Market Entry Methods
Exporting/Importing
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Direct
Indirect
Contractual Entry Modes
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Licensing
Franchising
Management Contracts
Turnkey Projects
Investment Entry Modes
 Wholly-Owned
Subsidiary
 Joint Venture
 Strategic Alliance
Exporting
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Selling and shipping products across borders
Easiest and most common first step
All size companies use this strategy
Direct exporting: Company actively seeks
exporting
Indirect exporting: Casual exporting which
uses agents or intermediaries
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Advantages:
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Risk of loss minimized because not much is
invested
Product can remain unchanged
Can be used to get rid of excess inventory or gain
additional sales
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Disadvantages:
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May not make the most of an opportunity
Strongly dependent on exchange rates
Examples:
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Producer sells to Wal-Mart which ships overseas
Stora Enso sells paper products to Canada
Intermediaries
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Agents
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Export Management Company
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Representatives of one or more indirect exporters
in a target market
Exports products on behalf of exporters
Export Trading Company
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Provides services to indirect exporters
Licensing
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Domestic company allows foreign
company to use trademarks, patents,
copyrights, processes, or technical
knowledge for a fee
Establishes foothold in foreign market
without a big investment
Favorite strategy of small to medium size
companies
Often use in addition to exporting
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Advantages:
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Foothold in foreign marketing without big
investment
Formal agreement in licensing contract
Avoids import restrictions
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Disadvantages:
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Hard to protect intellectual property
May be least profitable means of entry
Examples:
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Nestle makes food products with Disney
characters
Franchising
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Franchisor provides standardized products
and management processes while franchisee
provides capital, management personnel and
knowledge of local markets
Fastest growing market entry strategy
More than 30,000 franchises throughout the
world
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Advantages:
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Allows skills to be located with franchisor while
operations are spread over franchisees
Expands company quickly with little investment by
franchisor
Foreign laws are friendly because of local
ownership
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Disadvantages:
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Must share profits
Poor franchisee can ruin image
Management Contracting
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Company sells management skills and runs a
foreign operation
Main advantage is that it’s low risk
Main disadvantage is that there is low profit potential
and lack of a long-term presence in market
Example: DBS Asia (Thailand) awarded a contract
to Favorlangh Communication (Taiwan) to set up
and run digital tv programming in Taiwan
Turnkey Operation
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One company designs, constructs and tests a
production facility for a client firm for a fee
Often used by governments
Ex: Turkey’s government had two
consortiums of international firms build four
hydroelectric dams
Wholly-Owned Subsidiary
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Domestic company owns 100% of the stock
of another company
Can buy an existing business (easiest
method that takes advantages of existing
strengths) or start from scratch
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Advantages:
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Can take advantage of low cost labor
Avoid high import taxes
Can gain access to raw materials
May cut transportation costs to market
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Disadvantages:
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High investment
High risk
May suffer backlash from country
Many countries restrict foreign direct investment
Examples
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Nike
Stora Enso
Joint Ventures
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Legal agreements between two or more
companies to conduct business together
Separate company is created and jointly
owned
Creates an alliance that combines strengths
and accomplishes goals more efficiently
2nd most frequently used strategy behind
exporting
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Advantages:
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Less capital investment required from each
partner
Shared risks
Access to skills of partner
With a local partner may allow access to markets
which are forbidden to foreigners
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Disadvantages:
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Shared control complicates decision making
Agreements require frequent review
Could create competitor
Share revenue
Strategic Alliance
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Relationship between two companies to
cooperate to achieve strategic goals
Similar to joint venture except a new
company is not formed
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Unz & Co. Guide to Exporting
http://www.unzco.com/basicguide/toc.html
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Small Business Administration Guide
http://www.sba.gov/OIT/info/Guide-ToExporting/
Inc. equivalents
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Canada, Japan, England – Ltd. (limited)
France, Belgium – Sarl
Spain, Mexico, Portugal and Brazil – S.A.
Germany, Switzerland – GmbH
Netherlands – N.V.
Italy – Srl
Denmark – A/S
What method of market entry
is this??
A company from Singapore is working with
businesses in Kenya to help organize and run
hospitals
A British toy company allows a Japanese
company to create clothing and school
supplies with one of the British company’s
doll characters on the products.
An example of this would be Nike making
shoes in Asia and Honda producing cars in
the United States.
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A small food-packaging firm cannot afford to
sell in other countries, so it asks an export
agent to obtain orders for the company.
A Vietnamese company decides to obtain
assistance from an Israeli company to share
production costs and profits of a chemical
manufacturing enterprise.
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An Italian restaurant is planning to allow a
company in New Zealand to operate several
restaurants using the same name and menu
items.
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A company in Egypt has purchased 51
percent of the stock of a company in Peru.
A disadvantage of this entry method is that it is
strongly dependent on exchange rates
between countries and may not make the
most of of an international opportunity.
Advantages to this method are that it requires
less capital, and risks are shared
Which method of entry is the costliest?
Which method of entry is the easiest and most
common first step for businesses to go
international?
Which is the fastest growing market entry
method with over 30,000 possibilities
worldwide?