The different approaches to the explanation of internationalization of a business firm put different emphasis on the issues of market selection and entry. Despite their distinctive approaches, most of these theories imply that firms expand into international markets in multiple stages. At first their scope is limited and cautious. But once the firms’ confidence levels improve the internalization process later increases its momentum. But big firms with good experience in operating in foreign markets may think of entering foreign markets directly depending upon the prevailing market conditions. Analysing the Chinese market with regard to the model propounded by Root (1998), it can be said that the best entry for Norton Motorcycles is direct entry. Direct entry with its own manufacturing unit will enable Norton Motorcycles to take advantage of the cheap labour available in the Chinese market and the exporting opportunities to the neighbouring markets like India.
ENTRY MODE FOR NORTON MOTORCYCLES
Even the most experienced and well established companies don’t enter a market directly by setting up its own manufacturing base. The most preferred modes of entry will generally be the direct and indirect export of goods to the host country. Exporting of products initially gives a chance to understand the market conditions that are prevalent in the host countries. Any modifications that are required for their products which are required to make them more compatible with the conditions of the target market can also be considered. Firms can enter a new foreign market through different means like direct exporting, indirect exporting, licensing, and setting up a wholly owned subsidiary with its own manufacturing base in the foreign market. Each of these entry modes have their own advantages and disadvantages. In the case of smaller firms or businesses which don’t foresee a substantial market in the initial days, they will initially enter the foreign market through exports and slowly expand their business operations. Once the operations pick-up, they will consider setting up their fully owned subsidiaries in the foreign markets. The earliest literature on foreign market entry strategies dealt only with the choice between exporting and FDI (Buckley and Casson 1998). The cost based view that was widely practised by firms suggested that a firm must possess some compensating advantages in order to overcome costs that need to be incurred for adopting to a foreign market. But later researchers have included a wider number of factors like political, foreign country environmental factors, company’s internal factors that should be considered before deciding the mode for foreign market entry.
According to Root (1998), firms make their entry strategy basing on several conflicting forces. In the model propounded by Root (1998) the choice of foreign market entry for a firm is a combination of multiple factors which are both internal and external to the firm. The external which decide the mode of entry are the markets factors, environmental factors, production factors coupled with some home country factors. These external factors can’t be influenced by the firm’s management but play a decisive role in the final selection of the entry strategy. Any single external might not have a decisive impact on the decision of the entry mode strategy, but instead it can encourage or discourage a company to decide upon a particular entry strategy. Any change in the external factors might even force the companies to revise their entry mode. Hence it is imperative for companies to continuously monitor these external factors both before and after the actual entry is made into the target market. The internal factors which impact the decision regarding the entry mode are company product factors and company resource/commitment factors. These internal factors are generally specific to a firm and these internal factors determine how a company responds to the external factors which are prevalent in the home country before making a decision regarding the entry.
The preferred entry for mode Norton Motorcycles should be direct investments in setting up its manufacturing base. The vast potentiality of the Chinese market and the opportunities for export into other neighbouring countries makes direct investment as the model entry strategy for Norton motor cycles in the long-term. According to the Root’s (1998) model for market entry, the target country market factors include the market size, future growth prospects, competitive structure, and the marketing infrastructure. The increasing prosperity of the Chinese customers coupled with preference for foreign brands like Norton makes direct investment the best entry strategy for Norton motorcycles. China is the biggest producer of two wheelers in the world. But the domestic producers mostly focus upon mass produced executive two wheelers. The target country’s environmental factors include the number of firms which are prevalent in the market and the control exerted by the government on the industry. As of 2014, there were nearly 160 players in the domestic market and most of the companies focus upon the lucrative 125 cc segment. The quality of products of these domestic players is also not of international quality. Hence the local players can’t give much competition to foreign players like Norton in the long-term. The market for high end two wheelers is also booming in many south Asian markets like India (Indian Express 2014). This provides a vast export potentially for Norton if it sets up a manufacturing base in China. Environmental factors also include political, economic and sociocultural characters of the target country. The Chinese government encourages foreign firms to set up manufacturing facilities in their country which would result in increased employment, rise in GDP, and export revenues. The production factors of the target market include variables that can impact the production in the foreign markets like the availability of labour; raw materials, and other infrastructural facilities. China has some of the best production facilities in the world that made it into a production hub for some of the best corporations in the world like Apple. The cost of Chinese labour is one of the lowest in the world (Harris 2011). China also has some of the best infrastructure facilities in the world like roads, ports, electricity. The cost of all these other infrastructure facilities is also cheaper when compared to other Asian markets. According to Root (1998), low cost of these production factors would direct production, while a high cost would encourage the opposite. Home market factors of the external market include the size of the home market, production factors, and environmental factors. A booming home market with cheap production facilities make the firms to first grow well in the home market before thinking of expanding to other markets. The UK market for high two wheelers is saturated with a number of foreign and domestic markets leaving little scope for further growth. The production costs of the domestic UK market are very high when compared with the Asian markets like China. This makes the prospect of setting up a production base in a market like China highly lucrative.
The internal factors to the company which decide the market entry mode include the company product factors like the demand for the company’s product, need for adaptation to the local markets, ability to provide post sales service effectively. As mentioned above there is a huge demand for exotic foreign products like Norton Motor Cycles in China. Being a big corporation with decades of experience in providing after sales service, Norton Motorcycles can easily cater to the service needs of the Chinese customers. The availability of good infrastructure like roads in the Chinese market and the fact that cult brands like Norton Motorcycles need to be supplied with the same design makes it unnecessary for Norton Motorcycles to customize their products. Coming to the resource commitment factors, the availability of firm resources like management and personnel resources and the organizational capacity decide the market entry mode for a company. With a rich experience in operating in foreign markets, Norton Motorcycles has the requisite management and other personnel resources which can be expended to set up a direct subsidiary in a foreign market like China.
The above analysis makes direct entry into the Chinese market as the best entry strategy for Norton Motorcycles.