Master of Business Studies, Marketing

Global Marketing, MK503

Submitted to: Aidan Daly

Submitted by:
Mike Flannery
Denise Gallagher
Louise Gallagher
Sinead Hurley

Date of Submission: 22nd March 2004

Title: Market Entry Strategies

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1. Introduction

1.1 Objectives
The objective of this paper is to outline and discuss the relevant global market entry
methodologies from a theoretical viewpoint. Thus, the paper will provide a summary
of the literature for researchers and students. In order to balance the paper, and to
attract a larger readership, global market entry methods are outlined and discussed.
The key objective of the paper is to therefore present the theory and ground it in
practical solutions for the marketing manager.

1.2 Structure
The paper follows a logical sequence of thought. Firstly, the key drivers of
internationalisation are identified and discussed. The obstacles faced by marketers in
a global market place are highlighted, and possible solutions are presented. A model
of market choice is offered. Finally, several market entry modes are outlined and
their applicability to firm types are discussed.

1.3 Methodology
This paper concentrates on secondary sources of research. Such a method was chosen
to allow for the time and resource constraints of the research. To provide a general
overview of the topic rather than concentrating on a specific industry or market, an
analysis was deemed the most appropriate method. While a purely secondary
research offers limitations, it is felt that these can be mitigated to allow for a reliable
and valid paper on the subject of global entry strategy. The readings chosen for this
paper were sourced from key authors on the subjects. A sample of many readings was
taken to ensure that arguments were not biased on the arguments of one or two
authors.

2. Drivers of Internationalisation
There are many drivers towards internationalisation, but collectively they can be
divided into two areas, internal factors and external factors. The internal factors
include unsolicited foreign orders, managerial influence, excess capacity and product
life cycle issues. External factors include awareness of opportunities, competitor
activity, physical closeness, and government activity. Companies rarely decide to

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enter new markets without careful planning or some “internal and external stimuli,
which influence a firm’s decision to export” (Jatusripitak 1986, p. 9). Within these
internal and external factors, firms can be influenced by both push and pull factors.
Jatusripitak (1986) and Hollensen (1998) outline that many export push or proactive
motives encourage global trade.

2.1 Internal Stimuli:

A firm who is in receipt of unsolicited foreign orders may commence
internationalisation strategies (Hollensen 1998). However, where the importance of
unsolicited export orders has been found in studies, it is usually not enough to push a
firm into exporting. Factors such as adverse home market conditions and management
attitudes may be key drivers of global trade (Jatusripitak 1986).

2.1.1 Attitude of Internal Managers

Jatusripitak (1986) outlines the findings from various research studies on internal
drivers towards export markets. He concludes that the attitude and orientation of the
key strategic decision makers is a key internal driver towards global or international
strategies. Langston and Teas (1976, as cited in Jatusripitak 1986, p. 9) conducted a
study to determine the origins of this international orientation and found several
drivers of an international attitude. These include a period of time spent living
abroad, whether a foreign experience was considered an attractive prospect or whether
the manager had studied a foreign language. Further, Simpson and Kujawa (1974, as
cited in Jatusripitak 1986) found a significant difference in the level of education
between decisions makers in exporting and non-exporting firms, where the export
oriented decision makers had a higher level of education.

2.1.2 Need to Utilise Excess Capacity

Other internal factors include the need to utilise excess capacity or other in-house
competencies that lend themselves to international exploitation (Jatusripitak 1986,
Hollensen 1998) A firm may have a competitive advantage due to some core
competency or first mover advantage that may be equally effective in many markets.
These factors may act as push factors, driving the firm’s decision to export for reasons
of efficiency. There are, however, many benefits of internationalisation that can act
as pull factors. Marketers may have access to customers with higher quality standards

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than in the home country, for example the Japanese market (Cateora & Graham,
2002). Tougher targets can allow a company to perform to its maximum potential.
Having a diversity of markets may also bring additional financial benefits, as
increasing the portfolio of a firm encourages stability of revenues and operations
(Cateora & Graham, 2002).

2.1.3 Product Life Cycle Theory

Product life cycle theory offers key reasons for internationalisation. A firm may need
to extend the product lifecycle of products that may have reached the saturation level
in the domestic market share. A firm’s proficiency in producing the product can be
exploited for longer durations by exploring new markets. Similarly, a firm can extend
their sales of seasonal products by exporting to foreign markets (Hollensen 1998).

2.2 External Stimuli

2.2.1 Opportunity Recognition

The drive towards export markets may be stimulated by either problem recognition or
an awareness of opportunities (Jatusripitak 1986). “The firm’s environment has been
found to be an important factor stimulating export” (Jatusripitak 1986, p. 9). Tesar
(1975, as cited in Jatusripitak 1986) found that the exporting performance of
competing firms plays an integral part in motivating a firm to export themselves. The
decision by longstanding competitors to engage in international marketing may spur
similar actions. The increase in profits earned by competitors can have domestic
market implications as they may re-invest the earnings into domestic endeavours.

2.2.2 Competitor Activity

One of the most important drivers towards new markets is the saturation of domestic
markets due to competitor activity (Pavord and Bogart 1975, Hollensen 1998;
Jatusripitak 1986). Some firms in relatively small markets may be unable to sustain
sufficient economies of scale unless they include foreign markets in their marketing
strategy (Hollensen 1998). Certain firms may have invested heavily in new
technologies, and may export in order to take advantage of economies of scale

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(Hollensen, 1998). Johansson (1997) suggests because customers in different
countries have the same basic needs, exposed to similar messages and diverse
cultures, there is a compulsion to supply to this wider market, as many products can
be standardised and still acceptable in foreign markets. Further, marketing practises
are basically the same in each country making the sale of the product easier once it
has actually entered the market (Johansson 1997).

2.2.3 Closeness to Market

Physical and psychological closeness to the international market may push a decision
to export (Hollensen 1998). European firms may easily consider exporting to their
neighbouring countries due to the relative proximity of these markets.

2.2.4 Government Activity

Foreign Governments may offer assistance and incentives through favourable trade
policies, acceptance of foreign investment, compatible technical standards (Johansson
1997), and tax benefits (Hollensen 1998).

3. Obstacles to International Trade

Van Mesdag (2001) discusses the constraints that industries face when they cross
national borders. Constraints such as language barriers, rules and regulations, climate
and economic conditions, race, topography and political stability exist for the
international firm. Of the many obstacles faced by firms, this paper will concentrate
on the several key obstacles. These are adaptation of marketing strategies, self-
reference criteria, ethnocentrism, distance, culture and standardisation versus
adaptation issues. Each of these will be discussed, with possible methods of
minimising their effects.

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3.1 Adaptation of Marketing Strategies

When organisations decide to cross national boundaries, problems such as poor

selection of markets, underestimating cultural differences and competitors often occur
(Simmonds 1999). Customer wants and competitor’s actions differ from those in the
domestic markets and a strategy that was successful in a home market may need to be
tailored for the international market. A challenge for all firms is whether or not the
firm will be able to adjust its strategy in the international market in order to compete
successfully.

Even if firms successfully adapt to the international market, Simmonds (1999)

believes international expansion is unlikely to save firms with poor domestic market
performance. Underestimating customer motivations and choice of incompetent
partners can lead to failure in new markets. Internationalising operations is associated
with increased risks and costs. According to Werner et al. (1996) one of the most
common risks in the international market place is dealing with differing currencies.

3.2 Self Reference Criteria

According to Keegan (2003) a person’s perception of market needs is derived from

the cultural experience and is therefore difficult to isolate. It is the unconscious
reference to one’s own cultural values. The self reference criteria are a negative force
if adopted by the global marketer. Lee (1966) as cited in Keegan (2003) proposes a
four step framework in order to eliminate this problem.

1. Define the problem or goal in terms of home country cultural traits, habits and
norms.
2. Define the problem or goal in terms of the host country, traits, habits and
norms.
3. Isolate the SRC influence and examine it carefully to see how it complicates
the problem.
4. Redefine the problem without the SRC influence and solve the host –country
market situation.

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3.3 Ethnocentrism

Ethnocentrism occurs when “ a person assumes his or her home country is superior
compared to the rest of the world”(Keegan 2003). Missing out on opportunities
outside the home market is a common problem for the ethnocentric organisation.
Personnel working within the company, believe the practices adopted in the domestic
market will succeed in the international market. Keegan (2003) states ethnocentric
organisations do not attempt to adapt their product or service for a specific market as
they believe they are superior. The Internet may help organisations overcome a
ethnocentric approach promoting international awareness by providing global
information sources (Hamill 1997).

3.4 Distance

According to Stottinger & Schlegelmilch (2000) psychic distance is based on the

assumption that managers are less likely to initiate and/or pursue business relations
with countries perceived to be dissimilar. Organisations are influenced by psychic
distance as it is said to guide the organisation’s country selection decisions during the
internationalisation process.

3.5 Culture

There exists today a greater demand for foreign goods than ever before, advances in
communication, increased wealth and travel, and the liberalisation of markets has
resulted in a more powerful consumer (Kaynak & Kara 2001). Thus, firms must pay
careful attention to the culture in which it will operate. Van Mesdag (2001) believes
the most difficult constraint to overcome and measure is cultural differences “ rooted
in history, education, economics, and legal systems”. (Van Mesdag 2001, pp. 71.).
The author goes on to discuss the importance of reconcilability, where certain
products such as food and beverages will not sell in countries where consumers are
not familiar with the product or the ingredients. Secondly Van Mesdag (2001) states it
is more difficult to market internationally products that are associated with long-
standing usage.

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Language is the most distinctive aspect of a nation’s culture and links all the other
elements of the cultural environment together (Terpstra & Sarathy, 1997). It is
assumed that organisation’s that want to do well in a foreign market should speak the
customer’s language (Swift 2001). This is particularly true in high context cultures
where negotiations are lengthy and contact between buyer and seller is extensive.

In recent years the importance for a marketer to be aware of the religious habits in a
foreign country has been stressed as it influences the choices and way of life that
people make within a culture (Chee & Harris, 1998). What may be acceptable practice
in one country may be regarded as distasteful or inappropriate in another and can lead
to failure in the international market. (Cateora & Ghauri 1999).

Marketers must also take into consideration the values and attitudes of the
international market. Values are deeply rooted within a country and will influence the
person in how they think and behave (Mulbacher et al,. (1999). Aesthetics also vary
between cultures and interpreted differently in international markets, for example the
colour green signifies life in the west but is seen as a sign of illness in Eastern
countries..

The laws and politics in a society define the rules and regulations which are followed
by businesses and customers alike. It is imperative for any business operating outside
it’s home market to familiarise themselves with the political environment (Keegan
2003). The political risk is “ the risk of a change in government policy that would
adversely impact on a company’s ability to operate effectively and profitably, can
deter a company from investing abroad” (Keegan 2003, pp.111.). Political stability
within a country largely influences the market selection choice as it determines the
long term viability of the company (Mulbacher et al., 1999)

Education and technology also influence a firms decision when choosing the
international market. Education and technical know-how determine the ability of
workers to carry out the work and also the availability of technology to create
economies of scale and increase efficiency.

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Social behaviour determines how marketing campaigns within the international
market will be carried out. Countries where the social organisation emphasises the
traditional family unit will result in marketing campaigns aimed toward the family as
a whole (Cateora & Ghauri).

Keegan (2003) discusses Hoftstede’s framework, which argues that cultures can be
compared in terms of four dimensions:

1. Power Distance refers to the way society deals with inequality and the levels
of inequality that are viewed as acceptable.
2. Individualism is concerned with individuals in society and their integration
into groups.
3. Masculinity describes a society where men are expected to be assertive,
preoccupied with materialistic wealth and competitive where woman are
concerned with caring for the family and being the nurturer.
4. Uncertainty Avoidance “is the extent to which the members of society are
uncomfortable with unclear ambiguous or unstructured situations” (Keegan
2003, pp.91.). France and Japan fall into this dimension.

3.6 Standardisation versus adaptation

Some products are easily internationalised and are deliberately developed for the
international market while others will have to be adapted in some way to make them
more marketable in a foreign market. An organisation must decide whether or not to
standardise their offering and marketing campaign for the international market
(Ozsomer & Prussia 2000). There may occur some degree of adaptation of the product
in markets that are strongly dissimilar to the home market. Kotabe & Helsen (2001)
believe the degree of standardisation and adaptation will be determined by the
international market taking into account the cultural differences aforementioned.

4. International Market Research and Selection Criteria

Once a firm has made the decision to internationalise, and has overcome the
challenges presented in the previous section, further strategic decisions must be made.
Before deciding to venture into a foreign market a firm must decide which market or

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markets to enter. Thus, a firm must consider which markets are best suited to its
needs. In order to do this the firm must engage in extensive international market
research, and systematically access market compatibility based on appropriate market
selection criteria.

4.1 Challenges to International Market Research

International market research can often pose many problems, as highlighted by
Terpstra and Sarathy (1997)

Problem of numerous markets: The greater the number of countries in a research

project, the greater the costs, both in time and resources, involved. Because each
market is different, errors such as definition and selection error may arise in
replicating the research internationally.

Problems with secondary data: Statistical sources in the intended markets may not be
as available or as reliable as in the home market.
Comparing several markets: Gaps may appear in the data of certain countries when
compared with others causing a lack of comparability, this is because each country
may use different forms of measurement and documentation.

Problems with primary data: Because primary data consists of approaching

individuals, international research involves a greater margin for error, as more
individuals with varying language, educational and cultural influences are involved.

Infrastructure constraints: Implementation of research may be hampered by poor

communication and transport infrastructure.

4.2 Market evaluation procedure

The process of evaluating foreign market candidates for entry can be divided into four
stages (Johansson 1997)

Country identification: here the candidate countries are identified and listed. The firm
may beside to choose from all the worlds’ countries but typically they focus on a
particular trade area. The choices are typically based on availability of statistical data,

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data such as population, growth rates, GNP, and media reports on political and
economic developments.

Preliminary screening: Identified countries are rated on macro-level indicators such as

political stability, geographic distance, economic development, and delivery
infrastructure. At this stage, the anticipated costs of entering the market should be
assessed.

In-depth screening: Once the more attractive countries have been filtered out in the
preliminary screening, in-depth screening involves assessing market potential, and
actual market size, market growth rate, strengths and weakness of potential
competition, the height of entry barriers, and segmentation.

Final selection: Company objectives and available resources are compared to

forecasted revenues and costs to find the best match. The firm’s objectives can be
used to assign certain criteria that can be weighted and the final selection can be
ranked according to these criteria.

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In order to summarise the stages highlighted above, the international market
segmentation as outlined by Hollensen (1998, p.120) was adapted to reflect this
process.

Firm Environment

Development of
selection criteria

Identification of
broadly qualifying
markets

Screened using
defined filters

Develop segments in
each qualified market

Market entry
Howmany markets?
When?
Sequence?

Source: Adapted from “International market segmentation” from Hollensen, S.

(1998) Global Marketing; a Market-responsive Approach, Prentice Hall,
Hertfordshire, p. 120.

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5. Global Market Entry Modes

Having decided on the country or market that it wishes to enter, a firm must consider
the implementation of its global marketing strategy. A company committing itself to
foreign market entry must consider carefully which entry mode is most appropriate
for the market (Keegan and Schlegelmilch, 2001). Areas of concern for the company
are the level of control they want in the market, the finances they are willing to submit
and the knowledge attainable through the venture (Keegan and Schlegelmilch, 2001).
Entry modes are commonly referred to as direct and indirect exporting (McAuley,
2001 and Jeannet & Hennessey, 2001). Direct entry modes are active forms of entry
that are comprised of domestic and international based intermediaries (McAuley,
2001). Indirect entry modes are those that are considered to be passive forms of entry
into a foreign market (McAuley, 2001).

5.1 Direct Market Entry Modes

Direct exporting is a more active form of exporting with a heightened commitment on
behalf of the company (McAuley, 2001).

5.1.1 Sales Subsidiary

Setting up a sales subsidiary in a foreign market requires a direct involvement and
commitment of the company to the foreign market (Jeannet and Hennessey, 2001).
The company must set up a sales subsidiary and employ staff in the country to
manage the sales in the market. The company has a wide degree of control, as they
employ all those involved with the product or service. The cost of the sales subsidiary
is considered to be higher than indirectly exporting (Jeannet and Hennessey, 2001).
The wholly owned sales subsidiary is most appropriate for a company that has a large
sales volume in the foreign market (Jeannet and Hennessey, 2001).

5.1.2 Strategic Alliances

Strategic alliances are increasingly being used as a method to gain entry into a foreign
market. (Jeannet and Hennessey, 2001). Two or more firms embark on an alliance in
which each firm bring the benefit of a skill or experience to the relationship (Jeannet
and Hennessey, 2001). The companies skills are usually complimentary to each
others goals and each is expecting to benefit finically form the other company

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(Jeannet and Hennessey, 2001). The alliance does not necessitate the formation of a
separate company and goes beyond the boundaries of a joint venture (Jeannet and
Hennessey, 2001). A problem relating to SA’s is the loss of control and the company
know how (Johansson, 1997). The following are the most common types of alliances:

5.1.2 A Technological or R&D Alliances

The most common reasons for embarking on a technological alliance are the access to
markets, the exploitation of complementary technology and a need to reduce the time
of innovation within a firm (Jeannet and Hennessey, 2001). Such an alliance may
give a company their competitive edge (Johansson, 1997). A technological or a
biotechnological-based company would be best suited to such an arrangement
(Jeannet and Hennessey, 2001).

5.1.2 B Production-Based Alliances

A production-based alliance is used primarily for two reasons. Firstly, companies may
source key components in a bid to gain increased efficiencies (Jeannet and
Hennessey, 2001). Secondly, a joint production or development venture for
companies that are producing similar products (Jeannet and Hennessey, 2001). This
type of alliance is particularly evident in the car manufacturing industry (Jeannet and
Hennessey, 2001). The alliance saves money and time in that they do not have to set
up their own production facility (Johansson, 1997). Problems may occur if the
partners alter their strategic direction in a manner that the other is unwilling to follow
(Jeannet and Hennessey, 2001).

5.1.2 C Distribution Alliances

Distribution alliances are becoming more prominent in the business environment
(Jeannet and Hennessey, 2001). Companies are beginning to set up alliances with
others that have a good distribution network in a perspective market (Johansson,
1997). In this manner the company does not have to carryout as much ground work
into the distribution systems within the potential markets, as the new partner has
already the competencies in this area (Johansson, 1997). A drawback is that the
partners may limit their growth through this strategy, as they may wish to produce a
product that competes with the others product line (Johansson, 1997). Therefore if
the goal is for product expansion, the alliance is not expected to last long (Johansson,

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1997). In return the company may offer the distribution partner remuneration or a
sharing of their capabilities.

5.1.3 Joint Ventures

Under a Joint Venture (JV) the company undertakes an arrangement with a separate
company to share stock ownership in the new unit (Jeannet and Hennessey, 2001). A
JV involves the transfer of capital, manpower and technology from the company to an
existing firm in the foreign country (Johansson, 1997). The participation of each
partner varies each time depending on the cost, stock needs and control needs of the
partners involved (Jeannet and Hennessey, 2001). A JV is normally undertaken as a
means of providing a competitive advantage for each of the firms involved (Doole
and Lowe, 2001). A company may choose a JV to enter the foreign market as a
method of minimising the risk in foreign entry (McAuley, 2001). With a JV the risk
is shared among the partners (Jeannet and Hennessey, 2001). The foreign partner will
be aware of the cultural norms and political barriers and this is a method of
overcoming them (McAuley, 2001). The companies may also be able to benefit from
the skills and experience of each other (Jeannet and Hennessey, 2001). The
additional partner may have good contacts within the chosen country that the
company may benefit from (Jeannet and Hennessey, 2001). Tensions may arise
between the companies that may cause a potential conflict, which should be
monitored closely (McAuley, 2001). Conflicts often arise in JV’s and the companies
involved will find greater success if they share similar goals (Jeannet and Hennessey,
2001).

5.1.4 Manufacturing Subsidiaries

A consideration of market entry modes is manufacturing within the chosen country
(Jeannet and Hennessey, 2001). This entry mode requires a high level of commitment
on behalf of the company as it will require a time and resource commitment
(McAuley, 2001). The company may choose the mode due to cost savings or as a
means to overcome restrictions in the foreign market (Jeannet and Hennessey, 2001).
The company may decide to manufacture in a foreign country solely for the benefits
of cost saving that may be realised in the country (Jeannet and Hennessey, 2001). A
company may choose to hire manufacturer representatives in order to arrange
shipping and handling of goods (Ceteora, 1993).

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5.1.4 A Contract manufacturing
A company arranges to have their products manufactured by a company in the market
they wish to penetrate (Jeannet and Hennessey, 2001). The manufacturer is solely in
control of production and takes no responsibility for any additional services. The
products are passed back to the company who use them for the international market.
This concept of contract manufacturing differs from licensing in the contract terms.
The manufacturer is given no guarantee as to the amount of orders or the quantity. It
is taken on an order-by-order basis (Jeannet and Hennessey, 2001). This method of
manufacturing is best suited to countries with low volumes or high tariff protection
(Jeannet and Hennessey, 2001).

5.1.4 B Assembly
A method of gaining access to a foreign market is assembly in a foreign market
(Jeannet and Hennessey, 2001). A company may choose to have the final stages of
manufacture in the foreign country (Jeannet and Hennessey, 2001). Larger companies
generally abide by this method (McAuley, 2001). The company does not have to
embark in a large financial outlay but it opens up an otherwise guarded market
(Jeannet and Hennessy, 2001). The transportation cost would be greatly reduced
through this method (McAuley, 2001). The company has also the opportunity to take
advantage of lower labour costs (Jeannet and Hennessey, 2001).

5.1.4 C Full Scale Integrated Production

This method of entry into a foreign market is one that requires a great commitment
from the company (Jeannet and Hennessey, 2001). The company is required to invest
in the building of a plant and so the initial financial outlay is significant (Jeannet and
Hennessey, 2001). The entry mode is best applicable to a company that has a
guaranteed market in the country (Jeannet and Hennessey, 2001). The company may
be able to take advantages of lower cost production or eradicate high transportation
costs (Jeannet and Hennessey, 2001).

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5.1.5 Mergers and Acquisitions
A company seeking to expand to a foreign market may decide that a merger or an
acquisition may be the best option available to them, depending on the availability of
such a firm (Doole and Lowe, 2001). This from of market entry assumes that growth
will be easier to achieve in an established firm than waiting for it to grow organically
(Doole and Lowe, 2001). The foreign company will have already an established
distribution network that the company can take advantage of (Johanessen, 1997). The
disadvantages include re-educating the employees (Johansson, 1997). It may also be
difficult to find a company that fits the company’s needs (Johansson, 1997). The
company may encounter resistance to the takeover, which may result in a poor
company image (Doole and Lowe, 2001).

5.1.6 Marketing Subsidiary

A company may decide to carryout their own marketing activities if the believe that
the agents are not sufficient to cover the market (McAuley, 2001). The method would
allow the company to have contact with the end customer (McAuley, 2001).

5.1.7 Freight Forwarders

A company may decide to use freight forwarders if they do not possess the necessary
skills internally to carryout the appropriate paperwork for the exportation (McAuley,
2001). The freight forwarder provides all the appropriate information on shipping,
routing, schedules, charges, labelling, certification, and customer requirements
(McAuley, 2001). The freight forwarder has the benefits of economies of scale and
can therefore offer a more cost effective price (McAuley, 2001).

5.1.8 Consortium Exporting

A group of companies may come together and combine their skills and resources in
order to bid for contracts, while remaining independent (McAuley, 2001). This form
of foreign market entry is particularly relevant to the construction industry (McAuley,
2001).

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5.1.9 Export Department
A large company may have the resources to have an export department based in their
own company that have the direct responsibilities for setting up foreign sales
(McAuley, 2001).

5.2 Indirect Market Entry Modes

Indirect market entry has been referred to as passive exporting, as it has the result of
the firm beginning exporting activities due to a “pull” from the customers (McAuley,
2001). It can take many forms, such as those outlined below:

5.2.1 Unsolicited Orders

A company may begin their initial exporting through customers seeking the product.
It demonstrates that there are potential markets for the company that may be
profitable (McAuley, 2001). Problems may occur if this is a once off activity for the
company, as it may be deemed costly due to low economies of scale (McAuley,
2001).

5.2.2 Licensing
Licensing is a form of exportation involving a company to assigning their patents or
trademarks to another company in return for royalties (Jeannet and Hennessey, 2001).
The royalty would be based on a percentage of sales or profits (McAuley, 2001). The
exporting company does not have the commitment of a financial investment in the
foreign market (Jeannet and Hennessey, 2001). The licence is signed for a designated
time after which time the licence is reviewed (Jeannet and Hennessey, 2001). If the
cost of the licence is substantial the time length of the contract must also be large, as
the licensee must have the sufficient time to regain the initial cost of investment
(Jeannet and Hennessey, 2001).

The advantages of licensing include a time and resource saving on behalf of the
licensing company (Jeannet and Hennessey, 2001). The licenser does not require the
heightened amount of market research or knowledge (Johansson, 1997). The licenser
avoids the complications of any political unrest in the chosen country and they
overcome barriers to entry, which may come in the form of restrictions on foreign

17
company set-ups (Jeannet and Hennessey, 2001). The licenser avoids any tariffs or
levies that may have otherwise been imposed (Johansson, 1997). The disadvantages
of licensing include the dependence of the licenser on a local licensee (Jeannet and
Hennessey, 2001). The licenser must ensure that their technologies are not passed on
to competitors and this requires a supervision cost (McAuley, 2001). The success of
the licensing is dependent on the performance, the skill and the product quality of the
licensee (Jeannet and Hennessey, 2001). The threat of training a potential competitor
is also a pertinent concern for the licenser as the licensee may develop new
technologies that cause a threat to the company (McAuley, 2001).

5.2.3 Franchising
Franchising is a heightened form of licensing in that it is the transfer of the company’s
total marketing programs including brand name, logo, operations and products
(Jeannet and Hennessey, 2001). The franchising agreement is usually much more
comprehensive than a license agreement due to the nature of the transfer of all
operations. It allows a higher degree of control than licensing (Johansson, 1997).
Franchising of the company’s operations does not require a direct investment in the
foreign market be the company (McAuley, 2001). Franchising is one of the fastest
growing modes of exporting (Johanessen, 1997). Franchising is a low cost entry
method and it aids the brand recognition of the company (McAuley, 2001). Many
companies have benefited from this type of agreement such as McDonalds and
Kentucky Fried Chicken (Jeannet and Hennessey, 2001). The customers are aware of
the company and are expecting the same quality from each of the outlets, which can
be a danger as it is difficult to maintain the same quality in lots of outlets (Johansson,
1997). They are also control problems pertinent to franchising, which arise when the
goals of the companies do not match (McAuley, 2001).

5.2.4 Independent Distributor

An independent distributor is a method a company can use to pass their products on to
a distributor in order for them to distribute in a foreign market (Jeannet and
Hennessey, 2001). The production company is not involved in the foreign market, but
they get the benefit of increased sales. A disadvantage of this form of exportation is
the cost incurred by the producer as the distributor earns a margin of the sales
(Jeannet and Hennessey, 2001). The production company will also suffer from a loss

18
of control, as they are not directly involved in the foreign market (Jeannet and
Hennessey, 2001). The use of an independent distributor is best advised when a
company is expecting a low sales volume of the foreign market (Jeannet and
Hennessey, 2001).
5.2.5 Middlemen
Assuming a company does not wish to set up a subsidiary in a foreign market there
are some choices of middlemen that facilitate the selling of goods in a foreign market.

5.2.5 A Agent Middlemen

Agent middlemen are selected as a means to sell goods in a foreign market (Cateora,
1993). They do not take title to the goods and the company sets out pricing and
policy guidelines. The agent must report sales and customers information to the
company (Cateora, 1993). The agents are paid in the form of commission on sales
(Cateora, 1993). The advantage of this form of exporting is that the agent will have
expertise in the area and access to the markets (McAuley, 2001). The company has a
relatively high degree of control over the agent. An important consideration for the
company is relationship with the agent. Bad agents exist and if a company has signed
an agreement it may be difficult to get out of it (McAuley, 2001). The type of agent
middlemen can include the following:

Export Management Company (EMC) – EMCs’ are specialist companies that

act as an export department for the company (Doole & Lowe, 2001). The EMC
contacts potential customers and negotiates sales (Cateora, 1993). The EMC are a
home country based middleman (Cateora, 1993). This is a form of indirect market
entry (McAuley, 2001). The EMC is particularly appropriate for small companies
that have a small volume or do not want to involve their personnel in international
trade. The EMC’s offer a personal service for the manufacturer (McAuley, 2001).
This method requires little investment and little effort on behalf of the producer
(Cateora, 1993). The EMC can rarely establish long-term distribution for the
products, as they require an immediate payout to remain sustainable (Cateora, 1993).

Manufacturer’s Export Agent (MEA) – The MEA is a short-term agent for the
company. The selling arrangement is for a limited scope, in time or products and is

19
based on a straight commission basis (Ceteora, 1993). The MEA trade in their own
name and not that of the exporting company (Ceteora, 1993).

Home Country Broker – A broker specialises in bringing buyers and sellers

together (McAuley, 2001). They facilitate relationship building but rarely maintain
contact with the parties, with the exception of some of the large producers (Ceteora,
1993).

Buying Offices – Buying offices have a role in sourcing and buying products
for principals (Ceteora, 1993). The buying office organises the exports of the goods
on behalf of the principal buying the goods (McAuley, 2001). They do not provide a
continuous service or representation to the principals and they source from different
vendors but they do not provide a selling function as such (Ceteora, 1993).
Additionally there are separate selling groups (Ceteora, 1993).

Export Jobbers – Export jobbers take title to the goods but they do not take
procession of the goods (McAuley, 2001). They deal mainly in commodities goods
(Ceteora, 1993). They arrange the transportation of the goods and work on a job lot
basis (Ceteora, 1993).

A major advantage to the above types of exporting is that they tend to be low costing,
and by using the expertise of others it is expected that the deal will run
smoothly. However, it does not allow the company to develop any skills in the
field and they do not have any customer involvement (McAuley, 2001).

5.2.5 B Merchant Middlemen

Merchant middlemen take title to the goods (Cateora, 1993). They are involved in the
buying and reselling of the goods in foreign countries, and because of this the
company has little control over the merchant middlemen (Cateora, 1993). Merchant
middlemen are used due to the minimised credit risk, the ease of contact and the
eradication of problems in dealing with a foreign market (Cateora, 1993). The major
advantage of this type of exporting for the company is the fact that the exporter is
guaranteed a cash flow (McAuley, 2001). The merchant is highly concerned with
profit maximisation and is criticised for being a poor ambassador for the company’s

20
goods (Cateora, 1993). The company receives no information as to who the end user
of the product is or what it is being charged at (McAuley, 2001).
The following are types of merchant middlemen:

Trading Companies - “Trading companies accumulate, transport and distribute

goods from many countries” (Ceteora, 1993, p.448). They are home country
middlemen (Ceteora, 1993). This is a form of indirect market entry (McAuley, 2001).
Trading companies can cover a large geographical area, which is beneficial to the
exporting company (Ceteora, 1993). The trading company’s main functions include
importing and exporting goods, they offer assistance and advice, manufactures goods,
financing and the development of joint ventures (Ceteora, 1993). The companies
generally have a large product range (McAuley, 2001). The companies have
extensive contacts, which allow them to trade in difficult areas (Doole and Lowe,
2001). The company does not directly deal with the customers and so are losing out
on valuable market knowledge (Doole and Lowe, 2001). The company also suffers
from a lack of control with this method (Doole and Lowe, 2001).

Piggybacking/Complementary Marketers – A company with a wide

distribution network and marketing facilities may wish to widen their product
portfolio and seek additional product lines (McAuley, 2001). Additionally an existing
customer of the distributing company may request the product (McAuley, 2001).
When such an arrangement is made it is referred to as piggybacking (Ceteora, 1993).
This is an indirect market entry method (McAuley, 2001). Agent or merchant
middlemen can use the method, but it is generally through merchant middlemen
(Ceteora, 1993). The arrangement is usually between companies that have
complementary product ranges, so as to avoid any competitive dilemmas within the
distributing company (Ceteora, 1993). Problems may occur if a contract was poorly
considered so companies often try trial runs (Doole and Lowe, 2001). If either
company changes their strategic track it may cause conflict for the company (Doole
and Lowe, 2001).

Distributors – A foreign distributor often has exclusive rights in a particular

country or region (Ceteora, 1993). They have a high degree of dependence on the

21
manufacturer so the relationship is usually long term with the manufacturer having a
large degree of control over the agent (Ceteora, 1993).

Dealers – Dealers are middlemen that have a long-term relationship with a

supplier (Ceteora, 1993). They are involved in the distribution of goods and act as the
last notch in the distribution channel. They often have exclusive dealer relationships
within a certain geographic location. The most successful dealerships tend to be in
the automotive industries (Ceteora, 1993).

Import Jobbers, Wholesalers and Retailers – Import Jobbers purchase goods

directly from the manufacturer and sell to wholesalers and retailers (Ceteora, 1993).
The wholesalers are then involved in the redistribution to smaller sellers (Ceteora,
1993). The wholesaling method is more common in non-US companies (Cateora,
1993).

In addition to this, Ceteora (1993) notes that government agencies are becoming
increasingly important in the establishment of entry modes for companies. Merchant
middlemen are rarely involved in the selling of goods to government agencies
(Ceteora, 1993). Companies should be aware of this change in perspective in some
countries.

6. Conclusion
This paper aimed to examine the topic of foreign market entry modes. As it is
intended to be an introduction to this area, sources of secondary research were chosen
to carry out an analysis into four distinct areas. The reasons for foreign market entry
were highlighted. These include internal factors, such as managerial attitude, excess
capacity, and product life cycle issues. External drivers include opportunity
recognition, competitor activity, closeness to market and foreign government activity.

Following from this discussion of why a firm would internationalise, the challenges
faced by a global firm were identified and analysed. These challenges can be
classified as adaptation of marketing strategies, self-reference criteria, distance,
culture, ethnocentrism, and standardisation versus adaptation issues. In order to make

22
the discussion valuable to marketing managers, the possible solutions to these
challenges were presented.

Having established the key reasons for internationalisation, and the challenges likely
to be faced by a firm, a process for market selection was presented. This included
challenges to international research, and a systematic guideline for managers to enable
them to choose the correct market.

Finally, the various market entry modes were identified and discussed. These include
indirect entry modes, such as unsolicited orders, licensing, franchising, and
middlemen. Direct market entry modes outlined were manufacturing, strategic
alliances, joint ventures, export departments, consortium, marketing subsidiary,
manufacturing subsidiary, freight forwarder, sales subsidiary and mergers and
acquisitions. The advantages and limitations of each of these modes were
highlighted, and their use in various types of firms were suggested.

Thus, while this paper is limited in its analysis of only secondary sources of
information, it offers many key benefits to its intended audience. The ideas and
concepts discussed within the paper are grounded in the theory, thus the paper
contains reliable and balanced information. Marketing managers gain an introduction
to the global marketing theory. In addition to this, marketing managers can review a
wide range of market entry modes, and from this can make strategic decisions with
regards to global marketing. The paper has thus achieved its principle objective: to
answer the key questions posed by the marketing manager: should the firm
internationalise, what problems may occur, how a market may be selected and how a
market may be entered.

23
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