International Business: Foreign market entry principles

International Business: Foreign market entry principles

This report of international business will focus on foreign market entry strategies of two companies which have recently chosen to expand their operations. In the race for corporate global expansion, international companies constantly evaluate a range of locations and mix of strategies appropriate to meeting such goals. The chosen corporate examples are from different industries, such as grocery retail and machine tool manufacturing, in order to explore a range of different ideas and issues.

International business means “all business transactions, private and governmental, that involve two or more countries”. (Daniels & Radebaugh) International business operations are affected by external influences like physical and societal factors together with the competitive environment. Business everywhere in the world today is characterized by the impact of globalization. As the world is getting smaller and more interconnected due to technical development international business increased as well.

Globalization is defined as “the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services, free international capital flows, and more rapid and widespread diffusion of technology”. (The International Monetary Fund)

It is a cause why companies are facing bigger challenges in securing the business continuity. Increasing market transparency of the suppliers and sales markets are leading to a higher competitive pressure. One possibility of taking this development account is to globalize the company. Normally globalization appears in different stages:

1. Direct export
2. Indirect export
3. Own sales organization abroad
4. Manufacturing of proper goods by a legally independent company abroad
5. Foreign Direct Investment

These five stages do also correspond with the 3 stages of the international expansion. (See appendix I)

The competitive pressure caused by international operating companies shall be counteracted through exploitation of price-factor differences, exploration of blue ocean markets and enlargement of the market leadership.

A further reason for internationalization can be seen in the worldwide expansion. Expansion is getting more and more important as goods and services are no longer only regionally available but also crossing the boarders.

Hereby is meant a “follow the customer” or client-driven strategy. Once that an important customer decides to relocate its production facilities abroad it is often desired that the supplier goes the same way. This case often appears in the car manufacturing industry. As soon as an OEM (original equipment manufacturer) decides to establish a new production plant abroad, suppliers were pleased to locate themselves in the direct catchments area. This step is voluntary but the supplier has to assume that he will lose the order if he does not fulfil the OEM’s wishes. Especially manufacturers of investment goods, e.g. machine tool manufacturer that practice business-to-business do appreciate their key accounts.

Deckel Maho Gildemeister AG’s investment in Shanghai

Gildemeister is the leading manufacturer of cutting machine tools worldwide. Their business includes the ‘Machine tools’ and the ‘Services’ segments, along with the ‘Corporate services’ segment, which functions as the management holding company for the group. The ‘Machine tools’ segment covers the group’s new machines business including the ‘turning’, ‘milling’, ‘ultrasonic’ and ‘laser’ technologies. Gildemeister combines its expertise in development and technology at five product facilities with ten production sites. They offer services of all aspects of their machines across all areas. Gildemeister is represented in 28 countries with 59 national and international sales and service sites. A total of 5,272 committed employees attend to their innovative machine technologies, services and state-of-the-art software products.^[1]

The general machine tool market and competition situation which Gildemeister is facing can be characterized as follows:

- Globalized and fragmented market with a multitude of medium sized demanders and few big one’s
- Edging out competition especially caused by strong rivalry from Asian countries
- Discontinuous market changes
- Progressive shortening in technical innovation cycles
- Differentiated customer needs^[2]

“A crucial feature of market leadership is the ability to serve markets promptly, reliably and with high quality.”^[3] Therefore Gildemeister is continuing their international market presence. One essential contribution to that purpose was Gildemeister’s move to China in 2003 where the world’s largest market for machine tools has developed in the past few years. Among others, customers of Gildemeister are the well-known car manufacturers DaimlerChrysler, Volkswagen, BMW and Renault which also established their market entry in China.

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^[1] Gildemeister annual report, 2005

^[2] Kapitza, 2004

^[3] Gildemeister annual report, 2005