Question

There is a variety of strategies that a business can use in order to reach global markets. For each of the following businesses, which strategy would be appropriate? Once you have selected an appropriate strategy, provide one advantage and one disadvantage the business may encounter when employing the strategy.
-A manufacturer of high-tech drones used to map the surface of the planet Mercury
-A clothing company that specializes in designer clothing for children under the age of ten
-A doughnut shop that has locations in thirty-two states but now wants to take its “bake-and-take” doughnuts to the global market

Answer 1

(1): A manufacturer of high-tech drones used to map the surface of the planet Mercury: For this business “exporting” will be the most appropriate strategy for reaching the global markets. This is because the drones are used for a very specific and limited purpose i.e. mapping the surface of planet Mercury and hence will have a very niche market. As such exporting will be the most feasible strategy/option for this business.

The advantage that this business will encounter when employing this strategy is that since it will not have to set up Greenfield manufacturing facilities in new markets its overall costs will be easily controlled and will not be very high. In terms of disadvantages this strategy will expose the business to financial risks due to volatility in exchange rates and due to government policy with regards to foreign trade.

(2): For the clothing company that specializes in designer clothing for children under the age of ten “licensing” will be the most appropriate strategy for reaching the global markets. The clothing company can enter into arrangements with companies doing contract manufacturing. The concerned clothing company can seek high quality local cloth manufacturing companies and allow them to make clothes for them for a specified period of time and grant them the license to use their brand and trademark.

The advantage that this business will encounter when employing this strategy is that it can easily expand its market share without exposure to too much quantum of risk. It will also enable the business to bring its products quickly in the market. As far as disadvantages are concerned quality may not be consistent and so investments will have to be made for quality control and process control.

(3): For the doughnut shop the most appropriate strategy for global market will be “franchising”. As the business model and process is established it can easily be replicated in other locations in different countries.

The advantage that this business will encounter when employing this strategy is that it can easily as well as quickly expand its business through the franchise route. Secondly risk of expansion will be shared with the franchisee. In terms of disadvantages the franchisee cannot be managed as closely as the company’s own employees and own operations. Secondly in many cases franchisees may have different goals than the franchisor.