Padini’s
Ideal Entry Strategy
Padini’s ideal mode of entry strategy utilized
for internationalization of their operations is through Franchising of one or
all of their strategic business units (e.g. Seed, Vincci, etc.). (Padini
Holdings Berhad, 2012) Their entry into Middle-east, South-east Asia, etc. was
achieved using a franchising entry stratagem, as seen on their website. (Padini
Holdings Berhad, 2012) Before we move onto how Padini’s traditional
entry strategy would be suitable for their entry into Iran, let us look into
the various aspects of using ‘Exporting’ as the method of entry for a firm’s
internationalization efforts.
Exporting requires the least amount
of involvement by a firm in terms of resources needed and allocated to serving
an overseas market. Basically, the company uses existing domestic capacity for
production, distribution, and administration and designates a certain portion
of its home production to a market abroad. It makes the goods locally and sends
them by air, ship, rail, truck, or even pipeline across its nation’s borders
into another country’s market. Entrance into an export market frequently begins
casually, with the placement of an order by a customer overseas. At other
times, an enterprise sees a market opportunity and actively decides to take its
products or services abroad. (Ajami et. al., 2006)
A firm can be
either a direct or an indirect exporter. As a direct exporter, it sees to all
phases of the sale and transmittal of the merchandise. In indirect exporting,
the exporter hires the expertise of someone else to facilitate the exchange.
This intermediary is, of course, happy to oblige for a fee. There are several
types of intermediaries: manufacturers’ export agents, who sell the company’s
product overseas; manufacturers’ representatives, who sell the products of a
number of exporting firms in overseas markets; export commission agents, who act
as buyers for overseas markets; export commission agents, who act as buyers for
overseas customers; and export merchants, who buy and sell on their own for a
variety of markets. (Ajami et. al., 2006)
There are
many advantages when a firm utilizes exporting as their method for entry. The
major advantage of exporting is that it involves very little risk and low
allocation of resources for the exporter, who is able to use domestic
production toward foreign markets and thus increase sales and reduce
inventories. The exporter is not involved in the problems inherent in the
foreign operating environment; the most that could be lost is the value of the
exported products or an opportunity if the venture fails to establish the
identity or characteristics of the product in the foreign market. (Ajami et.
al., 2006) Exporting also provides an easy way to identify market potential and
establish recognition of a name brand. If the enterprise proves unprofitable, the
company can simply stop the practice with no diminution of operations in other
spheres and no long-term losses of capital investments. (Czinkota, 2004)
The disadvantages of exporting
according to Ajami et. al. (2006), are “exporting can be more expensive than
other methods of overseas involvement on a per-unit basis because of not
understanding the differences of the local market relative to the home market
of the firm, and the costs of fees, commissions, export duties, taxes, and
transportation. In addition, exporting could lead to less-than-optimal market penetration
because of inappropriate packaging or promotion.” Exported goods could also be lacking features
appropriate to specific overseas markets. Relying on exporting alone, a firm may
have trouble maintaining market share and contacts over long distances.
Additional market share could be lost if local competition copies the products
or services offered by the exporter. (Czinkota, 2004) The exporting firm also could
face restrictions against its products from the host country.
While some of
these problems can be addressed by establishing direct exporting capability
through the establishment of a sales company within the foreign market to
handle the technical aspects of export trading and keep abreast of market
developments, demand, and competition, many firms choose instead to expand their
operations in foreign spheres to include other forms of investments.
