Factors affecting the selection of export strategies in food industry companies

Master's Thesis in Business Management, International Business Orientation

Abstract:

Managers who are involved in export marketing, initially tend to make decisions about the method of entry to expand their market abroad. The purpose of this research is to investigate the effective factors that affect the choice of the method of entering the foreign market of an export company. Based on the analytical review, research hypotheses were made. In this research, a survey was conducted among 72 food industry companies that export, to check the choice of entry method. Second-order exploratory and confirmatory analysis was performed using SPSS and SmartPLS software to identify and test effective and key factors based on the data of this sample. The results of the test show that all the factors of product, market and company characteristics influence the choice of export strategy. Among these three factors, the effect of product characteristics is greater. Also, there is a high correlation between product complexity and management preferences regarding business growth goals with direct strategies. As a result, it is suggested that if the complexity of the product or the management's desire for business growth goals is high, companies should use direct export.

Key words: entry methods[1], export strategies[2], direct export[3], indirect export[4], food industry[5]

Chapter 1

General

1.1. Introduction

When an organization decides to enter foreign markets and participate in foreign trade, it has a variety of entry options. These options have different cost, risk and degree of control. The simplest strategy for entering exports is using direct methods or indirect methods such as representation. Also, the increasing importance of foreign trade in the economic growth and development of countries is such that some economists refer to it as the engine of economic development. According to this group of economists, the growth of exports, especially food exports of countries, can help their economic development in at least two ways. The increase in exports has a direct effect on the foreign exchange earnings of countries, and in this way, by providing The foreign exchange resources of the countries provide the possibility of necessary investments for the economy to be on the path of growth and development. On the other hand, the development of exports provides the possibility of using the facilities of the global markets for the growth of domestic production, and in this way, it enables production units and enterprises to free themselves from the limitations of the domestic market and develop the scale of production in order to export more to foreign markets, in addition to earning foreign exchange earnings, they also benefit from the economic savings resulting from the scale of production. (Goharian, 2004). Considering the role of export in the country's economic development, it is necessary to pay attention to export and import substitution.

Few researches have been done on export strategies, more precisely, what methods and options companies have to enter export markets (according to various factors) have received less attention. This research examines the factors that influence the choice of export strategies.

1.2. Statement of the problem:

Globalization is one of the most important concerns of companies today, and they are looking for markets for their products, beyond the geographical borders. The rules of the game in this field have been gradually formed over the long years of trade relations between foreign countries and new actors are bound to accept these rules, so that today the identification of these rules and procedures as well as the relationships between phenomena in international trade has become particularly important. One of the important issues in the field of activities in foreign markets is the selection of foreign markets and the choice of the method of entering these markets. Companies realize more and more the importance of this issue that in order to succeed in this breathtaking competition, they must enter the right place, through the right way and at the right time (Haqiqi Khah, 2018).

Choosing the entry method is one of the most important and critical strategic decisions for companies that seek global development and expansion. Market entry is an organizational decision that helps a company introduce its products and services to foreign markets. One of the reasons that many companies fail in the process of international development is that the decision-making related to the choice of strategy and method of entering their international markets is weak.If a company chooses a weak method to enter international markets in the initial stage of international development, it is a threat to the future of entering international markets in the future. However, there is no correct way to enter international markets that can be considered as a suitable choice (Chaudhari [1], 2010).

Among the various methods of entry, exporting has always been the best means to start marketing activities abroad. Different countries encourage their companies to export, because this important activity increases employment within their country, develops the competitive situation, and improves foreign exchange earnings (Kegan, 2010, p. 213).

Exports are also important in the global exchange system. This method is widely used in entering foreign markets of commodity producing companies, especially in the initial levels of internationalization. Managers pursuing export marketing are initially concerned with decisions about their foreign expansion. In order to enter foreign markets and choose an export strategy, they must consider factors related to the product, market and company (Makam[2], 2010).

Research shows that favorable local access to investors and banks and having domestic competitors that increasingly operate abroad are positively related to indirect exports, while such a relationship is not with direct exports. E is not found. In fact, when financial resources are available in the local environment, companies can more easily use intermediaries, as a result, companies are drawn more towards indirect exports than direct ones (Terjesan [3] and Hessels [4], 2010).

Also, research conducted on the efficiency of companies shows that if the company is efficient, it is better to use the direct export method, and if the company is not efficient, the use of indirect methods is preferable to direct methods. (Zarihun[5], 2011).

"Warren Bikely" examined 43 different researches that had been conducted on the export behavior of companies and extracted three important results from them. First, export is a development process. This process can be divided into seven specific stages.

Bailki's second conclusion is that the probability of a company moving from one stage to the next depends on various factors. Stage two to three depends on the management's attitude about the attractiveness of export and the company's self-confidence in its ability to compete internationally. The third conclusion is that commitment is the most important aspect of the company's international orientation. (Keegan, 2010, pp. 213-214)

Companies that have new and innovative products have more chances to succeed in export markets. However, the most important factor that affects the export performance of companies is not the characteristics of the product, but the characteristics of the company. In the studies conducted by "Meggins and Little" on the effective factors in export, it was determined that the commitment to export and high technology have a positive and strong effect on export and the effect of these factors is greater than the characteristics of the product. (same source)

The fundamental differences between direct and intermediary exporters lead to important results in the flow of trade. Intermediaries and direct exporters react to exchange rate fluctuations, both in terms of the total value of the shipment and the number of exported products, as well as prices and quantities (Bernard[6], 2010).

The food industry is known as one of the largest industries involved in global markets. In Iran, the food industry is also known as one of the largest non-oil export industries. According to the statistics of the Ministry of Industries, 14 thousand food industry units are working in the country. In terms of production, after heavy industries, it ranks second among the manufacturing industries of the country. whose production amount is one third of the country's production. According to the statistics of the World Trade Organization, Iran has been ranked 30th among food exporters, which is not the right position for the country considering the high capacity and potential of the country. Also, Ali Iranpour, a member of the Agriculture, Water and Natural Resources Commission of the Islamic Council, stated that in the year of the resistance economy, the development of non-oil exports takes on a special meaning with the increase in the export of agricultural products, and the export of the food industry is its first priority. Iran's food industry is a nascent industry.