Foreign Market Entry Modes Essay

The company has to face the issues like tax regulation, import and export regulations etc.

Exporting, licensing, and using trading companies are preferred modes of international market entry for firms with a(n) ____ structure.

Indirect exporting is when a company sells their product to a third party that will then sell that product to customers in foreign countries (2012). Strengths for this type of strategy are there is little financial commitment, the financial risk is reduced by using the third party, and there is a reduced risk that the future of the product or brand will look bad in the new market (2012). A limitation of this entrance strategy are the company has to rely on the third party to get customers and negotiate the sale prices for them (2012). Direct exporting is when the firm that is entering the market enters on its own and handles their own exports (2012). Strengths of this strategy are the company gets to handle their own exports, they have complete control, the company also has a greater amount of potential returns, and they can maintain a greater profit from their sales (2012). Limitations of this are there is a higher risk involved since the company is handling its own foreign markets, and there is a larger investment in not only money but time (2012). Licensing is when there is a relatively low link to risk that permits the company to enter into the market (2012). The strengths associated with licensing are no large capital investment, the company may be able to get around the restrictions and barriers a country can put up, and the company can charge a higher price for their product (2012). Limitations of licensing are

As a company decides to become a MNE (Multinational Enterprise), it “deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least 2 countries. Rothaermel (2013, p. 271) By licensing patents to foreign competitors, it is believed that it will in turn reducing its own competitive advantage due to decreasing the uniqueness of its product. Allowing a foreign competitor to have permission to utilize its product, consumers will have access to the targeted product from more than one source. As the competitor is foreign and presenting the targeted product within a market outside of the MNE’s market base, complete elimination of the MNE’s competitive advantage would be unlikely as long as there

First off, the profits monetarily is by far the most obvious factor. Multinational corporations can create unique partnerships that allow for global investments of which were not obtainable for a long time due to the costs and difficulties. An excellent example is the agreement between the Walgreens Company & Alliance Boots in 2015 (1). With this merger, Walgreens has a foot in the European market and has boosted their profits significantly by 14.4% ($1.4 Billion Net Earnings reported in 2nd Quarter of 2016) (2).

The transfer of technology may not always pertain to a totally different collaborator. In some cases, the transfer may be directed towards the subsidiary as this is regarded as a separate legal entity by law. Licensing is common in manufacturing industries

Depending on what type of business you are in, you can find similar companies in other countries and form a partnership. This gives the seller more recognition in the foreign country. But, it is usually more costly due to the added expense of another office. By forming a partnership with a company that is in the country you want to do business in, the partner possibly has a list of contacts, already. This makes selling the product or service a lot easier. Still though, companies wanting to expand in foreign markets must be careful in choosing their partners. If they are not careful whom they choose as a partner, they could risk losing control of their product or service. And, they need to pay close attention to the day to day activities of selling. Some small businesses get too hasty because they want to expand their market and gross profit, so they make bad judgment calls when it comes to finding a company to form their joint venture with.

There are several modes of entry into foreign markets. According to Hill (2010), “Firms can use six different modes to enter foreign markets: exporting, turnkey projects, licensing, franchising, establishing joint ventures with a host-country firm, or setting up a new wholly owned subsidiary in the host country” (p. 475). With each mode of entry, there are advantages and disadvantages. Joint ventures are often a common choice when entering a foreign market. In a joint venture, two or more independent entities will establish a business jointly (Yip & Hult, 2012). On November 9, 2015, Boeing announced a joint venture with Tata Advanced Systems in India (Boeing, 2015). Boeing and Tata’s joint venture is to manufacture aircraft aero-structures and to work in partnership on integrated systems development in India.

In fact, licensing and franchising has a similarity, which is both of them offer company to earn monthly profits but obviously it still depended on how you managed and operated your business (Gerhardt, S, Hazen, S, Lewis, S & Hall, R 2015, p. 8). Licensing is like giving the rights to someone to produce a product or using its brand name, however, franchising is like open a branch by using its brand name or business model. Actually the business which operated by licensing method usually can consider as a cheaper choice than the franchising business (Gerhardt, S, Hazen, S, Lewis, S & Hall, R 2015, p. 8). So the advantage of licensing obviously is the less production cost. For example, The Walt Disney Company, the world’s largest licensor, allows its licensee to use Disney’s brand to create products such as plush toys, figures and apparel. This gives a great advantage to Disney as it will help them to further expand their business’ scope without having them to invest in other business’ which can help lessen their production cost on the production of plush toys, figures and apparel . They will have a large distribution of network around the globe when this happens. However, the disadvantage by using licensing method to operate a business is the licensor may lose their power to control what and how their licensee doing their business in different countries. For example,

According to International Franchise Association (IFA), ‘‘a franchise is the agreement between two legally independent parties which give a person or group of people (franchisee) the right to market a product or service using trademark of another business (franchisor)’’ (IFA, 2015).

This is starting from the scratch, building the operations and investing a large amount in the foreign market. Some industries favour this kind of entry, example include the nano tech industry where most high tech companies move them to China because of low labour cost in

If an industry has decided to conquer the international market, there are many choices that will be opened. These options may include the cost, risk and the degree of control that the company will encounter ( 2001). In entering an international business, it is important that the management of the company should be able to choose a marketing entry strategy so as to make the company be more competitive ( 1986). Primarily, the purpose of this paper is to provide an analysis of the marketing entry mode that British Petroleum may use to enter the Hong Kong Special Administrative Region (SAR) market. In this manner, the discussion of the current situation of Hong Kong will be analyse as well as the international

The company allows a third person to use their trademarks and accumulated expertise. The partner puts up the money and assumes the risk. A problem that often arises is that the original company has little control over how the business is operated. For example, American fast food restaurants have found that foreign franchisers often fail to maintain American standards of cleanliness. Also, a foreign manufacturer may use lower quality ingredients in manufacturing a brand based on premium contents in the home country. Another entry method, contract manufacturing, involves having someone else manufacture products while you take on some of the marketing efforts yourself. Direct entry strategies, where the firm either acquires a firm or builds operations “from scratch” involve the highest exposure, but also the greatest opportunities for profits. The firm gains more knowledge about the local market and maintains greater control, but now has a huge investment. In some countries, the government may expropriate assets without compensation, so direct investment entails an additional risk Allen, C. (2010). A variation involves a joint venture, where a local firm puts up some of the money and knowledge about the local market.

Companies can decide to go global or to enter international markets for various reasons, and these different objectives at the time of entry that enable the business to produce different strategies and the performance goals, and even forms of market participation.

Licensing differs from contract manufacturing in that more value chain functions have been transferred to the licensee. In outsourcing production and downstream activities a licensor firm can concentrate on its core competences and therefore will remain technologically superior in its product development- for example Apple licenses its brand to manufacturers of accessory products, and the BBC licenses rights to broadcast TV shows around the world. However a lack of control over licensor operations and therefore quality may lead a company to use franchising (a sub variant of licensing) in which the franchisor gives a right to the franchisee against a