strategy that puts local market issues into consideration. Entrepreneurs need to understand how their brands meet needs of customers in different countries (Luigi & Simona, 2010). Setting up the cookware line of goods business in the global market is a difficult task that comes with challenges of business entry strategies and issues of independence of subsidiaries.
Foreign Market Entry Modes
Every entrepreneur desires to build a business that will grow to be global. The company has developed an up-scale cookware range of products that are reasonably priced and are already popular in the United States and major European cities. Therefore, organizing the business outside the United States will require conducting an analysis of respective countries and detailed market research, if possible (Luigi & Simona, 2010). Since products are already doing well in America, it is possible that they can be successful in other markets, but this is not guaranteed. The company has three choices for setting up the business outside the United States, that is, contractual, export and import, and investment entry modes (Antell & Wallgren, 2012). The best option for the cookware firm will be the investment model, whereby it should set up subsidiaries in different foreign markets.
Pros and Cons of Independent Subsidiaries
International presence is a great deal for the company as it will get to explore different markets. However, the concern is whether subsidiaries in each foreign market should be independent or should be under control of the central headquarters. In this case, it is good for the company to have independent subsidiaries because of different social, economic and cultural views in foreign countries (Luigi & Simona, 2010). The subsidiaries should employ local people who are familiar with the region’s market and customer preferences. If these are not independent, there may be cases of resentment from locals since they view the business as foreign (Luigi & Simona, 2010). It is therefore important to set up independent companies in each foreign market to increase chances of local people accepting cookware products.
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As much as independent subsidiaries are likely to be a plus for the business, they do not come without advantages and disadvantages. Their pros are easier and simpler reporting and increased financial resources. The company can use earnings from subsidiaries to grow the business or invest in other activities that will generate higher return rates (Basu, 2017). Together with subsidiary firms, it can also integrate financial and information technology systems to reduce business costs. Having independent subsidiaries can also decrease administrative overlap and provide better support for new product developments. In addition, it facilitates speedy execution and implementation of strategies and in turn faster market penetration. Disadvantages of independent subsidiaries are that any error or malfunction at a subsidiary can greatly affect the financial performance of the company (Basu, 2017). Also, such independence will mean that the business has to fully rely on a subsidiary to develop a customer base and a distribution channel, as well as to recruit a sales team. Therefore, success totally depends on the subsidiary company, and this is dangerous since risks will be all concentrated in one entity rather than being shared.
Pros and Cons of Central Management
As the company goes global, it is important to understand the relationship between the headquarters and subsidiary companies. The choice of whether to have centralized management from or not is a major issue for the business, especially because of the manufacturing aspect. Having a system of central planning and procedures from the headquarters and imposing a strict brand image have a number of advantages and disadvantages. The pros of having centralized management are that it allows for effective budget control (Alix Partners, 2016). Since all managers from the top and subsidiaries have knowledge of company’s processes, they can maintain control over budget and products and ensure that no risks or projects are undertaken without notifying the headquarters (Alix Partners, 2016). Central management will also increase collaboration between departments and make coordination easier because since directives come from the central place, all employees will have to act together compared to if orders are given by each subsidiary company. Central management will also ensure that the firm has common standards throughout the world and adopts the best practices in all processes (Alix Partners, 2016). If each subsidiary is independent, then the company will end up with different standards in terms of products, sales, and human resources. However, having all subsidiary companies controlled from the headquarters ensures a common structure throughout.
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As much as centralized management seems to have numerous benefits, it also has some disadvantages. The latter are that it will move the company away from customers (Alix Partners, 2016). If all decisions are to be made from the headquarters, then the firm will not be sensitive to the needs of buyers in different regions considering that every market has unique people with unique product needs. In addition to that, conflicts may arise because the headquarters will seek to integrate operations of several subsidiaries, whereas the latter will strive for greater autonomy. Having central management will also slow down decision making. If managers at subsidiary companies have to wait upon the headquarters management to make crucial decisions, this may take a longer time, and the company can lose opportunities (Alix Partners, 2016). If the business decides to have central management, then employees in subsidiaries will be less empowered and their morale towards work will be lowered. In addition, it will overburden the top management with matters that can be easily handled by the subsidiary management (Alix Partners, 2016). Therefore, having central management may cost the company chances of being successful in foreign markets.
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Entering foreign markets can be a challenging process for the company. It requires the one to evaluate its entry strategies and understand the economic, political, social and cultural aspects of foreign markets. The company can enter foreign markets through contractual, export and import, and investment modes. Having independent subsidiaries will help the cookware company to quickly penetrate into foreign markets and empower employees who are working for subsidiary firms. However, it can also put the entire business at risk since if any errors occur, it will be greatly affected. On the other hand, the company can have central management from the headquarters. It will allow it to have common standards in all foreign markets and effective budget control. However, such mode can slow down the decision-making process and have subsidiary employees less empowered. Penetrating into foreign markets is a crucial step for the company, and the choice between independent subsidiaries and central management is even more crucial and requires an intensive analysis.
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