ARTICLE: 5 Different Modes of Entry into Foreign Markets

The firms are often involved in dealing with foreign markets. They need to decide about which markets to enter and which do not. They also need to decide the scale. The companies have to decide a number of things before deciding on the market. The international markets make them work for the long run, and they also help them to expand at international level. Companies often face a lot of benefits once they enter the foreign markets.

The markets also require a good level of control, and for the better description of control management, you can read the article the importance and limitation of control management.

Factors that affect their selection of the market

• They need to look for the market that can help them get the long-term potential for profits.
• The companies have to study the economic and political factors that can influence the foreign markets.
• That foreign market would be beneficial that can offer benefits for long-run.
• The choice of the market also depends upon the size of the market.
• The potential and wealth of consumer market at present.
• The nature of competition of the market whether it is perfect competition or monopolistic.

These are the factors that attract the companies to enter the foreign markets.

How to determine the timing to enter the market?

There are some things to be considered while entering the market such as:

At what time you are entering into the market.

The early entry is considered when the company enters the market before the other international firms, and it is considered as late when the firm enter after entry of other international firms. When the company enters before the entry of other firms, those are first-mover advantages. The first-mover advantage is the ability that can prevent the rivals and also enhance the demand by creating a good name for the brand. It also helps in building the volume of sales, and they can also drive the competitors out of the market. The company also have the advantage of building a relationship with the customers.

Different modes of entry into foreign markets:

Export

Exports mean dealing with the sale of the products outside the country. The products that are manufactured, processed, stored or supplied in the home country are sent to other countries for the sale and purchase of the products. Exports play a major role in increasing the sales of the company. There are passive and active types of experts that form some basic strategies and let the company decides the system for the organisation of the functions.

• Advantages of exports

Less funds required

• The prices of exports will be quite less if the company chooses the host company in some other country. The amount of export is less as compared to the other modes.
• There is less risk involved in the exports. When the company starts exporting, it gets to know about the culture, customer and the market of the other country. It becomes easy for them to deal with various dealers and they can also expand a larger scale.
• The opportunities available in the foreign market serves as a motivation for entering into the foreign market. If the host country serves with good response, there is a reactive approach that motivates the firm to expand more.

Licensing

Licensing is the mode of entry where the manufacturer of the product offers the right to make use of intellectual property. They also transfer their copyright, name of the brand to some other manufacturer dealing in the foreign country. The company that manufactures the product is known as licensor, and the company who receives the license in the foreign country is a licensee. It is a cheap source to enter the foreign market. The domestic company chooses the location of the licensing, and it has the benefit of ownership without incurring any responsibility or obligation.

Advantages of licensing

• The main advantage to the licensor are the very less investment.
• There is less risk involved to the licensor.
• The domestic company does not have to put many efforts, and they can easily investigate the foreign market.
• No investment in research and development part.
• There is no risk of product failure to the licensor.

Disadvantages

• The reduction in the operations of the market for domestic and host company.
• The licensor and the licensee have to maintain the quality of the product they are dealing with, and the promotion is required from both the sides.
• There can be different types of misunderstandings between the parties.
• There are various secrets of trade and there is always a risk of its leakage to the third parties.
• Licensor always have a risk from the licensee if they build their own reputation and they can also sell the products somewhere outside that is not in the agreement.

Franchising

Franchising is giving the right to operate the company with the same name in some other part. The franchisor gives the name of its company to the franchise under an agreement of paying a fee for using the brand name. The services served under franchising are:

• Trademark
• Operating system
• Reputation of product
• Support of advertising, training of employees, assurance of quality.

Advantages of franchising

• It involves low investment rate and low risk of failure.
• The information regarding the culture of the market and its customs are easily available.
• Learn a lot from the experiences of franchises.
• The research and development part is very low costing for the franchise
• There is no risk of product failure to the franchise.

Disadvantages

• It becomes complicated sometimes.
• The international franchisee is difficult to handle and control.
• The responsibility for the quality and promotion of the products is on both the parties.
• It involves the risk of leaking the secrets of the trade.

Mergers and acquisitions

These are the situations when a domestic company chooses the foreign company to get merged so that it can enter into foreign markets. Or in another case, the domestic company can also purchase the foreign company to get the complete control over it and to gain the ownership. The mergers offer the immediate entry into the international markets and get to know about their network and facilities.

• Advantages of mergers

There is the advantage of getting them on the spot ownership of the manufacturing units, and it gets control over the technology and name of the brand also.

It gives the freedom of generating revenues with the formation of international strategies.

It is quite beneficial for the host country if there is optimum level of capacity.

• Disadvantages
• It is a complicated task as it involves number of legal formalities such as involvement of lawyers and mergers.
• There is no addition to the capacity of the industry.
• There are certain restrictions involved in the process that can be imposed by the domestic company.
• There is the transfer of the problems related to the labour of the host country.

Joint venture

The joint venture is that when two or more first come together and start a new entity which is completely different from the parent companies. The ownership is shared in this case, and it is also encouraged by various factors such as technical, economic and political. It also provides strength as peer the capital required. There is always a requirement for the updated technology, and it also helps the firms for the risk sharing in international markets. It helps in the improvement of the image of the local markets and helps to satisfy the joint venture of the government.

Advantages of a joint venture

• It offers huge funds as per the projects.
• There is sharing of the risk among the partners.
• People can learn various skills like technical, human, expertise in marketing.
• Major products are feasible in joint ventures
• There are better results if the factors are combined.

Disadvantages

• There can be various types of conflicts.
• If one partner delays, there can be delay in the venture.
• It can collapse at any time.
• The process of decision-making is slow in this process.

Therefore, we can say that there is certain process that can help the marketers to enter into the international markets in easy ways.