Application of Strategic Alliances in Foreign Market Entry by Banks in Kenya
Kioko, Viola M
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Companies decide to go global and enter international markets for a variety of reasons, and these different objectives at the time of entry should produce different strategies, performance goals, and even forms of market participation. However, companies often follow a standard market entry and development strategy. The most common is sometimes referred to as the “increasing commitment” method of market development, in which market entry is done via an independent local partner. This internationalization approach results from a desire to build a business in the country market as quickly as possible and by an initial desire to minimize risk coupled with the need to learn about the country and market from a low base of knowledge. The rapid increase in international trade and cross-border financial transactions in the last two decades has been coupled, in more recent years, with an expansion in international banking. This has determined an increase in both the number of acquisitions of foreign banks and the scale of activity of foreign branches. Internationalization is a large driving force that has led to the trend of the rising number of business organizations operating beyond their home country. As with Internationalization, there is now a decrease in trade barriers which makes doing business abroad easier. Similarly, there is also an increased in the number of competitors in the local market and many a times, an organisation has to expand into a new foreign market so as to achieve a higher market share. By expanding the customer base and production scale, a business organization can achieve economies of scale. After expansion, cost advantages and higher profit can be obtained by bulk purchasing, having higher bargaining power, enjoying higher turnover rate and paying lower interest charges when borrowing. For a business organization to grow, it has to constantly find new opportunities to expand. When the local market is saturated and being well developed, the business organization should consider entering into foreign markets for expansion. An international market entry strategy is defined as the planning and implementation of delivering goods or services to a new target international market. It often requires establishing and further managing contracts in a new foreign country. Few firms successfully operate their business in a niche market without ever planning to expand into new markets (mostly due to the localized nature of their Business) but most firms strive to expand through increased sales, brand awareness and business stability by entering a new market. Developing a win-win market entry strategy involves a thorough analysis of multiple factors, in a planned sequential manner. Successful business alliances are a critical strategic component in many industries, but too many strategic alliances fail to meet their partners’ objectives. While the reasons behind alliance failures are complex, and vary according to type of alliance and industry, many failures result from ill-conceived overall alliance strategies, narrowly focused industry and firm partner selection analytical thinking and models, and poor alliance management, execution and implementation. In particular, the well-informed and strategically driven selection of alliance partners is a core element in building successful alliances. It is an important aspect for a company whether they should or not should expand their business into foreign markets. The reasons for expansion into foreign markets could be the economic characteristics of the foreign business environment, the perceived growth in a local foreign market or the financial and competitive benefits a company can gain from a successful foreign market entry (Laird et al. 2003). The economic reasons/motives that are stated have its origin in the thought that companies should bring profit and involves efficiency of resources.
University of Nairobi