Foreign Market Entry Modes
The decision of how to enter a foreign market can have a significant impact on the results. Expansion into foreign markets can be achieved via the following four mechanisms:
Exporting
Exporting is the marketing and direct sale of domestically-produced goods in Another Country. Exporting is a traditional and well-established method of reaching foreign markets. Since exporting does not require that the goods be produced in the target country, no investment in foreign production facilities is required. Most of the costs associated with exporting take the form of marketing expenses.
Exporting commonly requires coordination among four players:
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, and production techniques. The licensee pays a fee in exchange for the rights to use the intangible property and possibly for technical assistance.
Because little investment on the part of the licensor is required, licensing has the potential to provide a very large ROI. However, because the licensee produces and markets the product, potential returns from manufacturing and marketing activities may be lost.
Joint Venture
There are five common objectives in a joint venture: market entry, risk/reward sharing, technology sharing and joint product development, and conforming to government regulations. Other benefits include political connections and distribution channel access that may depend on relationships.
Such alliances often are favorable when:
The key issues to consider in a joint venture are ownership, control, length of agreement, pricing, technology transfer, local firm capabilities and resources, and government intentions.
Potential problems include:
Joint ventures have conflicting pressures to cooperate and compete:
Foreign Direct Investment
Foreign direct investment (FDI) is the 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.
Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment. However, it requires a high level of resources and a high degree of commitment.
The Case of EuroDisney
Different modes of entry may be more appropriate under different circumstances, and the mode of entry is an important factor in the success of the project. Walt Disney Co. faced the challenge of building a theme park in Europe. Disney's mode of entry in Japan had been licensing. However, the firm chose direct investment in its European theme park, owning 49% with the remaining 51% held publicly.
Besides the mode of entry, another important element in Disney's decision was exactly where in Europe to locate. There are many factors in the site selection decision, and a company carefully must define and evaluate the criteria for choosing a location. The problems with the EuroDisney project illustrate that even if a company has been successful in the past, as Disney had been with its California, Florida, and Tokyo theme parks, future success is not guaranteed, especially when moving into a different country and culture. The appropriate adjustments for national differences always should be made.
Comparision of Market Entry Options
The following table provides a summary of the possible modes of foreign market entry:
Comparison of Foreign Market Entry Modes
Mode
Conditions Favoring this Mode
Advantages
Disadvantages
Exporting
Limited sales potential in target country; little product adaptation required
Distribution channels close to plants
High target country production costs
Liberal import policies
High political risk
Minimizes risk and investment.
Speed of entry
Maximizes scale; uses existing facilities.
Trade barriers & tariffs add to costs.
Transport costs
Limits access to local information
Company viewed as an outsider
Licensing
Import and investment barriers
Legal protection possible in target environment.
Low sales potential in target country.
Large cultural distance
Licensee lacks ability to become a competitor.
Minimizes risk and investment.
Speed of entry
Able to circumvent trade barriers
High ROI
Lack of control over use of assets.
Licensee may become competitor.
Knowledge spillovers
License period is limited
Joint Ventures
Import barriers
Large cultural distance
Assets cannot be fairly priced
High sales potential
Some political risk
Government restrictions on foreign ownership
Local company can provide skills, resources, distribution network, brand name, etc.
Overcomes ownership restrictions and cultural distance
Combines resources of 2 companies.
Potential for learning
Viewed as insider
Less investment required
Difficult to manage
Dilution of control
Greater risk than exporting a & licensing
Knowledge spillovers
Partner may become a competitor.
Direct Investment
Import barriers
Small cultural distance
Assets cannot be fairly priced
High sales potential
Low political risk
Greater knowledge of local market
Can better apply specialized skills
Minimizes knowledge spillover
Can be viewed as an insider
Higher risk than other modes
Requires more resources and commitment
May be difficult to manage the local resources.
Risk-Weighted Assets
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Fundamentally international trade is a much narrow set of activities and consists of exports and imports (e.g. goods and services) only. International business is a much broader concept and includes international trade, direct foreign production or any other activity across countries conducted by an entity in managing and carrying out its operations.
1)International Sales/trade| a)Imports & Exports b)Entrepot 2)International Investment a)Direct Investment b)Portfolio Investment
1 International trade in illegal drugs @ $ 400 Billion (source: UN stats) 2 International arms trade @ $ 390 Billion 3 International energy (oil & gas) @ $ nnn? Insurance industry is in fact the world's largest.
The international trade is at peak right now. It is a sentence to show the status of trade in international market.
Pandacoinpnd maintenance all international mainstream users from market segments also arranged global level entry fro crypocurrency.
These are the main environmental effects of international trade:Create entry barriersSecurity problems create
There are many places where one can check up on dollar conversions in the international trade market. One can check up on dollar conversions in the international trade market by visiting popular on the web sources such as XE, OANDA, and CNN Money.
Internal trade mean within ones country. International trade mean All over the world. There are much to gain by moving international with ones products as the market will be a lot greater. Regards.
creats new market -apex :)
Internal trade mean within ones country. International trade mean All over the world. There are much to gain by moving international with ones products as the market will be a lot greater. Regards.
International trade allows countries to enter a new level of trade that is beneficial to almost all countries.Thanks to international trade, not one country can get the necessary resources for the state, but another state can enrich its GDP through sales
Maurice K. McMonagle has written: 'International market entry strategies among Irish automotive component manufacturers' -- subject- s -: Automobile supplies industry, Automobile industry and trade
The market where their is no entry or exit bariers one country easily transact with other countries without tariffs and trade.
International sanctions make it difficult for certain goods to enter the international stream of commerce. This leads to a scarcity of these goods, and increases their price on the global market.
Mainly Petroleum Products, Palm Oil and Electronic Goods.