Foreign Market Entry Modes Essay

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Why do companies entry foreign Markets? A company may be looking to increase profits and sales. They can accomplish this by creating new markets in foreign countries or they may increase sales in a foreign market that is growing faster than the domestic market. Companies also go abroad to protect their home market. By challenging a competitor in their own market it may prevent that competitor from challenging a company in its own home market. Thirdly, companies may be going abroad in search of lower production costs or in search of a guaranteed supply of raw materials. (Ball, Geringer et al. 2010) When a company decides to enter a foreign market there are several entry options available. The options include exporting, licensing, joint …show more content…

Opposite to market concentrators, market spreader companies take a more active approach to export marketing, have a greater focus on sales objectives, and tend to focus less on profitability. The markets are small and niche markets. Unlike market concentrators, these companies have a greater tolerance to risk. (Katsikea, Theodosiou et al. 2005) When a company licenses a product or service “one firm (the licensor) will grant to another firm (the licensee) the right to use any kind of expertise such as manufacturing processes (patented or on unpatented), marketing procedures, and trademarks for one or more of the licensor’s products.” (Ball, Geringer et al. 2010) The amount of control a company has over their product will vary based on the agreement. Granting a license to an unrelated party will offer the least amount of control where a license can be granted to a wholly owned subsidiary allowing a company to retain control over the product or service. (Hill, Hwang et al. 1990) An advantage of licensing is the licensee bears much of the startup costs and the costs associated with selling in the foreign market unless the licensee is a wholly owned subsidiary which the cost will ultimately be the responsibility of the parent company. (Hill, Hwang et al. 1990) The risk associated with licensing to another company that is not wholly owned is by allowing a “foreign enterprise to use firm-specific know-how to manufacture or market a product, it

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