Late or Early Entry into Foreign Market for MNE?
Some multinational organisations prefer to enter foreign markets late than early. The decision regarding which strategy to choose draws attention to the need to understand first-mover and second-mover advantages in developing international market entry strategies. This discussion provides a case for early and late entry market strategies as described below. A Case for Late Entry. The decision regarding when to enter or exit a market is important for a company that intends to operate successfully in a foreign market. However, circumstances for entry and exit often make it difficult to know when it is wise to change market entry plans. Based on this dilemma, the decision regarding whether to enter a foreign market late, as opposed to early, is poignant to multinational organisations, which would rather enter into a foreign market late than early.
Subject to the uncertainties of entering in a foreign market without prior experience, an early market entry would make it difficult for a company to sustain its presence in the market until it gains traction. There is evidence to suggest that most companies, which enter the market early, tend to do the “groundwork” for firms that will follow their plans because they do not often realise the returns on their investments as “first entrants” until they are years into operation. Therefore, companies, which come into the market second or late, could easily leap into profitability because they will enjoy the benefits of prior marketing done by first-movers.
Starbucks’s internationalisation strategy is characterised by second-mover advantages. The only market where it has adopted a first-mover strategy is the United States (US) – the home country. The coffee chain entered the United Kingdom (UK) market through an acquisition of a previously existing coffee business. This decision to acquire was informed by the similarities between UK and US business environments, which gave the North American company enough confidence to believe that it would go it alone in the UK. However, this plan was not the case in its Japan’s market entry model because Starbucks did not believe that it had adequate knowledge about the country’s beverage industry to venture into the market by itself. Consequently, it chose to collaborate with a local partner through a joint venture agreement. In the end, both entities set up a successful company, which was profitable in less than two years.
Starbuck’s market expansion into China is also another example of second-mover advantages because it licenced one local coffee chain to use its brand. This market entry strategy saved the company the initial market setup costs that would be typically associated with a first-mover strategy. In Starbuck’s arrangement, the local partner took care of the capital acquisition expenses and managing plans, while the coffee chain only focused on managing brand-related issues. In all the foreign markets highlighted above, Starbucks has gained from pursuing a second-mover market entry strategy because it has been successful in all its foreign endeavours. Its excellent record in this regard stems from the awareness of its lack of sufficient knowledge regarding foreign markets.