Challenges Faced by Companies Entering Foriegn Markets
Challenges Faced By Companies Entering Foreign Markets
Case of Rocket Internet’s Sabunta
August 2012
1. INTRODUCTION
Companies move into foreign markets for various reasons. In certain cases, it is towards achieving a required sales volume. In other instances, it might be a bid to increase brand awareness. Other companies go into foreign markets to re-invigorate sales after their products have gone through their life cycle - from inception to decline - in home markets.
Regardless of reason, moving into a foreign market tends to portend great opportunities for companies, particularly if it entails serving products in an emerging economy that has recently become wealthy enough to afford such products; or selling a new but needed product or service to a developed and wealthy market. However, in foreign markets, challenges are as numerous as opportunities.
Some sources of challenges are discussed below. a) Socio-Cultural Differences
Companies tend to adopt practices that were successful in home markets without adapting these models to fit the cultural inclinations of markets entered. When large cultural differences exist between the home country and that entered, such practices may result in ineffective business development and partnerships. An example is the now well known Chinese practice of longer meetings in the bid to become acquainted with potential partners, compared to the Anglo-American practice of brief to-the-point meetings. Adopting either approach in a market more inclined to the other, will no doubt hinder business development.
Language differences are other examples of socio-cultural differences that posit challenges to companies entering a foreign market. Language differences make effective and efficient communication difficult between companies and local stakeholders. A light example is the Chevrolet Nova which was selling far below expectation in Latin America. Executives of General Motors could not understand why this was
Case of Rocket Internet’s Sabunta
August 2012
1. INTRODUCTION
Companies move into foreign markets for various reasons. In certain cases, it is towards achieving a required sales volume. In other instances, it might be a bid to increase brand awareness. Other companies go into foreign markets to re-invigorate sales after their products have gone through their life cycle - from inception to decline - in home markets.
Regardless of reason, moving into a foreign market tends to portend great opportunities for companies, particularly if it entails serving products in an emerging economy that has recently become wealthy enough to afford such products; or selling a new but needed product or service to a developed and wealthy market. However, in foreign markets, challenges are as numerous as opportunities.
Some sources of challenges are discussed below. a) Socio-Cultural Differences
Companies tend to adopt practices that were successful in home markets without adapting these models to fit the cultural inclinations of markets entered. When large cultural differences exist between the home country and that entered, such practices may result in ineffective business development and partnerships. An example is the now well known Chinese practice of longer meetings in the bid to become acquainted with potential partners, compared to the Anglo-American practice of brief to-the-point meetings. Adopting either approach in a market more inclined to the other, will no doubt hinder business development.
Language differences are other examples of socio-cultural differences that posit challenges to companies entering a foreign market. Language differences make effective and efficient communication difficult between companies and local stakeholders. A light example is the Chevrolet Nova which was selling far below expectation in Latin America. Executives of General Motors could not understand why this was