Modes of Entry in International Market

There are numerous modes of entry into international markets. A detailed discussion is given as follows :

  1. Exporting:
    • Direct Exporting: In this mode, a company sells its products directly to customers or distributors in foreign markets. For example, a clothing manufacturer in the United States exports its products to retailers in Europe through its own sales team or e-commerce platform.
    • Indirect Exporting: The company uses intermediaries such as export agents, export management companies, or distributors to sell its products in foreign markets. For instance, a U.S. electronics manufacturer may partner with a distributor in Japan to sell its products to local retailers.
  2. Licensing and Franchising:
    • Licensing: A company grants a foreign entity the right to use its intellectual property, technology, or brand in exchange for royalties. For instance, Disney licenses its characters to toy manufacturers in various countries to produce and sell Disney-themed toys.
    • Franchising: A company allows foreign entrepreneurs to operate businesses under its brand and business model. McDonald’s is a well-known example, where franchisees worldwide operate McDonald’s restaurants while following the company’s standardized processes and menu.
  3. Joint Ventures:
    • Equity Joint Ventures: Companies from different countries form a new entity with shared ownership and control to conduct business in a foreign market. An example is Sony Ericsson, a joint venture between Sony (Japan) and Ericsson (Sweden) for manufacturing mobile phones.
    • Non-Equity Joint Ventures (Contractual Agreements): Companies collaborate without forming a new entity. For instance, airlines often engage in code-sharing agreements, where they share flight codes and passengers but remain separate entities.
  4. Wholly Owned Subsidiaries:
    • Greenfield Investment: The company establishes a new subsidiary from scratch in the foreign market. For example, Walmart entered the Indian market by setting up new stores under the name “Best Price Modern Wholesale.”
    • Acquisition: The company acquires an existing local business in the foreign market to gain immediate access to resources and market share. An example is Tata Motors’ acquisition of Jaguar Land Rover from Ford.
  5. Strategic Alliances and Partnerships:
    • Companies form partnerships with local firms in the target market to share resources, technology, or distribution networks. An example is the partnership between General Motors and SAIC Motor Corporation in China to manufacture and sell automobiles.
  6. Turnkey Projects:
    • The company sets up a project in a foreign market, completes it, and then hands it over to the client or local operator once it’s fully operational. For instance, a construction company may design and build a power plant in a foreign country and transfer it to the local government upon completion.
  7. Management Contracts:
    • The company provides management expertise to operate a business in the foreign market for a fee. A hotel management company may operate a hotel in another country on behalf of the property owner.
  8. Consortia:
    • Multiple companies, often from different countries, join together to undertake a specific project or contract in a foreign market. For example, several international construction companies may form a consortium to bid on and execute a large infrastructure project in a foreign country.
  9. Export Processing Zones and Free Trade Zones:
    • Companies set up manufacturing or processing facilities in designated zones that offer tax benefits and simplified regulations for exporting. For example, companies may establish production facilities in China’s special economic zones to take advantage of favorable tax incentives.
  10. Online and E-Commerce:
    • Companies use digital platforms and e-commerce websites to sell products or services to customers in foreign markets. Amazon, for instance, enables sellers from around the world to reach global customers through its online marketplace.
  11. Strategic Outsourcing:
    • Companies contract with foreign suppliers or service providers to manufacture components, products, or provide services. Many tech companies outsource software development to firms in countries like India and Ukraine.

The choice of entry mode depends on factors such as market conditions, industry regulations, risk tolerance, and the company’s specific goals and capabilities. Businesses often conduct thorough market research and assess the advantages and disadvantages of each mode before deciding on their international expansion strategy.

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