INTERNATIONAL MODES OF

ENTRY AND BARRIERS

By:
Ishmeet Kaur
01611403909

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 International Market Analysis

FOREIGN MARKET ANALYSIS:

The firms have alternative foreign markets to enter.
In order to achieve its goals successfully, the firm
have to:

 Analyse Alternative foreign markets-

 Current & potential size of alternative markets
 Level of competition
 Legal and Political environment
 Socio-cultural environment
 Purchasing power

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 Motivation for International Expansion
 PROACTIVE (pulled by good foreign markets)
 Firm specific advantage

 Resource availability

 Economies of scale

Eg. Bharti Airtel

 REACTIVE (pushed by bad domestic markets)
 Domestic competition

 Poor domestic market

 Follow customers

Eg. Diamond & jewellry industry

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 Factors affecting mode of entry
 Need for control (desire to reduce uncertainty and
maintain full control over the foreign operation)

 Resource availability (lack of access to financial capital

may mean that entry by ownership is impossible so that
non-equity or partial equity modes are preferable; most
likely for small firms)

 Global strategy (global integration vs. national

responsiveness)

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 Modes of Entry
1. Exporting
2. Licensing
3. Franchising
4. Foreign Direct Investment
5. Wholly Owned Subsidiaries
6. Mergers

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 1. Exporting
In national accounts "export” consist of transactions in
goods and services (sales, barter, gifts or grants) from
residents to non-residents.
 Export of goods

-Change in ownership from a resident to a non-resident.

• In legal terms change takes place
• In legal terms, no change takes place
Eg. cross border deliveries between affiliates of the same
enterprise
goods crossing the border for significant processing to order or
repair

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 Contd…
 Export of services
• services rendered by residents to non-
residents
• direct purchases by non-residents in the
economic territory of a country
Eg. all expenditure by foreign tourists in the economic
territory of India is considered as part of the exports
of services India

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 Exporting
 INDIRECT EXPORTING: exporting to destination
through an intermediary. Eg. India expots sugar to
Pakistan through Singapore and Dubai
 DIRECT EXPORTING: is selling the products in a
foreign country directly through its distribution
arrangement or through a host country’s company.
 INTRACORPORATE TRANSFER: are selling of
products by a company to its affiliation company in
host country (or another country). Eg. HLL in India
to UNILEVER in USA

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How to start export business
 Identifying Products For Export
 Market Selection
 SWOT Analysis
 Registration of Exporters with RBI, DGFT,
Export Promotion Council, Income Tax
Authorities and commodity boards
 Export License
 Export Pricing And Costing

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 Contd…
 Understanding Foreign Exchange Rates
 Export Risks Management
 Packaging And Labeling Of Goods
 Inspection Certificates And Quality
Control
 Custom Procedure For Export

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 Advantages

 low financial cost (but have start up costs)

 risk limited to value of exports
 can enter foreign market gradually (ease of
start up, less chance of mistakes, gain
experience)
 gain information about and expertise in
foreign market

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 Disadvantages

 Difficulty in identifying customer needs

 Potential problems with local distributors

 Logistical considerations(costs of warehousing,

transport, distribution, longer supply lines,
difficulties in communication)

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 2. LICENSING

 In this mode of entry, the domestic manufacturer

leases the right to use its intellectual property i.e.
technology, copy rights, brand name etc to a
manufacturer in a foreign country for a fee.

Eg. Philips has entered into a brand licensing

agreement with Videocon under which it will assume
the responsibility of selling and after sale services of
Philips consumer television set in India, for 5 yrs.

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 Cross-Licensing Agreement

 A firm might license some valuable intangible

property to a foreign partner, but in addition to a
royalty payment, the firm might also request that the
foreign partner license some of its valuable know-
how to the firm.
Eg. NSE has enabled Indian investors to access US
Capital market and vice-versa through a cross-
licensing agreement, on 10 March, 2010

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Advantages
 Low investment on the part of licensor.
 Low financial risk to the licensor
 Licensee gets the benefits with less
investment on research and
development
 Licensee escapes himself from the risk
of product failure.

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Disadvantages
 It reduces market opportunities for both the parties
have to maintain the product quality and promote
the product

 Chance for leakages of the trade secrets of the

licensor.

 Licensee may sell the product outside the agreed

territory and after the expiry of the contract.

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 3. FRANCHISING:

 Under franchising an independent organization called

the franchisee operates the business under the name
of another company called the franchisor.
 Under this agreement the franchisee pays a fee to
the franchisor.
Eg. Italian designer goods maker Gucci entered the
Indian retail market through its Indian franchisee
Luxury Goods Retail.

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Advantages
 Franchisor can get the information regarding the
market culture, customs and environment of the host
country.

 Franchisor learns more from the experience of the

franchisees.

 Franchisee get the benefits of R& D with low cost.

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 Disadvantages
 It may be more complicating than domestic
franchising.

 It is difficult to control the international

franchisee.

 There is a problem of leakage of trade

secrets.

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4. FOREIGN DIRECT INVESTMENT
 Direct ownership of facilities in the target country. It
involves the transfer of resources including capital,
technology, and personnel.

 Direct foreign investment may be made through the

acquisition of an existing entity or the establishment
of a new enterprise.

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 Methods of FDI
 Greenfield entry (start from scratch, with
clean slate) Eg. UK's United Biscuits made
India entry
 Brownfield entry (acquisition of existing
firm)Eg. M&M acquired Korean company
called Ssangyong
 Joint venture (go with a partner) Eg. Bharti
Airtel-Singapore Telecom

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Advantages
 provides more control over foreign operations
 better understanding of host market, easier and quicker to adapt
products for market and respond to market changes

Disadvantages
 high cost route (financial & personnel commitment)
 more exposure to economic and political risks
 problems of managing the subsidiary at a distance

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 Wholly Owned Subsidiaries
A wholly owned subsidiary is the most costly method of
serving a foreign market. Companies taking this
approach have to bear the full costs and risks
associated with setting up overseas operations.

A subsidiary whose parent company owns 100% of its

common stock.

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 Mergers
 A merger is a combination of two companies
to form a new company

Eg. The formation of Brook Bond Lipton India

Ltd. through the merger of Lipton India and
Brook Bond.

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SPECIALIZED ENTRY MODES

 Management Contract:
One firm provides managerial assistance, technical advice
or specialized services to another firm for an agreed time
period in return for a fee (flat fee or percent of
revenues).
 Turnkey Project:
One firm (or firms) agrees to fully design, construct and
equip a facility and then “turn the key” over to the
purchaser when the plant is ready for operation. May be
a fixed price or a cost plus contract. Often done with
large construction projects in developing countries.

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Barriers To Trade

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TARIFF BARRIERS
 Levy collected on goods when they enter a domestic
tariff area through customs.

 The term tariff refers to the duties imposed on

internationally traded commodities when they
cross national boundaries.

 Tariffs enhance the price of imported goods.

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Classification Of Tariff Barriers
 Basis of origin & destination of goods.

 Basis of quantification of tariff.

 Basis of the purpose they serve.

 Basis of trade relation.

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Basis of origin &
destination of goods
 Export Duty

 Import Duty

 Transit Duty

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Basis of quantification of tariff
 Specific Duty

 Ad-Valorem

 Compound duty

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Basis of the purpose they
serve
 Revenue tariff

 Protective tariff

 Anti-dumping duty

 Countervailing duty
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Basis of trade relation

 Single column tariff

 Double column tariff

 Triple column tariff

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Benefits of tariff to home
countries
 Imports Discouraged

 Protection to home industries.

 Low consumption of foreign goods

 Revenues & employment opportunities


Reduces deficit

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Non-Tariff Trade Barriers

 Non-tariff barriers to trade are

trade barriers that restrict imports but
are not in the usual form of a tariff.

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Non Tariff Barriers
 Quota System

 Domestic Content Requirements

 Import Licenses

 Import State Trading Enterprises

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THANK YOU

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