Using Joint Ventures as an Entry Strategy
Penetrating a foreign market can be quite hard, even if we are talking about an established company entering a third-world market. People tend to have their doubts and their preconceptions as to how they think a company would be able to meet their needs. They tend to treat foreign companies with a bit of suspicion. In order to make the market penetration easier, some companies use joint ventures as entry strategies.
How exactly is this done?
A foreign company, despite its success and its riches, will have a hard time competing with an already-established local corporation. This is because people who live in the locality have already been turning to the local corporation for their needs for a long time. They have built a “comfort zone” in the tradition of buying from that company. A foreign corporation would need to mount a virtual promotional assault in order to loosen a local company’s stranglehold. This, however, still holds a lot of risks for the company, adding to the fact that it does entail a lot of expenses. Making use of a joint venture as an entry strategy is often done as a sort of insurance in the case that an all-out promotional invasion fails.
First of all, the foreign company finds a local company which might require an infusion of cash and or other resources of profit. The foreign company approaches the local one with the prospect of a major money-making venture. However, that venture requires that the two companies combine forces. Of course, the local company would immediately refuse any idea of a merger. The foreign company therefore offers the alternative of a joint venture. This way, the two companies can work for the same goal without actually infringing on each other.
Because of the venture, the foreign company now has these:
1) Opportunity to prove itself – because of the joint venture, the company now has the opportunity to truly show what it can deliver. It is allowed to flex its muscles, if you will. This builds reputation and reputation gives way for more opportunities. This is very important since investors will certainly be looking at a company’s performance before they make the move to trust it with their money. Even if a company has proven to be formidable in a foreign land, people will still want to see how it performs under local conditions, where everything is a whole new ball game.
2) Allies – one of the best things about using joints ventures as entry strategies is the fact that the foreign company actually gains an ally when taking on the venture. We all know that competition can be pretty intense between corporations and maintaining your hold in the market can be vital to a company’s success. By gaining an ally, the foreign corporation will be paving the way for future alliances. This means that the foreign company will have at least one foot into the local market. This may not seem like much, but everything begins with a single step, right?
3) Profit – of course, one of the main purposes of the joint venture is always profit. In using a joint venture as an entry strategy, a foreign company now has the ability to tap into the local market for profit. This means that a lot of money which was previously inaccessible to the foreign company is made available simply because of this strategy.