Question

With the decision to enter the Australian market finalized and relevant research gathered, you turn your attention to determining the best mode of market entry. Firms can choose from export, joint venture, and direct investment strategies. Although exporting minimizes financial commitment, it limits the firm's control and profit potential. Direct investment has the greatest profit potential and greatest control for the firm, but includes significant commitment and financial risk.

Review the market entry strategies Caffè Gustoso is considering and choose the one that is most appropriate for the Australian market.

Select an option from the choices below and click Submit.

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Joint venture: Partner with an Australian investor to create a local business that shares possession and control.

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Direct investment: Develop a Caffè Gustoso in Australia that is owned and operated by the current Caffè Gustoso owners.

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Export: Produce Caffè Gustoso's product in the U.S. and work through an independent international intermediary to bring the product to Australia.

Answer 1

The most appropriate market entry strategy would be Joint Venture. Partner with an Australian investor to create a local business that shares possession and control.

Rationale: Every market entry strategy has its pros and cons. A joint venture is one of the easiest ways to enter a market in comparison with direct investment and export. The following reasons for choosing a Joint Venture is a.) It saves time b.) the costs incurred are low as they are shared c.) There is an opportunity to learn new business ideas and strategies with another partner d.) The profits are substantial considering the costs saved initially and they are shared based on the Partnership Act of 1892 e.) the risks are low again because of the agreement between the two firms and it is easier to opt-out in case of a failure of the entry f.) Based on the area of expertise, the tasks can be assigned to the respective parties. Joint Ventures also give easy market access compared to direct investment and export.

2. The problem with Direct investment is a.) it is time-consuming b.) it carries a huge risk c.) the difference in the culture would lead to problems in hiring, firing and other human resource tasks d.) there is a huge burden of losing everything if the investment is a failure. e.) the different tax systems might not be favorable f.) the costs incurred by direct investment would be high in setting up the business such as construction permits that require at least 11 procedures to complete.

3 The export option carries certain risks such as a.) exchange rate risks when there are fluctuations in the currency value of the two countries b.) the state of not receiving payment is a probable risk c.) Legal issues are always going to be a problem when trading with another country such as Australia requires knowledge of the acts such as the Foreign Corrupt Practices Act, regulations for boycotting, IP regulations, relationship with the agent or distributor, and anti-dumping regulations.

The international tariffs imposition on the exported goods are to be considered and the fines for non-compliance with the quarantine laws in Australia. There is also the documentation procedure that is a barrier to consider.

All these challenges are not present when opting for a Joint venture and therefore it is the most appropriate market entry strategy to Australia.