FOREIGN INVOLVEMENT STRATEGIES (ENTRY STRATEGIES)

INTRODUCTION

• Most International businesses expand their business to other countries with

certain goals.
i.e Increase market share, revenue & profits.
To do this the organizations follow three steps.
• Assess alternative market e.g size of market, level of competition,
legal / political environs and some cultural factors.
• Evaluate respective costs, benefits and risks of entering each
market (i.e do research on potential market first,its potential for
growth….and
• Select those that hold most potential for entry or expansion

Levels of competition in market

• Legal and political environment- understand the (new) countries, trade

policies & general legal & political environments, government policies,
logistical considerations
• Cultural influences – mostly start with countries that share your values,
culture before expanding to countries that have complete difference in term
of socio- cultural practices/ beliefs.

After choosing which market to enter, the next question is about:

Choosing a mode of Entry.
e.g exporting, licensing, franchising etc.
Choosing the right mode of entry depends on the following
a) Ownership advantages –where the organization is able to own assets,
technology etc of the firm operating in foreign countries.
b) Location advantage – where the production is carried out (suitability)
c) Internalization advantages – make it desirable for a Co. to produce a
good /service itself rather than contracting with another firm to produce
it.

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 MODES OF ENTRY
How do business corporations enter into foreign countries?
Common Modes of entry include exporting, licensing, franchising,
contract manufacturing, management contacts, FDI etc)

1. EXPORTING
Exporting to foreign markets involves sending goods/ services from one country to
other countries for use or sale there.

Exporting has several advantages:-

• Relatively low financial exposure, chooses its local distributor, may distribute by
itself to control marketing better
• Permits the org. to gradually enter the market; which helps to access local
conditions and fine tune.
• Acquire knowledge about local market
• Avoid restrictions on foreign investment.

Forms of exporting (3)

✓ Indirect exporting – occurs when a firm sells its products to a domestic
customer which in turn exports the product either in its original or
modified form.
✓ Direct exporting – seen through sale to customers, distributors or end
users located outside the home country.
✓ Intra corporate transfers – sale of goods by a firm in one country to an
affiliated firm in another (subsidiary)

Disadvantages of exporting

• Vulnerability to tariffs.
• Logistical complexities
• Potential conflicts with distributors

2. INTERNATIONAL LICENSING
Another means of entering foreign market.
• The firm called the Licensor licenses the right to use its intellectual
property, technology, work methods, patents, copyrights, brand names or
trademarks to another firm called the licensee in return for a fee.

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 • The terms of a licensing agreement are specified in a detailed legal
contract which addresses issues such as:
• Specifying the agreements’ boundaries
• Determining compensation
• Establishing rights, privileges, and constraints
• Specifying the agreement's duration.

Advantages of Licensing
• Low financial risks
• Low cost method to assess market potential.
• Avoid tariffs, non-trade barriers-NTBs , restrictions on foreign investment
• Licensee provides knowledge of local market.

Disadvantages of Licensing
• Limited market opportunities/ profits
• Dependence on licensee
• Potential conflicts with licensee
• Possibility of creating future competitor

3. INTERNATIONAL FRANCHISING
A special form of licensing

• Allows the franchisor more control over the franchisee and provides for
more support from the franchisor to fra-chisee in the case of licensor –
licensee relationship
• Allows an agreement of entrepreneur or org. called franchisee to operate a
bizna under the name of another, the franchisor in return for a fee.
• The franchisor provides franchisee with trademarks, operating systems,
product reputation/ name & continuous support services like advertising,
training, reservation services & quality assurance programs.
GOOGLE and Explain the differences btn Licensing and Franchising.

SPECIALIZED ENTRY MODES

1. CONTRACT MANUFACTURING
Used by firms those that outsource their manufacturing needs to other Cos.
2. MANAGEMENT CONTRACT
An agreement whereby one firm provides managerial assistance, technical
expertise and specialized services to a second firm for an agreed period of time
in return for monetary considerations/ compensation.
3. TURNKEY PROJECTS

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 A contract under which a firm agrees to fully design, construct and equip a
facility and then turn the project over to the purchaser when it is ready for
operations
The firm makes its profits.

FOREIGN DIRECT INVESTMENT

i. FDI affords the firm increased control over its international business
operations as well as its increased profit potential.
ii. Acquisition strategy: acquisition of an existing firm conducting business in
the host country
iii. Joint ventures:- where 2 or more firms agree to work together & create a
jointly owned separate firm to promote their mutual interests.

TASKS
INDIVIDUAL PRESENTATION TOPICS

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