SME Networks And International Performance

Running Head: ACTIVITY 1 – MEGA BIKES
ACTIVITY 1 – MEGA BIKES
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1ACTIVITY 1 – MEGA BIKES
Table of Contents
Introduction......................................................................................................................................2
Strategic options for Mega bikes.....................................................................................................2
Exporting.....................................................................................................................................2
Joint venture.................................................................................................................................3
Franchising mode.........................................................................................................................3
Best option for Mega Bike...............................................................................................................3
Potential benefit and risks for Mega Bike.......................................................................................5
Benefits of the mode....................................................................................................................5
Challenges to the mode................................................................................................................5
Conclusion.......................................................................................................................................6
Reference.........................................................................................................................................7

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Introduction
Mega Bikes is a small and medium scale enterprise working in Canada. The organisation
is popular for its high-end mountain bikes (MTBs) that are mainly available in the west coast of
Canada and USA. The quality of the mountain bikes is one of the best features that helps Mega
Bikes to earn more profitability through extensive market capitalisation. This report aims to
figure out the strategic options for Mega Bikes to expand its business further in the international
market. However, the limited financial capacity of the organisation restricts its aggressive market
expansion in the global platform. Henceforth, the focal point of the report is also emphasised on
proposing strategies that are fit with financial constraints of Mega Bikes.
Strategic options for Mega bikes
Exporting
As far as exporting is concerned, the exporting strategy enables the companies to get a
fast entry into the international market and procure enough success with low risk. According to
Abegaz and Lahiri (2019) it can be stated that exporting entry mode is the easiest way for any
business company to enter the international market. One of the major factors behind this
implementation of exporting entry mode is to avoid extra expenses of establishing stores and
market analysis (Padmaja & Sasidharan, 2017). As a result of that the cost effectiveness of the
exporting entry mode is very effective and pragmatic for the small and medium scale companies
like Mega Bikes.

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Joint venture
Lojacono, Misani and Tallman (2017) opined that joint venture strategy is a very
common approach that he business companies have taken in course of initiating a market entry
strategy. It can be stated that in the joint venture strategy two companies are working together
and it is obvious that one is the domestic company and other is a foreign one. The competitive
edge that joint venture is provided is associated with the local market experience that the
domestic company has and the in-depth knowledge of the international market by the foreign
company (Larimo, Le Nguyen & Ali, 2016). It is important to note that for Meg Bikes the joint
venture practice definitely helps the company to get low risk while entering in new market and
able to exploit the market capitalisation of the domestic company so that it can bring
sustainability in the future business of Mega Bikes.
Franchising mode
The franchising mode is also considered to be one of the strategic market entry strategy
for the business companies to reduce risk to a great extent so that the organisation will get
enough encouragement to expand its business further (Madanoglu & Castrogiovanni, 2017). As a
matter of fact, the role of franchising mode also considered to be a cost effective but has deep
impact in terms of the benefit of the organisation. The responsibility of the organisation is also
low and it only focuses on the efficacy of profitability of the organisation through the franchising
mode. Therefore, this market entry mode is also suited the organisational practice of Mega Bike.
Best option for Mega Bike
The franchising mode is identified as contractual entry into the new market where the
company is willing to start its business. Fakos and Merino (2017) described that the type of

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agreement that the company wants to impose in order to enter a foreign market is considered to
be of low degree of risk and resource commitment. In other words, it can be stated that the
franchising is associated with franchisor of the stores and outlets who are different different
owner and would pay royalty bonus to the respective organisation for using the brand. It is
important to note that there are limited risk that the company will receive in course of
implementing franchising mode as the best market entry option because it does not need any
direct business initiative within the country (Madanoglu, Alon & Shoham, 2017). The
contractual partnership is called franchisor with most of the responsibilities are vested within the
franchise owner rather than the parent company. The parent company only got royalty bonus
from the business operation. However, it will be able to meet the customer demands in the new
market and generating high profitability for the business company.
In respect to this, it can be stated that for Mega Bikes it seems the best option to focus on
the franchising practice. The organisation obtain high quality of product that helps it to expand
the market. However, there are still financial limitations for Mega Bikes due to its investment in
the Vancouver factory. Therefore, the company is currently not in a position to invest a lot of
money in its international expansion. From the research of Hoffman, Munemo and Watson
(2016) it can be argued that international expansion requires huge investment and capital back
up. In case of Mega Bike that cannot be possible. Henceforth, the franchising measure will be
pragmatic and effective enough as it needs less money to enter into the new market.

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Potential benefit and risks for Mega Bike
Benefits of the mode
 Rosado-Serrano and Paul (2018) mentioned that the international franchising practice
leads to recognition of the brand name and promoting the brand value of the organisation.
 For Mega Bikes, it will be effective to reduce its risks in the new market by transferring
the responsibility to the franchisor and indirectly involved in the operations in new
market.
 The cost effectiveness of the franchising mode of entry is also a pertinent reason for
Mega Bikes to opt for this specific business initiative. It can be stated that due to absence
of direct involvement in the new market, the parent companies can avoid extra expenses
in the form of market analysis, outlet set up and marketing initiatives (Stoian, Rialp &
Dimitratos, 2017). The franchisor is entirely responsible for all those initiatives.
Therefore, all these benefits will suit the financial situation of Mega Bikes and encourage
the company to opt for the franchising mode of entry.
Challenges to the mode
There are some restrictions as well for mega Bikes that can create a problem in course of
expanding business further in the competitive market. The challenges are as follows,
 The franchise agreement is full of restrictions and obligations that both the franchisor and
franchise company have to maintain in order to meet the interests of both players (Stoian,
Rialp & Dimitratos, 2017). Therefore, the process can take enough time to expand its
market further into the international arena.

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 The parent company does not have any responsibility for the business operations of the
franchisors. Therefore, the reputation of the parent company can be in a vulnerable
situation. It is essential for the parent organisation like Mega Bikes to identify the ability
of the franchisor to run business effectively.
 The share of profitability is considered to be another problem for Mega Bikes in long run
because the franchise business curtails the percentage of profit and the parent company
only gets royalty from international market. Henceforth, Mega Bikes should reconsider
the entry mode options to gain a strategic advantage.
Conclusion
Based on the understanding, it can be stated that strategic options are very essential for
the success of the business companies. The case study provides a clear understanding of the
situation in popular mountain bike manufacturer mega Bikes and its urgency to expand business
in the international business. Among the mentioned strategic options franchise is identified as the
most feasible entry mode for Mega Bikes that not only supports the situation of the organisation
but also encapsulate market effectively with less risk and expenses. Therefore, it can be
concluded that Mega Bikes must follow the franchise entry mode as strategic options to enter
into the international market and gain success gradually.

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Reference
Abegaz, M., & Lahiri, S. (2019). Entry and Survival in the Export Market: Spillovers from
Foreign and Outward-Looking Domestic Firms in Ethiopia. The European Journal of
Development Research, 1-26.
Fakos, A., & Merino, M. (2017). Multinational franchise entry and institutional quality: evidence
from Mexican cities. Management Research: Journal of the Iberoamerican Academy of
Management, 15(3), 313-337.
Hoffman, R. C., Munemo, J., & Watson, S. (2016). International franchise expansion: the role of
institutions and transaction costs. Journal of International Management, 22(2), 101-114.
Larimo, J., Le Nguyen, H., & Ali, T. (2016). Performance measurement choices in international
joint ventures: What factors drive them?. Journal of Business Research, 69(2), 877-887.
Lojacono, G., Misani, N., & Tallman, S. (2017). Offshoring, local market entry, and the strategic
context of cross-border alliances: The impact on the governance mode. International
Business Review, 26(3), 435-447.
Madanoglu, M., & Castrogiovanni, G. J. (2017). 18. International franchising: influences of
environmental uncertainty and munificence on market entry timing. Handbook of
Research on Franchising, 377.
Madanoglu, M., Alon, I., & Shoham, A. (2017). Push and pull factors in international
franchising. International Marketing Review, 34(1), 29-45.

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Padmaja, M., & Sasidharan, S. (2017). Sunk costs, firm heterogeneity, export market entry and
exit: Evidence from India. Journal of Quantitative Economics, 15(2), 367-393.
Rosado-Serrano, A., & Paul, J. (2018). A new conceptual model for international
franchising. International Journal of Hospitality Management, 75, 179-188.
Stoian, M. C., Rialp, J., & Dimitratos, P. (2017). SME networks and international performance:
Unveiling the significance of foreign market entry mode. Journal of Small Business
Management, 55(1), 128-148.
Stoian, M. C., Rialp, J., & Dimitratos, P. (2017). SME networks and international performance:
Unveiling the significance of foreign market entry mode. Journal of Small Business
Management, 55(1), 128-148.