Foreign Direct Investment

Introduction and Background

This project was made by a group of International Business students from HAAGA - HELIA University for MoveRoll Oy. This research is conducted to find potential sales partners in Brazilian Pulp and Paper industry.

The team of three people worked on this project. We tried to explore the pulp and paper industry market in Brazil to study the most successful overseas market outlets and find potential partners for sales. We described in this report all the information which we had received and wrote our recommendations.

MoveRoll Oy is a small size company situated in Porvoo, Finland. MoveRoll Oy as a separate company was founded in 2008 to manage the growing exports of MoveRoll conveying systems produced by Sovellusmestarit Oy. MoveRoll products are cutting edge technological products. The company completely owns the technology and they are the only one to answer an actual need with a product different from the competitors because it is efficient, cheaper, energy saving and time saving. Which are Horizontal Conveyor, turn table, ramp conveyor, bumper. MoveRoll Oy ambition is to be a globally recognized brand and a pioneer supplier of new innovative compressed air powered roll conveying systems for the paper industry.

This year MoveRoll is expanding their business activity as it was in the last year, they are trying to enter the Brazilian market with their unique technology. MoveRoll Oy is very interested in the ways of marketing communications in the Brazilian market. Thus, the aim of this project is to obtain the necessary information.

Project Goal and Deliverables

Project Goal

The goal of this research is to explore the Brazilian market, in order to search the best marketing strategies as well as partners for MoveRoll Oy to enter the Brazilian market.

MoveRoll mission is to be a global recognized brand as well as to increase market share by 30 % in the next five years. The main focus is to create a brand name which would be recognized not only by system suppliers and paper mills but by the entire pulp and paper industry.

According to request and expectations of our commissioners, we have defined goals for this project. We tried to make the overall image of the Brazilian market with a focus on the pulp and paper industry. In order to gather more specific information, we conducted a search of companies that supply machinery and equipment for the pulp and paper industry in Brazil. We used the theory and the data collected from our secondary source to find out and present the most suitable communication strategy for MoveRoll Oy which should be used to communicate with potential customers in Brazil and to find local sales partners. The collected information we included in this research report.

Deliverables

Our report includes a theoretical basis, data collection, followed by the results and conclusion. The report provides the information on the Brazilian market pulp and paper industry, possible entry strategies of this market and potential customers. We will present our findings and conclusions for commissioners on the last presentation lesson.

Entry Strategies

When the company chooses an entry strategy on the external market, it has to follow one of the alternatives. It can choose any of them or a combination of them, in order to achieve their goals or to adapt to current market conditions. The entry strategies for foreign markets are exporting, franchising, joint venture, foreign direct investment and licensing. (Philip Kotler, 2012)

Export

The simplest and most common form of access to foreign markets is to export goods. Export requires the least overhead, because all marketing functions mainly borne by intermediaries. The company can export with a help of specialized brokers or directly with foreign wholesalers and traders.

While exporting with the help of Brokers Company minimizes its efforts on the promotion of products to foreign markets, and therefore, this method is particularly useful for businesses. In this case, the company does business with a broker who is in the domestic market. The main advantage of this type of export is that the company can avoid the complexities associated with the delivery of goods abroad, tariffs, foreign laws and other similar problems. All these charges are passed on to the intermediary. Besides, the risk for the enterprise is minimal and does not require a significant investment. Such export opens for the company the opportunity to withdraw from the market if the profit is not that they expect or the market situation becomes unfavorable. Among the disadvantages is almost complete loss of control over prices.

Despite all the advantages of using specialized export brokers, some companies decide to export their goods directly to intermediaries who are in the external market. Advantageous feature of this type of export is increasing control over the enterprise of goods exported to foreign markets. The disadvantage is the additional expenses. (Philip Kotler, 2012)

Franchising

Franchising is a fairly simple and effective way of entering foreign markets. In this case, the entity (the franchisor) grants the right to use its manufacturing technology, trademark and patent to another entity (the franchisee) situated on the territory of a foreign state. Besides, the franchisor provides technical support and assistance in the organization of marketing activities. In response, the franchisor gets money in response. The reason for using a franchise system is the ability to enter foreign markets with minimal risk and minimal expenses.

Franchising offers more opportunities to control the sale of goods and requires little expenditure. As well as exports, franchising is less risky than foreign direct investment, as it gives more flexibility in the care of the market in the absence of profits. But compared with foreign direct investment, franchising, of course, gives you less control.

If franchisees do not meet the conditions of the contract, the franchisor can only threaten to terminate the agreement. Finally, if the franchisor decides to terminate the contract, he can not only lose control, but also to create a strong competitor in the foreign market. (Philip Kotler, 2012)

Joint venture

The decision to create a joint venture with a foreign company directly involves the company in the management of the foreign market. In this case both companies have the right to control and manage. The joint venture can be created in two ways. The first is when a company can make an investment in an existing foreign-owned enterprise. The second is when the two companies can join together to create a new joint venture.

One of the reasons for the establishment of joint ventures is to increase control over the production and sale of goods in foreign markets. The company can also make such decision to use special knowledge or access to distribution channels which has a foreign partner. A joint venture is sometimes organized when the government bans independent entrance of foreign companies in the local market.

There is some risk to make the relationships worse with the foreign partner or get restrictions imposed by a foreign government. Such difficulties are often forced the enterprise to compromise. Furthermore, the establishment of joint ventures may prevent a large enterprise to pursue a single global marketing and sales policy in all markets. (Philip Kotler, 2012)

Foreign Direct Investment

Foreign direct investment provides the highest level of control that the company may have when entering a foreign market. There are two methods of direct foreign investment. The first is when the company can create a new company in a foreign market. This method requires the greatest expenses, because the company needs to create new contacts and sales channels, choose a location for the new company, hire employees and purchase equipment. The seconds when the company acquires an existing foreign company. In this case, the company only needs to make changes in the organizational structure of the foreign company.

Foreign direct investment has several advantages. An enterprise can fully identify marketing and sales policy. This can be especially important for large enterprises that seek to pursue a common policy on all its markets. It also enables more effective price competition, as well as the goods manufactured in the country of sale. It is not necessary to bear transport costs as well as expenses associated with tariffs. Finally, the company has a direct contact with their customers in the foreign market and hence, can meet the needs better and increase its competitiveness.

There is a risk associated with foreign direct investment foreign currency devaluation, political instability and decline in the market and the possible nationalization of property. (Philip Kotler, 2012)

Licensing

Licensing is one of the easiest ways to enter the foreign market. Licensor enters into an agreement with the licensee in the foreign market, offering the right to use a manufacturing process, trademark and patent, trade secret, in exchange for a fee. Licensor gets to market with minimal risk and the licensee immediately gets production experience, a well-known product or name.

While licensing a firm has less control over the licensee than over its newly created company. In addition, if the licensee gets a major success, the profits will go to him and not the licensor. The firm may create a new strong competitor for yourself. (Philip Kotler, 2012)

Indirect exporting (through suppliers) would be the most suitable option for MoveRoll. For the successful entry the company should estimate their opportunities and resources for export, select and learn the target market, create and implement an export strategy.

MoveRoll will need to find a local broker, exporter who will buy products from them and then sell them abroad. A local agent (exporter) will look for overseas buyers and negotiate with suppliers.

Indirect export has benefits for MoveRoll Company. First, its implementation requires less money: there is no need to create the export department, which will engage in sales abroad or establish contacts with foreign partners. Secondly, these exports are less risky as intermediaries act on their own initiative, based on the knowledge of a conjuncture of foreign markets, and tend to commit fewer errors.

Date: 2015-12-24; view: 1267