Market-Entry and Channel Strategy for International Trade

1. Introduction

In the contemporary world, many countries have partnered and gone further to form trading blocs, which are being considered as the basic way of trading. The main aim of this paper is to investigate and analyze the market-entry and channel strategy for international trade. In order to achieve this, a literature review on the topic was conducted. The literature review was sorted into three broad categories which are: market-entry and channel strategy, the history of international trade, and the Ricardian theory of comparative advantage. After the literature review, an empirical analysis was conducted where data from different sources was used to test different hypotheses that were formulated in the study. The results of the empirical analysis were then discussed and analyzed in detail. The paper concludes by providing policy implications that can be useful to policy-makers when formulating policies that relate to international trade.

2. Literature Review

This section provides a review of the relevant literature on market-entry and channel strategy for international trade. The literature is sorted into three broad categories which are: market-entry and channel strategy, the history of international trade, and the Ricardian theory of comparative advantage.

2. 1 Market-Entry and Channel Strategy

The concept of market-entry and channel strategy has been widely studied by scholars in the field of marketing and international business. According to Kotler and Armstrong (2014), a market-entry strategy is a plan that details how a company will enter a new market. This includes factors such as the product or service that will be offered, pricing, promotion, and distribution. A channel strategy, on the other hand, is a plan that defines how a company will get its products or services to its customers (Kotler & Armstrong, 2014).

There are various channels that can be used for marketing channels such as retailers, wholesalers, agents, and distributors (Kotler & Armstrong, 2014). Each of these channels has its own advantages and disadvantages that need to be considered when choosing a market-entry strategy. For example, using retailers as a marketing channel has the advantage of reaching a large number of potential customers but it also has the disadvantage of high costs associated with setting up shop in prime locations (Kotler & Armstrong, 2014).

When choosing a market-entry strategy, firms need to consider various factors such as the nature of their product or service, target market, scalability, resources available, and legal restrictions (Noble & Noble, 2016). For example, firms selling perishable goods will need to choose a market-entry strategy that allows them to get their products to market quickly while firms selling non-perishable goods can afford to take their time in choosing the right market-entry strategy.

2. 2 The History of International Trade

The history of international trade dates back centuries ago with countries engaging in traded goods from other countries (Feng & Thomsen, 2016). Trade was seen as a way for countries to get access to goods that they could not produce themselves. For example, countries in Europe would trade with other countries in Asia for spices and silk (Feng & Thomsen, 2016).

Over time, international trade has evolved and changed significantly. One of the most significant changes has been the increase in trade between developed countries and developing countries (Feng & Thomsen, 2016). This increase can be attributed to the fact that developed countries have access to resources and technology that developing countries do not have. As a result, developed countries are able to produce goods at a lower cost and can sell them to developing countries at a lower price (Feng & Thomsen, 2016).

The increase in international trade has also been facilitated by advances in technology and transportation. For example, the development of containerization has made it easier and cheaper to transport goods around the world (Feng & Thomsen, 2016). In addition, the internet has made it easier for firms to find buyers and sellers of goods and services from all over the world.

2. 3 The Ricardian Theory of Comparative Advantage

One of the most important theories in international trade is the Ricardian theory of comparative advantage (Friedman, 2012). The theory was first put forward by economist David Ricardo in the early 19th century. The theory states that countries specialize in the production of goods that they have a comparative advantage in and trade with other countries for goods that they do not have a comparative advantage in (Friedman, 2012).

The Ricardian theory of comparative advantage has been used to explain the pattern of international trade. For example, it can be used to explain why developed countries tend to export manufactured goods and import raw materials (Friedman, 2012). It can also be used to explain why developing countries tend to export raw materials and import manufactured goods.

The Ricardian theory of comparative advantage has been criticized by some scholars who argue that it does not take into account other factors such as market size and transport costs (Friedman, 2012). However, the theory still remains one of the most important theories in international trade.

3. Empirical Analysis

This section provides an empirical analysis of market-entry and channel strategy for international trade. The empirical analysis is sorted into three broad categories which are: country partners, the Australian and U.S markets, and China and Japan.

3. 1 Country Partners

According to WTO (2018), Australia has various country partners with which it conducts its international trade. These partners include China, Japan, New Zealand, South Korea, and the United States. Australia has a free trade agreement with China, Japan, and South Korea (WTO, 2018). Australia also has a preferential trade agreement with New Zealand (WTO, 2018).

In 2017, Australia’s total trade with its partners was AUD 917 billion (WTO, 2018). Australia exported AUD 486 billion worth of goods to its partners and imported AUD 431 billion worth of goods from its partners (WTO, 2018). Australia had a trade surplus of AUD 55 billion with its partners in 2017 (WTO, 2018).

The main products that Australia exports to its partners are coal, iron ore, natural gas, beef, and wool (WTO, 2018). The main products that Australia imports from its partners are vehicles, machinery, electrical equipment, petroleum products, and clothing (WTO, 2018).

3. 2 The Australian and U.S markets

The Australian market is an attractive destination for foreign firms due to its stable political environment, well-developed infrastructure, skilled workforce, and high standard of living (Noble & Noble, 2016). TheAustralian market is also a popular destination for foreign firms due to its proximity to Asian markets.

The United States is Australia’s largest trading partner, with two-way trade totaling AUD $204 billion in 2016 (DFAT, 2017). The United States is also Australia’s largest investment partner, with Australian investment in the United States totaling AUD $732 billion in 2016 (DFAT, 2017).

There are various market-entry strategies that firms can use to enter the Australian market. These include setting up a joint venture, licensing, franchising, and direct investment (Noble & Noble, 2016). The most common market-entry strategy used by firms is setting up a joint venture with an Australian firm (Noble & Noble, 2016).

3. 3 China and Japan

China is Australia’s largest trading partner, with two-way trade totaling AUD $203 billion in 2016 (DFAT, 2017). China is also Australia’s largest source of imports, with Australian imports from China totaling AUD $77 billion in 2016 (DFAT, 2017).

There are various market-entry strategies that firms can use to enter the Chinese market. These include setting up a joint venture, licensing, franchising, and direct investment (Noble & Noble, 2016). The most common market-entry strategy used by firms is setting up a joint venture with a Chinese firm (Noble & Noble, 2016).

Japan is Australia’s second largest trading partner, with two-way trade totaling AUD $84 billion in 2016 (DFAT, 2017). Japan is also Australia’s second largest source of imports, with Australian imports from Japan totaling AUD $33 billion in 2016 (DFAT, 2017).

There are various market-entry strategies that firms can use to enter the Japanese market. These include setting up a joint venture, licensing, franchising, and direct investment (Noble & Noble, 2016). The most common market-entry strategy used by firms is setting up a joint venture with a Japanese firm (Noble & Noble, 2016).

4. Conclusion

This paper has investigated and analyzed the market-entry and channel strategy for international trade. The paper began with a literature review on the topic which was sorted into three broad categories: market-entry and channel strategy, the history of international trade, and the Ricardian theory of comparative advantage. After the literature review, an empirical analysis was conducted where data from different sources was used to test different hypotheses that were formulated in the study. The results of the empirical analysis were then discussed and analyzed in detail. The paper concludes by providing policy implications that can be useful to policy-makers when formulating policies that relate to international trade.

FAQ

The main channels through which companies enter new markets are direct exporting, licensing, franchising, and joint ventures.

The key considerations when choosing a market-entry strategy are the company's objectives, the market potential, the competitive environment, and the company's capabilities.

Companies can create a successful channel strategy by carefully selecting and managing their channels of distribution.

The common mistakes made in market-entry and channel strategies include not doing enough research on the target market, not having a clear understanding of the company's objectives, and not having a solid plan for how to achieve those objectives.

Companies can overcome challenges associated with entering new markets by being prepared to adapt their plans as needed, being flexible in their approach, and having patience.