FINANCIAL RISK MANAGEMENT IN GLOBAL EXPANSION: WHICH MARKET ENTRY STRATEGY IS THE MOST EFFECTIVE IN FINANCIAL RISK MANAGEMENT?

• Main Author: Yasira Wahyudi, Ammar
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/85709
• Institution: Institut Teknologi Bandung

This research is aimed to investigate the effectiveness of various market entry strategies that international companies use in managing the financial risk that comes within the strategies. The main goal of this study is to determine which market entry strategies are most effective when entering the market while managing its associated financial risk. This research specifically is aimed to research this topic in a general way, not focusing on specific regions or industries. Evaluating the four most used approaches: exporting, licensing and franchising, joint venture, and foreign direct investment. This research will gather data and insights from academic literature, opinion from experts, websites, books, and real-life cases to offer a comprehensive research and analysis. This research will be topped with an abstract that will explain the research in a general way, also a list of contents. The introduction chapter will explain the topic in a historical context and current trends of market entry strategies and financial risk. Also explaining the problem that this research is intended to address, that many companies failed in going into a foreign market due to many reasons such as failure in managing risk, leading to the question of which market entry is the most effective in managing financial risk. The main objective of this research is to find the answer of the most effective market entry in managing financial risk. The literature review will contain prior research on the topic of financial risk and market entry strategies, including the relationship between the two aspects. Gathering data from prior research whether old or recent sources to be able give definitions and concepts to the respective topic and sub-topics, also to provide a robust theoretical framework. The findings in this research will combine the prior research in the literature review and the expert’s opinion from the interviews, also including examples of real-life cases of successful and failure in global expansions. The examples will illustrate how these market entry strategies have been implemented and what financial risk that comes with it. The analysis will consider many factors including market conditions, regulatory environment, and the goals of the respective companies involved. Financial risk is an uncertainty of things in a financial perspective of a company which every company will experience. However, we cannon eliminate risk, so companies must manage these risks to gain a sustainable operating environment. With many methods in financial risk management including diversification, risk transfer, etc. These methods can help companies deal with these risk. Market entry strategies are a set of strategies that companies can choose to enter a certain market or foreign market. These strategies contain procedures on how a company can enter a market or foreign market, including the level of resources needed to do it. Methods such as exporting, joint venture, etc. the relationship between financial risk and market entry is that when companies are planning to go into a new market, they are faced with many challenges and need consideration into various factors such as the capabilities and resources of the company. All these strategies will face financial factors, all which can affect the potential success of the project. A firm needs to be able to mitigate these risk to be able to enter a new market in a sustainable way. The findings in this study are that there is no market entry strategy that is universally superior, rather the effectiveness of each market entry strategy depends on the context and objectives of the company. Exporting is found to be a low- risk strategy for companies with limited sources, but lack of control over operations. Licensing and franchising provide a balance with risk and control where companies maintain brand integrity. Joint venture offers shared risk and resources but are time consuming. FDI Bears the most risk in these strategies but have potential in long-term profitability. After a comprehensive process of analysis and discussion, to answer the question in which market entry is most effective, is licensing and franchising, because they provide risk transfer and most of the risk is bare by the franchisee and licensor, but still comes risk with it. The conclusion of this research is that there is no right answer to the question on which market entry is superior in managing financial risk, because of the extravagant number of factors that is needed to consider. A good approach for companies is to use the advantages of each strategy and implement them thoroughly or use low level commitment strategies first then climb the ladder. This research highlights the importance of a strategic and flexible approach to the strategies. Further research in this topic can contain a more specific approach to the topic where it focuses on a certain industry or market to help companies more.