Entry Mode
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Today, the economic boom and liberalization in China provides a great opportunity for the foreign companies who want to shift the competition from individual countries to a global level. However, enter this huge market with what kind of entry mode, remain inconclusive.
The choice of entry mode into the Chinese market for Icebreaker has a major impact on the success of a firms international operations. Not only the company will explore a huge potential in China, but also require a big input from Icebreaker, such as finance, human capital, and all other resources. There are several factors will have influence on choosing what entry mode, such as Chinese economics environment, culture, legal, and even the company’s international strategy. (see Appendix 1) In the previous part of this report, we have done the research and an analysis on the Chinese environment, and company international strategy. These will help to conclude an entry mode for Icebreaker entering China.
Generally, there are server ways to enter a foreign market, exporting, International Licensing, International Franchising, Foreign Direct Investment as well as other special modes. The Dunning’s eclectic theory provides a useful insight into the factors that will influence on choosing the entry mode. According to John Dunning, there are three factors affecting company’s foreign investment, the ownership advantage, location and Internalization advantage. The ownership advantage says that the company must own some unique competitive advantage, such as a brand name, ownership of proprietary technology, the benefit of economies of scale…etc. From the research, the company indeed owns some competitive advantage, the unique and prime materials from New Zealand Merino, an international brand even though it is not well known in China. And the production line established in China to cope with a massive demand all over the world, with an economies of scale. Icebreaker invested in China in 2002 when it funded its first manufacture in Shanghai. This decision results from a location advantage, where China could provide lower labor cost, great skills of making clothing, lower operating cost, and great policy from the Chinese government taxing on foreign companies. We have also seen Icebreaker has used such advantage and made a successful move. Another factor, the internalization advantages is also critical when company choose an entry mode. According to the theory, if the level of transaction costs (costs of negotiating, monitoring and enforcing an agreement) are high, the firm may rely on FDI and Joint Ventures. On the other hand, if such costs are low, the company may want to choose franchising, licensing or contract manufacturing. For Icebreaker, it chooses to have their own manufacture in China, because it is going to be a huge cost to monitor and control the quality of its product. The company will be better off to have a full control in manufacture as there are more uncertainly in the Chinese Market.
However, Icebreaker has not stepped out for any sells in China, even with an established manufacturer in Shanghai. Icebreaker decides to keep the quality and its brand as high classes not only in China,