Write an assignment on Individual academic essay.
At the beginning of the semester, you will be assigned (i) one public multinational company from the Forbes Global 2000 list and (ii) a set of three target countries into which your company could potentially expand.
Assuming that you have to choose ONE of the three countries for market entry, which one would you choose? Why? Which mode of foreign-market entry would you choose? Why?
In your analysis and discussion of foreign market entry strategies, please consider (i) the corporate strategy of your MNE and the potential implications of (ii) formal and (iii) informal institutions in the three potential target countries-
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This assignment is focused on the entry and expansion of Aker Solutions in France. Aker Solutions is a company providing oil and construction services based in Oslo, Norway. It serves the oil and gas industry by providing them with the oilfield systems, products, and services. The company, until 2008, was known as Aker Kværner and was founded in 1841. (Are, 2016) The slogan of the company is ‘taking the next step in the global oil and gas success story'. The company is considered as the global leader in designing and supplying mooring system and deck machinery for offshore and marine applications. The products of Aker Solutions range from underwater installation of a system nearly the size of a football field, to equipment that can be worked with under deepest water levels and in the harshest environment conditions. In 2014, Aker focused its business on two important sectors field and subsea design. At present, it provides employment to about 13,000 people in around 20 countries including Europe, Asia-Pacific, America and Africa. The company was started by Aker in Oslo, Norway, in 1841 as a small mechanical workshop named Akers Mekaniske Verksted. The growth of the company was fast and thus it went through an engineering and shipbuilding company. The world's first system of subsea gas compression delivered by Aker which was about 200km off the coast. The system with the size of a football field revolutionized the production of natural gas by cost cutting and improved safety at the bottom of the ocean.
The company entered a new era by taking over major construction, engineering, and shipbuilding rivals in 2002. Merging two companies gave rise to a technically and financially strong business with diverse interests. The process and construction business were divested in 2011. In the same year, it also split the procurement, construction, and engineering activities. In 2013, the business of loading and mooring systems and well-intervention services was sold by Aker. Now, it is one among the leading providers of oilfield systems, products and services in the world for upstream oil and gas industry. It is focused towards rapid growth of subsea oil-services and deep-water markets. It serves the construction and engineering segment of the market and is targeted towards corporates and enterprises. The company is positioned as a company that brings technology and engineering together to the drilling of oil and gas, field development and production.
Reason for choosing France
Being friendly relationship between France and Norway, it is a great opportunity for Aker Solutions to enter France for expanding the business. There is a great and better scope of growth for Aker to expand its business in foreign countries rather than in Norway. France and Norway, both are members of NATO and Council of Europe, and both have embassies of the other in their countries. Also, in France, there is a significant number of people living belonging from Norway. So, it becomes an advantage for Aker to start the business and relate to the population. ("France–Norway relations", 2016)
Strategies for Entering Foreign Market
Foreign market entering strategies are the opportunities for a business to enter a foreign market and expand its business. With each foreign country, comes a different challenge that a company has to face while entering that market. There are two important modes of entering the foreign market which include equity and non-equity modes. While choosing the strategy to enter a new market, the company must consider the nature of the foreign market, the regulations of the target country, and the structure of the company. (Hanks & Hanks, 2016). Selecting a strategy is a critical decision as it will either result in the success of failure of the expansion. The involvement of risk, cost, commitment and return is critically analyzed before selecting a strategy.
Equity modes are those market entering strategies which bring the company closer to its customers. Equity modes are of two types, joint ventures, and wholly owned subsidiaries. The Joint Venture is a venture where two or more individual companies form a new entity independent of their parent companies. This strategy allows the company to share risk, assets, cost and benefits. But because of the different cultures and distance, it is difficult to coordinate, and chances of different goals and interests are high.
Whereas, a wholly owned subsidiary is a subsidiary business owned by the parent company in a foreign country. It can be set up in two ways- either by Greenfield operations or by acquisition. In greenfield operations, the organization can build the offices and factories on the land which was previously used for agricultural purposes from the start. It will be beneficial for the company to have full control over operations and equity. But it includes high costs and is a slow entry strategy. On the other hand, through acquisition, the company can make fast entry into the foreign market by acquiring an already existing organization to avoid red tape. But the new organization may face integration problems post acquisition as the equity has already catered to the previous owner. ("Equity Modes", 2016)
Under non-equity modes, there comes two strategies, exporting and contractual agreements. Exporting is a way of selling its products in the foreign market without investing in facilities within that country. Exporting is of two types, direct exporting, where the company has better control over the economies of scale and operations; and indirect exporting, where an intermediary or any other organization is involved in helping in selling the products and services. Exporting will make the company distant from customers and also, shipping and other fees will be charged.
Contractual agreements are a way to expand the business without a long commitment in a foreign market. It is of various types; they are: licensing, franchising, turnkey operations, R&D contracts, etc. in licensing/ franchising, the parent company sells the rights of its intellectual property to another entity operating in a foreign market for a royalty fee. It involves low risk and low costs, but the organization has very less control over the marketing and technology of its products and services.
Turnkey project is the one where a client/ parent company pays the contractor for designing and constructing new facilities and train the human resource. It lacks a long-term presence in the foreign market.
R&D contracts are those in which an organization performs the work of research and development for another firm. It provides an ability to an organization to tap best locations for low-cost innovations. ("Non-Equity Modes", 2016)
Market strategy of Aker to enter France
Aker Solutions should choose the strategy to set up its business through wholly owned subsidies using green field operations in France. This will help the company to build the business according to the technology and quality the company wants its business to use and, will give the company full control over the operations, technology and equity of the business. Considering that it is a slow entry strategy and involves high cost, the company should attract some clients from the foreign market towards its business before starting the operations or production. It will keep the technology of the company protected which through other strategies might not remain that protected if the company will choose joint venture or licensing/ franchising. It gives the ability to the company to analyze location, to engage in global strategic coordination and to experience economics.
Institutional view of international strategy
While selecting a strategy to enter a foreign market, the aim of the company must be to match the strength of the MNE to the challenges and opportunities that can be found in the target country. There can be two perspectives to analyze the strategy: institution based or resource based view. The strategy formulation must be according to the implications of formal or informal institutions in the target country
Formal institutions define the implications which are the codified rules like in the constitution. It includes political, legal and economic system. Some regulations of a business are which shows, how long the business is working and on what terms; trade barriers, i.e., the barriers that the company can face while doing the trade; the protection of property rights, etc. (Ionascu, Meyer, & Estrin, n.d.). According to the construction, design, and management regulations 2015, the companies must implement minimum health and safety measures. And by no chance, any company can sweep away from this regulation as enacted by EU Directive 1992/57/EEC. The company must also have the certificate of energy performance for all types of properties.
The uncertainty to be faced by the MNEs entering the foreign market due to informal institutions is critical to understand. These institutions involve the implications of the culture, ethics, and norms of the foreign company which influence the behavior of the parent company resulting in success or failure. The increased distance of informal institutions will lead to a greater proportion of subsidiaries investment of expatriates and a full ownership preference. (Sartor, 2013)
By conducting this assignment, we can conclude that Aker Solutions are a company providing oil and construction services and for expanding its business France would be the country. As both the countries share some similarities and population. And as per the formal institutions, Aker can conduct business in France as France is a stable economy. For entering the market of France, the company must choose the strategy according to the nature of the business and market. So, accordingly the strategy of the joint venture and wholly owned subsidiary (WOS) can be chosen, but there can be a situation of sharing the technology which will end the uniqueness of the technology. So, WOS is the most appropriate strategy as per the business, but if the company does not mind to share the technology with the other company then they must choose joint venture as there will be less cost and risk involved as compared to the wholly owned subsidy.
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Are, W. (2016). Who We Are. Aker Solutions. Retrieved 10 August 2016, from http://akersolutions.com/who-we-are/
Hanks, G. & Hanks, G. (2016). Compare & Contrast Equity & Non Equity Modes for International Business | eHow. eHow. Retrieved 10 August 2016, from http://www.ehow.com/how_6747391_compare-equity-modes-international-business.html
Equity Modes. (2016). Entry Strategies into Foreign Markets. Retrieved 10 August 2016, from http://entrystrategies.weebly.com/equity-modes.html
Non Equity Modes. (2016). Entry Strategies into Foreign Markets. Retrieved 10 August 2016, from http://entrystrategies.weebly.com/non-equity-modes.html
France–Norway relations. (2016). Wikipedia. Retrieved 10 August 2016, from https://en.wikipedia.org/wiki/France%E2%80%93Norway_relations
Sartor, M. (2013). The Impact of Informal Institutions on MNE Strategy: Innovation Investments in Emerging Markets. Academy Of Management Proceedings, 2013(1), 17167-17167. http://dx.doi.org/10.5465/ambpp.2013.17167abstract