I Donald, your consultency helps companies enter foreign markets. What kind of help are companies looking for when they come to KMP?
D Well, companies usually have a specific market in mind and a pretty good idea as to which products they intend to export. BUt what they're not sure about is how to get the product into the target maket.
I So what is the best way?
D Well, there are many options, form franchises to wholly-owned subsidiaries. The higher teh degree of ownership, the more control you have. However, ownership also means more investment and, therefore, more risk.
I So what's the safest way of entering a market?
D Well, if you want to keep financial risk to a minimum, you should think about a licensing arrangement or perhaps a franchise. That way you don't have any of the costs associated with setting up production facilities. And, of course, you retain control of the product, which means you avoid some of the conflicts involved in joint ventures.
I But joint ventures are a very popular way of entering foreign markets.
D Yes, they are, because they allow a company to share some of the costs and risk. And even more importantly, they provide essential local knowledge without the cost of having to acquire a company. But they're not risk-free.
I So, what are the danger of joint ventures?
D Well, in a typical joint venture the two partners pool their know-how and learn from each other as they work together. But, in fact, it's actually a learning race. One firm might learn much faster than the other and start taking all the decisions. It could eventually decide it has no more use for the arrangement and even terminate it.
I So, if you wanted to keep control and avoid that, a wholly-owned subsidiary would be the best option, then?
D It really depends on the target market. If, say, there's potentially a very high demand, then it would make sense to buy or set up a subsidiary and produce locally, because of economies of scale. Distance, of course, is another fator. Shipping to the other side of the world can be very expensive. That's why a lot of Japanese companies produce in Europe.
I ANd what other factors can improve a company's chance of success?
D Well, as I said, our clients usually know which products they want to export, but they often don't realize how much their product needs to be adapted. You see, some products require an understanding of local needs and an ability to use this knowledge in the product's design.
I OK. So, let's say a company has successfully entered a market. How quickly should it look to expand?
D Well, once again, it's finding the best way of minimizing risk while optimizing opportunity. However, under certain circumstances, a company is forced to expand in order to survive.
I And when is this the case?
D When, for example, you enter a market with a successful formula that's easy to copy - because yuu'll soon have a lot of local competitors offering the same products or services. Now, unless you're in a position to expand quickly enough to make economies of scale possible, these local companies will soon undercut you and price you out of the market.
I And how can a company prepare for this expansion?
D Well, the key to expansion is not spreading your manageial and fiancial resurces too thinly. That's why it's crucial to develop a long-term strategy and make a thorough assessment of all the resources available for expansion. Otherwise, you won't be able to defend and profit from the market presence you've created.