Market entry methods

When you know the scale of entry, you will need to work out how to take your business
abroad. This will require careful consideration as your decision could significantly impact
your results. There are several market entry methods that can be used.

Exporting

Exporting is the direct sale of goods and / or services in another country. It is possibly
the best-known method of entering a foreign market, as well as the lowest risk. It may
also be cost-effective as you will not need to invest in production facilities in your
chosen country – all goods are still produced in your home country then sent to foreign
countries for sale. However, rising transportation costs are likely to increase the cost of
exporting in the near future.

The majority of costs involved with exporting come from marketing expenses. Usually,
you will need the involvement of four parties: your business, an importer, a transport
provider and the government of the country of which you wish to export to.

Licensing

Licensing allows another company in your target country to use your property. The
property in question is normally intangible – for example, trademarks, production
techniques or patents. The licensee will pay a fee in order to be allowed the right to use
the property.

Licensing requires very little investment and can provide a high return on investment.
The licensee will also take care of any manufacturing and marketing costs in the foreign
market.

Franchising

Franchising is somewhat similar to licensing in that intellectual property rights are sold
to a franchisee. However, the rules for how the franchisee carries out business are
usually very strict – for example, any processes must be followed, or specific
components must be used in manufacturing.

Joint venture

A joint venture consists of two companies establishing a jointly-owned business. One of

the owners will be a local business (local to the foreign market). The two companies
would then provide the new business with a management team and share control of the
joint venture.

There are several benefits to this type of venture. It allows you the benefit of local
knowledge of a foreign market and allows you to share costs. However, there are some
issues – there can be problems with deciding who invests what and how to split profits.

Foreign direct investment

Foreign direct investment (FDI) is when you directly invest in facilities in a foreign
market. It requires a lot of capital to cover costs such as premises, technology and staff.
FDI can be done either by establishing a new venture or acquiring an existing company.

Wholly owned subsidiary

A wholly owned subsidiary (WOS) is somewhat similar to foreign direct investment in

that money goes into a foreign company but instead of money being invested into
another company, with a WOS the foreign business is bought outright. It is then up to
the owners whether it continues to run as before or they take more control of the WOS.

Piggybacking

Piggybacking involves two non-competing companies working together to cross-sell the

other’s products or services in their home country. Although it is a low-risk method
involving little capital, some companies may not be comfortable with this method as it
involves a high degree of trust as well as allowing the partner company to take a large
degree of control over how your product is marketed abroad.

 Size of the organization and resource pool- it is an evident fact that small sized
organizations tend to have limited options in reference to market service as they have
limited amount of resources which may not render room for such leverage. Thereby,
institutionalizing a wholly owned subsidiary calls for higher level of investment and is a
high risk option which in general, a small scale organization cannot afford to opt for.
Thereby, it can be said that organizational size and resource poll affects the final decision
pertaining to selection of entry mode to a higher level. As per the viewpoint of Love and
Roper (2014), higher the organizational resources in terms of technology, capital,
management, production and marketing, higher are the number of entry mode options it
has for itself in reference to international markets.
 Attitude of Management towards Risk- the level of risk that an organization can take very
much depends upon its financial position, market competitiveness and other strategic
options.  The element of risk perception is related to modes of entry into the market and
this may impact the final decision in a significant manner (Buckley and Ghauri, 2015). It
has already been mentioned in this research work that wholly owned subsidiaries have
higher risk owing to high volume of resources relating to such entry whereas on the other
hand, exporting involves least risk out of all the options available for venturing into
international markets.
 Factors Pertaining to Home Country- In the viewpoint of Root, there are various home
country specific parameters such as the level of production, market conditions as well as
environmental factors need to be considered as they affect the final decision pertaining to
 mode of market entry. It is to be noted that when the domestic market is relatively
smaller, then the organization has to opt for internationalization and is also tempted to
make higher level of investment at the time of venturing into new international market
(Axelsson and Easton, 2016).
 Factors pertaining to business environment prevalent in host nation- various factors such
as business regulations, competitive rivalry, consumer preferences, purchasing patterns,
overall business infrastructure, legislative regulations and technological development
level are the prime elements that need to be considered while finalizing the preferred
mode of entry in international markets.  In the viewpoint of Rothaermel (2015),
extremely competitive business environment have an impact on organization’s decision
to foray in the market with an option that calls for lesser resource involvement to reduce
the level of risks involved in the process.
 Rate of Growth Prevalent in the Market- it is to be noted that this factor has extremely
high implications in reference to choosing the final mode of entry. If the chosen
international market is registering a higher growth rate, then the organization should
leverage the opportunity and opt for exporting as a method to enter into the given
international market. Further, if the overall demand volume for the foreign organizational
offerings is high, then the organization can also think about institutionalizing its own
marketing subsidiary organization in the given market (Cavusgil et al., 2014).
 Barrier pertaining to Entry in the Market- there are numerous market obstacles that exist
that further complicate the process of entry into the foreign markets. These obstacles
comprise of tariff related challenges, distribution access related challenges, government
regulations, exit barriers and others. Such factors tend to have a definitive impact on the
final decision taken by the organizational management in reference to preferred mode of
entry in international markets (Lasserre, 2017).

there must be three factors consider by the company before entering in the international market.
These factors are: 1. Timing of entry, 2. Decision with respect to which international market to
go for, 3. Strategic commitments and mode of entry. It is concluded from the research, a
company can enter in a new foreign market with different mode of enter. Following are some
practiced strategies for entry:

Although investing in another market can be risky and require a lot of capital, the
rewards can be huge.

By selling your product or service in another country, you can introduce your company
to huge markets, increase your sales and profits, gain brand recognition, reduce the risk
of only operating in one market (eg, due to economic or seasonal downturns) and
extend your product’s life cycle.

Which country?
You may already have a country in mind, or you may simply have the idea of exporting
but no idea where to. Start by making a list of countries you are interested in.

When you have a list, consider more carefully your product – is it suitable for any of the
countries on your list? The culture, religion and law of each country are extremely
important to consider here. Some countries are very conservative in comparison to the
UK, so trying to export items such as clothes or alcohol may be tricky. The majority of
the population in other countries may have certain dietary requirements – for examples,
Hindus do not eat beef.

When you have narrowed down your list, consider international business laws in each
country. You may need to consult locals to research regional laws and customs to
ensure that you are able to take your product or service into that country.

You will also need to undertake the usual market research, to ensure that people in your
target market will definitely want to buy your product or service!

When to enter?
If you know that your competitors are considering entering the same market as you,
there are two options: aim to be ‘first to market’ or wait and see how successful your
competitors are and follow them into the market.

By aiming to be ‘first to market’, you will be taking several risks. Firstly, regardless of
how thorough your market research is, you cannot guarantee that people will buy what
you are selling. Secondly, depending on your market entry method, you may have to
invest high capital or meet resistance from potential local partners who are unsure that
the product will succeed.

By following your competitors should they succeed, you will know that there is a market
for your business and it is much more likely that local companies will be willing to
partner with you. However, you run the risk that local customers will have become loyal
to your competitors’ brand and will not want to buy from another company.

Scale of entry
The obvious issue here is cost. Entering a market on a large scale will require
significant resources. Although this is more likely to make an impression on a new
market as it will attract the attention of customers and local businesses alike, it may be
risky financially if your company does not take off.

Entering on a smaller scale can offer business owners the chance to learn about the
new market and limit risks – however, you are much less likely to gain significant
amounts of attention.
2.4 Parameters Affecting Decisions in Reference to
Selecting Mode of Entry in International Markets
Specially in Saudi Arabia
It is important to select the right mode of entry into the foreign market which calls for sound
tactical decision making on the part of senior organizational management. It is to be noted that
there are varied internal and external factors that affect this particular decision and they have
been elaborated as under-

There are numerous market entry modes in reference to international markets that an
organization can choose if reference to foraying into new markets. It is to be noted that entry
modes may differ in reference to the level of control that an organization aims to exert over its
resources, the transaction costs of acquiring and deploying the resources, level of ease in
reference to the process of transfer of knowledge and deployment of varied kinds of legal rights.
Further, Ojala (2015) have put forth three factors that stipulate varied modes of market entry.
The first pertains to ownership benefits that the organization has and second pertains to the
location benefits in reference to the market and third set of benefits pertain to the process that is
to be followed so as to integrate the transaction within the organization.