FOREIGN MARKET ENTRY STRATEGY

Foreign market entry strategy

Institutional arrangement that makes possible the entry of a companys products, technology, human skills, management or other resources into foreign country. The expansion into foreign markets can be achieved via the following 5 mechanism
Exporting Licensing Joint ventures Direct investments Franchising

EXPORTING
Exporting is the marketing & direct sale of domestically produced goods in another country. Exporting is a traditionally & well established method of reaching foreign markets. Most of the cost associated with exporting take the form of marketing expenses

 Exporting commonly requires coordination among 4 players a) b) c) d) Exporter Importer Transport provider Government

ADVANTAGES
Minimizes risk & investments Speed of entry Maximizes scale; uses existing facilities

Disadvantages
Trade barriers & tariffs add to costs Transport costs Limits access to local information Company viewed as an outsider

Licensing
Licensing essentially permits a company in the target country to use the property of the licensor. Such property usually is intangible, such as trademarks, patents, & production techniques The licensee pays a fee in exchange for the right to use the intangible property & possibility for technical assistance.

ADVANTAGES
Minimizes risk & investment Speed of entry High ROI Able to avoid trade barriers

DISADVANTAGES
Lack of control over use of assets Licensee may become competitor
License period is limited

Joint venture
The join venture entitle the establishing a firm i.e. jointly owned by two or more independent firms. There are five main objectives in joint venture market entry, risk/reward sharing, technology sharing, & joint product development, & conforming to government regulation

Advantages
Combines resources of 2 companies Potential for learning Overcomes ownership restrictions & cultural distances. Viewed as insider Less investment required.

Disadvantages
Greater risk than exporting & licensing Difficult to manage Dilution of control Partner may become a competitor

Foreign direct investment (FDI)

FDI is the direct ownership of facilities in the target country. It involves the transfer of resources including capital, technology, & personnel. Direct foreign investment may be made through the acquisition of an existing entity or the establishment of a new enterprise.

Advantages
Greater knowledge of local market. Can better apply specialized skills. Minimizes knowledge spill over. Can be viewed as an insider.

Disadvantages
Higher risk than other modes Requires more resources & commitments May be difficult to manage the local resources.

Franchising strategy
A system in which semi-independent business owners (franchisees) pay fees and royalties to a parent company (franchiser) in return for the right to become identified with its trademark, to sell its products or services, and often to use its business format and system.

Advantages
Low political risk Low cost Well selected partners bring financial investment as well as managerial capabilities to the operation.

Disadvantages
Franchisees may turn into future competitors
A wrong franchisee may ruin the companys name and reputation in the market

Thank u