Market Entry Modes

2802 Words Mar 22nd, 2012 12 Pages
Introduction:
One of the most significant decisions to be taken in business is how to enter a new overseas market because of commitments to be made; commitment in terms of dollars to be invested, personnel for managing the international organization, and determination to stay in the market long enough to realize a return on these investments, therefore selecting the most appropriate market entry mode is vital.
A mode of entry into an international market is the channel which the organization employs to gain entry to a new international market. In this report I will go through different alternatives of Market entry divided into two main methods; direct and indirect each sub-categorized into several options. Here I will be considering
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* Lower production and labour costs * Avoiding high transportation costs * Avoiding Tariffs and non-Tariff barriers * Fulfilling some countries preference to produce locally
It will be a good option when the company lacks resources and is not willing to invest equity to establish manufacturing and selling operations directly.
Even though a local firm is responsible for production and selling, but the company is able to develop and control R&D, marketing, distribution, sales and servicing of its products in international markets, then it is possible for the contractor to sell the products in the country of production or some other foreign market. A good example of contract manufacturing is IKEA.
With its business formula based on low cost and affordability and IKEA have 2500 suppliers in over sixty countries. Having exclusive contract manufacturing with its suppliers, they are working closely with them to reduce costs and sharing technical know-how.
Benetton is another example which employs contract manufacturers to produce clothing.

Licensing:
Licensing is another way in which the firm can establish local production in foreign markets without capital investment. It differs from contract manufacturing as it is usually for a longer term and involves much greater responsibilities for the national
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