Foreign Market-Entry Strategies

When When a a company company makes makes the the commitment commitment to to go go international, international, it it must must choose choose an an entry entry strategy strategy The The choice choice of of entry entry strategy strategy depends depends on: on: market characteristics (such as potential sales, strategic importance, cultural differences, and country restrictions) company capabilities and characteristics, including the degree of near-market knowledge, marketing involvement, and commitment that management is prepared to make

Alternative Market-Entry Strategies

Import Import regulations regulations may may be be imposed imposed to to protect protect health, health, conserve conserve foreign foreign exchange, exchange, protect protect home home industry, industry, or or provide provide revenue revenue in in the the form form of of tariffs tariffs A A company company has has four four different different modes modes of of foreign foreign market market entry entry from from which which to to select: select:

exporting contractual agreements strategic alliances, and direct foreign investment

Exporting
Exporting can be either direct or indirect In direct exporting the company sells to a customer in another country In contrast, indirect exporting usually means that the company sells to a buyer (importer or distributor) in the home country who in turn exports the product The Internet is becoming increasingly important as a foreign market entry method

Contractual Agreements
Contractual Contractual agreements agreements are are long-term, long-term, non-equity non-equity associations associations between between a a company company and and another another in in a a foreign foreign market market Contractual agreements generally involve the transfer of technology, processes, trademarks, or human skills Contractual forms of market entry include:
(1) Licensing: A means of establishing a foothold in foreign markets without large capital outlays wherein patent rights, trademark rights and the rights to use technological processes are granted. (2) Franchising: A contract in which franchisor provides a standard package of products, systems and management systems and franchisee provides market knowledge, capital and personal involvement.

Strategic International Alliances

Strategic Strategic alliances alliances have have grown grown in in importance importance over over the the last last few few decades decades as as a a competitive competitive strategy strategy in in global global marketing marketing management management A A strategic strategic international international alliance alliance (SIA) (SIA) is is a a business business relationship relationship established established by by two two or or more more companies companies to to cooperate cooperate out out of of mutual mutual need need and and to to share share risk risk in in achieving achieving a a common common objective objective
SIAs are sought as a way to shore up weaknesses and increase competitive strengths SIAs offer opportunities for rapid expansion into new markets, access to new technology, more efficient production and marketing costs An example of SIAs in the airlines industry is that of the alliance partners made up of American Airlines, Cathay Pacific, British Airways, Canadian Airlines.

International Joint Ventures International joint ventures (IJVs) have been increasingly used since 1970s a means of lessening political and economic risks by the amount of the partners contribution to the venture a less risky way to enter markets A joint venture is different from strategic alliances or collaborative relationships in that a joint venture is a partnership of two or more participating companies that have joined forces to create a separate legal entity

International Joint Ventures (contd.)

Four Four factors factors are are associated associated with with joint joint ventures: ventures: 1. 2. 3. JVs are established, separate, legal entities; they acknowledge intent by the partners to share in the management of the JV; they are partnerships between legally incorporated entities such as companies, chartered organizations, or governments, and not between individuals; equity positions are held by each of the partners

4.

Consortia
Consortia Consortia are are similar similar to to joint joint ventures ventures and and could could be be classified classified as as such such except except for for two two unique unique characteristics: characteristics:

(1) They typically involve a large number of participants, and (2) They frequently operate in a country or market in which none of the participants is currently active
Consortia Consortia are are developed developed to to pool pool financial financial and and managerial managerial resources resources and and to to lessen lessen risks. risks.

Direct Foreign Investment

A A fourth fourth means means of of foreign foreign market market development development and and entry entry is is direct direct foreign foreign investment investment Companies may manufacture locally to capitalize on low-cost labor, to avoid high import taxes, to reduce the high costs of transportation to market, to gain access to raw materials, or as a means of gaining market entry. Firms may either invest in or buy local companies or establish new operations facilities