Gate Gourmet International Business and Management

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Executive Summary

In this study, the researcher was interested in determining the possible market entry strategies and staffing models for a firm that is planning to go global using real cases of Gate Gourmet and Target Corporation. The researcher used secondary sources to compile a report that would be informative to the firms planning to enter new international markets.

The study reveals that a firm can use indirect exporting, direct exporting, licensing, franchising, joint venture, or direct entry methods. Ethnocentric, polycentric, and geocentric were found to be the three models of staffing that a firm can use in the new market.

Introduction

The emerging technologies have transformed the world into a global village. The geographic barriers that limited international trade have been eliminated due to the emergence of new transport and communication technologies. As Aswathappa (2010, p. 51) observes, it is now possible for a London-based firm to have its production plant in India and operate in the global market.

The manager who sits at the head office in London can closely monitor the operations in India and the movement of goods in the global market without having to leave the comfort of his office due to these recent technologies. Many firms are now keen on expanding their strategies beyond their regional borders. According to Green (2011, p. 90), the borderless global market has increased the level of competition in the market.

In the past, many countries had laws that made it difficult for foreign firms to operate locally. This was meant to protect the local firms. However, this is changing as countries start acknowledging the relevance of having a global market free from any barriers. This means that for a firm to remain sustainable, it must find a way of expanding its market share beyond the boundaries of the parent country.

Making an entry into a foreign market is one of the most challenging tasks in the international business and management. Although it is a fact that technology has reduced the world into a global village, it is still a fact that different countries have different socio-cultural and political environments which make them unique. The strategy that a firm uses to enter the German market may not be the most appropriate strategy to enter the Chinese market.

There are fundamental differences between these two markets that will require different approaches in order to achieve success. This may explain why Target Corporation’s entry into the Canadian market was a total failure. According to Dlabay and Scott (2010, p. 89), making an entry into a new market is a very costly affair. A firm will need to put aside a considerable amount of resources for the project. It also involves extensive use of human resources.

Given the sensitive nature of such ventures, a firm cannot afford to fail in its attempt to go global. Such failures will not only affect the financial position of the firm but also the morale of the employees and the trust customers have on the firm. For this reason, a firm must come up with an effective market entry strategy that will assure it of success. The strategy must also include an appropriate human resource management.

The firm should define how it plans to hire its employees from the top management to the junior workers at the new locations. In this study, the researcher will look at different market entry strategies and human resource strategies that a firm can use in its expansion plans in the global market based on the cases of Gate Gourmet and Target.

Research objectives

In this study, the researcher seeks to analyse some of the possible international market entry strategies that a firm can use in its expansion plans. The research will also look at the possible human resource strategies that it can use when making entries to different countries. This way, it will be possible to understand why Gate Gourmet has been very successful in its internationalisation strategies, while target’s entry into the Canadian market was a total failure.

Studies of the Strategies

Making an entry into new regions poses serious challenges that require adequate understanding of the targeted market in terms of social, economic, and political systems. Taking the case example of Gate Gourmet, the firm finds itself operating in an industry that is not only very competitive, but also very fragile in terms of the products they offer and the highly diversified needs of the customers.

In order to achieve success in such delicate environments, the management should understand some of the possible strategies it can apply in order to achieve market success.

Market Entry Strategies

The entry strategy chosen by a firm will always determine how successful it will be in the market based on the local forces. According to Berger (2006, p. 39), a firm should take time and select a strategy that best suits a given market. When selecting the strategy, a firm will need to evaluate its internal strengths and weaknesses, and compare them with the external opportunities and threats in the targeted market.

Based on these factors, a firm will be able to select an appropriate strategy that will need the least cost, but yield high returns. The following are some of the possible market entries that a firm can use to enter various global markets.

Indirect exporting

One of the ways in which firms can make an entry into a new market is through indirect exporting. According to Mitchell (2008, p. 74), this is a low risk and low reward new market entry strategy. In this strategy, a company, say company A, will sell its products to a domestic company, say company B. It is company B that will finally sell the products to a foreign customer that we can refer to as company C.

In this case, company B will be acting as an intermediary between company A and C. This strategy is very common to the upcoming firms and those that have limited financial capacities to make direct entries into a foreign market. According to Ricks (2006, p. 89), one of the main benefits of this strategy is that it requires minimal financial resources.

Company A will only need to ensure that it delivers its products to company B which is a domestic firm. All the logistical costs and any other expenses involved in delivering the products to the foreign market will be met by the intermediary. Another benefit of this strategy is that a firm will not need to be involved in the operational activities of delivering the products to the foreign market.

This means that the firm will not bother about the activities such as hiring new employees to manage the foreign markets, setting up offices in the new markets, and many other operational activities. Unlike direct investment into the foreign market that requires formal registration of a firm in the new market; indirect investment does not involve any paperwork.

This is so because the firm will be delivering its products to a local firm (Zou, Andrus & Norvell 1997, p. 110). For this reason, the firm will not have to face the tedious and sometimes corrupt processes involved in registering new firms in the targeted countries. Another important benefit of indirect exporting is that the firm will not incur taxation fees charged by the foreign country on imported products. That cost will be met by the intermediary.

Despite the above benefits of indirect exporting, this strategy has a number of weaknesses that are worth noting. According to Aaker (2009, p. 172), this strategy has low rewards as compared to other strategies such as direct investment. The intermediary will always try to ensure that it reaps maximum benefits at the expense of the firm.

The intermediary will always try to manipulate the firm in order to increase its profits. For instance, the intermediary may claim that the product has low value in the foreign market, and therefore it is fetching low prices. Given the fact that the firm does not have the capacity of confirming the claim, it will be forced to accept the demands of the intermediary and lower its costs.

At such contexts, the intermediary will be earning abnormal profits at the expense of the company. Another disadvantage of this strategy is that it takes away the power to control the supply chain from the company to the intermediaries. Other than the production process, all other processes are controlled by the intermediary.

The company will have no power to dictate how the product is delivered into the market, the positioning of the product in the market, and even the pricing. These are sensitive management activities that a company should have control over. However, this strategy takes away all these powers from the company and hands them over to the intermediary.

As Rugman (2009, p. 45) says, the company will not even have the capacity to define its own image in the market because it is not present in that market. The scholar further notes that the firm will always be out of touch with its customers. It means that understanding their changing needs will be difficult. In such contexts, a competitor that is present in the market can easily come up with alternative products that meet the needs of the customers in a better way.

If this happens, it will be a strong indication that the firm will be forced to leave that particular market because customers will go for alternative products. For these reasons, indirect exporting should only be used by the firms that are up-coming manufacturing firms. A firm like Target may not find this strategy useful.

Direct exporting

Direct exporting is another strategy that a firm can use to make its products reach new markets. Unlike in indirect exporting, direct exporting involves a situation where company A sells its products directly to the foreign customers. According to Azman (2010, p. 1080), to use this strategy, a firm will need to conduct a comprehensive research of the market.

A firm will need to understand the dynamics of the foreign markets, and the organisational buyers that may help it break the bulk such as supermarkets. In its international strategies, Gate Gourmet has been keen on conducting comprehensive market research, especially among the customers they intend to serve. One of the main benefits is that a firm gets to enjoy all the rewards that come with its exportation.

The profits earned out of the sales of the products will not be shared by other firms. Another important benefit of this strategy is that it enables a firm to be in full control of the supply chain. Once the firm receives raw materials from the suppliers, it will be in control of all the activities in the supply chain. This gives it the capacity to control the quality of the products to the time that they are delivered to the clients in the foreign market.

The strategy also enables the firm to understand the needs of the market because it is in close contact with the consumers. It may easily understand their changing needs and preferences in the market (Ferrell & Hartline 2011, p. 75). Eliminating the intermediaries also helps the firm eliminate deceits about the nature of the market forces. It will know when the demand for a product falls, and what can be done to reverse such unfortunate scenarios.

Direct exporting has a number of weaknesses that a firm should be ready to deal with when it is determined to be the successful. One of the weaknesses of this strategy is that it may involve a costly venture to a firm. After the production, a firm will have to meet the cost of transporting the products to the foreign markets.

During such logistical processes, goods will be subject to various conditions that may damage them in one way or the other. The firm will have to meet all the costs associated with such processes. When exporting products directly to the foreign market, a firm will not be in a position to avoid importation tax in the foreign countries which will increase the cost of delivering the product to the market.

According to Ansio and Mattila (2009, p. 1100), a company that uses direct importing strategy will need to get necessary approvals from the relevant authorities in the foreign countries. Such procedures are not only tedious but also costly, especially when the country targeted has corrupt systems.

Sometimes a firm may be forced to hire an extra workforce in the foreign countries to coordinate the actual product delivery to the premises of the targeted customers. This strategy is very appropriate to the large companies manufacturing highly involving products such as cars whose production cannot be easily spread to various countries around the world. However, it may not be an appropriate approach for new firms with limited financial strengths.

Inter-corporate Transfers

Another common form of exportation is the inter-corporate transfers. In this strategy, Cook (2008, p. 72) says that a firm sells its products to an affiliated company in the foreign market. The strategy is always very appropriate when selling highly involving products. For instance, the strategy that is used to sell shoes in the international market cannot work when selling Mercedes Benz.

In this strategy, a firm will need to identify an appropriate company in the foreign market that can sell its products effectively. The firm will then hand over all the supply chain activities within the foreign market to this company. Inter-corporate transfers can take place in two ways. The first approach will be a situation where the affiliate company comes for the product in the home country where the products are made.

Alternatively, the affiliate company may wait for the products to be delivered in their stores by the manufactures. This largely depends on the acceptable arrangements between the two firms. According to Grewal et al. (2013, p. 380), one of the benefits of this strategy is that selling activities will be handed over to the affiliate. The strategy also gives the exporter a considerable amount of control over the activities.

The costs associated with this strategy are lower than the cost when the firm uses direct exporting. The affiliate companies also help the firm in the market research so that the firm can understand the changing tastes and preferences of the customers. This strategy also has some shortcomings that make it inappropriate for some products.

One of the weaknesses is that it limits the distribution channels for the exporting companies. The company will be tied to its affiliate company and will not be in a position to sell its products to other firms. Another problem that a firm may face in such arrangement is a conflict in values between the two firms. It is common to find that the affiliate company has a different set of values that is contrary to the values of the exporting company.

The approach that the exporting company may want to use when reaching out to the consumers may not be the same approach that the affiliate firm is using. Such conflicting values may bring conflicts in the management structure between the two companies that may harm their relationships. It is also important to note that unlike direct exporting, using of affiliates means that the profits earned from such operations will be shared with the affiliate companies.

Licensing and franchising

Licensing and international franchising are also popular ways of making market entries into new markets in the world. Licensing occurs when company A, which is referred to as a licensor, leases out to company B, known as the licensee, the right to its intellectual property such as copyrights, patents, brand names, work methods, trademarks, or even technology, at a given fee.

According to Jones (2013, p. 67), Gate Gourmet is one of the firms that have experienced growth through franchising. In some of the markets where this firm cannot operate in because of geographic or legal barriers, it would allow other firms to operate under its own brand name at a fee. Licensing and franchising strategies offer a number of benefits to a company that decides to use it.

This is a low risk new market entry strategy. All the risks associated with starting a new company in the market will be handled by the licensee and franchisee. The strategy also eliminates all the costs associated with production and delivery of goods and services to the customers. According to Bradley (2005, p. 81), the strategy is the cheapest because the licensor and the franchisor are not involved in any of the production tasks.

All the related costs in the entire value chain will be met by the franchisees and the licensees. It is like earning income by doing absolutely nothing. However, it is important to note that these two strategies also come with some weaknesses to the involved firm. One of the weaknesses is that it limits the market opportunities for the firm.

Once a firm gets into an agreement with a foreign firm to be a licensee or franchisee, the firm will be morally bound to avoid a direct entry into such a market. Sometimes this may be a legal barrier if the agreement stated that the franchisor or licensor will not make a direct entry into such a market for a specific period.

The strategy also limits the profitability of the firm in the new market. What the firm will be receiving are royalties instead of profits. This strategy may also cause conflicts with the franchisee and licensee. This may occur when the rights given to the foreign firms are abused in one way or the other. As Nash (2000, p. 116) notes, a franchisor may be interested in making a direct entry into the market at a future date.

If this is the case, then franchising and licensing will be avenues of creating perfect competitors in the market. By the time the firm makes an entry, the franchisee will be strong enough, both financially and in terms of experience, to offer serious challenge to the franchisor.

Kwaku and Murray (2004, p. 41) say that this is a perfect way of creating a formidable competitors in the foreign markets that will have the potential to paralyse the operations of the franchisors and licensors in case they develop interests of direct market entry at a future date. For this reason, this strategy should only be used in markets where a firm is certain it will not develop desires to enter the direct markets in future.

Strategic alliances

Strategic alliances are popular means of making an entry into a foreign market. It occurs when two or more companies research an agreement to work together for their own mutual benefits. One of the most common forms of strategic alliance is joint ventures.

Strategic alliance is very common when two or more firms coming together have almost same financial strength. According to Cavusgil and Shaoming (2004, p. 18), strategic alliance makes it easy for a firm to make an entry into a new market. This is so because a firm entering the new market will be getting into an alliance with an already existing firm.

This also eliminates unnecessary costs of conducting research because the strategic partner already has some knowledge about the market. Another benefit of using strategic alliance is the fact that there will be a shared risk. When the two firms come together to deliver products in the market, they always get to agree to share risks involved.

For instance, in case of natural calamity, the associated costs will be met by the two strategic partners instead of one firm. Strategic alliance also makes it possible for the firms to share knowledge and expertise for a better business environment. The two partners will bring their knowledge and experience from different geographic locations for a better operational management.

Finally, it is important to note that this approach offers the partners synergy and competitive advantage as opposed to other strategies because of a shared effort in addressing various market challenges (Doole & Lowe 2008, p. 78). In such arrangements, each of the partners involved in the alliance may focus on areas they have best knowledge in, creating an environment for specialisation.

This approach has a number of weaknesses that may affect the parties involved. One of the disadvantages of using this strategy is that it reduces the benefits of the firms involved because of the issue of sharing. Cook (2005, p. 141) says that sometimes conflict of interests may strain the relationship between the partners, the fact that may affect their working relationship.

This arrangement also reduces the powers of a firm in their joint venture because of the need to consult the partners. Sometimes the need for constant consultation reduces the pace of making decisions. Rowley (2014, p. 18) says that Target would have fared better if it used strategic alliance when entering the Canadian market.

The firm had little knowledge about this market, and it would have been better if it formed an alliance with a local firm that understood the dynamics. This would have eliminated some of the problems that this firm faced when it started its operations in Canada.

Foreign direct investment

Foreign direct investment is another market entry strategy that a firm can use when planning to go global. As Jain (2011, p. 38) observes, this is a high risk high return foreign market entry strategy. It is a complete opposite of the indirect exporting. In this strategy, a firm will conduct a market research in the intended market, understand all the market forces, and find the best strategy of opening its own offices.

When using this strategy, a firm will have to register its business in the new market and start its market operation without using any local firms to assist in its operations. Foreign direct investment involves setting up new facilities or buying existing assets and fully owning them. In foreign direct investment, a firm will be responsible for all the operational activities, including the process of recruiting and managing of the employees.

Foreign direct investment has a number of advantages over all other existing new market entry strategies. The biggest advantage is that it has a high profit potential (Knox & Gruar 2007, p. 59). A firm gets to enjoy all the profits made out of the venture without having to share it with other firms. Another advantage of using this strategy is that the firm will be able to maintain control over all its operations in the market.

The firm will be in control of all the activities, and this allows it to restructure its operations in a manner it considers most appropriate. This means that it can organise its operations in a way that is in line with its vision and strategic objectives. According to Cravens and Piercy (2009, p. 55), direct foreign investment also makes it possible for a firm to acquire massive knowledge about the local market.

It will be directly involved in these operations, and this will help it understand the local market forces. Despite these advantages, foreign direct investment has a number of disadvantages that may hurt a firm in a number of ways. According to Kerin and Peterson (2010, p. 149), this market entry strategy requires high managerial and financial involvements.

A firm will have to spend a lot of money putting up new offices or buying premises from firms in the foreign country. It will also spend a lot to hire employees to work at the new premises. When using this strategy, direct involvement of the management will be unavoidable (Knight 2006, p. 31). Some firms are always forced to bring in their own managers from the parent country to head the new establishments in the foreign countries.

This strategy also exposes a firm to various risks that may lead to serious loses. According to Lehmann and Winer (2008, p. 87), a firm will be exposed to political risks, especially in countries where politicians use antagonising words against foreign investors to win public sympathy. The threats of insecurity in some countries such as Syria, Egypt, Libya, Iraq and Iran may have devastating consequences to the firm.

When such goons attack the premises of the firm and loot the property of the firm or put them in flame, the firm will be forced to bear all the losses. Such substantial losses may force a firm out of operation. A clear case is what Target has been going through over the last two years since making an entry into the Canadian market. Target made a foreign direct investment into Canada (Rowley 2014, p. 45).

As stated, this is a high risk strategy, and this risk became a reality for this firm. The new structures, large number of employees and extensive research into the Canadian market all went into a waste. The firm has decided to close its operations in Canada after making a loss of over $ 5 billion over the last two years.

Human Resource Strategies

After selecting the most appropriate strategy to use when entering a new market, the next important step will be to define the staffing strategy. Staffing strategy is always complex when a firm decides to make a direct foreign investment. As Clardy (2007, p. 67) says, this market entry strategy forces a firm to hire new staff from the top most employee to the junior most worker.

The process of selecting the right staff may take different approaches based on a number of factors. Issues such as the nature of work that employees should handle, the labour laws in the foreign country, and the socio-political environment in that country are some of the leading factors that will define the appropriate staffing strategy that a firm will use. The following are some of the possible staffing models that a firm can use based on the relevant forces.

Ethnocentric staffing model

Ethnographic staffing model is one of the commonly used models that firms use when making entries into new markets. According to Gowan and Ochoa (2008, p. 110), ethnographic staffing involves employing the parent country nationals to work in the new firm, especially to hold higher managerial posts.

Some firms have specific values and culture that they would always want to preserve irrespective of the markets where they operate. When they establish new markets in foreign countries, they are always keen to ensure that the organisational culture and values of the firm remain unchanged. This is specifically necessary when a firm is operating in the service industry where employees are always in constant contact with the customers.

A firm will want a standardised way of handling its customers irrespective of the location. This way, customers will be assured of what to expect from the firm whenever they buy its services irrespective of the location. In such cases, the firm will send the parent country nationals to hold the top managerial positions. This way, they will instil the culture and values of the firm at its new units in the host country (Yaping 2003, p. 730).

This system is also common in instances where the management wants a centralised control. One of the advantages of this strategy is that it allows the management to introduce its management policies and culture at the new plant with ease. The strategy has a number of weaknesses that may affect its applicability in some cases.

One of the weaknesses is that the employees brought from the parent country will be forced to undertake some training to understand the local forces in the host country. Such training may be very costly, especially if the local forces are very dynamic. This strategy may also be unacceptable in countries where xenophobia is common such as some parts of Middle East (Hofstede 2004, p. 67).

The locals will consider the foreigners as a threat to local job opportunities. Very few people may want to go to such dangerous countries even when they are assured of promotion and increment of salary. Some would consider resigning from the firm than taking jobs in countries they consider unsafe for them. Gate Gourmet preferred using this strategy, especially for the top managers and senior chefs (Jones 2013, p. 83).

Polycentric staffing model

Polycentric staffing occurs when a firm considers hiring the host country nationals as opposed to the parent country or third country nationals. In this staffing strategy, the management will consider sourcing for the employees, including those at the top positions, from within the country where it operates.

This strategy is very appropriate when a firm enters volatile regions where parent country nationals may not accept to work in because of security concerns. The strategy also eliminates the need for excessive research because the local employees understand the local forces. It is a common strategy at Target in its internationalisation strategies.

The main disadvantage of using this strategy is that a firm may be forced to take time to train the employees so that they may understand the values of the firm and its production methods. Instilling values and culture at the new firm may also take time. As Ivancevich and Konopaske (2013, p. 310) observe, getting people with the right qualifications in such contexts is always difficult.

Geocentric staffing model

Geocentric staffing model is the third strategy that a firm may use to hire new employees. When using this strategy, Oltra (2013, p. 56) says that a firm puts host, parent, and third country nationals at the same level, without giving preferences to any of them. This strategy helps the top management to select employees from any part of the world as long as they have the right qualifications.

Emphasis in this case will be laid on the qualifications of the employees. As Toh and DeNisi (2007, p. 290) notes, it encourages employment of the best person for the best post irrespective of their nationality. This strategy is very suitable for companies that sell technological products that intend to go to a market in a developing economy.

The firm will need employees who will be able to manage the machines and explain to the customers how the products are used. In some cases, it may not be easy to find such employees locally. The volatility in such markets may also discourage the parent country nationals to work in such countries.

For that reason, the firm will hire employees from any part of the world as long as they have the right skills and are willing to work in that country. One of the disadvantages of using this strategy is that a firm may end up with employees who have highly diversified culture that may make it difficult for them to work harmoniously.

Conclusion and Recommendations

Making an entry into a new market always require effective strategies that will enable a firm to overcome challenges it presents. The first step towards making an entry into a foreign market is to identify the best market entry strategy. Some of the common market entry methods that a firm can use include indirect exporting, direct exporting, franchising, licensing, joint ventures, and direct investment.

Each of these strategies have pros and cons, and a firm will need to determine the most appropriate one based on the internal capacities and external forces. Once the best market entry is selected, the next task will be to identify the most appropriate staffing strategies that will help the firm hire the most qualified staff. The staffing strategies that can be used include ethnographic, polycentric and geocentric staffing models.

As shown in the two cases of Gate Gourmet and Target, success in internalisation process largely depends on the market entry strategy and human resource models used. The following are some of the recommendations that should be observed by a firm that is planning to make a new market entry.

The market entry strategy that is chosen should be based on a firm’s financial strengths and position in the market.
The entry strategy should be informed by an extensive market research in the targeted market.
Staffing strategy chosen should be based on the task requirements and skills needed for the employees.
The level of security in the host country should also be observed when selecting the staffing strategy.

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