International Market Entry Strategies

Introduction

International Market Entry Strategies (IMES) have changed gradually – a culmination of the integration of advanced communication, transport, and technological advancements. The need for business and companies to innovate new models of entering and dominating foreign markets have become a necessity in order to make a profit. In addition, the diverse nature of business laws in different markets necessitates a company to adopt the ideal framework that allows its products or services to withstand market pressures like competition from local producers or manufactures.

In this project, we will focus on a food and beverage multinational company, Wetzel’s Pretzels, a US based company that deals in chains of restaurants globally. We will uncover some of the best models for the company to adopt when entering two particular markets: the European Union (EU) and China – the second and third largest consumer markets. Owing to the diverse nature of the two markets in terms of consumer traits, cultures, business laws, etc. the idea is to identify the best frameworks that Wetzel’s can adapt to remain competitive, profitable and resilient against local brands.

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Wetzel’s Market Entry Strategies into the EU (Germany)

Although the European Commission’s mandate is to implement a single European market, the European Union market operates differently with each member state having individual demand and supply needs, trade regulations, customs and standards, and socio-political environments. With all these factors at play, the European Union, although a profitable market poses a series of challenges that Wetzel’s needs to consider before entering the market. Generally, however, most of the bureaucracies and trade requirements for US companies have been streamlined, making it fairly easier for them to operate in most EU member state consumer markets. In this case, we will zero in on Germany as the EU target market for Wetzel’s products. Germany is the EU’s largest consumer market with a population of 82.3 million and accounts for more than one-fifth of the regions Gross Domestic Product (GDP) (Lewis, 2013). Germany’s "social market" economy follows free-market principles, diverse social welfare programs, and a considerable degree of government regulation. Despite the various challenges, most of which relate to EU trade regulations, the country boasts a highly skilled labor force, high productivity levels, a first-class infrastructure, high-quality engineering, and strategic location in the center of Europe. Moreover, the country has a decentralized and diverse consumer market with different tastes and interests and a high disposable income rate compared to other European markets. According to world estimates, Germany is bound to post a 2% GDP growth in 2019, which further exonerates the market as the most promising in the region (Lewis, 2013). The German restaurant and fast food industry are also promising. According to research and markets, Quick Serving Restaurants (QSR) account for 60 percent of the entire industry – with Burger King topping international franchises in the country

The ideal market entry strategy for Wetzel’s in the German market would be franchising. Wetzel is a renowned brand in the QSR industry and most Germans are lovers of wheat-based products. Germany is largely considered to be the ‘birthplace of most bread’ and other wheat and meat related products consumed worldwide including burgers, pretzels, and other preserved pastry goods and cakes. According to Statistical, the market for Bread & Bakery products amount to US$23,091m in 2019 alone, with a projected annual growth of 1.9% between 2019 and 2023 (Degerli, 2015). The average per capita consumption amounts to approximately 80 Kgs – the sixth largest in the world.

Franchising stands out as the most effective market entry model for Wetzel’s in Germany because of various cultural and economic, reasons as well as, current consumer trends in the country. In terms of culture, Germany is undoubtedly a bread & baked product giant in terms of production, consumption and the country’s historical background with bread and other wheat products. According to research, Germans are traditional loving people, especially in their culinary culture (Degerli, 2015). With thousands of years of experience in baking and consuming bread and other baked foods, quality is of the essence when it comes to consumption of most of these products. Germans want high-quality wheat products that match their taste and traditional cultures. In the southern part of the country, for example, major fast-food restaurant chains have failed terribly too small local restaurants and vendors because of the poor quality of their products. Most local businesses embrace tradition and culture in their cuisines and menus, which makes them more attractive to the locals compared to foreign restaurant chains – that mostly incorporate the ‘western culture’ in their foods.

By franchising its brand in major German cities, Wetzel’s will benefit immensely compared to any other strategy (Dant, 2011). Franchising will enable the Wetzel to adopt and incorporate the traditional culture that most Germans prefer in their menus. Most bread and baked products are consumed with meats like pork and beef. Pork accompanies most German bread & baked products, which makes it necessary for Wetzel’s to come up with a product that comprises high pork meat amounts to meet the consumers demands. Franchising also helps Wetzel’s to learn and understand the local market requirement in relation to laws and regulations, consumer trends, and market dynamics in the food industry. Germany, for example, offers relatively high marginal tax rates and complicated tax laws that the company may not be conversant with, and that would require high time and

financial investment levels. Through franchising, Wetzel is also bond to benefits from various trade deductions, allowances, and write-offs that match internationally competitive levels (Dant, 2011).

Wetzel’s Market Entry Strategies into China

China is swiftly becoming the next major frontier market for most consumer goods thanks to the vibrant economy, a growing middle class, and the ever-humongous consumer market. With estimated GDP growth of 6.6% in 2019, the communist country is bound to post the highest growth compared to other world economic powers (Chow, 2017). The growth is further attributed to the adoption of a socialist market economy culminating in a ‘semi-free’ market economy and heightened Foreign Domestic Investment (FDI). With the largest population in the world (1.4 billion), the country boasts high-skilled labor that is relatively cheaper compared to other global economies (Lardy, 2011). Advanced technology, ease of doing business, and reduced poverty culminated in an enormous consumer market for foreign brands. As a communist republic, most consumption trends were largely monitored and regulated by the communist party making it difficult for international brands to set the house in the country. Currently, limited government in personal consumption of goods and services has resulted in many Chinese preferring major global brands compared to local goods – sometimes considered substandard. Wetzel’s has to consider before setting shop in the largest economy in Asia including cultural & language barriers, government control, trade practices & regulations, and consumer trends.

The initial step of any effective China market entry strategy requires Wetzel to identify the geographical location of its target market (Peng, 2012). The Bread and Bakery Products market in China incorporates new bread and bread rolls and comparable heated merchandise as cakes made utilizing grains or oats. Notwithstanding crisply heated items found in bread, kitchens are prepared products, for example, cakes, pies, and rusks. Treats and expelled items, for example, pretzels notwithstanding. The heated products market is described by a descending pattern as far as volume request in many markets because of changes in dietary patterns and nourishment patterns. Regardless of the expanding convergence of producers, this industry is as yet ruled by an assortment of all the more provincially critical little and medium endeavors. Income in the Bread and Bakery Products portion adds up to US$17,364m in 2019 with the market expected to develop yearly by 4.6% and a normal yearly for every capita utilization of at 2.9 kg.

The best market entry strategy for Wetzel’s into the Chinese economy would be a joint venture model. As a communist republic, the country and its people are deeply entrenched in their cultural values pertaining to food and cuisines. Joint venturing will benefit Wetzel in numerous ways including getting insights on the most profitable consumer trends for QSRs, government regulation processes, and the various food consumption trends that the population depicts. The joint venture also helps the company solve various trade and language barriers as well as reduce instances of IP rights violations. For example, Chinese are major consumers of pork and chicken meat. Through joint venturing, Wetzel is bound to benefit from learning and understanding the best pork cuisines that can be incorporated in their menu. A joint venture model also helps Wetzel’s to benefit from limited government control and legal requirements that the local company is well conversant with. Other benefits include better labor requirements and reduced wages negotiated by the local company.

Conclusion

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Marketing entry strategies differ immensely depending on various factors like the target market, costs, industry, location, etc. One strategy may work perfectly in one market but fail terribly in another. Factors like trade and language barriers also play a major role in selecting the ideal strategy for a company or business. Wetzel’s should adopt franchising and joint venture strategies when entering the EU and Chinese markets respectively. In Germany, franchising works best because of the free market economy, German culture, favorable trade policies and the company’s popularity in the country. In China, on the other hand, franchising would not beat joint venture as the ideal market entry strategy because of the country’s market dynamics, location, language barrier, trade restrictions, and ‘semi-free’ market

Works Cited

  • Chow, G., 2017. Capital formation and economic growth in China. Leiden, Netherlands: BRILL.
  • Dant, R. G. M. a. W. J., 2011. Franchising research frontiers for the twenty-first century.. Journal of Retailing, (3), 3(87), pp. 253-268.
  • Degerli, B. N. S. S. E. H. B. a. Ö. M., 2015. Assessment of the energy and exergy efficiencies of farm to fork grain cultivation and bread making processes in Turkey and Germany.. Energy, , Volume 93, pp. 421-434..
  • Lardy, N. a. S. A., 2011. Sustaining China's economic growth after the global financial crisis.. Washington, D.C.: Peterson Institute..
  • Lewis, W., 2013. Economic Survey. Abingdon, United Kingdom: Routledge. Peng, M., 2012. The global strategy of emerging multinationals from China.. Global Strategy Journal, 2(2), pp. 97-107.

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