METHODS OF ENTRY AND DEVELOPMENT STRATEGIES
OF SME ON FOREIGN MARKET
Elena Labutina — Galina Ostapenko
_____________________________________________________________
Abstract
The paper deals with the methodological issues of SMEs entry and development strategies
which allow to promote efficiency of their activity. Basic attention is attended the questions of the
algorithms development for entry market and also to the matrix approach and entry strategies
efficiency assessment.
Keywords: SMEs, entry strategies, development strategies, algorithms development for entry
market, matrix approach, assessment of efficiency.
JEL Code: M13, M16, M31
___________________________________________________________________________
Introduction
In the age of globalization and increasing international competition profit
organizations willing to enter the international market must be prepared for tough business
struggle. Small and medium-sized enterprises (further SMEs) are mainly oriented to the
region needs they serve. However, many companies are trying to go beyond the region,
including Russia, offering their products FSU and beyond. For small businesses it is
extremely difficult to enter the developed markets because they do not have the key resources
to effectively enter the foreign markets unlike large companies.
The questionnaire conducted by RMC in 2011-2012 of Perm regions participants in
foreign trade activities showed that the region SME sector enterprises which developed entry
strategies encounter a range of problems: urgent search for new foreign markets, information
acquisition difficulties, difficulties of working with foreign partners, the lack of collected
information about foreign trade within the region. All the problems do not allow building a
competent strategy to enter and develop the foreign market and entail working spontaneously.
Among a responding companies are LLC "Uralprom-Impex", LLC "Syrial Partners", group of
companies "Tentorium", LLC "Company Polymer", LLC "Prom-Oil”, LLC "Forward LB",
LLC "Fruit-Logistics".
1
The algorithms development for entry market
1. 1 The process of entry
The process of entry consists of several stages.
The first stage. The first stage is introspection. The stage consists of analyzing the
main company’s characteristics at present and in the future: the company's position vs
competitors’ position, customers position, relations with the authorities, the
assessment of knowledge and personal experience (knowledge of foreign languages,
the specific foreign markets, the availability of business contacts), the assessment
budget for the international market.
At this stage expert evaluations, industry analysis, SWOT-analysis can be applied.
Important factors for SME sector enterprises SWOT-analysis building are the
following: marketing, IT, human resources, time and financial resources in internal
environment, and state regulation, socio-economic and cultural factors, competition in
external environment.
The second stage. The second stage is foreign markets research. As noted by G.Ostapenko
(G.Ostapenko, A.Muhametshin 2010, p. 127) market research of priority foreign markets is
conducted at the second stage. Alternatives are evaluated and selection is conducted based on
the analysis of the legal, political environment, assessment of the impact of socio-cultural
factors that determine the potential of the market, and consider the level of competition.
Segmentation is conducted and attractive segments and positioning are chosen, and then the
costs, revenues, risks and cost-effectiveness are evaluated.
SME sectors market research is the soft touch as companies do not take the research
work seriously, tending to avoid it due to its high cost. But information acquisition is a ground
work that should guide the company.
Research for the SME sector is conducted by The Chamber of Commerce of the
Russian Federation. It offers a range of services to find foreign partners and establish foreign
trade companies, it has an information resource "Your Foreign Partner" containing
information about a specific country, the business environment and useful business
information.
In addition to these information sources, authors recommend using the forum of
business
partnership
http://forum.partnerstvo.ru/,
http://www.openrussia.ru/,
http:/
/
www.russarabbc.ru/, http://www.siora.ru/, http://www.benchmarking.com/.
The third stage. The third stage is the development of entry strategy. The third stage
is development of entry strategy. It involves the company’s product development,
pricing and distribution policy, program development and promotion and selection of
entry forms.
Recommendations and strategic planning experience evaluation of Russian SME sector
enterprises on foreign markets ( G.Ostapenko 2011, p.43) showed that the companies have
implemented several key entry strategies: unique niche products (for companies that can
create a unique product), high-quality products with a flexible product range (for firms that
can produce high quality and unique design (the Gloria Jeans), chains integration: the
production of semi-finished products, components, assemblies, offering reasonable "price quality" ratio (AVISMA), Russian company’s transformation in to a subsidiary of a foreign
company, exports to developing countries (good value for money), service (national networks
creation) ( I. Lipsitc 2011, p. 45). The fourth stage. The fourth stage is implementation of tactical action program. The
stage implies the direct business organization on the selected international market. The
team implements a marketing plan to entry foreign markets, conducts training in
business culture and practices of doing business in international markets to qualified
consultants. In order to obtain assistance in launching the internationalization process
(participation in exhibitions / business events, searching potential foreign partners,
cooperation with intermediary organizations), certification and quality verification
standards and requirements procedure is carried out.
The fifth stage. The fifth stage is analysis of results and adjustment operations. The
evaluation of the planned qualitative and quantitative indicators are performed at this
stage. These indicators are compared with actual indicators, adjustment changes are
made, team searches for common mistakes and develop strategies.
2
Development strategies of small and medium enterprises on foreign
market
2.1
Matrix approach to marketing strategy
Authors propose a matrix approach as the leading tool for selecting development
strategy. Building a profile of marketing strategy should be a gradual cycle obtaining
synergies between different segments of the matrix (Fig. 1). (authors model)
Fig. 1: Matrix approach to marketing strategy
This scheme will determine the strategic development on foreign markets, depending
on the position of the business units. Market attractiveness factors evaluation is carried out by
expert methods (the criteria are measured on a scale from 0 to 100).
According to the matrix approach there are five key strategic options: expansion in
international markets, innovation, acquisitions of other business structures, new distribution
channels, and market share increase through price discounts and active sales promotion
campaigns (Table 1).
Tab. 1 : Strategic options
The matrix
Strategy’s option
Title / Axis
М1
( Development and
presence )/ Level
of capacity
development, the
dynamics of
business
development
М2
(interaction with
business partners
and customers)/
Level of capacity
development, the
ability to integrate
М3 (Core
competencies) /
level of
development
potential,
competitive
advantages
М4
(Terms of
presence in the
area of economic
management) /
Level of capacity
development,
market hostility
М5
(A form of
integration
development) /
ability to integrate,
dynamics of
business
development
М6
(Competition
rules) / capacity for
integration,
competitive
advantages
М7
(Aggressive
marketing policy) /
ability to integrate,
market hostility
М8
(Effectiveness of
the diversion of
resources to the
segment) /
Dynamics of the
Option 1
С11
increase the
capacity by
increasing the
customer base
Option 2
С12
Option presence
on the selected
segment
Option 3
С13
rapid capture a
strategic area of
management
Option 4
С14
maximization of
the business
value
С21
“offensive”strateg
y (active search
and development
of innovations)
С22
independent
capture of the
market,
the
individualizatio
n
С23
networking,
franchising
С24
participation in
the joint
venture,
alliances
С31
market expansion,
maximizing
market
share
(basic
products
that compete on
price)
С41
neutral
or
defensive strategy
С32
securing
positions
С33
development to
strengthen the
capacity
С34 retention of
existing
positions,
survival
С42 aggressive
marketing,
offensive
strategy
С43
strategy of "blue
ocean" or
withdrawal from
the market
С44 aggressive
strategies to
promising
markets
С51
vertical
cooperation
infrastructure
С52
lack of
incentives for
integration
marketing
С53
Merges
С54
involvement in
existing value
chains
С61
asymmetric
proposal
competencies
С62 passive
position in
relation to
stakeholders
С63 balanced
alliances with
strong market
participants
С64 search
skills in related
areas
С71
passive presence
on the selected
segment
С72 use
opportunities
С81
accumulation of
resources to the
segment
С82
A minimum
amount of
resources
required
С73
development of
solid
competitive
position
С83
Hold option
segment
С74
Search
free
segments,
leaving
the
market
С84 minimize
the diversion of
resources to the
segment of the
market
in
hostility of the
market
М9
(Innovative
component of
marketing strategy)
/ Dynamics
development,
strategic fit
М10 (structured
values) / level of
capacity
development,
customization of
product
М11
(Product range
component) /
competitive
advantages of
unique requests
М12 (demand
elasticity) /
Hostility market
capacity
С91
innovation
to
bridge the gap
С92 у
holding
positions with
minimal
resources
С93 maintain
the selected
innovation
strategy
С94 increase
business growth
С101
minimal
adaptation
parameters of the
goods
С102 offer
standardized
products
С103 maximum
consideration of
consumers'
needs, the new
product
С104
limited
change of the
parameters
of
customer value
С111
minimizing costs,
dissatisfaction
queries
С112
creating
consumer
С113
selection queries
that meet the
requirements of
the enterprise
С114 orientation
of product range
for loyal
customers
С121
moderate strategy
of sales intense
expansion
С122 aggressive
strategy of sales
intense
expansion
С124
finding
and
maintaining
a
niche market
М13
(Pricing strategy) /
Dynamics of
development,
values
М14 (positioning) /
level of capacity
development,
strategic gaps
С131
price reduction to
the
costs
or
withdrawal from
the market
С141
maintaining the
current position
for
growth
Conformity
С132
dumping or
aggressive
marketing
С123 aggressive
marketing
strategy for
retaining market
share
С133
skimming or
market
penetration
С142 minimal
activity in the
growth potential
С143 product
range
optimization to
overcome the
gaps
С144 change of
vision of
presence in this
segment
М15
(Justification exit
strategy) /
Competitive
advantage, the
concentration of
competitors
М16
(Interaction with
stakeholders) /
capacity for
integration,
economic open
zones
С151
aggressive market
share growth
С152
work within the
supply-demand
equilibrium
С153 affiliation С154
with oligopolists protection and
retention of the
given position
С161
aggressive
capture channels
С162
Search partners
and
representative
offices
С163
distribution
through national
participants
С134 follow the
leader or
minimize price
С164
Market
entry
through
increased
interaction
It is useful to develop strategic alternatives. The selection can be based on issues such
as orientation distribution policy, the variation range of goods and services, production factors
replacement, the acquisition of other organizational and legal structures and joint ventures.
It is also necessary to evaluate the success of strategies in foreign markets. The
analysis will identify the advantages and disadvantages of each significant factor and will take
marketing actions to correct deficiencies.
2.2
The assessment of the strategy’s success
There are guidelines for assessing the success of the strategy on the external market-
based allocation of the factors of success (Chen L. H. 2011, p.27).
Success factors are divided into three levels (high, average, low). There are common
environmental factors for the company (for example, the increase in demand, the availability
of markets) and specific factors for the success of the internal environment (for example, the
company's reputation as well as duration).
Tab. 2: Table of assessing the success of the entry strategy
MFI
indicator
value
enterprise
measure
(хi)
(on a scale of
1 to 10)
scoring
(zi)
Indicators
of success
УNi Market
N (хi.zi)
1
1. …
2
high
average
low
3
4
5
3
1
5
2. …
high
average
low
Х 1=
Х 2=
Х 1 .z i
5
3
1
Х 2 .z i
high
average
low
Х 6=
5
3
1
Х 6 .z i
4. …
high
average
low
Х 7=
5
3
1
Х 7 .z i
Outcome measure to assess success entry strategies to foreign markets
Σ УNi
specific
3. …
Gr
ou
ps
fac
tor
s
6
conventional
complex
factors
It is necessary to calculate an indicator УNi for each factor to determine the success of
strategies:
УNi = хi . zi
(1)
where хi is index value of complex factors, the success of the enterprise;
zi is the scoring of complex factors of enterprise success.
Next it is necessary to summarize the success rates for N-th market for each factor:
Σ УNi = УN1+ УN2 + …… УN13
(2)
It is necessary to determine the maximum and minimum values of the indicators of
success:
Σ УNmax = Σ хimax + Σ zimax ,
Σ УNmin = Σ хimin + Σ zimin .
(3)
(4)
where, Σ УNmax/Nmin - maximum / minimum total index of complex factors of success.
Σ хimax/imax - maximum / minimum total index value.
Σ zimax/imax - maximum / minimum total figure scoring.
This estimate must be compared with borderline grades.
Conclusion
The article describes the methodological issues of entry strategies and development of
Russian SMEs in foreign markets. The main attention is paid to the SME sector business entry
stages to the external market, the matrix approach in the development of strategic
development, assessing the effectiveness of strategic decision making.
Experience analysis of Russian SME sector strategic planning showed that the
efficient penetration strategies are unique niche products, the production of high-quality
products with a flexible range, incorporation into the chain, becoming a subsidiary of a
foreign company, exports to developing countries, service improvement.
A matrix approach is offered as the leading tool of choice strategy. Five key strategic
options are identified. They are expansion in international markets, innovation, acquisitions of
other business structures, new distribution channels, market share increase through price
discounts and active sales promotion campaigns. These options should be evaluated according
to the criteria of success. You must calculate the success rate for each factor, determine the
maximum and minimum values of the indicators, and compare this estimate with borderline
grades.
References
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national culture and foreign direct investment as a market entry strategy: perspectives
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3. LIPSITC, I. In anticipation of Chinese expansion. Harvard Business Review, (2011, no 5,
p. 44—53.
4.
OSTAPENKO, G., MUHAMETSHIN A. SMEs of Perm region entry market program.
Kazanskaya nauka, 2010, no 3, p. 122—128.
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OSTAPENKO, G. (2011). International marketing. Perm: publishing house of Perm state
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ROOT, FR. (2008). Entry Strategies For International Markets. Jossey Bass. ISBN 07879-4571-4
Соntact
Labutina Elena Igorevna, post-graduated student
Faculty of Humanities, Perm, Assistant of professor
National Research Polytechnic University
Komsomolsky prospect 29, build. A, room No. 213, Perm 614990 Russia
[email protected]
Ostapenko Galina Fominichna, PhD in Economics, Master in Management Education,
Aassociate Professor, Faculty of Humanities,
Perm National Research Polytechnic University
Komsomolsky prospect 29, build. A, room No. 213, Perm 614990 Russia
[email protected] ; [email protected]