ABSTRACT
This study focuses on the competition faced by enterprises while accessing international markets and the appropriate strategies adopted to cope with these challenges. Particularly it focuses on challenges from the management point of view focusing on exporting Enterprises that already have firms in international markets. The study seeks to find out about the major challenges facing them and those firms that have overcome these challenges how they did overcome by finding out what strategies were adopted or what measures were taken so as to avoid facing such challenges in future. Competition faced by Enterprises when starting to venture into the international markets are more in developing countries where they face challenges face due to the less educated managerial staff for strategic formation and external support for internationalization process. Further, the growth of Enterprises in any country also depends upon the availability of resources and support of external organizations. Enterprises are not big enough like large organizations, nor do they have enough resources to survive in the international market. In developing countries, Enterprises face more challenges because of less availability of resources and external support for their internationalization process. At the initial stage, Enterprises need more financial resources to make investment in capital-intensive projects and educated management for strategic formation. They require financial resources on low interest rates and guidance to find representatives in the international market. The external organizations in both markets should support Enterprises to meet challenges in the foreign markets and how to cope with the challenges.
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
The World business environment has changed dramatically through the globalization of economies, Regional integration, and removals of trade barriers have shaped the world as a global village. The increasing globalization of business, the changing face of global political landscape, increased diffusion of political boundaries and the changing forms of governance structures for international firms motivated by innovations in the information technology necessities the need to focus on how international business firms undertake their business activities abroad (Sarkar and Cavusgil, 1996). Foreign market entry strategy decision involve several international managerial decision, key issues of concern include understanding international business environment in totality like political legal environment, social cultural environment, general macro-economic factors like population national income, level of Economic development and resource endowment of the various countries of interest (Mabruki, 2005).
Foreign market entry has been accelerating over the years and has since attracted researchers worldwide seeking to find out the strategies used by firms. The literature on internationalization has revealed a number of barriers business face in their attempt to enter foreign markets. These include both endogenous and exogenous factors. By the nature of their size, resource constraint, both tangible and intangible, has often been cited as one among the endogenous factors inhibiting small firm internationalization. Markets have become increasingly complex and hyper-competitive. Globalization, rapid and increasingly disruptive innovation, accelerate commoditization, and excess capacities are drastically altering opportunities and competitive space (Dunning, 1987).
The world is in an era of globalization and companies are continuously affected by the competition around the world, (Bender & Fish 2010). Increasing globalization has led to an increase in international joint ventures, companies establishing subsidiaries and sales offices abroad. According to Root (2012), the new global economy has created business environment that require firms to look past the traditional thinking of domestic market and to start looking at business from an international global perspective instead. As businesses are no longer limited by national boundaries, organizations are performing activities outside their home countries. Through accumulate experience in foreign markets, firms gain local market knowledge and develop routine and process for dealing with foreign context. Thus, if companies want to be successful, they must manage their knowledge within the organization, especially across national borders since failure to participate in the global market results in a declining economic capability of the nation (Czinkota & Ronkainen, 2004). In venturing into the international market, firms must decide on the important strategic marketing issues that include the breadth of their product offering and the standardization of marketing strategies across countries (Gupta and Govindarajan 2008).
The normative decision theory suggests that the choice of a foreign market entry mode should be based on trade-offs between risks and returns. A firm is expected to choose the entry mode that offers the highest risk-adjusted return on investment. The theory posits that a firm's choices on the foreign market is determined by resource availability and need for control (Cespedes 2008). Resource availability refers to the financial and managerial capacity of a firm for serving a particular foreign market in which the availability of the necessary knowledge and capacity will come in handy. Control refers to a firm's need to influence systems, methods, and decisions in that foreign market (Anderson and Gatignon 2006). Control is desirable to improve a firm's competitive position and maximize the returns on its assets and skills. Higher operational control results from having a greater ownership in the foreign venture. However, risks are also likely to be higher due to the assumption of responsibility for decision making and higher commitment of resources in the firm.
Business opportunities abound in international business as countries move out of their parent, original political territories to seek an increase in business returns, international business arise when countries enter into regional integration agreements which brings countries closer in terms of proximity and reciprocal agreements allowing free movements of goods and services across borders, such interaction increases volume of trade in different cultural setups (Ward Bochner and Furnham 2001). The business environment has changed drastically due to globalization and its major agents.
Globalization involves multinationals growing interconnections worldwide, discontinuous change, rapid, growing numbers and diversity of participants and greater managerial complexity (Parker, 2005). Global interconnections arisen due to certain stimulating factors, some interconnections are predictable, others cannot. Many factors beyond globalization shape the events in the market, resonant market, means of transport, infrastructure and plenteous resources draw society, people, nation or region into global trade and other business related activities, Barbara (2005) notes that despite globalization wave and successes, opportunities, limited resources, educational constraints, political corruption, natural disasters, and interest explains why some firms get globally less connected.
Relevant theories advanced forward in support of this study are the institution network approach theory to international business; model. Dynamic capability theory, sustainable competitive advantage theory (Porter 1985).
Zou and Cavusgil (1996), observe that international business strategy entails how firms possess and use sustainable competitive advantages in order to achieve superior performance in the world market. The (I/O) model specifies that the industry identified to compete with has a stronger effect on the firms performance, than the choices made by managers for their organizations. Dynamic capability theory signifies the capability of an organization to adapt adequately to the changes that can have an impact on its functioning.
Access to and maintenance of foreign markets and addressing competition faced in foreign markets among small and medium-sized enterprises (Enterprises) is a topic of considerable relevance. The foreign market accessibility process by firms has been studied extensively. However, an area, which has obtained fairly limited attention, is the strategy of coping with foreign market competition by small and medium sized enterprises (Enterprises) in Ghana. These firms are affected by the globalization of the markets, forcing the firms to act and think more globally which aims to earning foreign exchange and enhancing firm growth. Poor strategies of coping up with foreign markets can undermine the microeconomic fundamentals of the SME sector, resulting in lower growth in income and employment (Griliches, 1998).
The study shall be premised by the theory of market imperfection where imperfection of markets can be viewed as anything that interferes with trade. There are two dimensions of imperfection. First, imperfections cause a rational market participant to deviate from holding the market portfolio. Second, imperfections cause a rational market participant to deviate from his preferred risk level. Market imperfections generate costs which interfere with trades that rational individuals make.
This study comes at a time when regional economic groups are at the verge of establishing closer trade links by removing trade barriers and encouraging trade across borders. Enterprises in the current trade environment are becoming increasingly exposed to globalization of industry, open regionalism, multilateralism and shifting in the sources of competitiveness at a time when their economic structures are still under developed. This study will unravel the challenges that pose to the opportunities that underlie the opportunities available for Enterprises in the global arena.
Concept of Strategy
In management, strategy is defined as a unified, comprehensive and integrated plan designed to ensure that basic objectives of the enterprise are achieved. The company that is strategically positioned performs different activities from rivals or performs similar activities in different ways”. According to Glueck, “Strategy is the unified, comprehensive and integrated plan that relates the strategic advantage of the firm to the challenges of the environment and is designed to ensure that basic objectives of the enterprise are achieved through proper implementation process”. Woods and Joyce (2003) depict strategy as a set of beliefs on how a firm can achieve success. They affirm that strategy is the main route to attain corporate goals and an objective, leading to enhanced long-term performance meaning that strategy is much more than beliefs and encompasses a deliberate search for a plan of action that will develop a business's competitive advantage and compound it.
This study shall rely on strategy as a perspective which looks inside the organization. In this regard strategy has a content consisting of an ingrained way of perceiving the world. For instance some organizations are aggressive pacesetters, creating new technologies and exploiting new markets; others perceive the world as set and stable and so sit back in long established markets and build protective shells around themselves relying more on political influence than economic efficiency (Packard, 1999).
Concept of Competitive Strategy
Porter (1985) indicates that competitive strategy refers to how a firm competes in a particular business environment, through various approaches, Porter’s five competitive strategies which shape strategy and value chain entrants include, bargaining power of buyers, bargaining power of suppliers, threat of substitute goods and services, and rivalry among existing competitors. He further defined competitive advantage as sustainable strategic edge which a firm has in relation to its immediate competitors. It’s the strength gained through specific firms resources and attributes to perform better than the competition which only makes it perform better than others firms in the same market or industry (Laudon 2010).
Porter value chain and activity mapping concepts (Porter 1996) suggests that business firms build their competitive advantage, which enables them perform better than the competition hence increasing its returns in excess of the expected level by the investor (Hill, 1997).
International Business
International business refers to economic activities that are undertaken between two or more countries or business firms across different political boundaries and establishments (Cavisgil et al 2008). Various economic resources are transacted in international business include human capital, physical capital and other financial services as banks and other financial services as banks and insurances related services. (Wikipedia 2014) improves world infrastructure, communications has facilitated the growth of international business activities, (Bunnen 1999).
The multi domestic operations of international firms have independent units refereed as subsidiaries which represent the parent firm operations in a host country. The global firm have coordinating and integrated subsidiary networks closely connected and interrelated (Daniels et al, 2007). International firms have various options of undertaking business operations, these include licenses strategic alliances and exports, turnkey projects, franchises, and joint ventures wholly owned subsidiaries (Buckey 2005).
Foreign Market competition
Enterprises go through a learning process when they engage in international activities. This process can be shaped by the size and the industrial sector of the firm. Each step of this learning process presents special challenges for Enterprises. The set of firms that are not yet active exporters often underestimate the barriers present in the external business environment, such as those associated with financial matters and access to markets. Firms may also lack awareness of how their capabilities match the challenges of operating in international markets. The purchasing power of consumers and businesses in these foreign markets is significant enough for Ghanan firms to want to compete in those markets. However, international markets are not without pitfalls, and many companies have made costly mistakes by not adequately researching international markets before they commit resources there.
Some of the challenges firms face in international markets includes Identifying a True Market Need which is key to success in business by offering products and services for which customers have a compelling need. Another challenge involves dilution of BrandName Power due to the Internet, tourism, cultural exposure and international linkages. Being aware of a brand name is not the same as preferring it. It can be a long and expensive process to gain the trust of consumers who have used their own local products for years or even generations. Cultural Nuance is also another challenge whereby Consumers are influenced to purchase products by marketing messages delivered through the media, including print media such as magazines. The communication Style is also important as business executives from different countries can encounter language barriers. Lastly, distance and time also be a major challenge to firms penetrating foreign markets. Even with technologies such as video conferencing, executives in other countries may prefer to establish relationships on a personal level.
Foreign Market Entry Strategies
Entering a new market involves a big risk since firms cannot be certain on the outcome, but it may also be dangerous for a firm to stay away from a new market (Valerie and Bertrand, 2005).The entry strategy is especially important, as it will restrict the number of strategic and tactic alternatives open to the firm in future. Entry strategies are crucial to the survival of new firms as they ensure that the firms are moving on the correct track right from the start without deviating from their goals (Parasuraman, 1988). The chosen market entry strategy is important as it determines the manner in which multinational enterprises (MNEs) develop and implement marketing program, coordinate business activities both within and across markets, and ultimately the MNEs success in foreign markets (Malhotra et al., 2003). A firm’s managers need to consider the influence of numerous factors both internal and external to the firm in deciding when and how to enter a market with a new product. For a given foreign market a firm can use different modes for different products, depending on competitive advantages that may be gained. Before moving into the new market careful selection of the foreign markets is important for success, a good market is one which matches the firm, that is, a market whose circumstances or environment fits the resources of the firm.
The mode of entry depends on firm specific variables which include firm’s objectives and policies, degree of control desired of a foreign market, firm’s resources, risk which includes economic, financial and political risks, flexibility, familiarity with the foreign market, corporate strategies. For worldwide activities requires high-control entry modes, size of the firm transferability of resources like brand names and patens can easily be transferred to other firms through licensing as an entry mode. Scholars such as Chen and Chen (1998) recognize benefits to overcoming entry barriers to foreign markets, and describe that firms can “tap into strategic resources in a foreign market, such as market intelligence, technological know-how, management expertise, or simply reputation for being established in a prestigious market”. In this same vein, Luo (2003) acknowledges that “according to the resource dependence theory, a foreign market environment is a source of scarce resources.
Firm enter into new market either through Green field investment or Brown field investment (Slangen & Hennart, 2007). Green field investment is an investment in a manufacturing, office, or other physical company-related structure or group of structures in an area where no previous facilities exist. The name comes from the idea of building a facility literally on a “green” field, such as farmland or a forest. Greenfield investing is usually offered as an alternative to another form of investment, such as mergers and acquisitions, joint ventures, or licensing agreements (Slangen & Hennart, 2007).
Greenfield investing is often mentioned in the context of foreign direct Investment (Kogut, 1996). Brownfield investment refers to investing or venturing into a new market using an already existing business. It can be inform of Joint Ventures, Strategic alliances, Mergers, Consolidation, Wholly owned foreign subsidiary (Jonquieres & Field, 1990).
Enterprises in Ghana
Enterprises are companies whose personnel numbers fall below certain limits. The Small enterprises outnumber large companies by a wide margin and also employ many more people. Enterprises are also said to be responsible for driving innovation and competition in many economic sectors. The sector also plays a key role in employment creation, income generation and is the bedrock for industrializing the Country in the near future.
It is estimated that there are 7.5 million Enterprises in Ghana, providing employment and income generation opportunities to low income sectors of the economy. The Sector has continued to play an important role in the economy of this country. The sector’s contribution to the Gross Domestic Product (GDP) has increased from 13.8 per cent in 1993 to about 40 per cent in 2008. The Small Enterprise Sector or Informal Sector provided approximately 80% of total employment and contributed over 92% of the new jobs created in 2008 according to the Economic Survey of 2009. Enterprises are significant contributors to the global economy accounting for approximately 50% of local National GDP, 30% of export and 10% of FDI. While it is not possible to accurately quantify the number of Enterprises currently involved in international markets it appears to be increasing, particularly for Enterprises in the service sector. The opportunities for international business dealings have grown dramatically as the traditional barriers associated with distance and cross-border transactions have been reduced through new technology and trade negotiations. But the development of a fast-changing and increasingly complex global marketplace has also placed considerable pressures on firms, particularly Enterprises.
Due to their characteristics, Enterprises in Ghana suffer from constraints that lower their resilience to risk and prevent them from growing and attaining economies of scale. The challenges are not only in the areas of financing investment and working capital, but also in human resource development, market access, and access to modern technology and information. Firms that enter the international market will survive depending on the strategies that they will adopt to cope with these challenges. It is estimated that ¼ of the Enterprises in Ghana engage in foreign trade and have access to foreign market.
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