“There will be hunters and hunted, winners and losers. What counts in global
competition is the right strategy and success.”
Heinrich von Pierer1
In business planning the globalization of the world market and the limits of
domestic growth raise the question to what extent a foreign commitment should
be considered if at all.2
In Germany these considerations are particularly underlined by the strong
integration into the world economy. German enterprises obtain a third of their
total revenue in foreign business, 25 % of all jobs depend on foreign trade.3
Contrary to expectations, going global is no longer subject only to large multinational
companies. Due to saturation tendencies in the domestic market,
global competition and the dependency on international key-account customers
small and medium-sized enterprises (SMEs) have been faced with the need for
international activities. 4
Considering the fact that SMEs account for 97,3 % of all German enterprises,
generating almost 45 % of the total revenue per year, the importance of future
growth potential becomes evident.5 In general, SMEs are referred to as the
“backbone” of German economy and many of them, the so called “hidden
champions” have successfully faced the challenge of entering foreign markets.6
Others have been afraid to take this step. For these, the need for adaptation
remains and their continuity will depend on the competitiveness in the world
market. In general, entering new markets is connected with a multiplicity of chances and
risks. SMEs especially, tend to underestimate the importance of profound
information and the need for a realistic estimation of own capabilities.7
Accordingly, it becomes necessary to focus on a SME specific approach which
considers major evaluation criteria for carefully developing market entry
strategies.
1 Dr. Heinrich von Pierer, President and Chief Excecutive Officer of Siemens AG:
Quotation cp. ‘TheGlobalist’ (2000)
2 cp. Hoppen (1999:144)
3 cp. Statistisches Bundesamt (2001:1.6)
4 Due to the IFM in Bonn (2000) SMEs intend to increase their foreign sales from an actual
average of 30 % to 50 % in 2020
5 cp. IMF Bonn (2000)
6 cp. Hibbert (2000:1)
7 cp. Brenner (1999:2 et sqq.)
Table of Contents
1 Introduction
1.1 Problem Formulation
1.2 Purpose
1.3 Approach
1.4 Definitions
2 SME Characteristics
2.1 Management & Structure
2.2 Experience & Knowledge
2.3 Finances
3 Evaluation criteria and entry modes – A basic framework
3.1 Internal aspects
3.1.1 Objectives
3.1.2 Geographic expansion
3.1.2.1 Concentric Strategy
3.1.2.2 Regiocentric Strategy
3.1.2.3 Global Strategy
3.1.3 Timing
3.1.3.1 Pioneer Strategy
3.1.3.2 Follower Strategy
3.2 External aspects
3.2.1 Market Potential
3.2.2 Market Barriers
3.2.3 Competition
3.3 Derivation of market entry modes
3.3.1 Export
3.3.2 Licensing
3.3.3 Joint Venture
3.3.4 Direct investment
4 Conclusion
Objectives & Topics
This study aims to develop a strategic orientation framework that aligns the specific characteristics of Small and Medium-sized Enterprises (SMEs) with effective market entry strategies. It investigates how internal factors and external market conditions influence the selection of suitable entry modes, providing a structured approach for SMEs navigating the complexities of internationalization.
- SME organizational structures and resource constraints
- Internal and external evaluation criteria for foreign market entry
- Geographic expansion strategies (Concentric, Regiocentric, Global)
- Market entry modes: Export, Licensing, Joint Venture, and Direct Investment
- Strategic decision-making under risk and limited information
Excerpt from the Book
3.1.2.1 Concentric Strategy
A concentric strategy refers to an expansion that evolves by geographical circles that are placed around the local market. Accordingly, there is a step by step expansion starting from the local market towards the attractive European markets and further to international markets based on the company’s growth and its ongoing experience. JOHANSON/VAHLNE explain this approach by the fact that individual markets show a geographic as well as a specific social distance. Due to this, companies may enter markets within the circles of similar characteristics starting with the country that is regarded as most similar moving on towards international markets along with increasing experience.
OHMAE describes this sequential entrance into foreign markets as a ‘Waterfall – Strategy’. Geographic expansion commences with central European countries with major similarities to the German market (e.g. Switzerland, Austria, Netherlands) and moves towards further European countries of greater cultural differences (e.g. GB, France) before international markets are targeted. Accordingly, a concentric expansion strategy refers especially to SMEs that due to a lack of international experience, favour a conservative market entry strategy. This is emphasized by the step by step development of foreign market know-how; overcoming the obstacle of entering new markets by starting out with neighbouring countries.
Summary of Chapters
1 Introduction: Provides the problem formulation regarding the globalization of the market, the study's purpose, and the definitions of core terms like market entry and SMEs.
2 SME Characteristics: Analyzes the typical constraints and advantages of SMEs, focusing on their management structure, limited experience, and financial hurdles.
3 Evaluation criteria and entry modes – A basic framework: Details the internal and external factors influencing strategic choices and evaluates common market entry modes like export, licensing, joint ventures, and direct investment.
4 Conclusion: Summarizes the findings, emphasizing that there is no universal "best" strategy and that success depends on a careful analysis of the firm's specific situation.
Keywords
SME, Market Entry Strategy, Globalization, Internationalization, Export, Licensing, Joint Venture, Direct Investment, Strategic Management, Market Barriers, Market Potential, Competitive Advantage, SME Characteristics, Business Expansion, Risk Management.
Frequently Asked Questions
What is the primary focus of this study paper?
The paper examines how SMEs can successfully navigate the process of entering foreign markets by aligning their unique organizational characteristics with appropriate strategic frameworks.
What are the central themes discussed in the work?
The core themes include internal SME characteristics, external market evaluation (potential, barriers, competition), and the comparative analysis of various market entry modes.
What is the main objective of the research?
The goal is to create a systematic, basic orientation framework that assists SMEs in identifying the most suitable entry mode based on their specific resource profile and strategic goals.
Which scientific methodology does the author employ?
The author uses a literature-based, qualitative analytical approach to synthesize theoretical models and map them against the practical constraints and capabilities of SMEs.
What topics are covered in the main section?
The main part covers internal aspects such as management and timing, external aspects like market potential and barriers, and finally, the derivation and evaluation of specific entry modes like exporting, licensing, and joint ventures.
Which keywords best characterize this work?
Keywords include SME, Market Entry Strategy, Internationalization, Export, Licensing, Joint Venture, Direct Investment, and Competitive Advantage.
Why is the "concentric strategy" particularly relevant for SMEs?
It allows SMEs with limited international experience to expand gradually into culturally and geographically similar markets, thereby mitigating risk and building necessary know-how over time.
How do "market barriers" influence the choice of entry mode for an SME?
High barriers (economical, political, or social) may force an SME to choose more collaborative or low-involvement entry modes like licensing or joint ventures to share risk and leverage local partner expertise.
- Quote paper
- Thomas Drabner (Author), 2003, Market entry strategies and their applicability to SMEs - The winding road to foreign business, Munich, GRIN Verlag, https://www.grin.com/document/14026
