In the present business scenario, more organizations are opting for entry in the global market scenario in order to increase their market share and divide the business risk. Moreover, the entry in the global market will further help in increasing the brand identity and exposure in the market (Dunning, 2012). On the other hand, organizations opting for international entry are also facing various challenges regarding their operations in the host countries and choosing entry modes. Saudi Arabia is one of the prominent countries which are attracting favorable foreign investments in the recent times. Leveraging the sound economy based on export of crude petroleum, the government of Saudi Arabia is investing huge amount in infrastructures which is further contributing in attracting foreign investments (Samargandi, Fidrmuc and Ghosh 2014). The high per capita income is also a positive determinant for having foreign investment in the country.
General motor is one of the leading automobile manufacturers from America. They are being considered as one of the top five automobile companies in the world. They are having some of the top automobile brands such as GMC, Chevrolet, Cadillac and Opel (Gm.com 2017). In Saudi Arabia General motor do not have manufacturing facilities currently. They are having vast dealership there and exporting their products from other countries.
This report will discuss about the potential implications of the full fledge entry of General motor in the market of Saudi Arabia. In addition, the effective market entry strategies for them will also be discussed in this report.
Implications in the target market
- The economy of Saudi Arabia will get enhanced with the entry of multinationals such as General motor. It will help to increase the competition in the market, thus the quality of the products will get increased and customers will have more options in choosing their products (Buckley and Clegg 2016).
- It will create a positive image about the economy and government of Saudi Arabia. Investments by the renowned organizations such as General motor in Saudi Arabia will further attract other organizations to invest in the country (Swanson, Singer and Downs 2013). It will create and enhance the goodwill of the country in the global market.
- Without having any automobile manufacturing facilities in the country, Saudi Arabia is trailing in having the latest technologies. Thus, entry of General motor in the country will also lead to the access to the latest automobile technologies having with them.
- The cost of the products of General motor will get reduced due to the reason that, it will not have to incur the import duties which they are currently paying.
- Employment will increase due to creation of new jobs in the manufacturing facilities. Having the manufacturing facilities by the automobile manufacturers also attracts other associated manufacturer to set up plants in the nearby locations. Thus, the employment opportunities will get increased (Buckley and Clegg 2016).
- Organizations such as General motor have effective corporate strategy regarding their social responsibilities (Suliman, Al-Khatib and Thomas 2016). Thus, investment by these organizations in the country will help in social empowerment.
Influence of formal institutions in determining market entry strategies
Formal institutions refer to the government policies, legislations and economic structures in the host country which should be considered before making the market entry by the particular organizations (Li and Zahra 2012). In the recent past, the market of Saudi Arabia was not open and liberated which caused negligible entries of foreign investments in the country. Moreover, issues with the neighborhood countries and lack of modern infrastructures and skilled employees have also restricted the foreign investments in the country. However, this scenario is rapidly changing and the government of Saudi Arabia is initiating various industry friendly legislations to attract foreign investors (Stankovic and Novakovic 2014). They are now establishing themselves as a potential automobile hub for the Middle Eastern regions. Government is working on implementing business friendly taxation policies and effective environment for the business.
Currently they are allowing 100 percent foreign direct investment in having automobile manufacturing facilities. Government of Saudi Arabia is also initiating easy loans for the business organizations to set up their plants in the country more effectively. The current business policies of Saudi Arabia comprise of no income tax, no sales tax and only 20 percent corporate tax on the profits (Atwood et al. 2012). Thus, General motor should consider all these aspects before making the entry decisions in the market of Saudi Arabia. It is being recommended that the most effective market entry mode for the General motor will be having a joint venture with a local automobile distributor or manufacturer (Killing 2012). This is due to the reason that, it will help to set up the manufacturing facilities more quickly and effectively in the Saudi Arabian market. It will further help to have the access of the goodwill and reputation of the local partners. The local partners will have more market knowledge than the General motor regarding the market requirement. Thus, it will enable General motor to have the market knowledge before entry in the market.
In addition, it will help to attract the government incentives more effectively as it involved local partners in the project. The risk will also get divided with the local partners, which will help to regulate the future uncertainties in the international business. General motor do not have to incur the full risk and cost in operating their manufacturing facilities in the Saudi Arabian market. It will help them to reduce the price of the products as they do not have to import their cars from other countries (Killing 2012). Additionally, if the local partners are having any existing manufacturing facilities, then it will further help General motor in having easy and quick setting up the manufacturing facilities in the host country. The other market entry modes such as importing and having merchants will not attract the incentives being provided by the government and it cannot leverage the benefits being offered by the newly implemented policies.
Influence of informal institutions in determining market entry strategies
Informal institutions refer to the social structures, traditions and social condition in the host market. With having the rapid inflow of the foreign investments in the country, more and more educational institutions are coming up along with the government initiatives to enhance the skill development of the workforce in the country (Jackson 2015). Thus, the average skill set of the workforce in Saudi Arabia is increasing. It is a good opportunity for the foreign investors to have their manufacturing facilities in the country. With the increase in the economy of the Saudi Arabia, the per capita income is also rising along with the rise in the demand for automobiles. Thus, the market opportunity is also growing. Moreover, majority of the total population of Saudi Arabia is under the age of 30 which means the market is growing. In this era of globalization, people of Saudi Arabia are also having the access of newer technologies which makes them aware about the latest auto mobility in the market. Thus, it will be an easy task for the General motor to offer their latest products in the market of Saudi Arabia.
Market entry mode of joint venture will prove beneficial for them due to the reason that it will help to acquire the social cultures more effectively. The local partner will have the better knowledge about the social customs and condition of the market. It will help General motor to work and operate accordingly (Grunig and Morschett 2012). Moreover, having the local officials in the joint venture will help to design the working condition according to the informal institutions in the host market. The social responsibility strategy of General motor will be more effective due to the reason that it can be designed with the help of the domestic nationals (Suliman, Al-Khatib and Thomas 2016). The market requirement and inclination of the customers towards the particular type of vehicles will be more effectively determined by the joint venture. This is due to the reason that, the local partners will have the better knowledge than General motor in having the understanding about the local trend.
Having analyzed the various aspects of optimal entry mode for General motor in the market of Saudi Arabia, it can be concluded that joint venture with the local partner will be the most effective option for General motor. The implications of the entry of General motor in the market of Saudi Arabia are also being discussed. It can be said that, the economy of Saudi Arabia will have favorable impact due to their entry in the market. The economy as well as the average customer quality will be enhanced. The customers will have the more options in choosing their products in the market. In addition, the increase in the rate of the employment due to foreign investment will further enhance the economy of Saudi Arabia. With having the positive market force and business friendly legislations, the opportunities for General motor are huge if being managed effectively.
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