The Internationalization Process of Foreign Market Development

Project Report, 2019

23 Pages, Grade: 8.5

Free online reading

Table of contents

1 Project framework

2 De Koekfabriek

3 Models & Analysis
3.1 Porter’s Generic Strategies
3.2 PEST
3.3 SWOT

4 Globalization
4.1 International Market Selection
4.2 Conceptual Framework

5 Exploring the context: foreign market development
5.1 Hong Kong
5.1.1 Market attractiveness
5.1.2 Psychic distance
5.1.3 Internal factors
5.2 Japan
5.2.1 Market attractiveness
5.2.2 Psychic distance
5.2.3 Internal factors

6 Entry Mode

7 Recommendation & Limitations

8 Reference list

9 Appendices

County Selection

Rochdi Houf

“Social entrepreneurs are not content just to give a fish or teach how to fish. They will not rest until they have revolutionized the fishing industry”

Bill Drayton (Ashoka Founder)

Executive Summary

The aim of this report in hand is to provide De Koekfabriek with a recommendation for the internationalization process when entering a new foreign market. The purpose of this assignment is to give an answer to the following two questions: which country should De Koekfabriek focus their attention on and which entry mode should they consider? In order to answer these questions literature regarding social enterprises, globalization, international market selection, and entry strategies are reviewed, resulting in a theoretical framework. The outcome of the research is solely based on secondary data obtained from highly reliable and accurate sources including, but not limited to, academic articles, government agencies, and analytics websites.

This first part of the report describes De Koekfabriek supported by multiple frameworks. In the next part, the theoretical chapter, relevant theories necessary to describe and understand the phenomena have been discussed, i.e. globalization, and international market selection. Thereafter, the Japanese and Hong Kongese market have been examined. The analysis of the influencing variables shows that the Hong Kongese market is the most suitable market for entering by De Koekfabriek. Afterward, based on several aspects the most suitable entry mode is a contractual entry mode in the form of a partnership, i.e. setting up a store by forming a partnership.

The management of De Koekfabriek can use this report in case it will decide to expand its business beyond the Dutch borders.

1 Project framework

The objective of this report is to help De Koekfabriek to select a new geographical market. In doing so, De Koekfabriek is analyzed by using several models. Thereafter, two markets are thoroughly examined using a conceptual model. Afterward, the appropriate entry mode is selected. Finally, a recommendation is given that includes the most suitable market and the appropriate entry mode.

2 De Koekfabriek

Arthur De Nerée, the founder of De Koekfabriek, describes De Koekfabriek as an impact enterprise (albeit for the purpose of this paper, De Koekfabriek will be referred to as a social enterprise) that aims to generate suitable workplaces for individuals with a distance to the labor market (Soundcloud, 2019). De Koekfabriek started with providing job opportunities for people with mental disabilities, however, economic migrants, asylum seekers, ex-homeless, ex-detainees, ex-addicts, and youth that has been fallen between two stools are nowadays also the target group (My locals). Aiming to open 4 new stores and create a significant amount of new jobs by 2021 is one of its objectives. Once the 10 stores are operative and lucrative De Koekfabriek aims to establish a foundation that will allocate a share of the earnings to improve the lives of their employees.

Ultimately, De Koekfabriek desires to enter a foreign market. By entering a new market De Koekfabriek will impact the chosen market as it does in The Netherlands, i.e. providing work for people with a distance to the labor market.

3 Models & Analysis

3.1 Porter’s Generic Strategies

According to Michael Porter, there are four main competitive strategies: cost leadership, differentiation, cost focus, and differentiation focus. De Koekfabriek clearly does not focus on attracting customers based on cheap prices. It attracts customers with a unique story that is different from the usual bakery shop. They have differentiated themselves by being a social enterprise (SE). Therefore, De Koekfabriek has clearly a differentiation focus strategy. Its competitive advantage is embedded in its vision.

3.2 PEST

The following PEST analysis aims to support the strategic planning of De Koekfabriek by providing insight into the external environment in which it operates. By analyzing the political, economic, social, and technological aspects of the environment, a comprehensive description regarding the trends of the important factors will be drawn.

The Dutch government implemented modifications regarding corporate tax. Corporations are obliged to pay 16.5% corporate tax in 2020 over the first €200,000 EUR which is a decrease of 2.5% compared to the previous year. Exceeding €200,000 EUR a corporate tax rate of 25% is customary, in 2021 this rate will decrease by 3.3% (Rijksoverheid, 2019).

The biggest impact on economic factors is economic growth. GDP increased by 2.6% this year making it the sixth year in a row that the Dutch economy is growing (Rijksbegroting, 2019). This is caused by minimum wages that have been increasing over the past few years along with public consumption which increased by 2.3% last year, the highest growth rate of the century. This economic growth goes conjointly with a relatively high inflation rate. The inflation rate of the first half-year was 2.6% which is compared to Germany 1.6% or France 1.4%, respectively, comparatively high (CBS, 2019). Furthermore, the Euribor rate is currently at a historic low. This rate is currently a negative number, in other words, banks have to pay back less than the principle.

The major trend that has an impact on the social aspect is population growth. In the first three quarters of this year alone, the population increased by 102,000 which is almost the same as the population growth of the previous year (CBS, 2019). Additionally, people are moving towards a healthier and a more environment-friendly lifestyle.

A technological factor that has a tremendous impact on De Koekfabriek is the accessibility of the internet. Nowadays most of the people are connected with each other through social media platforms. By taking advantage of this trend De Koekfabriek can attract new customers and create brand awareness.

3.3 SWOT

Being social conscious of the people with a distance to the labor market and creating opportunities for them is the biggest trait De Koekfabriek has. Not only do they reinvest parts of their revenue in the wellbeing of its employees and create awareness but De Koekfabriek inspires many people to support people with poor job prospects and motivate some to open similar SEs. Recently, De Koekfabriek opened a brand-new large bakery that created many new jobs contributing to its vision to create 300 jobs. Furthermore, De Koekfabriek has a subscription plan called ‘Koekabonnement’ that allows companies to receive cookies on a weekly or monthly basis (Kontakt, 2018). All the shops are located in city centers which are perfect to attract customers. Some other strengths include customer satisfaction, high variety of unique cookies (Dondesteentje), business reputation of being innovative and socially responsible, and brand recognition and image.

There are some threats that could potentially harm the company. As mentioned in the PEST analysis a social trend is that people are gradually moving towards a healthier lifestyle. De Koekfabriek can tackle this thread by making ‘healthy cookies’ in order to not lose customers and maintaining a strong financial core. Furthermore, by providing work to ex-detainees and ex-addicts it is possible that these people will go back to their initial lifestyle which might harm customers and the mentally disabled colleagues. This is aggravated by the fact that De Koekfabriek does not background check its employees. De Koekfabriek can solve this by monitoring its employees and starting to background check (potential) employees. Furthermore, the prices of the ingredients could increase substantially due to unforeseen conditions. The supplier could also fail to meet its obligations resulting in late delivery of the ingredients.

There are some vulnerabilities internally that could disappear with some effort. Firstly, customers who purchase cookies online must wait from two up to three working days. However, this issue can be solved by improving the distribution system reducing the delivery times. Another weakness is that people perceive the cookies to be too expensive. However, De Koekfabriek gives its customers free coffee when they enter the shop and the story behind the store is explained. This will give people an affinity for purchasing the cookies. Another remedy for losing customers because of the high prices can be to negotiate the costs with the supplier. If the costs can be decreased so can the price of the cookies, consequently, receiving more customers. Lastly, De Koekfabriek has no international presence. The remedy for this weakness is a detailed report that recommends De Koekfabriek to which country it should expand and which entry model it should use. Fortunately, this paper will deliver the remedy.

4 Globalization

In most business actions, a factor seldom clarifies any given action. It is frequently a mixture of factors, which enable corporations in taking steps toward international market selection (IMS). One of the main motives for globalization for SEs is to alleviate social problems (Fardig & Hakansson, 2014). Compared to enterprises that seek profit maximization, De Koekfabriek should enter a foreign market based on the possibility to maximize social value. Network seeking motives are crucial for IMS, which goes aligned with the possibility of the establishment of new partnerships (Johanson & Vahlne, 2009). Ellis confirmed this by claiming that personal connections in foreign markets increase the likelihood to identify opportunities and provide contacts that are advantageous for companies that enter a foreign market for the first time (2000). Another pivotal motive lays in its mission, i.e. get the people with a distance to the labor market to work. In order to fulfill its mission, De Koekfabriek must keep expanding with the intention of providing work for those people and, by doing so, helping them. This is imperative to fulfill its mission since it facilitates the social impact and congruently provides De Koekfabriek with a healthy financial core.

Therefore, De Koekfabriek should consider entering a new market where it can have the same impact as in the domestic market, i.e. being present in the market and offering jobs to people with a distance to the labor market.

In conclusion, the rationale for globalization has a tremendous impact on IMS. Thus, it is pivotal to not only consider the potential markets available but also why the selected market is of interest to De Koekfabriek.

4.1 International Market Selection

In order to select and analyze the most appropriate market, certain criteria should be considered. Since De Koekfabriek is regarded as a SE, profit maximization is not one of them. Developing nations should not be considered in IMS because those nations tend to have a low disposable income per capita. As De Koekfabriek has not expanded to a foreign market before the most obvious target market would be a country that is close to the domestic market. The Uppsala model confirms this notion as the risk is significantly lower.

Based on the following criteria, social enterprise landscape, potential partners, ease of doing business, laws and regulations, and market attractiveness, the choice has been made that the two most suitable markets are Hong Kong and Japan. It is inferred that there might be other criteria, which should be applied upon evaluating the attractiveness of a market, but such criteria are frequently more case-specific.

4.2 Conceptual Framework

These two markets are further analyzed by using a conceptual framework illustrated in figure 1 (see appendices) inspired by Hedenbergh and Raberg. It consists of three major criteria, namely market attractiveness, psychic distance, and internal factors with the purpose of ultimately select the most suitable market.

Market attractiveness correlates with the criteria used to evaluate the attractiveness of the target market. Psychic distance describes the differences between the target market and the Dutch market regarding culture and the business landscape. The last criteria, internal factors, focusses on the fit with the objectives of De Koekfabriek and the potential to establish advantageous relationships.

According to Breton and Martín (2011) in order to extract relevant screening criteria, one should seek information from previous literature for guidance. In IMS literature, there are a substantial number of criteria authors recommended to use (i.e. Brewer, 2001; Papadopoulos & Martin, 2011, Agarwal & Ramaswami, 1992). Based on the literature review, the criteria which have been recognized to be most suitable have been chosen. All the criteria have been incorporated into the detailed conceptual framework, as presented in figure 2 (see appendices). The purpose of this in-depth framework is to assess all the necessary variables in order to select the most suitable market.

5 Exploring the context: foreign market development

5.1 Hong Kong

Hong Kong Special Administrative Region of PRC (HKSAR) is the freest economy in the world with low taxation, free trade, and minimal government interference (Heritage foundation, 2019). With the US and China coming to a mutual trade agreement, the tension between the two biggest economies declines, which might have caused trade fluctuations in Hong Kong since the US and China are the biggest trade partners of the city-state. Meanwhile, the ongoing protest in Hong Kong might be perceived as a threat however, potential market entry will be executed after 2021. Consequently, the political environment might be stable at that time due to a mutual agreement between the parliament and the protesters.

5.1.1 Market attractiveness

Market size

HKSAR has a population of 7.4 million people. The cookies/biscuits market in Hong Kong is worth nearly €130 million EUR, which contains savory biscuits and crackers, plain and filled biscuits, and cookies. Supermarkets produced 58% of the sales while independent small grocers (including bakeries) generated 11%. Cookies underwent a tremendous sales boost of 10% in 2016. On top of that, the market will experience a compound annual growth of 3.3% to reach €142 million EUR by 2023 (Statista, 2019).

Market growth

Hong Kong’s GDP is worth €330 billion EUR and the GDP per capita approximately €35,000 EUR. Last year alone the city-state displayed a GDP growth of 3.8% and an FDI inflow worth €102 billion EUR. The gross national income (GNI) per capita in 2018 increased by 8.3%, compared to the previous year, making it €45,741 EUR. The PPP per capita is €52,000 EUR (Trading economics, 2019).

Level of risks

HKSAR is highly vulnerable to far-reaching climate change risks, such as typhoons, aggravated by severe air pollution. Hong Kong’s aging society and the declining workforce poses tremendous challenges to economic prosperity and stability. The income gap between the rich and the poor is increasing dramatically as Hong Kong managed to reach a Gini coefficient of 0.539 in 2017, the highest in over 40 years (Wong, 2018). The ongoing protests should also be considered as it has a significant impact on the business landscape in Hong Kong.

Consumer characteristics

The Hong Kong lifestyle doesn’t leave much time for preparing meals. Consequently, consumers prefer eating outside with foods that meet most of their nutritional needs. Also, most young consumers have the inclination to purchase international snacks available in Hong Kong. Café visitors are increasing steadily over the past few years, as students and office workers are meeting clients, have a chat or get the necessary caffeine to help them to stay focused throughout the day. Consumers take pleasure in purchasing European branded food, as European products have an excellent reputation among the consumers. Price is not the most vital factor that plays a role in the purchase decision, they prefer quality and they appreciate innovative products (British Columbia, 2017).

5.1.2 Psychic distance

Lane and O’Grady (1996) define psychic distance as “a firm’s degree of uncertainty about a foreign market resulting from cultural differences and other business differences that present barriers to learning about the market and operate here”. Previous researchers have emphasized the tremendous role of psychic distance in IMS. According to Brewer (2001), psychic distance is the centerpiece of IMS research. Erramilli (1991) mentioned that psychic distance is a significant factor in IMS, which was confirmed by many researchers (i.e. Cavusgil et al., 2004).

Cultural proximity

A diligent, well-educated and entrepreneurial population of 7.4 million people is the groundwork of Hong Kong’s creativity and efficiency. The Hong Kongese have the longest life expectancy in the world, with 81.3 years for men and 87.3 for women respectively (SCMP, 2017). Cantonese and English are the official languages that are being spoken in Hong Kong. English is generally used within the government. Confucianism has a tremendous influence in Hong Kong. This approach of reasoning sets weight on the significance of interaction with one another by advocating the idea of unequal relationships defined by hierarchical roles, i.e. supervisor and subordinate. This inequality is generally accepted and respected, and it is thought that this facilitates stable long relationships among society. Nevertheless, the younger generation is more influenced by Western beliefs, i.e. freedom of speech. The concept of natural inequality is rejected by the younger generation.

Business proximity

Hong Kong promotes free trade; there is freedom of capital movement, no discrimination against non-local investors, transparent regulations and a low-tax system. It is known to have a sublime transport and communications infrastructure and a flexible labor market. In 2018, the city-state was ranked the world’s freest economy, for the 24th year in a row (Heritage, 2018). The currency used is the Hong Kong dollar which is pegged against the US dollar.

Hong Kong’s GDP, over the last two decades, grew at an average annual rate of 3.3 percent. GDP per capita experienced a strong growth likewise, with an average annual rate of 2.6 percent ( HKSAR has an advantageous geographical position that links with PRC, Japan, South Korea, and Southeast Asia. The arguably most attractive trait of HKSAR is that it is the gateway for trade with PRC, which is the second-largest economy in the world. Interesting to note is that Hong Kong has no value-added tax, sale tax, and capital gains tax. Only the income streams are taxed.

Regarding the social enterprise landscape, HKSAR has a few developments that the government has been working on. Through the Social Innovation and Entrepreneurship Development (SIE) Fund, the government promotes social innovation. In April 2018, the SIE Fund launched a program that offered up to €680 EUR per month to social entrepreneurs confronting social exclusion and poverty (SIE Fund, 2018). As of December 2018, the SIE Fund’s programs had sponsored over 960 social innovative ideas (SIE Fund, 2019). The government has put a continuous effort to support businesses that play a significant role in the SE landscape. For instance, the Hong Kong Council of Social Services aims to support over 650 social enterprises through fostering partnerships with firms (SEBC, 2019).

Corporations are gradually becoming more involved in the SE ecosystem. For example, Hong Kong Broadband Network integrated supporting social enterprises in its business model by outsourcing canteen services to social enterprises (HKBN, 2015).

All in all, the SE landscape is growing substantially with consistent government aid, a strong philanthropic culture, and growing corporate sustainability endeavors.

5.1.3 Internal factors

Fit with organizational objectives

De Koekfabriek's vision is to create jobs for individuals with a distance to the labor market without the use of government subsidies. Their financial resources derive (outside sales) from crowdsourcing and several foundations. In order to successfully expand into a new geographical market a pivotal a large sum of money is required. Fortunately, there are countless opportunities for receiving funding from not only programs, supported by foundations and the government, but also large corporations and numerous platforms, i.e. SIE Funds and SEBC. This will facilitate growth, awareness, and the mission of De Koekfabriek. In addition, more corporations are outsourcing certain services or even purchasing products from social enterprises, with the rationale of social responsibility.

Potential to establish relationships

The Hong Kong government, in collaboration with foundations and banks, has launched several programs to support SEs. The SIE Fund and the SEBC are just a couple of examples to illustrate the effort that the government has shown in order to support SEs. It is highly recommended to collaborate with these platforms. As relationships play a pivotal role in many firm’s IMS evaluations the conclusion can be made that retailers who internationalize will examine the opportunities of establishing advantageous, sustainable relationships as part of IMS (Samiee & Walters, 2003). A theory verified by Moen et al., (2004) mentions that a firm’s network relationships influence which geographical market to enter.

5.2 Japan

The Land of the Rising Sun, better known as Japan, has the greatest developed economy in Asia, the third-biggest GDP in the world, and it has one of the most innovative social economies in Asia. The island nation is as big as the state of California while having a population that is half of the United States. Additionally, it is one of the most literate countries in the world as heavy emphasis is placed on education.

5.2.1 Market attractiveness

Market size

Japan has a population of 128 million. The cookies/biscuits market consists of all sweet cookies/biscuits, chocolate covered cookies/biscuits, and filled biscuits/cookies. According to Global Data, the cookies/biscuits market reached a sales value of €1,778.99 million EUR in 2018, an increase of 1.39% over 2017, which is the highest growth rate in the past five years (Just food, 2019).

Market growth

Japan’s GDP and the GDP per capita increased with 1% over 2018 making it approximately €5 trillion EUR and €44,183 EUR, respectively. Japan’s GNI per capita in 2018 rose with 7.4% over 2017 reaching €37,413 EUR. The PPP per capita reached €35,506 EUR in 2018, which is a new all-time high (Trading economics, 2019)

Level of risks

Japan has the most developed economy in Asia. Even though Japan is the healthiest economy in Asia it faces its challenges. Arguably the main challenge is the aging population combined with a low national fertility rate. Consequently, the labor force is steadily decreasing, and social spending is increasing. Climate change risks also must be taken into consideration, i.e. earthquakes and typhoons.

Consumer characteristics

Japanese consumers value quality, service, and convenience over price. The opinions of people in their network have a high influence on the purchasing decision, as well as social media. The Japanese have the inclination to spend time in malls or specialty shops instead of department stores.

According to the Trust Barometer, out of 27 countries, Japan ranked the lowest in terms of trust in businesses. Results showed also that verification behavior is significantly higher in Japan than in other countries (Info cubic, 2018). Consequently, a business should not expect that the consumer will believe the advertisements that it had put out.

In general, Japanese consumers are believed to be the most demanding when it comes to quality. The standard requirement is no mistakes. They value not just the packaging or the product itself but also the brand information, service, and advertising. All these aspects are taken into consideration in making a purchase decision. In Japan, the customer is extremely valuable that there is a saying that expresses: the customer is God.

5.2.2 Psychic distance

Cultural proximity

The Japanese rich culture dates back thousands of years ago while society continues changing, with rapid shifting trends and technological development that keeps pushing new boundaries. Most of the inhabitants do not speak English. The first religion in Japan is Shinto, but in the sixth century, Buddhism was implemented in their lives which came from China. From that point, the two religions have been practiced harmoniously. However, aside from visiting shrines and temples, religions are not practiced extensively.

The Japanese do not like confrontation; they do not tend to disagree, therefore facial expression, tone of voice, and body language tell them what the other person really feels. As with many Asian cultures, saving face is imperative in Japan. Additionally, etiquette and customs are pivotal in Japanese culture.

Business proximity

With its highly skilled and assiduous labor, the island nation has one of the strongest economies and with a strong stable currency. Japan offers 120 million sophisticated and prosperous consumers that have over €3 trillion EUR spending power. Ranked 30th in the freest economy according to the Index of Economic Freedom Japan is considered to be most freely (Heritage, 2019).

Named after Prime Minister Shinzo Abe, “Abenomics” contributed tremendously to the economic recovery since the catastrophic event that transpired in 2011. It is an extensive policy aimed to revitalize the economy from two decades of deflation while retaining flexible fiscal control. A few results include increased nominal GDP by nearly €550 billion EUR reaching a new all-time high, the number of female employees increased by 2.9 million reaching an all-time high of 66.6 million women in the workforce, and the unemployment rate reached the lowest rate in decades reaching 2.4% (Japan Gov, 2019). The Japanese social enterprise landscape is one of the most advanced in Asia. Since the 1990s, banks have financed SEs by giving low-interest loans (AVPN, 2019). In 2014, the total number of SEs was 205 thousand, the SE sector was valued at approximately €150 billion EUR which employed nearly 6 million workers (NPO, 2015). According to the Japan Fundraising Association (JFRA), 46 million donors gave €6.5 billion EUR in 2017, which is 45% of the population.

Social Venture Partners (SVP) Tokyo offers annual funding of €8,600 EUR to SEs ranging from start-ups to large organizations. Social Investment Partners (SIP) launched a joint venture with Nippon Foundation (largest Japanese foundation) called the Japan Venture Philanthropy Fund (JVPF) with an initial investment of €1 million EUR offering debt and equity to SEs and NPOs (Alliance, 2014). According to the JFRA, corporations have been increasingly involved in supporting SEs giving in 2016 €7 billion EUR from 420,000 donors (2017). Numerous examples show large corporations as key drivers of social investment. All in all, the SE landscape is one of the most advanced in Asia powered by foundations, grown interest from investors and creative investment models.

5.2.3 Internal factors

Fit with organizational objectives

De Koekfabriek's vision is to create jobs for individuals with a distance to the labor market. Their financial resources derive (outside sales) from crowdsourcing and several foundations. In order to successfully expand into a new geographical market a pivotal a large sum of money is required. Fortunately, there are not just large foundations willing to not only just support financially but also give management support. Additionally, there is also an increasing number of large corporations contributing to the health of SEs. This will give De Koekfabriek all the necessary support in order to successfully enter the market and realizing the vision in Japan.

Potential to establish relationships

There are countless examples of corporations and foundations that support SEs. Furthermore, the government is willing to give foreign SEs all the necessary administrative assistance in order to facilitate the required procedures. As relationships are pivotal in the Japanese culture it is crucial to spend time with the foundations and corporations that are willing to support De Koekfabriek.

6 Entry Mode

The two markets have been analyzed thoroughly. The cookies/biscuits market in Japan is significantly higher than in Hong Kong. Consumer characteristics are not comparable between the two markets; the Japanese consumers put great emphasis on service and quality while the Hong Kongese prefer foreign snacks. The Japanese culture is rather complex, and the majority do not speak English whereas the culture in Hong Kong is heavily influenced by the West and English is used within the government. Japan is ranked 30th in freest economy while Hong Kong is ranked first as the world’s freest economy for the 24th consecutive year. Both economies are great; showing great improvements over the past few years.

Regarding the social enterprise landscape, Japan has one of the most advanced landscapes in Asia powered by growing interest from investors and corporations. Hong Kong has a growing landscape powered by government aid and a strong philanthropic culture. Concerning the possibility of establishing relationships Hong Kong is the more attractive nation because English is widely used, while in Japan, in order to create relationships, it is needed to master the Japanese language.

All things considered; the market chosen to be entered is Hong Kong. This decision is not merely based on the growing cookies/biscuit market, which is increasing tremendously or the fact that Hong Kong has the world’s freest economy (24 years in a row), but also on the social enterprise landscape. There are several programs launched by the government supporting SEs with financial support, offering partnerships with the private sector, offering startup funding, and organizing public awareness campaigns. These programs offered to both domestic and foreign SEs. There are also a significant number of corporations who not just support SEs by purchasing their products, but they also seek partnerships in order to increase their social impact. Furthermore, English is widely used within the government and corporations. Hong Kong is also connected to the biggest economies in Asia, therefore once De Koekfabriek has entered the market successfully and created a great impact it can easily enter markets such as PRC, Singapore, Taiwan, etc.

Now, in order to enter Hong Kong successfully a mode of entry should be chosen. The choice of entry mode is based on whether to engage in an equity or non-equity mode. The different entry modes are illustrated in figure 3 (see appendices). Other criteria that should be considered are the desired level of control, flexibility, commitment, cost, and risk. De Koekfabriek will enter Hong Kong for the first time and does not have the financial resources to enter the market through equity modes. In order to select the appropriate non-equity mode, several aspects need to be considered.

As mentioned earlier, the objective of international expansion is to create an impact in a foreign country as opposed to selling cookies to a foreign market by export, i.e. creating more jobs in the domestic market but creating no impact in the foreign market. In order to create an impact, presence in a foreign market is needed. This leaves contractual agreements as the appropriate entry mode.

Since the Hong Kong Council of Social Services offers support by fostering partnerships, among other things, De Koekfabriek should enter the Hong Kongese market by setting up a store by forming a partnership. In addition to that, corporations are also seeking to build partnerships with SEs in order to increase their social impact (AVPN, 2019). Partnerships implicate shared control and a significant amount of dissemination risk. This opportunity should be embraced by De Koekfabriek since the SE landscape in Hong Kong is growing rather than being in its mature state as in Japan. Furthermore, local partners can provide De Koekfabriek with supplementing the knowledge of the market reducing the risk of making damaging mistakes.

7 Recommendation & Limitations

After the analysis process on both Hong Kong and Japan, it was clear that Hong Kong was the market that’s worth the most to be entered. The main criteria used to identify the best market were the social enterprise landscape, potential partners, business proximity, and market attractiveness. Even though the Japanese cookies market is significantly bigger than the Hong Kongese, making profit is not the main objective of De Koekfabriek. In order to achieve its vision in a foreign country De Koekfabriek needs to be able to rely on programs that support social enterprises. It needs to enter a foreign market with ease rather than going through a protracted mundane process. Hong Kong is by far the better market to enter compared to Japan. English is also used within the government which is beneficial for De Koekfabriek. All these things considered; the decision was made to enter Hong Kong.

The investigation of potential market entry strategies led to the decision to enter Hong Kong by a contractual entry mode in form of a partnership. This decision was based on the objective of this report, namely create a social impact in a foreign market. Since the government in Hong Kong is willing to support SEs by creating partnerships with corporations in the private sector it is recommended to take advantage of this. By doing this, De Koekfabriek can address the same problem it did in The Netherlands.

Due to the design of the project, some elements are not included in its scope. This report was limited to only two markets due to constraints of time, resources, and most significantly the limitation on the number of pages. Consequently, interpretation and application of findings and results became limited. Limited access to market information reduced the findings substantially. Additional constraints include use of only secondary research and lack of previous studies regarding the social enterprise landscape.

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9 Appendices

Figure 1: Conceptual framework

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Figure 2: Detailed conceptual framework

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Figure 3: Hierarchical model of choice of entry modes

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23 of 23 pages


The Internationalization Process of Foreign Market Development
Kiel University of Applied Sciences
Catalog Number
development, foreign, internationalization, market, process
Quote paper
Rochdi Houf (Author), 2019, The Internationalization Process of Foreign Market Development, Munich, GRIN Verlag,


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