January 10th, 2018
Market entry modes and the benefits for the parties involved
Various entry modes to the Japanese ice cream market may be probable. Entry may for example be achieved by inception of a new company, diversification of an existing company’s line of business to include ice cream production, mergers or acquisitions of existing ice cream firms or through exporting products from the initial country of production (Datamonitor, 2008). In the latter scenario, joint ventures with local players would be beneficial due to the country specific market characteristics such as culture.
The various forms of entry have different implications for sorbet Delicacies position. First expanding a company’s line of business is not an option available to Sorbet Delicacies since it has not been in operation in the Japanese market under any other type of business. Starting a new business has on the other hand been rated in the 91st position according to the World Bank and IFC (2009) report. Such relatively adverse rating of stating a business as compared to other measured variables such as getting credit, dealing with construction permits and trading across boarders implies that this might not be the optimal entry method as regards Sorbet delicacies. The procedures from the registration processes to restrictions based on whether the business is a subsidiary or branch of the parent company (AKLO, 2004) also might probe a problem for sorbet delicacies to achieve. Mergers also are subject to restrictions such as they must be performed as stock-for-stock transactions with “cash merger” option available in the United States being restricted (AKLO, 2004). With such an arrangement full acquisition cannot be made thus Sorbet Delicacies cannot own an existing Ice cream venture in entirety via this method. Further the major Ice cream manufacturers present in the Japanese market are well established (Datamonitor, 2008) hence their acquisition would be highly improbable while the acquisition of lower performing companies might not generate the requisite market share aimed to foster growth. Initially thus the optimal initial operations of the Ice cream vendor would be exporting to the Japanese market via a joint venture understanding with a local distributer.
Exporting products through a joint venture would form the best strategy through which Sorbet Delicacies could effectively implement its expansion plans. One of the advantages of such an entry mode is that the local player could provide the cultural and market appeal that is associated with the Japanese people. Such would eliminate the need for acquiring additional staff who are sufficiently conversant with the people’s language to promote the negotiation with buyers. When such a local player has an established distribution channel these would be employed in selling the company’s product and the company would provide the funds to advertise the products. The association with a local player would also reduce the capital expenditure that would have otherwise been channeled to establishment of a new business or acquisition of existing ones. These savings would in turn help promote the quality and diversification of products offered – lack which has been noted to have led to a slump in the Japanese ice cream market (Datamonitor, 2008) – and invest on transportation requirements that is essential in distribution of ice creams. Though the export business involves high variable costs such as trade and transport costs as compared to foreign direct investment (FDI) (Qiu, 2006), the high fixed costs of the latter in case of sorbet business would be aggravated by the fact that existing market players have already made substantial investments (Datamonitor, 2008) thus matching such investment for successful entry would prove disadvantageous.
The entry of Sorbet Delicacies into the Japanese market would constitute benefits for both the company and the country. While the company stands to gain from increased sales, reduction of risk through spreading risk to different markets, and international experience required for subsequent growth, the country stands to gain from increased revenues from the industry. The country reaps an approximate $2.8 billion from the ice cream markets mainly provided by domestic players with General Mills Inc. dominating the market with a 39.7 percentage share (Datamonitor, 2008, p.3). The industry has however experienced shrinking demand in the recent past and the availability of reputable foreign competition that provides quality and diversified products could salvage the market. Further the entry of Sorbet Delicacies would provide employment opportunities in the marketing and distribution sectors as well as generating more income from the duties levied on the products. Got to part 5 here.