The Five Common International-Expansion Entry Modes
| Type of Entry | Advantages | Disadvantages |
| Exporting | Fast entry, low risk | Low control, low local knowledge, potent ... |
| Licensing and Franchising | Fast entry, low cost, low risk | Less control, licensee may become a comp ... |
| Partnering and Strategic Alliance | Shared costs reduce investment needed, r ... | Higher cost than exporting, licensing, o ... |
| Acquisition | Fast entry; known, established operation ... | High cost, integration issues with home ... |
What are the modes of entry in international business?
What are the Different Modes of Entry into International Business?
- Direct Exporting. Direct exporting involves you directly exporting your goods and products to another overseas market.
- Licensing and Franchising. Companies which want to establish a retail presence in an overseas market with minimal risk, the licensing and franchising strategy allows another person or business assume ...
- Joint Ventures. ...
What are the types of entry modes?
Understanding Entry Modes in International Marketing
- Factors to Consider when entering foreign markets. There are a variety of factors we should take into account when entering foreign markets, as for many other types of business ...
- Types of Entry Modes. Entry modes are divided into three categories. ...
- Export Entry Modes. ...
- Intermediate Entry Modes. ...
What are entry modes strategies?
- They are frequently between firms in industrialized nations.
- The focus is often on creating new products and/or technologies rather than distributing existing ones.
- They are often only created for short term duration, non equity based agreement in which companies are separated and are independent.
What are the modes of entry?
Modes of entry: According to the nature of businesses, there are following modes of entry into international market: Direct exporting: In this mode of entry, the businessman directly exports the final goods to the other country with the help of distributors and agents. Such distributors and agents represent the interest of business in other ...
What are the modes of entry into international markets?
There are several market entry methods that can be used.Exporting. Exporting is the direct sale of goods and / or services in another country. ... Licensing. Licensing allows another company in your target country to use your property. ... Franchising. ... Joint venture. ... Foreign direct investment. ... Wholly owned subsidiary. ... Piggybacking.
What are the types of entry modes?
Learning ObjectivesType of EntryAdvantagesExportingFast entry, low riskLicensing and FranchisingFast entry, low cost, low riskPartnering and Strategic AllianceShared costs reduce investment needed, reduced risk, seen as local entityAcquisitionFast entry; known, established operations1 more row
What 5 modes are available to enter the global marketplace explain how these are each achieved?
The five main modes of entry into foreign markets are joint venture, licensing agreement, exporting directly, online sales and purchasing foreign assets.
What are the five key factors that influence a company's international entry mode selection?
2 Factors Affecting the Selection of International Market Entry...i) Market Size: ... ii) Market Growth: ... iii) Government Regulations: ... iv) Level of Competition: ... v) Physical Infrastructure: ... vi) Level of Risk: ... vii) Production and Shipping Costs: ... viii) Lower Cost of Production:More items...
Is the most common method for entering foreign markets?
Generally, companies enter new markets by exporting because it offers minimal investment and lower risk. is the most common method for entering foreign markets and accounts for 10 percent of all global economic activity.
What are the types of international business?
What Are The Types of International BusinessLicensing: This agreement allows the licensor an affordable entry to a foreign market while the licensee gains access to the unique assets, especially goodwill of another firm. ... Franchising. ... Joint Ventures. ... Foreign Direct Investments. ... Offshoring.
What are the 5 strategies for taking a business global?
For brands seeking to join the new set of global brands, there are five global marketing strategies that companies need to take into account. These involve creating a strong and consistent brand culture, borderless marketing, internal hubs, a new “glocal” structure and co-creating with consumers.
What are the various strategies for entry and operation in international business?
Here are 10 market entry strategies you can use to sell your product internationally:Exporting. Exporting involves marketing the products you produce in the countries in which you intend to sell them. ... Piggybacking. ... Countertrade. ... Licensing. ... Joint ventures. ... Company ownership. ... Franchising. ... Outsourcing.More items...•
What are the 4 factors affecting international marketing?
These factors include cultural and social influences, legal issues, demographics, and political conditions, as well as changes in the natural environment and technology. Some major organizations involved in this level of international marketing are the UNO, World Bank, and the WTO.
What are the four market entry strategies?
Here are some main routes in.Structured exporting. The default form of market entry. ... Licensing and franchising. Licensing is giving legal rights to in-market parties to use your company's name and other intellectual property. ... Direct investment. ... Buying a business.
What are the factors that are considered while selecting a foreign market to enter explain with the help of examples?
When pondering if international expansion is right for you, consider these four factors:Culture. The cultural difference can determine whether the business is successful or not. ... Legal and regulatory barriers. ... Foreign government consideration. ... Business case.
What are the Different Modes of Entry into International Business?
Some of the modes of entry into international business you can opt for include direct export, licensing, international agents and distributors, joint ventures, strategic alliance, and foreign direct investment.
What is the crucial part of international business?
Before deciding on the entry modes into international business, the crucial part is deciding which markets to enter. This decision needs to be deliberated by you as the marketer by analyzing all the possible options and making the choice basis a suitable framework.
What is foreign direct investment?
Foreign Direct Investment involves a company entering an overseas market by making a substantial investment in the country. Some of the modes of entry into international business using the foreign direct investment strategy includes mergers and acquisitions, joint ventures and greenfield investments.
What is marketing in a country?
Often the market campaigns, product, promotion and pricing strategies that are a success in one country fail in another country. Therefore, you as a marketer need to understand the cultural fabric of the country you target and craft a marketing plan for it.
Why do companies want to expand into foreign markets?
The primary reasons that companies opt to expand into foreign markets are to: 1. Explore markets with better profitability. This is an obvious reason for a lot of local companies to enter into an international markets.
How do companies enter foreign markets?
Many companies will attempt to enter foreign markets indirectly, by targeting foreign consumers on the internet. Similar to exporting, companies retain their physical operations in their native countries, but ship products overseas. However, whereas in exporting, companies contract with local businesses, with the Internet they take orders directly from consumers. One advantage to this mode is that it is relatively cheap, entailing only the cost of a website and marketing. The downside is that it is often less effective than establishing a physical presence in the foreign market. Consumers may be deterred due to shipping costs, duties and taxes that may be levied by their government and the length of time it takes for their order to arrive.
Is it easy to enter a foreign market?
There are several ways to jump into a foreign market, some easier than others.
Is shipping less effective than establishing a physical presence in the foreign market?
The downside is that it is often less effective than establishing a physical presence in the foreign market. Consumers may be deterred due to shipping costs, duties and taxes that may be levied by their government and the length of time it takes for their order to arrive.
What are the advantages and disadvantages of being a first entrant?
First entrants, or ‘early movers’ may have both an advantage and a disadvantage. The advantage is related to not experiencing competition when establishing their brand name, allowing them to develop consumer loyalty before other companies do, through soft and hard lock-in strategies. On the other hand, these same companies will entail in higher entry costs, as when introducing new countries, firms will need to account for costs associated with consumer education. The introduction of new products, which may be culturally distant from the consumers, will need to be supported via ad-hoc promotional strategies aimed at delivering the product offer within the framework of a new culture. This unique mix of benefits and limitations explains why we have both a first-mover advantage and a first-mover disadvantage.
What is a large scale entry?
Large ScaleSmall Scale Entry. This element relies on the particular industry at stake. For certain typologies of organisations, it is possible to establish a small-scale presence, in key locations. An example is provided by the fashion industry, whereby the physical store in one strategic spot, can be enough to connect to foreign customers. Other types of industries instead – for instance, high street banks – will need to cover a foreign market much more extensively in order to establish a presence capable of reaching foreign customers.
What is export mode?
Export modes are low-cost entry strategies, which provide companies with a quick entry route into the foreign market. At the same time, export modes rely on the absence of tariff barriers, and the relationship with buying agents. Both of these limitations can become problematic, therefore pushing a firm to pursue alternative or additional entry modes.
How many formats can an acquisition follow?
An acquisition can follow 4 different formats:
What is the decision to select a market to enter?
The decision to select a particular market to enter relies on instinct just as often as on data and research, but once the market has been targeted , it’s necessary to address a new set of decisions, which pertain to entry strategy.
Why do companies develop international marketing strategies?
Usually, in academic literature, we make a distinction between those companies that develop an international marketing strategy in order to seize an opportunity (due to proactive motives), and those companies that instead pursue foreign customers to react towards adverse domestic conditions ( reactive motives). The decision to select a particular market to enter relies on instinct just as often as on data and research, but once the market has been targeted, it’s necessary to address a new set of decisions, which pertain to entry strategy.
What is internalising approach?
Through internalising approaches companies actually gain the highest possible degree of control, as they own and manage every link of the value chain, domestically and abroad. This type of international entry strategy is the one pursued by either companies with a high degree of competence in international business management, developed through the export, and intermediate mode of entry (according to the Uppsala Model) or companies who need to invest abroad to create more efficient and cost-effective value chains (according to the TCA Analysis Model).
Why do companies choose acquisition as their entry mode?
This is because an acquisition uses an already established brand name and customer base.
What is the term for a foreign market entry strategy where a semi-independent business owner (the franchisee?
3. Franchising . Franchising is a foreign market entry strategy where a semi-independent business owner (the franchisee) pays fees and royalties to the franchiser to use a company’s trademark and sell its products and/or services.
What is indirect exporting?
Exporting is a cross border sale of domestically grown or produced goods. There are three types of exporting: indirect exporting, direct exporting and cooperative exporting. Indirect exporting is the most low risk entry mode as there is effectively no exposure to the foreign market and its associated risks.
Why is there a restriction on foreign investment?
A local government may choose to impose restrictions on wholly owned foreign investment for a number of reasons, such as: threat to local players, threat to the environment, threat to the long term prosperity of the industry etc.
What are the external factors that make globalization possible?
External factors such as: the removal of trade barriers, free trade agreements between countries, and an emerging middle class has made the idea of going global more attractive to organisations across the world. Internal factors such as: increasing profits, increasing market share and becoming a global brand are more drivers for organisations to globalize. Whilst there are a lot of drivers of internationalization, and hence potential advantages to internationalize.
Which multinational companies have had success in foreign markets?
Microsoft Corp and Walt Disney Co are two examples of large multinationals that have had success in foreign markets using licensing as their entry mode. Whilst licensing in these examples have been very successful and undoubtedly the right foreign market entry mode, licensing does have its limitations.
Is direct export the same as indirect export?
A direct export is the same as an indirect export except that it doesn’t involve an agent who sells the good to the intermediary. Direct exporting is a very common entry mode used by organisations who want exposure to a foreign market, but want to limit the risks associated with other types of entry modes.
How many modes of entry are there in the international market?
There are five major modes of entry in the international market and each method has its own advantages and disadvantages. The explanation of all the methods highlighted that a firm may use franchising only when it has unique brand values and go for partnership if have international recognition.
What is a licence mode of entry?
Licensing: Under Licensing mode of entry, the company has to maintain contact with foreign business to make them agree to sell the products of your business. However, it is not easy to convince the foreign business for dealing in your products as there will be chances of failure.
Why do businesses enter the international market?
However, there are different ways to enter the international market as no single strategy would fit better to all the companies due to difference in their nature of business, size and revenues etc. Besides, there are number of factors that can influence such as tariff rates, transportation cost, adaptation cost etc. The selection of strategy thus, depends on all these factors.
When a business expands in another country with a partnership, there are less regulations to be followed by the new?
When a business expands in other country with partnership, there are less regulations to be followed by the new business. The partners in that country handle all the tasks for the new expansion.
How to tap foreign markets?
Exporting goods is another fast way to tap foreign markets. If there is a demand for the goods you sell, chances are high that an importer somewhere on foreign soil wants to buy whatever you're selling. Rather than attempting to establish your own brick-and-mortar presence in a foreign country and then market yourself there, you can instead sell your goods wholesale to an importer. This process is fast and easy, since you don't have to get involved with the retail process. You get paid by the importer and then they distribute the product as they see fit.
What is the fastest way to capture a share of a foreign market?
Internet selling is the fastest and easiest way to capture a share of a foreign market. An online presence can take your business anywhere and allow customers to order goods from you no matter where they happen to live. Internet selling is also flexible.
How to establish a brick and mortar presence on foreign soil?
If you want to establish a brick-and-mortar presence on foreign soil with minimal risk, consider allowing another person or business to assume the risk for you. Through a licensing agreement or a franchise, a business person pays you for the use of your name, trademarks, manufacturing process and products.
What does it mean to acquire a controlling interest in a foreign company?
Acquiring a controlling interest in a foreign company gives you ownership of a business that is already established and known in the market. You can continue to allow the company's current management to operate the company for you, allowing you to benefit from their knowledge, experience and connections.
What is market entry strategy?
Market entry strategies are methods companies use to plan, distribute and deliver goods to international markets. The cost and level of a company's control over distribution can vary depending on the strategy it chooses. Companies usually choose a strategy based on the type of product they sell, the value of the product and whether shipping it requires special handling procedures. Companies may also consider their current competition and consumer needs.
How do companies minimize risk of entering the international market?
Some companies attempt to minimize the risk of entering an international market by creating joint ventures with other companies that plan to sell in the global marketplace. Since joint ventures often function like large, independent companies rather than a combination of two smaller companies, they have the potential to earn more revenue than individual companies. This market entry strategy carries the risk of an imbalance in company involvement, but both parties can work together to establish fair processes and help prevent this issue.
Why are market entry strategies important?
Market entry strategies are important because selling a product in an international market requires precise planning and maintenance processes. These strategies enable companies to stay organized before, during and after entering new markets. Since every company has its own goals for entering an international market, having the option to choose from various types of strategies can give a company the opportunity to find one that fits its needs.
How to choose an international entry method?
The first point is sourcing: The company needs to decide whether it plans on directly exporting goods from its existing facilities into the foreign markets or if it intends to have some kind of production physically within the new region. If the company does not want to make an investment in overseas production facilities, its choice is then to export its goods from existing plants. If the company is open to foreign production of its usual products, most of the other options are available.
How to enter foreign markets?
A company looking to expand into foreign markets needs to consider three things as part of its entry strategy: 1 Sourcing: The company must decide whether goods will be made in the new region itself or shipped to the new region from existing production or if goods will be purchased in the new region to be reworked and sold. Depending on this answer, the cost of the market entry will change. 2 Marketing: The company needs a strategy for marketing to the new region, such as what markets it will enter, what segments are the most important and whether the marketing strategy will be global or regional. 3 Ownership: Will the new operations be part of the existing company, or will the company reach out for a global partner? Will the operation be licensed or franchised? Are there foreign companies that can be acquired or opportunities for a joint venture?
Exporting
Licensing
- In this last mode of entry, a company completely owns and controls the foreign entry mode. The degree of control that a firms’ HQ can exert onto the subsidiary depends on how many and which value chain functions can be transferred to the foreign market.There are five main Hierarchical Entry Modes. 1. Domestic-based sales representatives 2. Resident...
Franchising
Joint Venture
- Exporting is a cross border sale of domestically grown or produced goods. There are three types of exporting: indirect exporting, direct exporting and cooperative exporting. Indirect exporting is the most low risk entry mode as there is effectively no exposure to the foreign market and its associated risks. The organisation is merely selling their ...
Wholly Owned Subsidiary
- International licensing is a cross border agreement that permits organisations in the target country the rights to use the property of the licensor. This property is generally intangible and includes: trademarks, patents, and production techniques. The licensee is required to pay a fee in exchange for the rights specified in the contract between the parties. Licensing is commonly ch…