Market Entry Strategies

DBB2205: International Marketing Manipal University Jaipur (MUJ)
BACHELOR OF BUSINESS
ADMINISTRATION
SEMESTER 4
DBB2205
INTERNATIONAL MARKETING
Unit 7 : Market Entry Strategies 1

Unit 7
Market Entry Strategies
Table of Contents
SL Topic Fig No / Table SAQ / Page No

No / Graph Activity
1 Introduction - -
3-4
1.1 Objectives - -
2 Market Entry Strategies - 1 5-7
3 Foreign Direct Investment - 2 8-9
4 Exporting and Importing - 3 10 - 11
5 Licensing - 4 12 - 13
6 Joint Venture - 5 14 - 15
7 Mergers & Acquisitions - 6 16
8 Strategic Alliances - 7 17 - 18
9 Franchising - 8 19 -20
10 Contract Manufacture - 9 21
11 Consignment Sales - 10 22
12 Strategic Marketing - 11 23 -24
13 Summary - - 25
14 Glossary - - 26
15 Terminal Questions - - 26
16 Answers - - 27 - 28
17 References - - 29

1. INTRODUCTION
In this chapter on international marketing, we are dealing with the aspects of market entry
strategies, having objectives of expanding sales and competing in the global marketplace.
The global market offers tremendous opportunity in the backdrop of liberalization and ever-
increasing free market economies in the world. The conditions prior to 1990 were not
conducive to integration of global markets as national economies were relatively self-
contained entities. A fundamental shift has occurred in the world economy during the last
two decades. The barriers to cross border trade and investment have considerably declined,
technology advances in aviation and communication have almost nullified the distance
between markets, material culture is appearing to look similar all over the world due to
steady cultural change and national economies are getting integrated in to one single global
market.
During the period of liberalisation, world trade organisation came in to existence as a result
of continued effort of countries to form an international trade organisation. Consequently,
international trade procedure, which was extremely cumbersome earlier, has become
simpler and considerably easier. The volume of goods, services and investments crossing
national boundaries has expanded. The world liquidity has improved as effective guidance
and support is provided by the International Monetary Fund (IMF) to member nations, with
regard to the foreign exchange reserve management by each country. World liquidity is
measured in terms of aggregate of foreign exchange reserve of nation states in the world.
As opportunities for trade are increasing, more and more players are attempting to enter
world markets. There has been a steady flow of foreign investment to countries which have
liberalized their economy by dismantling excessive restrictions. Sourcing of funds also has
multiple avenues and interest rates are decided by market forces. Alongside economic
integration, the world is experiencing the integration of financial industry, all facilitating
international trade.
World trade is now experiencing intense competition among various nations to secure a
higher share of business. India’s market share of international business has still not crossed

one percent of world trade, notwithstanding the new initiatives in terms of ‘foreign trade
policy 2009– 2014’.
1.1 Objectives
After studying this unit, you should be able to-
❖ Describe various modes of market entry in international business

❖ Explain foreign direct investment
❖ Define licensing and franchising
❖ Discuss the issues pertaining to strategic alliances
❖ Tell the processes in contract manufacturing and consignment sales.

2. MARKET ENTRY STRATEGIES
The liberalisation or the globalisation does not mean that the art of conducting the business
has become easy. The business is complex and more so when it is international in scope.
Hence most of the business enterprises do not think in terms of going international.
One of the important pre-requisites while going for international business is the conviction
and the level of commitment of business firms in that direction. Most of the business firms
pass through certain stages before finally settling in international business. Generally, except
perhaps for the large business houses, others do not resort to direct export or import, to
begin with. Exports or imports are made through other business houses who are settled in
that trade. During this time these business enterprises gain experience in international trade.
However, the product manufactured and sold in the international market through an export
house will not naturally create brand name for their product internationally. Many times, the
product may be repacked to suit international requirements or it may bear the exporter’s
name over the original manufacturer’s name. In this type of export, there is no direct
involvement of the manufacturer of the product.
Sometimes there may be a temporary involvement of the manufacturer in international

business. This may be primarily induced by circumstances like an unexpected demand by a
foreign buyer or foreign buyer’s agent in the country. In this case, the level of commitment is
not that high, it is only to satisfy an unexpected export demand and not to expand sales or
capture the foreign market.
There are occasions when a business enterprise is holding surplus finished product in view
of sluggish domestic demand and in such an event there may be temporary involvement in
international trade. If there is a stray case of indigenous non-availability of raw material, the
manufacturer user may import raw material as a one-time measure. These types of
international marketing are of temporary involvement by domestic business firms, where
the level of commitment for international trade is low or not serious.
The level of commitment is high in certain business firms, as they become serious about
commencing international business, but have not started yet. These firms are contemplating
the type of market, cultural similarities of such markets, probable volume of trade and its

implication on the firm. They are identifying target customers and communicating with the
foreign buyers and agents for distribution of products.
The level of commitment is full in business enterprises which have crossed the borders and
have attained the status of multinational companies. These business enterprises are totally
involved and are trying to do business with most of the countries of the world.
In terms of level of orientation, the progressive evolution can be compared to EPRG model –
ethnocentric, polycentric, Regio-centric and geocentric while business firms finally attain
global presence. To begin with, products are sold in a particular region of the country and as
marketing expands, sales take place in many regions of the country. Once domestic markets
are saturated, firms try to sell in contiguous nations in the continent and finally they attempt
for global sales.
As business enterprises transcend national boundaries of many countries, they need to be

slow and steady in that process for reasons that the international business is risky. It is
pertinent to examine the six models of market entry for a domestic firm.
1. The first model of market entry is appointing agents in foreign markets, getting
business queries and responding suitably to those queries.
2. The second model is opening an overseas office for business promotion.
3. The third model is having a licensing arrangement with a foreign firm, providing license
and technology, in which case financial investment will be by that company and
production and distribution right against payment of royalty. This helps the business
enterprise to move from overseas offices to other potential markets to expand sales of
products.
4. The fourth model is franchising arrangement with a foreign firm against receipt of
certain fee.
5. The fifth model is to have strategic alliance with another firm.
6. The sixth model is brown field strategy or green field strategy as the case may be to
become multi-national and finally acquire the status of global company. In a period of
liberalisation, privatisation and globalisation, most of the governments of nation states
are promoting industrialisation. Apart from this, the advantages of local factors of

production and cost of components available locally are useful to the companies going
international.
Most of these models of entry are discussed in detail in the ensuing paragraphs of this unit.
Self-Assessment Questions - 1
1. One of the important prerequisites for business firms going international is the
______________.
2. In a period of liberalisation most of the governments of nation states are promoting
industrialisation. (True/False)

3. FOREIGN DIRECT INVESTMENTS
In a foreign direct investment, a company directly invests in another country to make or

market an entity in a foreign country. We can take the examples of few Indian companies
which have become multi-national companies after FDI in major steel companies in Europe
like the Tata and Mittal groups.
Foreign direct investment is one of the means of foreign market development. Companies
may shift the place of manufacture or have additional manufacturing facility in a foreign
country to capitalise on low-cost labour, avoid high import taxes, reduce high cost of
transportation to market, exploit locally available raw material and to gain access to market
having potential buyers of its products.
Under the approach of foreign direct investment, companies may buy foreign companies or
invest in companies abroad. Many countries have promoted free trade areas that are tariff
free among members and such avenues may be utilised for foreign direct investment.
There are two forms of market entry strategy through foreign direct investment. Brown field
strategy is one form in which the company aspiring to go international decides to invest in
an existing company in a suitable location/country. That existing company has most of the
infrastructure, but the technology involved may be obsolete, the present operating capacity
may be far less than the installed capacity and also may be in need of funds for modernisation
and increased production.
The second form of market entry strategy is through green field investment, where a new
unit is established after creating all the required infrastructure and permission from the local
government.
Japanese and South-Korean investments in the automobile industry in India are good
examples of foreign direct investment. Daily, we get information on foreign direct
investment of various companies across the globe and this process is likely gain further
momentum as further liberalisation takes place.
Recently, a distinctive feature especially of excellence of global companies is the

establishment of manufacturing facilities all over the world. This is going to provide further

impetus for free trade as barriers to trade are progressively dismantled. Companies are able
to locate their manufacturing facility at any convenient place and wherever it is cost effective.
Although there are immense opportunities for entry into foreign markets through foreign
direct investments, certain critical factors need threadbare analysis to facilitate decision
making. One is the choice of location of the project and another is the company abroad. Some
of the governments are not helpful to the cause of foreign direct investment, so much that,
while the project is under implementation, policy changes by the government may
destabilise the project. When huge capital investment is already made, retreating from such
a situation will entail huge financial loss, which is not a good idea. Alternatively, continuing
the project also may not be a feasible preposition in the face of frequent policy changes by
the government. Here it is worthwhile mentioning the cases of two foreign direct
investments in India – Cairn India Limited in Mangala Oil fields of Rajasthan and Posco steel
in the state of Orissa.
the political governance of the country and therefore economic reforms are not progressing
well, hence the hindrance for foreign direct investment. As of now, India has not achieved
fuller capital account convertibility and the exchange control in place is another hurdle for
free movement of capital in and out of the country.
3. In a foreign direct investment, a company directly invests in another country to

make or market an entity in a foreign country. (True/false)
4. Some of the foreign direct investments may also involve transfer of
technology. (True/false)

4. EXPORTING AND IMPORTING

Exporting is also one of the international market entry strategies in which goods are sold
and services are provided beyond the boundaries of a nation. Exports play a very crucial role
in a developing economy and they are given utmost priority in the foreign trade policy of
such an economy. Exports can be of two types – direct exports and indirect exports. Exports
increase sales volume and also increase the clientele base. Direct exports enhance the brand
equity as the product enters foreign markets and purchased by foreigners at different
markets. In direct exports, merchant exporter or manufacturer exporter deals directly with
the foreign importer. The direct exporter receives the export order in his name and
thereafter executes the export order in his name.
Traders and manufacturers, who do not have requisite expertise in exports, opt for supplying
goods to export houses or business enterprises which have a good track record in exports.
Also, getting export orders from global markets is not easy for the beginners in a situation of
fierce competition from various sections. Business firms which are new to foreign trade have
to develop confidence while dealing with foreign buyers whom they have not seen and not
had any personal discussion with. These foreign buyers are called non-face to face customers
and at times pose tremendous risk in terms of export value realisation.
In the international arena, there are business agents or middlemen who identify target group
of customers and establish liaison with the global suppliers.
With the advent of information technology and its continued evolution there are some easy
and cost-effective methods of entering global markets. Even a beginner in international trade
can explore some easy methods of market entry. As a first step, the business firm intending
to export should develop a profile of the product and post it on the website for public
information. The information posted on the website must contain distinctive features of the
product to attract export order. Simultaneously, exports can also be explored through
entering into business partnerships with foreign distributors for reciprocal business
advantages. Another step in commencing export sales is by communicating directly with the
end user of the product, for which a database of the target customers abroad should be

created. All the three processes of going international will not cost much to the beginners in
foreign trade, except that planning the strategies need to be crisp.
Imports are another area of foreign trade, but unlike exports, imports are not the priority
area of most of the countries. Export is promoted to build up foreign exchange reserves and
if the reserve is above the comfort level of the importing country, many restrictions are not
imposed.
Countries exercising exchange control generally regulate imports and one of the methods of
restricting imports is through licensing. Imports are permitted by such countries only when
a particular commodity is essential for economic progress and the same is indigenously not
available.
In the liberalised regime there is enough opportunity for import trade as emerging market
economies and developing countries have a reasonable accumulation of foreign exchange
reserves. At times, international markets make available better-quality goods and services
with lesser cost than the domestic markets. It is worthwhile exploiting this favourable
situation and importing goods and services from international markets than procuring from
the domestic market. The import and export procedures are progressively simplified and
restrictions are coming down. Today, most of the import items are in the freely permissible
category called open general license. When both the external economy and domestic
economy of the country are strong, international marketers have tremendous opportunity
for foreign trade.
5. Exports can be of two types, ____________ and ___________exports.

6. Countries exercising __________ generally, regulate imports.

5. LICENSING
Licensing: In licensing, the licensor (the firm which owns the rights) draws a contractual
arrangement with a licensee (the firm which wants to use the rights) providing the right to
use its intellectual property such as its brand name, technology, work methods, company
name, trademarks, patents and copyrights for a particular business.
Role of licensing in internationalization
Licensing help firms to survive and compete within a rapidly changing international
industrial environment.
Licensing contract
The licensing contract defines the terms of agreement between a licensor and a licensee. It
is important that the contract adequately covers all the important aspects of the relationship.
The licensing contract normally includes the following:
1) Boundaries of the agreement: The first step in negotiating a licensing contract is to

specify the boundaries of the agreement, that is which rights and privileges should be
included in the agreement and which issues should not be included.
2) Rights, privileges, constraints of the licensee and the licensor.
3) Dispute resolution mechanism in case any dispute arises.
4) Contract duration for the licensing agreement.
Compensation: Compensation under a licensing agreement is called a royalty. It can be a

flat fee, a fixed amount per unit sold, or a percentage of sales of the licensed product or
service.
Licensing risks
It is important that both the licensee and the licensor understand the risks involved in any
such agreement so that steps are taken to avoid any issue that might arise in future. Key
issues that a licensing association may face are the following:

• limiting market opportunities for the licensor and the licensee if they both agree to
work with each other and not with any other firm in similar business
• the licensor may be creating a future competitor in form of the licensee
• loss of control of technology by the licensor as information and rights of use are allowed
to the licensee
• minimum performance by licensee may be agreed in the contract, but in reality, the
potential for the business may be much larger in the market – licensee may opt to just
achieve the minimum performance to fulfil the contractual obligations
• misuse of trademarks by the licensee.
Critical success factors of licensing:
In the following are the critical success factors of a licensing agreement:
• avoiding licensing arrangements with any firm that could become a future competitor
• protecting trade
• specifying compensation practices for breaching agreement
• setting standards for performance, quality
• carefully selecting and evaluating prospective licensee
• maintaining long term relationship with licensee.
7. The licensing contract defines the terms of the agreement between a _______ and a
_________.
8. A critical success factor of licensing is careful selection and evaluation of
prospective ____________.

6. JOINT VENTURE
A joint venture is a mutual effort of two or more business organisations. It aims at mutual
financial benefits from an activity. Various countries like India and the People's Republic of
China have made it compulsory that foreign investment in those countries should be through
joint ventures. Joint ventures have more control exerted when compared to exporting.
However, it also has high levels of risk.
A joint venture is a business agreement where business entities comply to create a new
company and assets by contributing entity for a definite period. They have control over the
company and share the expenses, revenues and assets JV limited by guarantee, JV limited
with partners holding shares are other types of joint ventures companies. A short-term
partnership in which two or more people join to execute a certain project is also a joint
venture and the parties are called ‘co-venturers’.
A JV can be for one specific project which is referred to as a consortium (as the building of
the Channel Tunnel) or an on-going business sound. In a consortium JV, one party takes the
technological skill or technical service arrangements, management contracts, franchise and
brand use agreements and rental agreements for one-time contracts. Once the goal is
reached, the JV is dissolved. Dow Corning, MillerCoors, Sony Ericsson and Penske Truck
Leasing are some of the major JVs.
In a JV, two or more parties come together to start a project. Both parties equally invest time,
finance and energy to build the project. Though most JVs are normally small projects, large
establishments use this concept for diversification. A joint venture ensures success for both
start-ups and established organisations. As there is a high cost involved in starting a
business, a JV enables both the parties involved to share the expense as well as the resulting
profit.
A joint venture should not be given a casual approach. Any business person involved in a JV
needs to be dedicated and eager to cooperate with the other parties involved. Individual
business decisions cannot be taken for the business. There has to be 100% commitment from
both sides to make the business a success.

Before initiating a JV, it is important to confirm that both parties involved match the
projected client base and complement each other. Misunderstandings or less communication
can destroy a JV. Thus, communication is the key element for both parties to set their
expectations right and what they can offer for the project.
It is important to have a strategic plan in place for a JV as there is a huge amount of money
involved. In other words, both parties must commit to focus on the future of the venture and
not just the immediate returns. Both long term and short-term achievements are important.
The key elements to achieving this success in a JV are integrity, communication and honesty
with the organisation
9. A joint venture is a mutual effort of two or more business organisations. It aims at

mutual financial benefits from an activity. (True/false)
10. Both parties must commit to focus on the future of the venture and not just the
immediate returns. (True/false)

7. MERGERS & ACQUISITIONS

Mergers and acquisitions signify an ultimate change in a business. It is a very challenging,
difficult and confusing event. However, in today’s business world, it has become common.
Mergers are, at times, the only mode of survival for most companies in the global,
competitive business world. In other cases, like the merger of Cisco Systems and Acacia
communications, mergers are a vital component in planning long-term growth. Moreover,
most businesspersons aim at building companies for short-term anticipating to sell the
company for huge profits in the long run.
‘Merger’ refers to the merging of two business entities where one new business will exist.
‘Acquisition’ refers to one company procuring the assets of another company where both
companies may continue to exist. Mergers and acquisitions (M&A) are widely referred to as
a business transaction in which one business is acquired by another business. The acquiring
company continues in business while the acquired company (Target Company) is integrated
into the acquiring company. Thus, the acquired company does not exist after the merger.
11. Mergers and acquisitions signify an ultimate change in a business. (True/false)

12. Most businesspersons aim at building companies for short-term anticipating to
sell the company for huge __________ in the long run.

8. STRATEGIC ALLIANCES
International firms can cooperate in various forms such as sharing production facilities,
licensing proprietary technology, co-funding research projects and using existing
distribution networks to promote each other’s products. These methods of cooperation are
known as strategic alliances. It is a business arrangement in which two or more business
entities mutually cooperate for their benefit.
Thus, a strategic alliance is formed for the mutual benefits of a long-term formal
relationship between two or more business parties. It helps to pursue a set of agreed goals
or meet a critical business need while both organisations remain independent. Here, two or
more companies comply to cooperate to conduct a business activity and each company
brings in different strengths and abilities to the arrangement
The following are the benefits of strategic alliance:
• increase in capital for research and product development and yet lower risk
(Innovation)
• lesser product lead times and life cycles (time pressures)
• ability to combine complementary skills and assets which cannot be easily developed
by either company
• access to information and proficiency that is beyond the borders of the company
(technology transfer)
• • rapid accomplishment of scale, critical mass and momentum
(Economies of Scale - bigger is better)
• expansion of channel and international market presence (enter a foreign market)
• creating integrity and awareness of brand in the industry
• offering customers extra value
• creating technological standards for the industry which will be beneficial for the
organisation.
There are various types of strategic alliances. This includes a wide range of cooperation –
from contractual to equity forms.

13. Strategic alliance brings enterprises the benefits like _________ transfer.
14. Each party in a strategic alliance brings different strengths and capabilities to the
arrangement. (True/false)

9. FRANCHISING
In franchising, a contractual agreement is set up in which an organisation (franchiser) trades
the right to use its intellectual property (patents, brand names, copyrights, company name,
technology, work methods and trademarks) to another organisation (the franchisee) for a
particular fee. The franchiser assists and/or exercises a significant amount of control over
the way the franchisee functions.
Types of franchise agreements:
• Product/trade name franchises – the product is distributed in a particular territory or

place using the manufacturer’s trademark.
• Car dealerships, petrol service stations, soft-drink bottles.
• Business format franchises – the licensing of a trademark for business is incorporated
in a particular territory along with an entire system to conduct a business. Almost 75%
of all franchise businesses are of this model. Some examples are McDonalds, KFC, Body
shop, Giordano concept shops, etc.
Franchising strategies for rapid growth in international markets:
• Single-unit franchising – the right to operate a single unit within a defined territory is
granted to an individual franchisee by the franchiser.
• Multi-unit franchising – the franchiser grants the franchisee the right to operate more
than one franchise
• Conversion franchising – an existing business is acquired and converted into a
franchise
• International franchising – it mostly involves “Master Franchising” and joint-ventures
• Creative franchising – it includes various things like money-back guarantees, stock
ownership and the use of sophisticated management techniques.
Key considerations in franchising
• There must be a sound and cohesive franchising package which adapts to the
environment of the target country

• The franchiser should be continually able to provide value to franchisees

• There should be sufficient financing
• Franchisees should be carefully selected
• Strong cordial relationships should be built with franchisees
• Continuous support should be provided to franchisees
• It should comply with foreign regulations.
Financial contribution, knowledge of the local scenario, motivation of the franchisee and
lesser risks are the advantages to the franchiser. The disadvantages include lack of ultimate
control, higher demands of training, protecting the intellectual property, creating potential
competitors, misusing the rights of the franchise and less profitability.
15. In franchising, a contractual agreement is set up in which an organisation trades

the right to use its _______________ to another organisation for a particular fee.
16. Careful selection of a franchisee is an important consideration in franchising.
(True/false)

10. CONTRACT MANUFACTURE
A firm which markets and sells products to international markets might arrange for a local
manufacturer under contract to produce the product for them.
Examples include firms like Nike and Gap, both of whom use contract clothing and shoe
manufacturing in lower labour cost countries. The advantage of arranging contract
manufacturing is that it allows the firm to concentrate on its sales and marketing activities.
As investment is kept to a minimum, it makes withdrawal easy and less costly if the product
proves to be unsuccessful.
Contract manufacture might be necessary to overcome trade barriers and sometimes it is the
only way to gain entry into a country in which the government attempts to secure local
employment by insisting on local production.
If political instability makes foreign investment unwise, this may be the best way of achieving
a marketing presence, without having the risk of large investment in manufacturing. The
disadvantage of contract manufacture as an entry method is that it does not allow buyer
control over the manufacturer’s activities.
In the brewing industry there are a variety of arrangements where brewers contract the
manufacture of beer brands, but other market entry methods are used by the beer brand
owners to increase market share.
17. In situations of political uncertainties, it is better to go for contract manufacturing

rather than investments. (True/false)
18. At times, contract manufacturing may be necessary to overcome_______ to trade.

11. CONSIGNMENT SALES

When the exporter is initially getting a feel for the markets and is trying to tap the customers,
he would need to hold the stocks at hand so that he is able to offer immediate delivery to the
new customers and help bag orders.
In such cases the exporter will use a consignment agent who will import and hold the
consignment on behalf of the exporter. Once the orders are received and the consignment is
delivered, the consignment agent will receive payment from the customer and in turn
repatriate the amount received back to the exporter after keeping the agreed amount of
margin as per his agreement. In such cases the stocks are owned by the exporter until they
are invoiced by the consignment agent to the customer. The consignment agent only acts as
a custodian of goods and does not carry any other ownership. He provides a legal entity for
the exporter to send goods to the foreign country and manages the supply chain services as
per instructions of the exporter. The entire responsibility, risk including marketing, pricing,
collections and liquidation of stocks lies with the exporter.
19. Consignment agent only acts as a ___________ of goods and does not carry any other
ownership.
20. Consignment agent will import and hold the consignment on behalf of the _______.

12. STRATEGIC MARKETING

As marketing practitioners are always engrossed in conducting marketing programs,
managing the staff and sales force and attending to the daily chores they fail to see the bigger
picture. However, it is important to step back once in a while, get a perspective and
strategize.
The broad scope of strategic planning encompasses:
• all the products/services offered

• all the markets served
• environmental and internal variables
• production, research, finance, and other organisational elements which are required
for success.
In the process of setting future goals, strategic planning can ignore the immediate situation.
A thorough analysis and clear understanding of the company’s objectives and strategy is the
first step. Corporate development strategy is important for three main reasons. Firstly,
marketing expertise is needed to execute an abstract corporate strategy. Secondly, the
business strategy helps us to take important marketing decisions such as the niches to be
addressed, distribution channels to be used for the product and the direct marketing
strategies. Thirdly, the strategic marketing plan should be developed on top management
philosophy and mind set.
This should begin by identifying the strategic business unit (SBU). It can be an entire
company, a particular division, a product line or one product, as long as it is a separate entity
for planning purposes (i.e., having its own management, access to resources, positioning
strategy, competitors and customers). An SBU must be big enough to be a meaningful unit
for strategy formulation and assessment and small enough for efficient planning and
marketing management.

The four key elements to strategic planning at the SBU level are:
• identification of the business

• situation analysis
• selection of strategies
• establishment of controls.
Once the business nature is clarified, go to a situation analysis. It is also referred to as a

marketing audit. Regular reviews should be conducted to capture a ‘snapshot’ of the present
business status. Both the external and internal situations must be considered.
21. In the process of setting future goals, strategic planning can ignore the immediate
situation. (True/false)
22. Situation analysis is one of the key elements of strategic marketing. (True/false)

13. SUMMARY
Business enterprises always intend to expand tentacles beyond their traditional

geographical limits and a few contemplate moving beyond the boundaries of the nation.
While planning strategies for going international it is necessary for business enterprises to
understand the attendant risk and opportunities for marketing of products in global
markets. All aspects of business pertinent to a particular market in the globe have to be
critically analysed. Accordingly, an approach to international market entry should be devised
and employed to achieve the desired success in business. In a foreign direct investment, it is
necessary to take a decision on whether the approach should be brown field strategy or
green field strategy.
In the case of exports, beginners may resort to indirect exports through recognised export
houses or start trading houses, so that the risk of dealing with a non-face to face buyer abroad
is reduced. Once enough experience is gained and a client base is established direct export
may be contemplated. While most of the countries promote exports, in the liberalised regime
there is enough scope for import business. Hence international market entry may be made
through import trade. The other modes of market entry are through licensing, forming joint
ventures, mergers, acquisitions, strategic alliances, turnkey operations, franchising, contract
manufacture, and strategic marketing and consignment sales. While associating with any
foreigner or a company incorporate abroad, it is essential to analyse the counter party’s risk.
These counter party risks vary from customer to customer or from country to country.
Entry into international markets for promoting the sale of products is essential for any
expanding business firm. In the era of liberalisation, circumstances are conducive for
international marketers to widen the customer base and increase sale. There is scope for
developing global brands of products by various strategies of market entry and exploitation
of facilities provided by nation states around the globe.

14. GLOSSARY
Consignment: A mode of business in which the exporter/seller ships the goods to be held in
custody by the importer without acquiring title to goods.
SBU: Strategic Business Unit is a concept whereby the top management is organising its
multiple businesses under meaningful heads and assigns weight to each unit for effective
exploitation of the business opportunity available in that unit.
15. TERMINAL QUESTIONS
1. Most of the countries promote FDI, nevertheless there many constraints in different
nations. Discuss.
2. Explain green field strategy and brown field strategy.
3. Which is the easiest method of international market entry, in your opinion?
Substantiate with reasons.
4. What is licensing and why do international marketers prefer licensing?
5. Explain the features of mergers and acquisitions.
6. What is a joint venture? Explain with an example.
7. Define franchising and compare franchising with licensing.
8. Explain how consignment sales operate in international trade.
9. Furnish the features of contract manufacture.
10. What are the advantages in strategic marketing?

16. ANSWERS
Self Assessment Questions
1. Levels of commitment
2. True
3. True
4. True
5. Direct/indirect
6. Exchange control
7. Licensor and licensee
8. Licensee
9. True
10. True
11. True
12. Huge profits
13. Technology
14. True
15. Intellectual property
16. True
17. True
18. Barriers
19. Custodian
20. Exporter
21. True
22. True
Terminal Questions
1. In a foreign direct investment, a company directly invests in another country to make

or market an entity in a foreign country. Refer to 3
2. There are two forms of market entry strategy through foreign direct investment –
brown field and green field strategy. Refer to 3

3. Exporting is also one of the international market entry strategies in which goods are
sold and services are provided beyond the boundaries of a nation. Refer to 4
4. In licensing, the licensor (the firm which owns the rights) draws a contractual
arrangement with a licensee (the firm which wants to use the rights) providing the right
to use its intellectual property such as its brand name, technology, work methods,
company name, trademarks, patents and copyrights for a particular business. Refer to
5
5. Merger’ refers to the merging of two business entities where one new business will
exist. ‘Acquisition’ refers to one company procuring the assets of another company
where both companies may continue to exist. Refer to 7
6. A joint venture is a mutual effort of two or more business organisations. It aims at
mutual financial benefits from an activity. Refer to 6
7. In franchising, a contractual agreement is set up in which an organisation (franchiser)
trades the right to use its intellectual property (patents, brand names, copyrights,
company name, technology, work methods and trademarks) to another organisation
(the franchisee) for a particular fee. Refer to 5 and 9
8. The consignment agent only acts as a custodian of goods and does not carry any other
ownership. Refer to 11
9. A firm which markets and sells products to international markets might arrange for a
local manufacturer under contract to produce the product for them. Refer to 10
10. Strategic marketing is a process through which an organisation gains a unique identity
from its competitors by delivering unique services and provides better assistance and
satisfaction to its client. Refer to 12

17. REFERENCE BOOKS

1. Keegan Warren J., Global Marketing Management, Pearson Education, New Delhi. PHI,
5th Edition.
2. Onkvisit Sak John J. Shaw, International Marketing- Analysis and Strategy, PHI, New
Delhi. Business & Economics.
3. Joshi Rakesh Mohan, International Marketing, Oxford University Press, New Delhi.
4. Rajgopal, International Marketing, Vikas Publication, New Delhi
5. Sack Onkvisit and John J. Shaw, International Marketing Analysis and Strategies, New
Delhi, PHI.
6. Subhash S. Jain, International Marketing Management, New Delhi, CBS Publishers
Distributors.
7. Doole Isobel and Robin, Lowe International Marketing Strategy, Thomson Learning
8. M.R. Czinkota and I.A. Ronkainen, International marketing, Fortworth, Dryden.
9. S.J. Poliwoda, International Marketing, New Delhi, Prentice Hall of India.
• https://www.thinkswap.com/
• http://managementstudyguide.com/
• https://openresearch.surrey.ac.uk/esploro/
• https://www.coursehero.com/
• https://asiamarketresearch.com/
• http://www.zainbooks.com/
• https://www.yourarticlelibrary.com/
• https://link.springer.com/book/10.1057/9781137356932

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DBB2205: International Marketing Manipal University Jaipur (MUJ)

Unit 7 : Market Entry Strategies 1

SL Topic Fig No / Table SAQ / Page No

Unit 7 : Market Entry Strategies 2

Unit 7 : Market Entry Strategies 3

After studying this unit, you should be able to-

❖ Describe various modes of market entry in international business

Unit 7 : Market Entry Strategies 4

2. MARKET ENTRY STRATEGIES

Sometimes there may be a temporary involvement of the manufacturer in international

Unit 7 : Market Entry Strategies 5

As business enterprises transcend national boundaries of many countries, they need to be

Unit 7 : Market Entry Strategies 6

Unit 7 : Market Entry Strategies 7

3. FOREIGN DIRECT INVESTMENTS

In a foreign direct investment, a company directly invests in another country to make or

Recently, a distinctive feature especially of excellence of global companies is the

Unit 7 : Market Entry Strategies 8

3. In a foreign direct investment, a company directly invests in another country to

Unit 7 : Market Entry Strategies 9

4. EXPORTING AND IMPORTING

Unit 7 : Market Entry Strategies 10

5. Exports can be of two types, ____________ and ___________exports.

Unit 7 : Market Entry Strategies 11

Role of licensing in internationalization

1) Boundaries of the agreement: The first step in negotiating a licensing contract is to

Compensation: Compensation under a licensing agreement is called a royalty. It can be a

Unit 7 : Market Entry Strategies 12

Critical success factors of licensing:

In the following are the critical success factors of a licensing agreement:

Unit 7 : Market Entry Strategies 13

Unit 7 : Market Entry Strategies 14

9. A joint venture is a mutual effort of two or more business organisations. It aims at

Unit 7 : Market Entry Strategies 15

7. MERGERS & ACQUISITIONS

11. Mergers and acquisitions signify an ultimate change in a business. (True/false)

Unit 7 : Market Entry Strategies 16

The following are the benefits of strategic alliance:

Unit 7 : Market Entry Strategies 17

Unit 7 : Market Entry Strategies 18

Types of franchise agreements:

• Product/trade name franchises – the product is distributed in a particular territory or

Franchising strategies for rapid growth in international markets:

Key considerations in franchising

Unit 7 : Market Entry Strategies 19

• The franchiser should be continually able to provide value to franchisees

15. In franchising, a contractual agreement is set up in which an organisation trades

Unit 7 : Market Entry Strategies 20

10. CONTRACT MANUFACTURE

17. In situations of political uncertainties, it is better to go for contract manufacturing

Unit 7 : Market Entry Strategies 21

11. CONSIGNMENT SALES

Unit 7 : Market Entry Strategies 22

12. STRATEGIC MARKETING

The broad scope of strategic planning encompasses:

• all the products/services offered

Unit 7 : Market Entry Strategies 23

• identification of the business

Once the business nature is clarified, go to a situation analysis. It is also referred to as a

Unit 7 : Market Entry Strategies 24

Business enterprises always intend to expand tentacles beyond their traditional

Unit 7 : Market Entry Strategies 25

15. TERMINAL QUESTIONS

Unit 7 : Market Entry Strategies 26

5. Exports can be of two types, __ and _exports.