Optimal Foreign Entry Strategy for Jaypee Brothers

¶ … Optimal Foreign Entry Strategy for Jaypee Brothers

Established in 1969, Jaypee Brothers is the largest health sciences publisher in India with offices in the United Kingdom, the United States and Panama. Jaypee Brothers currently publishes more than 350 health science books and journals each year (About Us 2015). The company is currently seeking to develop its presence in other markets including the Middle East and Africa. This paper reviews the relevant literature to provide a brief overview of Jaypee Brothers and to identify a professional entry strategy for the company to enter these new markets. Finally, a summary of the research and important findings concerning an optimal professional entry strategy for Jaypee Brothers are provided in the conclusion.

Review and Discussion

Company Overview

With its headquarters in New Delhi, India, Jaypee Brothers (hereinafter alternatively "Jaypee" or "the company") is a global publishing company with collection centers in the United Kingdom, the United States and Panama (About Us 2015). The company is currently an official publisher of the Association of Physicians in India, the Federation of Obstetrics and Gynecological Societies of India and the Indian Academy of Pediatrics (About Us 2015). At present, the company has in excess of 4,000 titles in its publishing list and approximately 350 new products are published each year in different specialty areas, making the company one of the fastest growing publishing houses in the world (About Us 2015).

In addition, the company maintains 20 offices in India and also serves as a distributor for other major publishers, including McGraw Hill, Arnold, FA Davis, Elsevier, LWW, Springer and Thieme (About Us 2015). The company's products are translated into a number of foreign languages and are currently distributed globally through reputable distributors in North America, Central and South America, the United Kingdom, Europe, Africa, the Middle East, South East Asia, North Asia and in the Australia/Pacific Region (About Us 2015). Given this mature global distribution infrastructure, the company has a number of viable foreign market entry strategies available to it to grow its markets in Africa and the Middle East and these issues are discussed further below.

Foreign Market Entry Strategies

The processes of globalization and liberalization have combined to assist countries such as India to become an integral part of the globalized world (Mowla & Hoque 2014). According to Mowla and Hoque (2014, p. 145), "Over the years, it has become increasingly evident that multinationals from emerging regions are changing the rules of the game by becoming dominant global player." One of the paramount issues that must be resolved for companies such as Jaypee Brothers is to identify appropriate countries for expansion and corresponding entry mode strategies that would be most suitable for achieving the company's organizational goals (Mowla & Hoque 2014).

There are a number of foreign market entry alternatives available to Jaypee, including using locally hired management, developing strategic alliances with foreign distributors and suppliers, exporting, implementing an overseas sales office or subsidiary, various licensing programs, and joint venture agreements (Prater & Ghosh 2011). In addition, Xia (2010, p. 155) reports that, "There are many varieties of foreign entry strategies. Firms expanding their business activities in a foreign country may choose an equity-based mode such as mergers and acquisitions, or equity joint ventures, or may select a non-equity-based mode such as strategic alliances or contracts with distributors and suppliers."

In recent years, many companies with little international experience have used direct export with an in-country agent who is eventually upgraded to a sales subsidiary and a then a production facility as an optimal entry strategy into single countries (Tavoletti 2011). Furthermore, there are other foreign market entry strategies that are commonly used, including the following which are listed in descending order of popularity:

1. Using locally hired management;

2. Alliances with foreign distributors;

3. Exporting;

4. Overseas sales office;

5. Overseas subsidiaries;

6. Licensing programs;

7. Joint ventures;

8. Overseas manufacturing facility;

9. Foreign acquisition and merger;

10. Technical alliances with foreign companies; and,

11. Alliances with foreign suppliers (Prater & Ghosh 2011).

According to Carpenter and Dunung (2015), most companies begin their international expansion efforts using exporting, but like the other entry modes listed above, exporting has its advantages and disadvantages. In this regard, Carpenter and Dunung (2015, p. 3) report that, "Among the disadvantages of exporting are the costs of transporting goods to the country, which can be high and can have a negative impact on the environment. In addition, some countries impose tariffs on incoming goods, which will impact the firm's profits."

Besides exporting, since the 1960s, joint ventures have been widely regarded as a viable alternative to mergers and acquisitions, subject to various transactional and cultural constraints while an export entry mode is viewed as a non-equity-based expansion strategy (Xia 2010). In sum, Xia (2010, p. 156) concludes that, "Different entry strategies can be used alternatively by firms entering a foreign country to achieve different strategic objectives." Two potential entry strategies for Jaypee Brothers would be a merger with an existing publishing house in its targeted markets of Africa and the Middle East or the outright acquisition of such an enterprise. In this context, mergers are the combination of two or more existing businesses into a single entity which acquisition is the purchase of a company by another business entity (Makamson 2010).

The determination of merger or acquisition as an optimal entry strategy depends on a number of factors, including most especially how well aligned the two companies are in terms of their core capabilities and organizational cultures (Makamson 2010). For example, Makamson (2010, p. 112) reports that, "In 2005, News Corporation purchased Myspace, acquiring a new technological platform for music publishing and a vehicle for building a new media blending mobile and internet reception of news from new and old sources." This acquisition was highly successful due to the high degree of congruence between the two companies' core capabilities. In this regard, Makamson (2010, p. 113) adds that, "Firms are targeted for acquisition because they enhance the capabilities of existing resources. The merger and acquisition objective is that a combination of two firms creates value that exceeds the value of each firm operating individually."

A relatively new foreign market entry strategy, the revere takeover, has also become increasingly popular in recent years. Although there remains a dearth of timely and relevant research concerning this alternative entry strategy, the approach has been used to good effect to gain entry into new foreign markets by major global corporations (Makamson 2010). For instance, Makamson (2010, p. 113) reports that, "Reverse takeovers have been used by large, global firms found in most stock markets. The reverse takeover is also becoming an instrument for firms to cross national borders." Likewise, a growing number of companies from developing nations have used reverse takeovers for foreign market entry (Makamson 2010).

The determination of an optimal foreign market entry strategy also depends on how much Jaypee Brothers intends to invest in its foreign market operations. As Shukla and Dow (2012, p. 4) point out, "Resource commitment at the time of entry is a crucial starting point for firms in a new foreign market. The Uppsala process model suggests that firms tend to reduce the uncertainty associated with internationalization by entering the host market with low resource commitment." Because the commitment of initial resources to a foreign market entry strategy is inextricably related to the choice of entry mode, the Uppsala model indicates that companies should seek to enter new markets using a low commitment strategy such as exporting (Shukla & Dow 2012). Companies competing in knowledge intensive industries such as Jaypee Brothers, though, may prefer a foreign market entry strategy that involves a high resource commitment (Shukla & Dow 2012). In this regard, Shukla and Dow (2012, p. 4) note that, "While capital intensive firms adopt entry modes with low resource commitments, knowledge intensive firms prefer to employ high resource commitment entry modes."

Other factors involved in the determination of an optimal foreign market entry strategy include the company's experience with internationalization and its size as well as the psychic distance that exists between the host nation and the targeted foreign country (Shukla & Dow 2012). For example, Shukla and Dow (2012, p. 5) add that, "Entry mode to a foreign market has been suggested to be dependent on firm's international experience." Because Jaypee Brothers has significant international experience with offices in the UK, U.S. And Panama, the selection of an optimal foreign market entry strategy could include strategies that may be inappropriate for companies with little or no international experience (Shukla & Dow 2012).

Some of the respective advantages and disadvantages of representative foreign market entry strategies are set forth in Table 1 below.

Table 1 -- Overview of Foreign Market Entry Strategies

Entry Strategy

Description

Advantages/Disadvantages

Exporting

This strategy involves the marketing and direct sale of domestically produced goods in another country. Exporting is a traditional and well-established method of reaching foreign markets. Exporting commonly requires coordination among four key actors:

* Exporter

* Importer

* Transport provider

* Government

Since exporting does not require that the goods to be produced in the target country, no investment in foreign production facilities is required. Most of the costs associated with exporting take the form of marketing expenses. Other advantages include:

* Minimizes risk and investment.

* Speed of entry

* Maximizes scale; uses existing facilities.

Licensing

Licensing essentially permits a company in the target country to use the property of the licensor. Such property usually is intangible, such as trademarks, patents, and production techniques. The licensee pays a fee in exchange for the rights to use the intangible property and possibly for technical assistance.

Because little investment on the part of the licensor is required, licensing has the potential to provide a very large return on investment; however, because the licensee produces and markets the product, potential returns from manufacturing and marketing activities may be lost.

Joint Venture

There are five common objectives in a joint venture: market entry, risk/reward sharing, technology sharing and joint product development, and conforming to government regulations. Other benefits include political connections and distribution channel access that may depend on relationships. Such alliances often are favorable when:

* The partners' strategic goals converge while their competitive goals diverge;

* The partners' size, market power, and resources are small compared to the industry leaders; and * The partners are able to learn from one another while limiting access to their own proprietary skills.

The key issues to consider in a joint venture are ownership, control, length of agreement, pricing, technology transfer, local firm capabilities and resources, and government intentions.

Potential problems include:

* conflict over asymmetric new investments

* mistrust over proprietary knowledge

* performance ambiguity - how to split the pie

* lack of parent firm support

* cultural clashes

* if, how, and when to terminate the relationship

Joint ventures have conflicting pressures to cooperate and compete:

* Strategic imperative: the partners want to maximize the advantage gained for the joint venture, but they also want to maximize their own competitive position.

* The joint venture attempts to develop shared resources, but each firm wants to develop and protect its own proprietary resources.

* The joint venture is controlled through negotiations and coordination processes, while each firm would like to have hierarchical control.

Source: Adapted from Foley 2010

Taken together, it is clear that there are a number of potential entry strategies available for Jaypee Brothers to expand their operations into Africa and the Middle East, making the selection of a suitable country or countries in these regions the next step in the process as discussed below.

Identifying Expansion Opportunities for Jaypee Brothers in Africa and the Middle East

Beyond the foregoing considerations, the choice of foreign entry strategy would also depend on the targeted countries that are involved. More significantly still, the Africa publishing market represents a potentially highly lucrative addition to the company's existing distribution networks. In this regard, Broadman (2010, p. 16) emphasizes that, "The sustained rapid growth of many African economies over the past decade and a half, bolstered by resilience during the recent global economic crisis, has been appreciated more by the countries of the South than those of the North, the traditional source of much foreign investment in Africa." A growing number of transnational corporations from India have already expanded their operations into Africa with positive results. According to Broadman (2010, p. 17), "Multinational corporations in India, in particular, have moved to capitalize on the opportunities unlocked by this development and, although they bring different approaches to market entry and operations, these investors -- as well as Africans -- are likely to substantially benefit in the longer term as they refine their strategies to manage risks and tap into the rewards."

Indeed, many African nations weathered the Great Recession of 2009 far better than their counterparts in much of the developed world and this economic resilience has translated into new opportunities for multinational companies seeking to expand their operations. As Broadman (2010, p. 18) points out, "It is no longer an overstatement to say that there are bona fide African economic success stories. Yet, surprisingly, among many of the most sophisticated international businesses and investors from the North, there is scant recognition of this unprecedented and unanticipated turn of events." Moreover, there are enormous rewards available for companies such as Jaypee that make their expansion moves sooner than their competitors. In this regard, Broadman (2010, p. 19) reports that, "Even if the investment risks in Africa are high, so too are the rewards. Indeed, unlike virtually any other region of the world, sub-Saharan Africa is arguably the one location where true investment 'first mover advantages' can still be found -- with commensurately high profits to be earned." Significantly, these first mover advantages exist in a number of different industries and regions (Broadman 2010).