DEVELOPING STRATEGIES FOR FOREIGN MARKETS

Foster's Lager is a global beer brand. Despite being an industry leader, the firm misread how capitalism works in China. Foster's purchased majority shares of local breweries in Shanghai, Guangdong, and Tianjin in 1993. While consumer price sensitivity was an issue, Foster's could have avoided an expensive lesson had executives understood that the Chinese beer industry was highly fragmented and each town has at least one brewery.103 Foster's could not develop a national distribution network because the numerous local breweries slowed the development of an intermediary distribution system in China. The company experienced additional problems working with the Chinese government because economic growth was more important than protecting foreign business interests. Four years and $70 million in losses later, Foster's sold the Guangdon and Tianjin breweries and took a $100 million write-off.

Borden learned Japan's growing preference for premium ice cream did not equate to market success.104 Borden's market-entry options included foreign direct investment, joint venture, or licensing. High foreign investment costs and Japan's multilevel distribution system influenced the company's decision to enter into a limited term licensing agreement with Meiji Milk, Japan's leading ice cream maker. Furthermore, market success would be challenging because Haagen Daz owned 90 percent of Japan's premium ice cream market.105 This licensing agreement served Meiji better than Borden. As the licensing agreement approached its end, Meiji's Aya premium ice cream line was launched domestically. Borden had trained a new competitor.

While Internet businesses are not new ideas, companies using technology to deliver products need to recognize that market entry occurs at the speed of light. Waiting for even a few months to make a market-entry decision is a costly decision. eBay executives learned that they missed an opportunity by delaying the company's expansion into Japan. Used consumer goods waiting for garbage pick-up suggests that Japanese people tend to shy away from used items. Yahoo Japan discovered Japanese consumers buy collectables just like everyone else. Yahoo's four-month head start allowed the company to capture 95 percent of the market.106 Two years later, eBay abandoned the company's three percent market share and gave up on Japan.107

Firms operating in dynamic, knowledge-intensive industries need to develop strategic networks to help improve their success in foreign markets.108 International business research finds that firms operating in emerging or transitional institutional environments tend to substitute strong network relationships for unstable institutions. Small businesses experience different challenges, particularly when they are isolated geographically from major international markets. In this case, the industry type affects the expansion rate. Both small and large businesses seem affected equally when innovation and change are rapid. Network relationships serve as potential market-entry strategies, particularly if the industry's innovation rate is rapid.109 In one case, a New Zealand computer software firm discovered that time spent raising capital for international expansion resulted in losing their competitive advantage.110

The preceding examples highlight challenges businesses face competing globally. While Foster's holds a strong, global position in the beer industry, the firm's resources did not overcome competitive and governmental differences experienced in China. The Chinese beer industry is fragmented, thus making market growth challenging. China's strong government created additional challenges because centralized planning emphasizes economic growth and the country's legal system lags economic growth. The lack of legal transparency creates challenges for foreign companies attempting foreign direct investment options.

Borden found oligopoly-level competition in Japan's ice cream market. Japanese businesses have an institutional tradition of business linkages called keiretsu. These linkages include overlapping boards of directors involving related businesses, a practice considered collusive and illegal in the United States.111 The larger keiretsu arrangements evolved from pre-World War II zaibatsu (Mitsubishi, Mitsui, Sumimoto, and Yasuda). These business organizations have existed since the 1920s and include close relationships with government officials. Retiring, highranking government officials are hired as executives by these keiretsu organizations, creating a partnership between business and government. In this case, Japan's tradition of close business and government relationships made Borden's foreign market success difficult.

eBay just dropped the ball. A lack of Japanese domestic competition and a global advantage over Yahoo may have made eBay executives complacent. Technology-related firms need to recognize that market opportunities open and close at the speed of light. While eBay is a market leader and the Japanese market was wide open for opportunity, eBay executives failed to see a growth opportunity. When the company did launch in Japan, little effort was made to change their operations to adapt to Japanese consumers.112 Yahoo's executives recognized their market entry as an opportunity to brand the company as Japanese and product adaptations were made. Either eBay's executives felt the brand name would encourage Yahoo customers to change loyalty, or they just wanted to test the market without spending too much money. Regardless of their intent, the results were not good.

Finally, small firms suffer from a lack of resources to enter foreign markets, or to compete once they arrive. Creating strategic networks help these firms move quickly and compete effectively. The New Zealand software company provides an example of what happens in a fast-changing business climate if capital cannot be raised quickly. In this case, technological innovation moved faster than the firm's ability to raise capital and the product was no longer competitive. Finding the right company for these alliances is critical. As the market moves quickly, good partners become scarcer over time.113 Without these partners, the chances of success for small firms are slim. Bigger businesses will develop similar products, and competing in foreign countries without insider help is expensive and difficult.

To develop an effective market-entry strategy, a firm needs to consider the embedded nature of both domestic and foreign markets. This chapter identified differences in government's cooperation or involvement directing economic growth and facilitating international trade. Recognizing that differences exist helps to prevent making incorrect assumptions about the target market. Firms need to assess their own capabilities, the industry's competitive nature, and the host country's institutional environment.