1. Nemanja Maslar
Cardiff Metropolitan University,
LSC group of Colleges
Market Entry
Strategy of EY on
the Market of Serbia
BA Dissertation
Lynne G.
Montgomery, PhD
May, 2014
Belgrade, Serbia
2. 2
Signed Statement
I hereby declare that this dissertation was solemnly written by me (Nemanja
Maslar), except for where it is otherwise stated.
I further declare that this dissertation with the subject of “Market Entry Strategy
of EY on the Market of Serbia” has never been submitted to or reviewed by any other
institution of higher education, profit or nonprofit organization nor has it ever been
presented with the aim of obtaining any other degree or certificate.
Nemanja Maslar
3. 3
Abstract
Recently, profit-seeking firms have realized all the benefits of going global. The
objective of this paper is a better understanding of the conduct of organizations on the
ever-changing global market, and their goals and ambitions while entering a foreign one.
Serbia is a country undergoing transition and an entrance of a huge multinational
company such as EY (previously known as Ernst & Young) into its market is a great
presentation of change on the global and Serbian marketplace.
This dissertation has a goal of presenting benefits and flaws of going global as
well as most popular ways of doing so. It is through the example of EY that all the
marketing management and strategic decision making processes needed for a successful
endeavor on a foreign market can be seen.
EY was used as a benchmark of a successful multinational firm entering a new
market in the region of Western Balkans.
Information has been gathered with the combination of primary and secondary
research, making the theoretical background and interview of the EY employees most
important to the relevance of the dissertation.
Considering all the factors of internationalization and its impact on the
transitioning Serbian market the topic of “Market Entry Strategy” is an ideal aid to all
aspiring businesses with ambitions of going abroad, whether it be a Serbian start-up
company or an American corporation.
The goal of this paper is to present all the steps needed for the Serbian market to
gain potential investors and by that stay in line with all global trends of international
commerce.
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Acknowledgements
Now more than ever did my home country find itself in a very difficult time and
place.
I would like to use this opportunity to acknowledge all the victims and people
affected by the catastrophic floods that were and are making life in Serbia very difficult.
People are united and I am really proud to see how much we actually care.
Every effort and donation means a lot. I hope that with this mindset people will
continue to improve and realize which things are most important in life.
Also, I would like to thank my close friends and family for all the support and
understanding in the last several months. Their kind words of encouragement have given
me strength to carry on and finish all of my obligations in a timely manner while helping
others that are in need.
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Table of Contents
Cover page……………………………………………….………………………………………...1
Signed Statement………………………………………………….……………….........................2
Abstract…………………………………………………………………….……………………....3
Acknowledgements………………………………………………………………….……………..4
Table of Contents..…………………………………………………………………………….…...5
List of Abbreviations……………………………………………………………………................6
List of Tables and Figures…………………………………………………………………….……7
1. Introduction……………………………………………………………………………………...8
1.1 Background …………………………………………………………………...……....9
1.2 Problem discussion……………………………………………………………..........11
1.3 Purpose of the research………………………………………………………………12
1.4 Research Questions…………………………………………………………..........…13
1.5 The methodology……………………………………………………….....................14
2. Literature review………………….…………………………………………………………...16
3. Theoretical Background...………………….…………………………………………………..18
3.1 Globalization…………………...……………………………………………….........19
3.2 EY……………………………………...…………………………………………….21
3.3 Market possibilities…………………………...……………………………………...23
3.4 International Strategy………………………………...……………………………....25
3.5 Process of Internationalization……………………………...…………………..........27
3.6 Drivers of Foreign Markets………………………………………...……………...…29
3.7 First Mover Advantage…………………………………………………...………….31
3.8 Entry modes……………………………………………………………………...…..33
3.9 Non-Equity modes…………………………………………………………………...35
3.9.1 Exports………………………………………………………………….35
3.9.2 Contractual agreement………………………………………………….36
3.10 Equity entry modes…………………………………………………………………39
3.10.1 Joined venture…………………………………………………………..39
3.10.2 Wholly owned subsidiaries……………………………………………..40
4. International strategy of EY……………………………………………………………………41
4.1 Internationalization drivers………………………………………………………..…42
4.2 Source of competitive advantage………………………………………...…………..44
4.3 Market selection……………………………………………………………………...50
4.3.1 The macro-environment…………………………………………………...50
4.3.2Industry and competitors…………………………………………………..53
4.3.3 Organization………………………………………………………...……..55
4.4 Entry mode…………………………………………………………………………...57
5. Conclusion……………………………………………………………………………………..59
References…………………………………………………………………………………….......60
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List of Abbreviations
1. CAGE- Cultural, administrative, geographical and economical distance;
2. EU- European union;
3. EY - Ernst and Young;
4. GDP- Gross domestic products;
5. IMF- International monetary fund;
6. OLM- Operations and logistics management
7. PESTEL- Political, economical, social, technological, environmental and legal
factors;
8. R&D- Research and development;
9. STP- Segmenting, targeting and positioning;
10. SWOT- Strengths, weaknesses, opportunities and threats.
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List of Tables and Images
Tables
1. Competitive advantage…………………………………………………………...42
2. PESTEL analysis……………………………………………………………...…51
3. CAGE framework……………………………………………………….……….52
4. SWOT analysis…………………………………………………………………..56
Images
1. EY logo……………………………………………………………………..……21
2. Asnoff’s matrix…………………………………………………………………..23
3. International strategy…………………………………………………………….25
4. Internationalization phases……………………………………………………….27
5. Choice of entry mode…………………………………………………………….33
6. Marketing mix…………………………………………………………………....34
7. 7 C’s……………………………………………………………………………...39
8. ‘New normal’…………………………………………………………………….46
9. Costs of emerging markets…………………………………………………….....47
10. Competitive advantage…………………………………………………………...48
11. Entrepreneur of the year award………………………………………………..…49
12. EY with AIESEC………………………………………………………………...50
13. Environment……………………………………………………………………...51
14. Focus countries……………………………………………………….………….53
15. Porter’s five forces…………………………………………………………….....54
16. Industry life cycle………………………………………………………………..56
17. Future market leaders……………………………………………………….……59
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1. Introduction
Here, the basic facts and data regarding the research topic will be presented. After
the Background, the reader will understand the discussion about the problem with more
ease and be led toward and explanation of the research. It is of outmost importance to
analyze global and domestic leaders and present their practices as good case examples.
EY is an international corporation that has had incredible success in the audit and
consulting industry in Yugoslavia and later Republic of Serbia. Their contribution to the
society must be analyzed and emphasized. Only then will the leaders and managers of
tomorrow understand the standard of success. It must be a priority to grow both on a
domestic and on an increasingly competitive global market. There is a trend of
globalization that is slowly turning domestic markets into segments of an international
markets place that has similar values, goals and market expectations. This drive for
excellence must be constantly presented and showcased.
International marketing is becoming universally applicable, thanks to
improvements in technology. People can be reached by global media anywhere in the
world at any time. This trend is creating a model that is universally applicable and
standardized around the world. EY’s international market entry strategy to Serbia could
be used as an example of how firms must react. Going global has become not only a
luxury, but also an obligation to your stakeholders.
Serbian market has a lot of potential from a strategic perspective, and there is a
prediction that in a long term Serbia should become an increasingly important player in
the section of Eastern Europe.
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1.1 Background
Serbia's economy faces huge problems, many of which are rooted in an
inadequate economic structure and businesses that are recurrences of previous concepts
of time and development. Despite the significant progress made after the year 2000
presented in economic environment, economic structure and operation, business entities
are still not as satisfactory as they should be, and Serbia is lagging behind many countries
in transition.
In order to meet the conditions necessary for joining the EU, and also provide the
necessary intensive, long-term sustainable economic development and improve the
competitiveness of the economy, it is essential to perform numerous complex and
interrelated structural changes in the economic sphere.
In addition, the economic crisis of 2008-2010 has exposed deep structural
problems and set new challenges for economic recovery. The complexity of the effects of
the global economic and financial crisis placed additional duties with respect to the
analysis of the current situation, trends and future projections in front of the economists.
They have to search for answers for the requirements set by the changed demand in the
domestic and international markets as well as the criteria for EU and IMF demands in
terms of structural reforms in Serbia.
Serbia has '' modified '' neoclassical growth model in which the market will play a
decisive role in the optimal allocation of resources. That was a huge mistake, because that
model was based on GDP growth through the tertiary sector (trade, finance and services)
and economic growth was trying to be achieved through imports and domestic demand.
The model is completely missed in the story regarding Serbian economy for several key
reasons:
Very small level of openness and share of exports in GDP of only 1/3 ;
Technologically inferior industrial sector ;
Extremely low profitability in the sector of agricultural production and the
constant delays return to yields of competing countries ;
Large share of pension fund in the budget expenditure ;
Absences '' greenfield '' investment to increase employment and export offer ;
The enormous increase in unemployment as a result of bad privatization and
recession [CIA, 2014].
The list of negative economic phenomenon does not end here, but in a subsequent
speech it must start from the hypothesis of the necessity of a new model of applying the
new model of economy based not on the modification of an already existing one but a
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completely different approach to economic policy and the role of the state in the
economy. One general economic and business model has to come from investments and
exports. This raises the big question of how the current government is ready to tackle new
challenges and a different approach to economic problems. And now the only way to
stimulate employees is giving funds without reimbursement from the budget for
employment and up to 10,000 Euros per worker. The effect of these measures must be
taken with precaution and it is important to do a thorough cost-benefit analyzes approach.
Model -based investments and exports must include:
Re-industrialization based on the new needs of the export industry;
Starting where it is possible to restructure the company, especially in the field of
export supply;
Conduct a thorough analysis of potential exports to the products and the markets;
A model of the state must be more than an institution with far cheaper sources of
financing;
Prioritization of subsidizing the export sector and the company;
Make use of current resources in certain product groups, finding strategic partners in
the field of machinery and vehicles
Favor the influx of direct foreign investments in the manufacturing and export
Favor the export of processed agricultural products ;
Strengthening the software industry and high technologies , i.e. branches with
higher added value ;
Must be intense work to change the export structure
Making detailed analysis of structural economy to the financial position,
condition, and competition.
These are strategic issues of economic survival. An end must be put to further
impoverishment of the population, a further rise in unemployment and further devastation
of each value.
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1.2 Problem discussion
Events that happened in the 90’s on the Balkan region have greatly affected economic
prosperity of countries located in that area. Economic instability has resulted in a series
of social problems that have been highly connected with the economical misfortune.
Economic problems that have great influence on the Serbian economy are:
1. Unemployment (unemployment rate in Serbia is 20.1%) [CIA, 2014];
2. Lack of Economic growth.
The situation with lack of work and economic growth is a cause of global economic
crises and prior events in the region. Only by working on macroeconomic problems can
we grow, change and evolve.
Organizations have a responsibility to influence and educate people to create a better
working world. With that perspective EY has a lot of stakeholders. Main problems of
discussion are:
1. How is globalization affecting us?
2. How did EY prosper form going abroad?
3. What was EY’s approach while entering a foreign market of Serbia?
4. What can business organization learn from EY’s endeavor?
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1.3 Purposeof the research
According to above mentioned, the aim of this paper will be to explain the way in
which EY has entered the Serbian market, and how it is crossing barriers regarding
participating and conducting audit and consulting duties on a new market. Main purpose
of the research is to share and realize the beneficial factors EY had as an international
corporation and to apply it to Serbian entrepreneurial firms who wish to go aboard.
The level of their impact may not be the same because of the size of the business
organization, but a lot of information and positive examples can be extracted.
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1.4 Research Questions
This thesis will bring overall objectives of EY’s assessment of entering a foreign
market in Serbia. At the time, this action was portrayed as revolutionary step of
globalization, towards a more integrated and open Serbian market, open to new investors.
Now, EY has repositioned itself and an objective of going abroad has become a necessity.
Using this assessment, the main research questions are:
1. What are the components of EY’s international market strategy in Serbia?
2. How did EY apply the advantages of globalization while entering the market of
Serbia?
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1.5 The methodology
Research methods rely on the fact that, based on theoretical assumptions and the
published data available show the market entrance of the EY brand in Serbia, in
regarding situation of a global marketplace.
The research strategy in this thesis is based on the use of theoretical frameworks,
followed by a quantitative study. The empirical evidence is supported by the secondary
sources. Relevant theories and studies EY’s market entry strategy to the market of Serbia
are placed in the theoretical framework of the thesis. Aiming to present and explain the
concept of international market strategies and prepare a background for further analysis
of the problem works of many theoreticians have been used.
Taking into account the specificity and scope of the investigated object of this
study, different methods were used in order to meet basic methodological requirements of
objectivity, reliability, generality and comprehension. Accordingly, certain qualitative
and quantitative methods, namely: basic, general, and data collection techniques will be
applied to this access work. From the basic methods, the most common will be: analytical
(analysis, abstraction, specialization, deduction) and synthetic methods (synthesis,
concretization, generalization and induction). Scientific methods that will be used are
hypothetical-deductive, statistical and comparative (comparative) method.
Finally, examination and analysis of the content of various documents will be the
basic methods and techniques of data collection.
The data collection techniques used in the study:
Comparative Analysis: This is a comparison of items of two or more occurrences,
alternative processes, products, data sets, system. For a comparative analysis it is
necessary to determine the frame of reference, as a basis for comparison in the thesis.
For gathering the data, the validity and reliability concepts were of great importance.
Process approach: it occurs relatively recently in practices in response to several
requests, which would be the purpose of this presentation may reduce the need to respond
faster to market demands, reduce costs. Due to the limited resources based mainly on the
Internet this was the most suitable
Institutional analysis: concepts of institutions and institutional analysis are often
used in everyday speech in a variety of contexts and meanings, but the basic meaning of
the term institution should be understood as a system of rules and structures connected in
order to achieve a social objective. Of great help was also an interview that was used to
simplify the knowledge about the organizational culture and their corporative decision
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making. The person that was interviewed was an employee of EY, Nevena Skocic a
business tax advisor at EY Serbia. Besides that I have conducted an interview with a past
employee of EY in Belgrade. The person of help was Vanja Radmilovic Uskokovic.
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2. Literature review
Globalization flows during past decades have led to enormous interdependence
between economic entities of different nationalities and national economies themselves,
both in terms of increasing volume and diverse forms of mutual transactions in goods,
services and capital, as well as faster and more widespread diffusion of technology. The
basic idea in imposing such an environment is that the concept of the sovereignty of the
nation state and the economy are disrupted to form a new regional and transnational
alliances and systems as regulators of globalize economy.
Singleton A.R., and Creswell J.W, are authors who were used for determining the
methodology for the research. The subject of research is such that it requires complexity,
i.e. theoretical and empirical approach to research. Because of this, the use of theoretical
work is followed by a practical report which is actually a series of theories made
concrete, and thus epistemological unity of theory and practice is achieved. The classical
authors like Kotler Philip were chosen, with his prestigious book published at the
beginning of the new millennium Marketing management, and another one written by
Kotler, P, Armstrong, G, Saunders, J., Wong, V, in 2001, Principles of Marketing.
Regarding marketing another author was used; Hollensen, S. and his research published
in 2001, Global Marketing: A Market-Responsive Approach. These authors represent
contemporary marketing.
Starting with this as backup, I have done serious research among the existing
literature and scientific resources using various methods, defining scientific and social
aim of the paper.
The scientific objective lies in research and systematization of knowledge in areas
related to the study of business relations, in order to implement them in the modern
corporation. It was essential for me to discover the way of connecting those experts with
the praxis. The contribution of my work might be seen in a way that can adequately assist
corporations in the domestic market during the operation. I was contributing to the paper
making internal/external resources analysis: SWOT, PESTEL, CAGE, Industry life cycle,
Porter and his five forces and Asnoff’s matrix. Related to the literature I have used during
my study, particularly with authors like Porter and his Competitive Advantage I have
discovered a world full of experience which might skillfully be implemented in the
business, and its reality.
For the aim of this paper a few textbooks were proven to be of the greatest value,
such as Johnson Garry, Exploring corporative strategy, Cole and most useful
Management theory and practice and Charles Hill`s International business, competing in
the global market place.
17. 17
The social goal of research is to provide the scientific knowledge on which they
can take certain measures in order to find an adequate way to point out the significance of
application of acquired knowledge in the field of business corporations during the
economic crisis. I was able to find the mode for research results to demonstrate the
importance of financial support in the business. The aim was to highlight the importance
of the issue of business enterprise as the economy suffers a loss is a loss not only to the
corporation itself, but also for the countries within which it operates.
To define the structure of the paper I was using particular methods and
techniques. Research methods consist in the fact that, based on theoretical assumptions
and the available published data show the way that one enterprise is working.
Taking into account the specificity and the scope of the investigated object of this
study different methods in order to meet basic methodological requirements of
objectivity, reliability, generality and comprehension, were used. I have to admit that this
was not an easy job. A lot of theory regarding for example stake holders is based on
classical western approaches, but I have to underline that Serbia is a country just
finalizing transition. That is pointing out that I do not have all the suitable and applicable
literature regarding the subject, the reason being extremely simple. It is just not published
online, it is stored in the Serbian libraries. A lot of research was done using the existing
site of EY on various topics, starting with the home page, the page dedicated to Serbia,
business environment, investment, facing with the various problems.
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3. TheoreticalBackground
“We must ensure that the global market is embedded in broadly shared values
and practices that reflect global social needs, and that all the world's people share the
benefits of globalization.” - Kofi Annan
“There is a huge shift taking place in the global awareness in the last 5 years with
strong views about globalization and the power structures of major corporations.” -
David Korten
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3.1 Globalization
Thanks to the important events that happened in the last century, a ground was set
for a new process to rise. While talking about globalization you are not only talking about
firms and their international policies but a significant change in lifestyle of a new
generation.
Globalization as a process of economical, political, social and cultural connecting
of people around the world is challenging to define. On the other hand, the topic of
globalization is so general that you can hardly open your newspaper or look at the news
without noticing some of its effects.
The word ‘globalization’ comes from an English word ‘the globe’ which means
‘the world’. Domestic markets are slowly being merged into one large global market
place and thanks to change in consumers’ wants and needs and all the changes and
advances in technology, a definition of globalization must be constantly changed and
ever so immediately adopted. As Charles W.L. Hill states in his book International
Business Competing in the Global Marketplace 8th Revised Edition, 2010 ‘Globalization
is a trend towards a more integrated global economic system.’
Because of historically, geographically and culturally separate national markets,
people around the world subject to such news have dichotomous views of globalization.
Globalization is divided into two main segments: the globalization of markets and the
globalization of production, the first being the actual connection of two previously
independent markets, and the latter the use of beneficiary factors of foreign markets in
production and consumption.
Based on the strategic decisions made by the management of the organization there
are few ways a company can expand, grow and improve its position locally or globally.
The environment is constantly changing and it is safe to say that there is a global
transition. Thanks to all innovative capabilities and new technological breakthrough,
business is executed on a bigger scale than ever. The main drivers of this new business
environment are:
1. Improved and faster transport;
2. Better and cheaper ways of communication;
3. Internet;
4. Automation and technology.
Thanks to that, more and more organizations (big or small) are going abroad. All of
20. 20
that has a great global impact on the culture. Domestic markets are being connected
thanks to similar views of quality and price into one global marketplace, where firms
have to secure their present position for the foreseeable benefits they may have in the
future.
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3.2 EY
Ernst & Young, also known as EY, is an organization offering professional
services internationally, with headquarters in London, United Kingdom. EY is known for
being one of the top-earning firms and as a member of the ‘Big Four’ accounting firms.
The firm was established in mid 1980s and has taken its current form in 1989, by a
merger of Ernst & Whinney and Arthur Young & Co. The company was known as Ernst
& Young until 2013, when it had done some changes and repositioned the brand of the
company, and now they are known as EY, which was their informal name the entire time.
EY has a vast network of employees with 175,000 diverse people operating in
more than 150 counties worldwide. All employees of EY are working together with the
same interest and that is to extend sustainable growth beyond EY to a wider business
world.
Source: http://www.ey.com/
Image 1. EY logo
EY offers four main service lines and they are:
Advisory- EY helps their consumers with complex business issues;
Assurance- EY is in charge of seeing the ‘big’ picture and with their knowledge
build a business environment what has trust as a foundation;
Transaction Advisory Services- EY is helping firms raise, optimize and invest
capital;
Tax- EY helps clients meet their tax obligations.
EY has a revenue of 10.4 billion $ and has offices in 695 locations. Besides the
interest of the organization and their customers, EY also focuses on solving major socio-
economical issues worldwide. EY is mostly known for supporting young and ambitious
entrepreneurs, empowering women and Africa and promoting education and fulfillment
everywhere. Their engagement is changing the world for the better and it is up to the next
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generation to continue the good work.
Thanks to the rapid changes in the environment EY often changes its vision
statement. By doing so, the perspective and goals of the organization remain realistic and
impactful. The vision of 2020. is focused on the way in which the customers are going to
and how to meet them EY needs to be the most globally integrated professionally service
organization, delivering global service but providing them locally. Understanding the
local market is very important in the way EY delivers services.
It was stated earlier that in today's market what you offer and how well you can adapt
on a global market is highly relevant. It can be extremely challenging but also generously
rewarding.
Mark Weinberger, the Chairman and CEO of Ernst & Young, explained that: ‘There
are always challenges in big and small businesses. Today, the world is changing
incredibly was and our challenge is to be a large global organization in one hundred and
fifty plus countries, but be nimble enough to be able to respond to the current events both
externally and inside of our profession, that is a challenge but also an opportunity.’
The goal of EY is to position itself and truly be an organization that focuses on the
relevant issues of those markets. EY has a significant responsibility in all of their client’s
operations. That is why a standardized quality of a service must be met globally. All of its
actions are inside of a spectrum of making a better working world.
Ernst & Young are constantly delivering significant change, in order to respond to the
global changes and client’s needs. A lot of it is connected on the level EY operates and
the way organization is delivering services.
Because of a change in presentation and logo, Ernst & Young will from now on be
globally known as EY. With it, there came a change in tag line also, putting forward
what EY really does and that is ‘Building a better working world’.
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3.3 Market possibilities
There are several ways in which an organization can change and improve its
performance. Asnoff’s model analyzes four possible situations organizations may come
across while planning their expansion. Igor Asnoff was a famous Russian-American
mathematician and business manager (also known as the “father” of Strategic
management) who conducted a matrix that shows four key options a firm and their
management can undertake while searching for competitive advantage. That matrix is
considered as an elementary tool while exploring new options and possibilities of the
organization, and is called the Asnoff’s matrix.
Source: http://contarmedia.com/expanding-your-business-the-ansoff-way/
Image 2. Asnoff’s matrix
Market penetration is an option that any organization has at that particular
moment. It has a product or a service that targets someone in the population on the
known market. The only way a firm can expand and grow in this stage is by performance
improvements. Managers should first look into their own value chain and try to improve
productivity and performance in every activity. It is done by tighter control and small
changes relevant to the market.
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The second logical step is to introduce a new product or a service on a known
market that you are already present at, which means that you should use your previous
knowledge of the market to offer a new product to a new or the same segment of people
on the market. It may be viewed as offering a wider portfolio of goods or services or a
cannibalization of your own profits from the old product.
The third and in today’s market most relevant option is Market Development.
There are two ways firms can do this: proactive and reactive. Proactive is when an
organization recognizes an opportunity on a foreign market. Then, it engages in the
“chase” to gain as much competitive advantage on the new market as possible and by that
ensure sustainable corporate growth by first-mover advantage. Reactive is when in a way
a firm is forced to go globally. This is a case when competitors are very strong and the
only way to survive is to gain market growth on different places. This dissertation will
cover why and how firms go abroad and their marketing strategy.
Diversification is an option mostly selected by big multinational corporations that
have no more existent place to grow. They are forced to experiment by entering a new
market with a new product or a new service.
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3.4 International Strategy
Firms differ in ways they adapt to and view the concept of foreign market entry, but
what all of them have in common are the three decisions of outmost importance:
1. Which market to select and from point to enter;
2. When is the best time to enter;
3. In what way and on what scale to enter a new market.
These three decisions are formulated and answered thanks to the four elements of the
intentional strategy of the organization. There are four basic components of any
international strategy and they are:
1. International drivers;
2. Source of competitive advantage;
3. Market selection;
4. Mode of entry.
Source: Garry Johnson, 2005. Exploring Corporate strategy (7th
edition)
Image 3. International Strategy
26. 26
International drivers are in the pure entrepreneurial way what a particular market
offers to us. There are four different drivers and they can be: Market, Cost, Competitive
and Government drivers. They show us where the rules and regulations are different,
what country encourages commerce, where can we cut costs, how to respond to
competition and how to relate to our potential new consumers.
The source of competitive advantage is an analysis of how the entrance to a new
market will improve our position. Profit is not always the only factor; it can also be the
market share growth, return of investment etc. Source as a factor of competitive
advantage is frequently presented by the Diamond model. The Diamond Model was
constructed by one of the greatest experts in marketing of our time, Michael Porter. The
model shows a snapshot of the market and the potential performance of the organization
on that market.
It considers:
1. Firm’s strategy, Structure and Rivalry;
2. Factor Conditions;
3. Demand Conditions;
4. Related and Supporting industries.
Market selection is an actual selection of the market that an organization wants to
enter. Before entering, marketing experts must analyze the market and show the actual
Strengths, Weaknesses, Opportunities and Threats of the organization on the new market.
That is done by analysis of the following four elements of the market:
1. The Macro-Environment (PESTEL analysis and CAGE framework);
2. Industry Environment (Industry life cycle and Five Forces analysis);
3. Market Environment (Opportunities and Threats of the SWOT analysis);
4. The Organizational Environment (Strengths and Weaknesses of the SWOT analysis).
When a decision is made on where, when and how to enter a new market, the
management of the company must choose an entering mode. Based on the opportunity
and the willingness to engage, there are various market entry modes, which differ in the
level of risk, profits and control involved in making the decision about the global
presence on a foreign market. There are two types of entry modes:
1. Non-equity modes;
2. Equity modes.
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3.5 Process ofInternationalization
Now more than ever, the pressures of globalization are evident. More and more firms
are considering going global every day. Although there may be resourceful opportunities,
organizations must be aware of all the challenges and difficulties that are in front of them.
Depending on the characteristics of the company, issues may become evident in different
stages of the entry process. Both Porter (1985) and Dawson et al. (2006) have divided the
entrance of the organization on a foreign market by four stages, which are:
1. Pre-entry;
2. Entry;
3. Growth;
4. Repositioning.
Source: Dawson et al. (2006)
Image 4. Internationalization Phases
The pre-entry phase is the curtail point of the entry strategy. That is the first attempt
of the firm to realize the opportunities of going global. Lasserre (2007) and Peng (2006)
have posed the question of three main issues. By answering all of them, a conundrum of a
foreign market will look more promising.
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The three questions are:
1. Where to go;
2. When to go;
3. How to go.
In the second phase called ‘the entry phase’ a firm has come to a conclusion to enter a
specific market, based on the three questions asked and answered in the prior stage.
Entering a specific market in one period of time requires an entry mode. Based on the
scale of entry, the firm learns about the environment firsthand and tries to use its flexible
skills to adopt new practices to an unknown market. In that stage, some of the first
problems will surface, and that is why highly educated and skillful employees are needed.
In combination with tight control, realistic expectations on that market should be set and
expected in the shortest period of time. In this phase, management conducts a critical
decision of staying on the market or exiting the market.
Growth stage is the third stage and it is closely associated with the success on the new
market. It means that the company is attracting new customers and is having positive
performance in the key performance indicators. Porter (1985) has defined this stage as a
period of time when ‘A company is establishing its position on the market and is most
likely to experience growth.’
The last stage is called ‘repositioning’ because of a firm’s ability to mature, change
and adapt over time. If their goods or services are highly elastic, there is a chance that a
repositioning of the brand is needed. That is the period in which managers find new ways
to add value to their products or introduce new products. Constant innovation and market
research are needed to skip the strategic drift. In this late stage of the fourth phase
organizations either transform and reposition or leave the market.
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3.6 Drivers of Foreign Markets
While formulating an international plan, strategy managers must set clear goals
and motives on that particular market. First, companies must be aware of their drivers.
The level of drivers represents the level of the attractiveness of the market. Drivers of
internationalization may be:
1. Market drivers. They are associated with the needs and wants of the consumers. If the
market of entry and global customers have similar expectations as the previous markets,
then drivers will be high.
2. Competitive drivers. They reflect the competition between organizations. If one firm
recognizes an opportunity on a new market and chooses not to act on it, it may be viewed
as an opportunity cost. Also, it has great influence on the global structure of the company.
3. Cost drivers. In the age of globalization the means to cut cost and widen the span of the
profit margin makes cost drivers crucial and most common on today’s international
market.
4. Government drivers. They are closely correlated with the political situation in the
country and their trade laws, rules and regulations.
Peng (2006) suggested that there are three general motives in following the
international drivers; they are:
1. Reaching economies of scale by entering new countries and gaining new
consumers;
2. Reduction of risk on a global level, by expanding and spreading sales;
3. The replication of the success in the home market on a new setting.
While realizing the situation, firms must form a clear perspective of the market or
markets they want to enter. Logically, the markets that are nearby are most commonly a
firm’s choice, because of their specific drivers. Other times, this is not the case. Firms
may wish to leave the region of their previous work and try out new business endeavors
elsewhere. By the studies of Peng (2006) and Hollensen (2004) there are four factors that
affect the timing of the decision making process:
1. Internal factors;
2. External factors;
3. Desired mode characteristics;
4. Transaction specific behavior.
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Peng (2006) and Hollensen (2004) have analyzed the topic of general
management. That is why this is a starting point for all business proposals. Of course,
thanks to other scholars over time, factors of internationalization have been personalized
and fitted to every industry.
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3.7 First Mover Advantage
The selection of the entry mode and its intensity must be synergized with the
time. Time makes a ‘window of opportunity’ that managers have to see to unfold true
potential. Although it may seem that the first one on the market has all the advantages,
sometimes that is not the case. Activities of multinational organizations could be
portrayed as a strategic ‘chess-match’ with foreign markets on a global scale.
There are:
1. Fist movers;
2. Followers.
The action of one organization triggers a reaction of the competitive one. It is a
strategic global game that must be calculated and managed. If not, a firm will fail and
suffer great losses. Based on the pace of their moves, both first movers and followers
have their advantages and disadvantages.
First-mover’s advantages are great and examples of this kind of practice can be
found in every aspect of our life. It is an innovative process or a product or entrance to a
new market that has granted significant advantage of the organization over their
competitors. Based on the theoretical knowledge of the scholars and the practical
experience there are several benefits a firm may encounter while entering a market first.
The first benefit is that for a short period of time the firm has a totally new and
different product, until the product industry life cycle doesn’t result in competitors
making similar goods and services. In that period of time, prices can be extremely high,
based on the monopolized situation. That means that you have no switching cost based on
the lack of competition, and that is when the organization has an opportunity to ‘lock-in’
the advantage gained. When the historical effects of the lock-in are set in motion there is
almost no chance that customers will pose a threat.
On international sites, blogs and conferences i.e. ‘TED talk’ there is often talk
about resources. Resources are the center of your operations, because there are five key
aspects of the company. In short, resources make the organization happen. Resources are
ordered and stored by proper short term logistics and are then used in Operation
Management. This translation from raw materials to the production is called Operation
and Logistics Management (OLM).
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Resources that are most commonly used on the foreign market are: people, finance,
knowledge, technology and materials. Depending on the practices of the company and
their expectations and motives while entering the market, management sets a clear
resourcing plan. As a result of entering into the market first, there are additional benefits
that an organization can have a relatively free selection of resources, due to lack of
competition. You may find the best possible working force and a long time partner. An
interesting thing about partnerships and relationships alike is that the firm has a chance to
establish its brand name and recognition. By doing so, it will build a strong customer
base and will be recognized by other stakeholders. Managers most often engage in
business activity with people they know and trust, over complete strangers. Other
advantages of the new market are: that you can improve your scale benefits and with it
make economies of scale thanks to additional customers.
Also, company gathers more and more raw data every day on the market, their
consumers, products, opportunities, target groups, etc. and is transferring it to useful
information. Information is useful and used in knowledge management. Knowledge today
is the universal currency. Every company and every person are measured by how much
they know. That, combined with their impact has a direct correlation with their worth.
This may lead to a constantly learning organization. An effect of that could be evident by
the knowledge of the market (both internal and external). Last advantage is the
psychological effect of being one step ahead of the competition. Egocentric managers
may rush to conclusions and follow with no strategic goals.
First mover’s disadvantages are often connected with high costs. Entering a new
market first requires you to take a leap of faith while entering. Costs of entering a market
first are often very high. By considering the rules and regulations of the foreign market,
and both the finances and the time invested pioneering cost can be predicted.
Organizations must come prepared and be aware that no beginning is easy, with hope that
their struggle will pay off in the future.
Followers have fewer advantages, but they don’t have the same pressure and risk
of entry. Their advantages are that there is already some knowledge of the market, and
good business of competitors shows that consumers are interested in products and
services of that kind. Organizations that follow can learn from their rivals’ mistakes and
use it to their advantage. Not only may they imitate your products/services or practices
over time, but they can add features and components that reflect the population of that
market better.
The basic disadvantages of the followers are that in case first movers succeed in
implementing their strategy they may not have a place on the market.
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3.8 Entry modes
After analyzing the situation on the market and formulation a strategy of time and
place the entry mode is the next logical step. The entry mode is the way that the company
wishes to enter a market. Most of the time, it is up to the management of the organization
to make a strategic decision, but there are some exceptions. For example, emerging
markets such as China, Brazil or India wish to protect their domestic companies. With
that in mind, the rules of trade in that country regulates that there must be some sort of
engagement between a domestic and an entering company.
Lead by a theoretical assumption that there are no regulations regarding entry
modes and their use, organizations can pick either to enter in an equity or non-equity
mode.
Source: Peng (2006: 231)
Image 5. Choice of entry modes
Before making any decisions, the main difference among firms at the moment is their
production. Most of the time firms outsource or enter the market in the chase for cheaper
manufacturing. Based on that, we have two clear groups of organizations:
1. Organizations that do their manufacturing at the home country;
2. Organizations that manufacture goods abroad .
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Decision must be done on a corporate level. After that, all of the seven elements of
marketing must be in line with the strategic decision of the manufacturing.
Before considering any mode of entry presented in the image 4, the first concern of
the organization of any company is manufacturing. This is closely connected with the
marketing mix. A marketing mix can be illustrated from the product and service
perspective, the only difference is the number of aspects relevant for the strategy. This
being a dissertation about EY and EY being primarily a service-oriented company, is why
the focus was primarily drawn on service-oriented marketing aspects. Philip Kotler, a
famous Harvard professor and a ‘father of marketing management’, said that marketing
mix is a marketing tool that is used to pursue marketing objectives of the organization.
There are seven components of the marketing mix and because of that it is famously
called the 7P’s (names after its components).They are:
1. Price;
2. Promotion;
3. Place;
4. Physical evidence ;
5. Product;
6. People;
7. Process.
Source: https://www.wirtschaftswiki.fh-aachen.de/index.php?title=7Ps_des_Marketing-
Mix
Image 6. Marketing Mix
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3.9 Non-Equity modes
In the recent years the way of doing business internationally without equity
investment in the foreign country is called non-equity mode of entry. Now, their
popularity is constantly increasing because of the globalization factors and levels of risk.
Non-equity modes are especially popular among consumer-services firms (such as
hotel and restaurant firms) as compared to professional-services firms (such as consulting
firms) (Erramilli, 1990).
Non-equity modes are essentially contractual modes, such as leasing, licensing,
franchising, and management-service contracts (Dunning, 1988).
Non-equity modes are divided into two main groups:
1. Exports;
2. Contractual agreement.
3.9.1 Exports
Exporting is one of the ways a firm can enter a market. That is done by developing an
export strategy that has four stages. They are:
1. Identification of potential market
2. Match needs to abilities
3. Initiate meeting
4. Commit resources
The difference between companies that are relatively new to a global market and big
corporations is that, smaller companies tend to rely on networks and relationships and
sometimes lose the importance of market research while entering a specific market. If the
firm chooses the option of staying on their domestic market they must export. Exporting
is the process of a company producing the goods domestically but selling them or
shipping them abroad. Firms that export can be:
1. Active;
2. Indirect.
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Active exporting is a proactive process. This type of exporting is mostly seen in big
multinational companies that have international experience and by that well developed
international strategies. There are several ways a firm can enter a market proactively.
Three most popular ways of active exporting are:
1. Agent;
2. Distributor;
3. Sales Subsidiary.
In the world of agents, agents represent a small firm (sometimes even an individual)
that is located in the importing country. Agent will act as a representative, and by having
that in mind they are a representation of a foreign company. An agent will not be entitled
to goods and will earn money by commission on the export. It is important for an agent to
represent similar or complementary goods, and not competitive goods. In that case agent
will shift away from conflict of interest. The advantage of using an agent is that if they
sell nothing, you as an organization pay nothing, meaning that agents must be motivated
to sell your produce.
The distributor is located in the importing country, and the main difference from the
agent is that the distributor actually buys your products and is entitled to them. Since the
distributor has more cost (inventory cost, marketing cost etc.) they will want more
support from the manufacture/exporter. They want training, educations, better financing
and freedom. Distributor is a long time partner and must have same or similar values and
goals as you.
Sales/marketing subsidiary is a direct foreign investment by the exporter in the
importing country. Difficulties with that are that resources are scarce. If an organization
invests in China or Brazil they may not be able to expand more. Marketing subsidiary is
expensive and involves an organization the most. You are transferring goods from one
country to the other by your subsidiary. There are a lot of costs that make this option very
expensive like fixed costs, taxes, employees etc. If you have a long term and a strategic
decision to stay on a specific market, this is a great choice because all information and
knowledge of your successes and failures stays inside the company. With that you can
learn, grow and gain local knowledge for a long term practices.
Indirect exporting is a reactive form of exporting. This type of exporting strategy
is great for a short period of time. Because there is engagement with professionals who
do the sales for you. In the long run it may reflect badly on your reputation. Indirect
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exporting can be done in three ways:
1. Export trading companies;
2. Export management corporations;
3. ‘Piggy backing’.
Export trading company is when organization purchase goods from one company and
resells them to an another company. To a domestic seller it is like a domestic transaction
(sales of a domestic company to a domestic company), from the perspective of a buyer of
goods he is also doing a domestic transaction. Companies that can actually do this are
very big companies with a good knowledge of the competitor’s produce, macroeconomic
situation and a good perception of the market both global and domestic. Getting products
form one market to another is not easy and requires a great level of logistics, organization
and investment.
Export managing corporations are most of the time located in the country of the
exporter. They can be portrayed as a representative of an international exporter. They
provide consulting expertise and knowledge. Exporting management corporation is an
agent and in that for a true representative of the situation of the market. Agents don’t take
title of the goods sold, and are paid by the commission. Companies that are working like
this tend to be small companies.
‘Piggy-backing’ refers to a possibility of a small firm having to connect and take
advantage of a different firm to enter a foreign market. The important thing is that by
learning the information and the way strategy has been developed you for an
understanding of how you can reach companies globally on the expense of that one. This
type of exporting relies in full on the activity of the other organization making it highly
reactive.
3.9.2 Contractual agreement
Contractual agreement mainly relies on a time and resource measured effort from
both sides. There are several popular ways of contractual agreement and they are:
1. Licensing/Franchising;
2. Turnkey projects;
3. Research and development (R&D) contract;
4. Co-marketing.
Licensing could be used to enter a foreign market. A company that has some sort
of intellectual property can use this to enter a foreign market. The organization or a
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licensor allows the other firms or licensees to use their intellectual property in order to
gain profit, by paying a fee. The most often use of licensing is to come across licensor’s
technology, name, brand or patents. You have to have a good licensing agreement
because of the market’s needs to copy and replace. Franchising is similar to licensing, but
the difference is that it requires a package or a bundle of intellectual property
components. A franchisor may give a franchisee the whole business model to be used for
a fee that is called ‘royalty’. This is especially effective while building trust and a brand
that needs know-how. Great example of this is McDonald’s food chain.
Turnkey project is exactly what the name states. When the organization is done,
you receive a ‘key’. The contractor aggresses to handle every aspect of the project for a
foreign client on a domestic market. This could include everything from market research
to training of personnel. At the end of the project the company that hired a contractor is
given full ownership of the organization and its aspects. Turnkey projects are most
common in the chemical, pharmaceutical, petroleum refining, and metal refining
industries.
R&D contract is mainly relevant for organization that with to enter a market with
a new and interesting product. Because of the difference in taste and understanding there
is a variety of methods used by R&D organization globally. A contract secures that one
organization may develop, build or modify an existing or a new product of a foreign firm
on a domestic market.
Co-marketing is mainly relied on the fact that firms want to make a collaborative
marketing strategy in order to create a win-win situation. This is good for brand
awareness and product knowledge. This is a good way of allocating potential partners and
future markets you wish to enter. The concept of co-marketing is best explained by
Professor Koichi Shimizu’s 7 C’s model.
Source: http://www.timdavies.org.uk/files/7csocialmediaparticipation.jpg
Image 7. 7 C’s model
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3.10 Equity entry modes
Equity entry mode is an endeavor when a company dedicates its time and
resources to enter a foreign market firsthand. It is a strategic decision and must be
planned. It is preferable to enter with equity on a market that you with to stay for a long
time.
Two main ways to enter a market with equity are:
1. Jointed ventures;
2. Wholly owned subsidiaries.
3.10.1 Joined venture
By business professors and managers there is a divided opinion on what exactly a
joined venture is. My opinion is that joined venture is a combined effort of two or more
companies to create something truly different and interesting for entrance into the new
market.
‘A joint venture is when businesses formally agree to pursue a specific project
together. Like Sony and Erickson getting together to make cell phones, or Kanye and Jay-
Z getting together to make the album Watch the Throne, where two musical geniuses
combined their unique strengths to create a hip hop masterpiece’.- Tyler Why
Joined venture is a firm created from several companies that want to invest and
expand abroad. They are often formed by partners, owning complementary goods or
having an aspect that other organization lacks. Joined ventures were especially popular in
the 90’s located in the developing countries such as Russia, Brazil and China. Joined
venture is an ideal solution when organizations have similar or same goals, values and
objectives. A problem may arise over time when companies realize that they are attracted
to different things and wish to continue individually. That is why there must be a constant
work on the relationship of the firms.
The control of the ’new’ company is divided accordingly by the numbers of
companies and their influence. Logically, organizations that have invested more in the
relationship have more control.
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3.10.2 Wholly owned subsidiaries
The most secure and potentially successful way is to own a subsidiaries. That
means with the variety of factors you should enter a market you wish to work on. This
method is best for acquiring knowledge of the market and realizing the opportunities of
the new marketplace. There are many ways in with a firm may enter a new market by
buying subsidiaries, but the three most popular are:
1. Greenfield investment;
2. Merger;
3. Acquisition.
While analyzing the market you make your decision on the market entry method
by the level of risk you are willing to have and by how much control you are willing to
have or give over your actions. Greenfield investment is the most risky way of doing
business. It requires you to invest 100% of your funds, time and resources in building a
branch or a new a new company abroad. This must be done after an intensive market
research and profit and loss analysis. If an endeavor fails, an organization is going to lose
100% of their own money. With great possibility of profit, comes great risk.
Merger is an agreement of two or more organizations when they combine their
assets and in most of the cases also their name. We can see this on the example of EY,
and how it was made. EY was created by the merger of Ernst & Whinney and Arthur
Young & Co. in 1989. The way a firm can enter a market by merger is by selecting a
partner that is relevant for a new and prosperous market.
Acquisition is the situation when a larger and financially dominant firm buys out
the smaller firm, and by that becomes its subsidiary. This is the most straightforward way
of entering a market. When a corporation sees an organization that operates well on a
specific market, a large corporation may buy out the practices and organizational
capabilities of the smaller firm and by that establish itself as a key new player on the
market.
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4. International strategyof EY
As mentioned earlier there are several elements of the international strategy.
International market entry strategy is no different. There have to be some components
that will interest a firm to enter a market. In this case, EY has entered Serbia. This
decision has not been done lightly. There are four key elements in formulation of a
strategy, and they are:
1) Internationalization drivers;
2) Source of competitive advantage;
3) Market selection;
4) Mode of entry.
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4.1. Internationalization drivers
There are four key factors that point out the importance of drivers on an
international market, but maybe the most relevant to EY are: cost and competitive
drivers.
Ernst and Young entered Serbia in 1997. They initially started with only a few
employees and now they have over 150. This is because they are one of the most
attractive employers. This is a result of Universum’s study that shows that EY is the
second most ‘ideal’ employer in the world. The fast that they are a growing organization
and are hiring constantly means that they are constantly looking for new talent. Every
resource is scarce and with it people and their talents, skills and experiences. This is the
first reason EY entered Serbia in 1997. Serbia has an ideal location being located in the
middle of the Balkans, a cross-road for people from Africa, Asia and Europe. It is an
ideal opportunity to use a weak economical situation of Serbia in the 90’s to establish
itself as a leader on a Serbian market. At the time Serbia was part of Yugoslavia, a
country that only recently came out of the socialism regime and a civil war. That poor
socio-economical situation Serbia than Yugoslavia resulted in an educated workforce that
was willing and able to work British standers for a Yugoslavian salary.
The second driver of the EY while establishing an international strategy was their
competition. It is common knowledge that EY was part of the ’big four’. The term ‘big
four’ refers to globally recognized and leading audit corporations. With this we can
realize that the competitors are well known and recognized. Top four audit companies
are:
Firm Revenues Employees Revenue per
Employee
Fiscal
Year
Headquarters
1.Deloitte $32.4bn 200000 $162000 2013 USA
2.PwC $32.1bn 184000 $174000 2013 UK
3.EY $25.8bn 175000 $147000 2013 UK
4.KPMG $23.4bn 155000 $150968 2013 Netherlands
Table 1. Competition
It is little to say that the competition between them is hypercompetitive. In
physics as in business every action triggers a reaction, and that is why now all four firms
are present in more than 150 counties worldwide. The opportunity cost for them it too
high. In the market of Serbia the first one to enter was Deloitte, an American firm back in
1991. KPMG followed relatively closely in 1996. And that made EY react. Lastly, PwC
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entered in the 2001. Examples of such rivalries are very rare. A similar situation can be
detected with Pepsi and Coca-Cola or McDonald’s and KFC. The success of your one
key competitor may make you undertake a reactive approach to globalization. In that
case, the firm that comes next is a strategic follower. After the civil war in 1992. and
1993. EY had a chance to learn and examine markets on the Balkans, obtaining useful
information about the culture, environment and business in Serbia and the region. The
source of information are both competitors and other firms in same or similar industries.
This analysis and completive attitudes were present because of the possibility of
Serbia becoming a strong and economically stabile country. Serbia has potential to
become a leader and a driving force of the region but a lot more has to be done on the
socio-economical perspective. In that sense, EY is investing in Serbia and is helping
create a strong corporate sector so one day they can harvest on the economical stability
and new customers.
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4.2 Source of competitive advantage
There is a common mistake made by people or organizations who think that
competitive advantage could be reached by only cost leadership and differentiation.
According to the book ‘The discipline of market leaders’ written by Treacy and Weirsma
in 1997, there are three different ways organizations may look at the reality of the market.
It could be trough:
1) Process excellence;
2) Product excellence;
3) Customer intimacy.
They state that mastery of any one of these three will attract and present you to your
potential customers, and even more, that it will give you a competitive advantage. In the
unique example of EY, the case is on customer intimacy. While dealing with an audit or a
consulting firm you are looking for a reliable and thrust worthy partner that will be there
to work for you in the long run. Requires a great level of customer intimacy requires level
of delegation that will able employees to custom individual strategies depending on their
companies needs. Also, it requires such a level of information systems that will help
support core operations. Corporations are known for their successes and advantages over
others, that is the actual action that brought them to the point they are at now. But there is
also one more aspect that has to be constant and that is innovation.
EY is constantly working on improving and changing the level of quality, approach
and customer intimacy they are known for. The idea of EY is to constantly challenge
themselves and make something that is new, in others words a new normal. This state of
new normal is created by four core aspects, they are:
1) Customer reach;
2) Operational agility;
3) Cost competitiveness;
4) Stakeholder confidence.
It can be seen that trough the examination of these elements EY is not working only
on better understanding and anticipating their customers, but also improving aspects that
are or were lacking. To create a better working world you have to start from yourself.
That is a benchmark EY is trying to set.
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Source: http://www.ey.com/GL/en/Issues/Business-environment/Competing-for-growth--
Winning-in-the-new-economy---A-more-global-economy
Image 8.The ‘new’ normal
EY has one more source of competitive advantage and it is in direct correlation with
their connecting with their consumers. It is their unique and (on paper) simple process.
The process is mentioned in terms of how the organization can group their products and
give the best possible outcome for a potential customer. This process consists out of five
key points which are:
1. Preserving;
2. Optimizing;
3. Investing;
4. Raising;
5. Enabling.
Preserving is mostly concerned with risk and quality. EY wants to make sure their
customers have the best possible experience. With that in mind EY must adapt companies
to a rapid changing global market by preparing them for different economic demands and
market scenarios. To go with that EY is constantly trying to simplify and modernize the
way managers can handle and see their economic situation.
Optimizing is about giving the customers’ advice on the best possible way to control,
share and forecast their income. This is achieved by simplifying and resetting a metrics
46. 46
system along cash, working capital and invested capital. Also better resource allocation
and a product or service portfolio overview that can result in a balances business.
Investing step as said earlier is focused on the ways of investing. It is necessary to
constantly improve and upgrade investment appraisal testing of cases of investment, and
higher relevance on the importance on the due diligence targeted at recession resilience.
Market research that will tailor your specific needs to a stabile and economically stabile
market. That will reduce your risk of loss and will make your management and
organization more proactive. This over time will result in a global mindset and a truly
international firm. Lastly, investment is important for advice and guidance. This can be
demonstrated by giving companies concrete examples and market advice that can impact
their mode of entry. Some of the ways companies can do that is by strategic alliances,
mergers or joined ventures. It is mutually beneficial and will result in a more efficient and
effective management of scarce capital and resources.
Source: http://www.ey.com/GL/en/Issues/Managing-finance/What-lies-beneath---The-hidden-
costs-of-rapid-growth-markets
Image 9. Cost of entering an emerging market
While planning the entrance or emerging a foreign market firms rarely have a full
picture of what they are getting in to. Being the first on a growing market has with it huge
pioneering cost, and will result in you leaving the market hasty. That is why advice,
guidance and support is needed.
Main economic problem is the problem of scarcity. In those terms raising is very
important. EY has given their customers a chance to diversify funding sources. That may
result over time in a trust premium as an acquirer. Markets are going to a lot of change
and loss and depth are becoming normal, EY offers and organization to exploit
opportunities to refinance debt or to raise even more equity.
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The last step of this five stage process is enabling. Enabling is a crucial stage in
strategy developments and control. Firms must constantly improve their control,
discipline and flexibility in order to adapt and improve their capabilities in planning,
forecasting, budgeting and other organizational functions. In those strategic guidelines
EY can also influence firms to implement short-term cash and working capital that will
make an organization more flexible and resistant to change. It is important to analyses
both intended and emergent strategy in order to truly forecast the future and be ready for
it. With that in mind it is necessary to improve speed, efficiency and effectiveness of
strategic making tools. This will affect the organization in a way that it will be more
modern, globally set and ready for change.
Source: http://www.ey.com/GL/en/Services/Transactions/Why-capital-matters---Five-ways-to-
build-competitive-advantage
Image 10. Five ways of how to build competitive advantage
These five steps are five ways of how EY can help and improve an organization.
Because EY is primarily set on helping and organizing their customers this is crucial.
Customers’ intimacy builds trust and long term commitment that will result in a good
corporative culture.
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Additional advantage over their competitors in the market of Serbia is the good
corporate image. Students and working people alike are recognizing the brand of EY
everywhere. That is a result of their intensive and very complicated marketing and CSR
(Corporate social responsibility) employees. Around the world EY has a image of the
organization that helps and is willing to give an extra effort to help build a better working
world. They are achieving this trough three main goals:
1. Supporting entrepreneurs around the world;
2. Empowering woman in Africa;
3. Promoting education everywhere.
EY’s involvement in the Third billion global campaign which unites governments,
NGO’s (non-governmental organizations), corporations and other, help to ensure
women’s access to legal protection, education and training, finance and markets’. – Beth
Brooke (EY Global Vice Chair of Public Policy)
EY is trying to develop an environment where leaders with their ideas have a chance.
That is why one of the focuses not only in Serbia but globally of EY is to promote the
entrepreneur of the year awards. This is crucial to influence people to think outside the
box and try to change the world themselves. EY is an example how a corporation can
promote and influence others in their actions.
Source: http://www.ecpinvestments.com/index.php/ey-names-entrepreneur-of-the-year/
Image 11. Entrepreneur of the year award
Other key topic EY is working in Serbia has highly benefited them is their
engagement is NGO’s with similar values and importance of education. EY is a known
partner of most student organizations in Serbia. A great example of this is the largest
organization managed by students AIESEC. EY is a national partner of AIESEC Serbia
and is helping both financially and by knowledge. The importance of sharing EY
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employees’ experiences is crucial to students and young entrepreneurs alike. Also, EY is
known for sharing their knowledge with both students and professors of public and
private universities in Serbia. One example of the EY influence can be seen on an
AIESEC conference and seminar called Global Citizen days where EY broth their
employees and demonstrated what their company is really about.
This way of operating is promoting their company as socially aware and caring.
With that in mind future working force will look at them as a first choice organization.
That will solve the problem of lack of talents in the organization. Little steps like this can
differentiate organization and level of their impact. EY has shown a lot of competitive
advantages and it is up to the organization continue to grown and realize their market
needs.
Source: http://aiesec.org.rs/global-citizen-days/
Image 12. EY at AIESEC’s Global Citizen Days
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4.3 Market selection
Selecting a market of entry is one of the biggest steps in the formulation of the
international strategy. After realizing your drives and the way you may reach
competitive advantage, the actual analysis of the market is next. While entering a
foreign market you have to undertake series of analysis to prove how will your
company behave on a new market.
Analyses of the new environment are divided in to:
1) The macro-environment;
2) Industry or sector;
3) Competitors markets;
4) The organization.
Gerry Johnson, 2005. Exploring Corporate Strategy 7th
Edition, Prentice Hall
Image 13. The environment
4.3.1 The macro-environment
For the in depth understanding of the Serbian market two analyses were conducted
primarily. Those are two macro-environmental analyses important for understanding the
general situation of the market and its capabilities. Two frameworks are:
1) PESTEL;
2) CAGE.
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The PESTEL framework is made to provide managers and leaders of corporations
with an analytical tool to identify different macro environmental factors that may affect
business strategies at a specific country. May purpose of the PESTEL analysis is to show
how various environmental factors may influence business performance now and in the
future. This is especially important while entering a foreign market in this case Serbia.
Political factors
Entry into the EU integration processes
Unstable political situation
Transition process
Reform of the public administration at
all levels, but without real
decentralization
Inconsistency
Lack of focus on macroeconomic
issues
Good relationship with both the
western world and Russia
Economic factors
Growing impact of globalization
Migration of industry regions and
countries with lower production costs
Gradually reducing administrative
barriers for business
High interest rates
Increased investment risk
Application of international standards
Low purchasing power (low income
and low pensions)
The growth of poverty
High unemployment
Rising number of start up
entrepreneurial firms
High rate of unemployment
Social factors
Difficult situation of vulnerable
populations
Increasing number of people going to
cities
imbalance of urban and rural
population
Low living standards
High rate of brain drain
Technological factors
Increasing progress in the field of
technology
Advancement in payment methods
with the introduction of Pay Pal
New management and technology
standards
Increased use of the internet and e-
business
Technology of foreign firms that made
an investment
Environmental factors
Great geographical location
Free from natural disasters
Strict laws that protect its flora and
fauna
There were severalnatural disasters
Low number of firms is considering
CSR
Legal factors
Laws and regulation that governs
business
Weak law enforcement
Pronounced crime and corruption
Different from a British justice system
Increased initiative in improvements in
the law department
Table 2. PESTEL analysis
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The PESTEL analysis is modernized and up to date to Serbian standards. Reason
for that is that countries on the Balkans have undergone a significant change. In that way
a PESTEL analysis to a new Serbian market is highly relevant to the operations of EY,
especially since they changed their focus in wanted to become more open to other
subjects.
CAGE (culture, administrative, geographic and economical) framework
represents an analysis of distance. It has a goal to present how distant your native market
is to the actual market you wish to enter. In the case of EY it is wise to use EY’s
headquarters at London, UK and compare it to Belgrade, Serbia.
Cultural Differences Administrative
Differences
Geographical
Differences
Economical
Differences
- Different language
- Different social network
- Relatively different
religion
- There is a difference in a
working system
- Different norms of
success
- Different cultural
influences
- Lack of historical ties
- Not at the same region
as a block
- Lack of common
currency
- Different legal system
- Difference in
EU(European Union)
membership
- Geographical distance
- We are not connected
by a border
- Different climates
- Different size of the
country
- Different income of
the population
- Difference in level
of organizational
resources
- Difference
Economic stability
- Different level of
inflation and
unemployment
Table 3. CAGE framework
The result of this analysis shows that Serbia as a market has a lot of place for
improvement. Because of the situation from a macro perspective Serbia in not a main
priority between other emerging markets. With the new government and value system
Serbia has a good chance in becoming a priority for foreign investors.
The situation with macroeconomic problems is universal, and Serbia has to open
up more for opportunities of foreign commerce and by that follow the global trend.
http://www.ey.com/GL/en/Issues/Business-environment/Eurozone-country
Image 14. Focus counties
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4.3.2 Industry and competitors
After the analysis of the macro environment it is very important to be aware of the
industry and your competitors at that market. EY has done a good job highlighting their
sources of competitive advantage and that is why the next step is to know the market.
For the analysis of the industry and the market two analyses were used, to represent a
snapshot of the current situation at the industry of auditing and consultancy. Two
analyses examined are:
1) Porter’s five forces;
2) Industry life cycle.
Porter’s five forces is a concept that looks in to five main industrial factors. Those
five factors are the elements of the market that can affect the performance of the
organization on a microeconomic level. Aspects of the Porter’s framework are:
1. Threat of new entrants;
2. Bargaining power of the suppliers;
3. Bargaining power of the buyers;
4. Threats of substitute;
5. Rivalry among existing competitors.
Source: http://www.cgma.org/Resources/Tools/essential-tools/Pages/porters-five-forces.aspx
Image 15. Porter’s five forces
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The idea being the Porters analysis is to realize the level of importance and threats
to the organization by those five factors. First aspect is the threat of new entry. By
analyzing the realistic situation there is a very low chance of a new entrant making a
serious effect on the Serbian market of financial consultancy. The notorious ‘big four’
has already divided the Serbian market among themselves. Remaining percentage of
Serbian companies is services by domestic audit companies that are offering elementary
service. The situation with buyers and suppliers is quite complicate in the service oriented
corporation. There are no clear suppliers of equity and knowledge except the actual
shareholders from other offices. Also buyers or companies that are requiring services of
EY are also contributing to the economic feasibility of the organization. In that way
buyers and suppliers are intertwined. The actual power of buyers is quite large because of
the fact that competition is intense, EY has to impress potential consumers by their
knowledge and proposed solution so they can become part of the EY team. As far as
threat of substitutes goes, it is little to say that it is competitive. ‘The big four’ is
constantly pressuring its competition and among themselves, demining only very best to
survive on the market. That unique situation with a market that is an oligopoly, makes a
rivalry among existing competitors very high. By the path analysis and game theory
organizations are constantly competing over remaining organizations. It is a matter
prestige to be a best audit firm both locally and globally. Now, the situation of high
opportunity cost is very clear and evident.
Michael Porter introduced one of the most commonly used and recognized
analysis of the environment in 1980 called the life cycle of the industry or the industry
life cycle. Although there are a lot of analyses and framework industry lifecycle remains
a benchmark of simplicity and usefulness. The concept of the research is that the industry
is the part of the environment most relevant to the environment. In its core it represents a
competitive attitudes of organization on a new and constantly changing markets
worldwide.
Industry life cycle is the analysis of in which stage the market is. Various authors
divide the industry into several stages that are:
1) R&D (Research and development) ;
2) Introduction;
3) Growth;
4) Maturity;
5) Decline.
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Source: www.pro-tools-expert.com
Image 16. Industry life cycle
The situation on the Serbian market in the consulting and audit industry is that it
is currently in maturing stage. This is because a market has become something similar to
an oligopoly and a competition is very intense. There is low possibility for grown and the
markets have been divide by the key players. Because of that firms have to constantly
innovate and search for new market drivers. There are very high entry barriers, meaning
that you have to either differentiate or be a cost leader to challenge large corporation in
the ‘battle’ for market share. The matter of the fact is that in the price war a small new
firm is lightly to exit the market because of the intense pressure large corporations like
EY are prepared to do.
4.3.3 The organization
On the end of the day organization is in the middle of all actions on the market.
Organization has to start from its self. It has to realize the potential opportunities and
threats of the new market. EY is present on the market of Serbia ex. Yugoslavia for a
long time but they have repositioned their approach to external world. Because of that the
analysis of the organization is necessary. SWOT analysis (alternatively SWOT matrix) is
a method of planning, analysing and evaluating the strengths, weaknesses, opportunities,
and threats the business venture on a new or on an existing market. This organizational
analysis is used to demonstrate a realistic picture of what are organizations good and bad
sides, on other words how to minimize company’s weaknesses and threats and maximize
56. 56
opportunities and strengths? It is very useful for problem detection and later its solution.
It general use is both applicable on individuals and organizations.
The SWOT analysis of EY on a Serbian market is:
Strengths
- Strong brand awareness and recognition
- Loyal customers
- Superb customer service
- Benchmark for quality
- Prices that are relatively equivalent to
market expectations
- Global corporation with international
conceptions and values
- Well raked among the work force of the
future
Weaknesses
- Low customer income that is a result of
current lack of market potential
- Ultra competitive industry
Opportunities
- Better engagement with future leaders of
the nation
- Better segmentation of the market
- EY student ambassador
- Better showcasing
Threats
- Unstable economic situation
- Scarcity of skilled labor
- Cultural problem with corruption
Table 4. SWOT analysis
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4.4 Entry mode
First three steps were crucial in understanding the way organization works and
their international drivers. Now it comes to a stage when the plan and analyses come to
‘life’. It is done by actual market entry. Entering a market is done by a last step of the
international strategy and that is an entry mode.
EY is a global corporation that has a lot of offices around the world. Because of
their wide reach and market value, the approach they use to enter a specific market is
different from one market to another.
In this stage the topic of entry mode is out of most importance. After intensive
research, it came to my attention that EY focuses on individual characteristics of the
market and depending on how attractive they are chose an entry mode.
The decision of an entry mode is made by several factors, that summed up in few
words is the level of control and risk a corporation is willing to have. Based on the
experience of the past the ways EY enters foreign markets is mostly by:
1. Franchising;
2. Merger;
3. Acquisition.
EY does this in order to enter to a market in a best possible way that will create a
situation where EY can be a market and regional leader. This is done by effectively
entering the market and working on various fields like:
1. Operations;
2. Customer recruitment;
3. People recruitment;
4. Managing finance;
5. Managing risk;
6. Alliance.
59. 59
5. Conclusion
The practices of EY on the ever-changing overly completive environment could
be used as a benchmark for other companies wishing to leave borders of their own
markets. By that they will exit their zone of comfort and will invest time, money and
resources in an endeavor elsewhere. Topic of international strategy and entry modes is
very interesting and in days to come will have even bigger relevance and importance. By
realizing market potential of international markets firms may capitalize on the
globalization factors.
The message and the universal goal of EY is to create a ‘better working world’.
By doing so, they as an organization are setting an example and inspiring others to follow
in their footsteps, whether the organization is a large enterprise or a small start-up.
EY is a universal standard of quality and knowledge must be admired. Their
endeavor in Serbia was successful. They are both leaders in the audit business but also
are making room for new and inspiring business man of tomorrow. On the Serbian
market EY has undertook the approach that will secure their position for a long time.
One of the biggest effects EY has on people of Serbia is the entrepreneurial
influence. Many films have examined their practices and in their example left the
domestic Serbian market, to continue with their endeavors elsewhere. An ideal example
of this is Strawberry energy. Strawberry energy is a Serbian start-up that has shown great
promise, like EY they started exploring their options abroad and with that adapting their
products and services to the wants and needs of people at those new markets.
Serbian entrepreneurs are not educated in the right amount about all the
possibilities that the international market strategy can bring them. There must be a new
and different generation that will use and realize this opportunity.
60. 60
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