Establishing a Construction Equipment Sales and Distribution Business into the New Republic of South Sudan
Abstract
This paper discusses import/export entry mode that will be suitable for the construction equipment sales and distribution business into the new republic of South Sudan. The paper also discusses the international functions that will require some modification when the business has arrived in the foreign market. These are: international operations, international human resources management, andinternational R&D.Lastly, the paper looks at the costs and benefits for the host country and the investor. A number of articles and texts on international business were reviewed to offer insights into the real experiences in the foreign market.
Establishing a Construction Equipment Sales and Distribution Business into the New Republic of South Sudan
When a company decides to venture into the international market, it has to consider a number of entry modes and choose the right one in order to make the best use of their resources. In particular, a company might adopt exporting, licensing, franchising, joint ventures or having wholly owned subsidiaries in the foreign countries. Each of these entry modes, however, has its own advantages and disadvantages (Zekiri and Angelova, 2011). Much research has been carried out focusing on the suitable entry modes in different countries, but the bulk of researches have focused on the developed world and the developing countries of South East Asia and South America. Because of the evolving dynamics of globalization in the contemporary times, I have decided to focus on the underdeveloped regions of Africa, specifically; South Sudan. I will discuss the most appropriate entry mode for a construction equipment sale and distribution business into the new republic, which in this case is exporting.Then,I will discuss the international functions-,international operations, international human resources management, and international R&D- that require modification once a firm has entered into a foreign country.Finally,I will explore the costs and benefits for the host country and the investors.Specifically,I will focus on the costs and benefits I am bringing to South Sudan, and to myself.
Exporting Entry Mode
Choice of entry mode is considered one of the most critical decisions for an international bound firm (Root, 1994). International market is challenging owing to issues of different cultures, languages, currency, legal and political systems, as well as lack of market experience on the part of the firm. A wrong or inappropriate choice of entry mode is bound to have great consequences that could affect the entire organization. Most companies venturing out into foreign markets for the first time, however, usually do so through export entry mode.
Export entry mode involves manufacturing goods in the home country and then sending them to the foreign market. Exporting can be either direct or indirect depending on the company’s preferences and market circumstances. Direct export often entails the firm selling to final users through established company branch offices, wholesalers, stockists, distributors, or agents. In addition, the internet and E-Commerce can be used to facilitate direct export. Indirect export is carried out through export management firms, export houses, or buying houses (Canabal & White, 2008).
Export selling is considered the typical initial step in the internationalization process. For our case, entry into South Sudan market can be viewed as experimental, reactive and a not so much focused approach, at least for now. Exporting is essentially an ethnocentric orientation since production takes place in the home market, and companies go to sell the products or services abroad.
Adoption of exporting mode to South Sudan will be advantageous for a number of reasons: in terms of costs, the concentration of production in the home country minimizes overheads just as is the case with the small start. Exporting will also enable the business realize experience-curve cost and location economies. When a company concentrates production in a centralized location and then exporting to foreign markets, it achieves global economies of scale owing to global sales volumes (Zekiri and Angelova, 2011).
However, in as much as this mode is the most well-established for reaching foreign markets, it has certain disadvantages. High freight costs associated with transporting heavy machinery to South Sudan can make exporting uneconomical. Potential costs of trade barriers in forms of tariffs and quotas likely to be imposed by South Sudan government also make this mode costly. Also, through exporting mode, there is a possibility of the business getting overwhelmed by customers hence not serve them well.Lastly,relying on exporting effectively prevents a business to benefit from any potential economies of scale(ibid).
In the light of the above highlights about export mode, it is apparent that this mode is appropriate where the trade barriers are low, the goods are similar and do not need customization, and the domestic location has unmatched cost advantages (ibid).In south Sudan, the fact that the country is in dire need of construction machinery might suggest there are low levels, or no barriers in form of tariffs. This is owing to the fact that the country lacks local heavy machines industries to protect with tariffs.
Functions that will Need Modification
International Human Resource Management
Human resource management practices will have to be modified to suit the local market situations. In our case, we will seek to develop HR strategies that take cognizance of the fact that we shall be largely dealing with two sets of workers: local, and foreign. These will at times hold similar or disparate roles and this will force the HR manager to design a fair compensation system that will motivate the employees while taking into account their cultural differences.
Moreover, issues to do with job classification, compensation systems, and training and development as well as the appraisal systems must change so as to be sensitive to the South Sudanese legal and cultural requirements. The hiring practices will have to be modified also so as to accommodate the locals who may not be necessarily as highly trained as the expatriates. All this, however, will be done while paying attention to the delicate balancing act of having local representation in employment, and also a staff that is of global standards (Kefalas, 2008).
The home country of the business is in the developed world where labor unionism is on the decline. In South Sudan, and other developing world, issues of labor unionism are prominent and the society and media supports them. Owing to this reason, the unions in South Sudan could have a considerable sway over human resources practices, unlike in the home country. The issues these unions will be dealing with concern salary rise. In the domestic market, the unions certainly deal with other issues. For these reasons, labor relation practices will have to be modified.
Research and Development (R&D)
Research and Development (R&D) refers to the function of seeking new knowledge and applications which can lead to new and improved products or processes( investment “remains a strategic priority for MNEs” (Arzumanyan, MayrHofer, & Melin, 2012, p.3).It, however, creates managerial challenges for globally competing MNEs.Some of the R&D issues that require modification will have to do with “coordination and how to manage relationship between R&D operations around the world”(Nobel and Birkinshow,1998 as cited in Arzumanyan,MayrHofer,& Melin,2012).In the case of our business in south Sudan, the R&D function will require modification so that it is able to accurately identify consumer trends and dynamics in the new market and use the information to innovate.
Having originated from the developed world where technological advancement is considered high, and often used as the global benchmark, it is natural that the R&D function is attuned to be only receptive to the new knowledge arising from the domestic country.However, as history of innovation has shown, innovation and new knowledge pertinent to R&D function knows no borders and can be found everywhere. The major modification for us as a company will be orienting the R&D systems to tap even the indigenous knowledge and innovation.
It has been established that generally internationalized R&D activities tend to block communication between the customers and the R&D managers.Consequently; this hinders the exchange of critical market intelligence with regard to customer tastes and preferences. Granted the extent of local variations of taste, infrastructure, and wealth in South Sudan, it makes it necessary for the modification of R&D to align the new products with the expectations of the customers there (Zedtwitz, Gassmann, &Boutellier, 2004).
International Operations
International operation is another international function that requires modification once the company has set foot on South Sudan. The imperative to operate in domestic, global and foreign markets complicates operations in the sense that the three are quite different in terms of values and present unique sets of challenges to managers. While domestic market environment is composed of the uncontrollable forces within the home country, foreign environment concerns all the forces originating outside of the country. International environment is the interaction between the domestic and foreign forces. The international operations will be defined by the three forces. The operations manager will have to deal with conflict issues that have been heightened in the management of international operations (Forrrester, n.d).
Costs and Benefits for the Host Country and Investor
There are costs and benefits of entering the South Sudan market through exporting. These apply to both the investor and the country. To begin with, the host country, South Sudan, will benefit from increased investment, which will in turn lead to an increase in employment. This will eventually lead to improved living standards of the citizens, owing to the salaries they get. A proportionately large population that is employed in any country helps the government achieve its revenue collection goals, and the money collected in form of taxes is directed to the efforts to grow the national economy. The heavy equipment sold by our company will help in infrastructure development.
To the investor, there are benefits in form of increased sales and consequently higher profits. Also, the business will attain a wide market share thus spread risks and attain competitive advantages in the market. Construction equipment is quite bulky. The major cost therefore to the investor is high transportation cost as goods are hauled from the home country to South Sudan. In addition, it is much more costly to transport the equipment within the country owing to its remoteness and lack of infrastructure.
Conclusion
Overall, I have discussed the export entry mode which I find appropriate for our business as it ventures into the new market. The paper has also discussed the following international functions that will have to be modified to suit the local conditions: international operations, international human resources management, and international R&D.Finally; I have discussed the benefits and costs for the host country and to me as an investor.
References
Arzumanyan, L., MayrHofer, U., &Melin, C. (2011, September).Conducting R&D Activities in
Multinational Companies: Towards New Tools and Practices? Paper Presented at the
Workshop on IT for product & Service Innovation in an Internationally Distributed Context,
Skema Business School.
Bhaumik, S.K (2003, February).Determinants of MNC’s Mode of Entry into an Emerging
Market: Some Evidence from Egypt and South Africa. Paper Presented at the Centre
For New and Emerging Markets, London Business School, London.
Canabal, A., &White, G.O. (2008).Entry mode research: past and future. International Business
Review, 17,267-284.
Forrester, P.L. (n.d).social and cultural considerations for international operations. Retrieved
From http://archive.iamot.org/paperarchive/122B.PDF.
Root, R.F. (1994).Entry strategies for international markets. San Francisco, California: Jossey-
Bass, Inc.Publishers.
Zedtwitz, M., Gassmann, O., &Boutellier, R. (2004).Organizing global R&D: challenges and
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Zekiri, J., &Angelova, B. (2011).Factors that influence entry mode choice in foreign markets.
European Journal of Social Sciences, 22(4), 574-584 Retrieved from ww.eujournals.com/
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