Question

Exercise 2. Foreign market entry modes.

Answer the following questions using the appropriate theories and models.

1. Korean company has been exporting cosmetics to the European Union for the last 25 years. The EU market represents 55% of the company’s revenue. What would be the possible business strategies for the company if the EU implements a 45% tariff on Korean goods?

2. Suppose that this Korean company possesses two important ownership advantages: Efficient bio-cosmetics manufacturing techniques and a reputation for producing high quality cosmetics. What would be the possible business strategies for the company to enter the EU market?

3. Suppose that this cosmetics-producing company is Korean Beauty, a brand which is already well-known in many countries. If a company would like to maintain the brand familiarity, would be the possible business strategies for the company to enter the market of Brazil?

Answer 1

part-1

If EU implements a 45% tariff on Korean Goods

(i) The company can try to establish it's factory in the EU region itself in order to avoid tariffs.

(ii) In the long term it can try to diversify it's exports to other countries / markets.Presently it's dependency is very high on the EU Region with 55% of it's revenue coming from the same region.

(iii) In the short-term,in order to maintain it's market share in the EU region it should continue it's exports by reducing it's margins as much as possible so that there would be marginal increase in final prices of it's goods in the EU market.

part-2

This other company should enter the EU market because it can capture the market share in the EU market from the existing Korean company because it has more efficient bio manufacturing techniques.This ensures that they can price their goods at a much lower price when compared to that of the above mentioned company.

(ii)Also,since this company has the reputation of producing high quality bio- cosmetics it can easily capture the EU market even if it sells it's product at a price equal to that of the above / initially mentioned manufacturer.

Since it is mentioned that this manufacturer is Korean company it does not have to pay the tariffs of the EU region.So,it will have the price advantage.So,it can easily capture the market share in the EU Market from the existing Korean manufacturer.

part-3

If that Korean company wants to maintain the brand familiarity,it can enter the Brazil market by :

(i) It can provide it's license to other leading manufacturer in the Brazil region.By this strategy they would be able to enter the Brazil market without any investment.It can just cash-in it's already existing brand familiarity.

(ii) In case if it sees it's sales increasing in the Brazil market then it can invest and set up it's manufacturing facilities in Brazil itself.