HAWASSA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT
MBA IN MARKETING MANAGEMENT

Project Work Related to Modes of Market Entry

Course Title: International Business ( MBAM- 527)

Submitted to:
Dr. Sintayehu Assefa (Ph.D.)

BY: Bisrat Damene

May, 2023

HAWASSA, ETHIOPIA

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 INTRODUCTIONS, ADVANTAGES, DISADVANTAGES, EXAMPLES, AND CONCLUSIONS
FOR EACH MODE OF INTERNATIONAL BUSINESS:

I. Exporting:

Introduction: Exporting involves selling products or services produced in one country to

customers in another country. It is one of the simplest and most common modes of
international business for companies looking to expand globally.

Advantages of Exporting:
- Lower investment costs compared to other modes of international business
- Increased sales and revenue
- Diversification of markets and customers
- Opportunities to learn about new markets and customer needs

Disadvantages of Exporting:
- Exposure to exchange rate fluctuations
- Risk of non-payment by customers
- Dependence on intermediaries for distribution
- Limited control over marketing and sales processes in the foreign market

Application Areas of Exporting:

- Small and medium-sized enterprises (SMEs) looking to enter new markets
- Companies with unique or niche products that have global appeal
- Companies looking to diversify their customer base and reduce dependence on
domestic markets

Examples of Exporting:
- Coca-Cola exporting its soft drinks to over 200 countries worldwide
- Apple Inc. exporting its iPhones to various countries around the world

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Exporting is a cost-effective and relatively low-risk mode of international business that
offers opportunities for companies to expand their customer base and increase revenue.
However, it also poses certain risks that companies need to be aware of and manage
effectively.

II. Licensing:

Introduction: Licensing is a mode of international business in which a company grants

another company (the licensee) the right to use its intellectual property, such as patents,
trademarks, or copyrights, in exchange for royalties or other forms of compensation.

Advantages of Licensing:
- Lower investment costs compared to other modes of international business
- Access to local market knowledge and expertise of the licensee
- Reduced risk of product failure in the foreign market
- Opportunities for revenue generation through licensing fees and royalties

Disadvantages of Licensing:
- Limited control over the use of intellectual property in the foreign market
- Risk of loss of intellectual property rights
- Dependence on the licensee for quality control and product innovation
- Limited opportunities for differentiation and brand recognition

Application Areas of Licensing:

- Companies with valuable intellectual property looking to generate revenue
without investing in physical operations in foreign markets
- Companies looking to enter new markets quickly and with low investment costs
- Companies looking to share risks and investment costs with other companies

Examples of Licensing:

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 - Nike licensing its trademark and branding to companies in various countries to
manufacture and sell Nike-branded apparel and footwear
- McDonald's licensing its franchise model to companies in various countries to
operate McDonald's restaurants

Licensing can be an effective mode of international business for companies looking to

generate revenue from their intellectual property without investing in physical operations
in foreign markets. However, it also poses certain risks and requires careful management
to ensure quality control and protection of intellectual property rights.

III. Franchising:

Franchising is a mode of international business in which a company (the franchisor) grants

another company (the franchisee) the right to use its business model, trademark, and
branding in exchange for fees and royalties.

Advantages of Franchising:
- Lower investment costs compared to other modes of international business
- Access to local market knowledge and expertise of the franchisee
- Reduced risk of product failure in the foreign market
- Opportunities for revenue generation through franchise fees and royalties

Disadvantages of Franchising:
- Limited control over franchisee operations and decision-making processes
- Risk of conflicts of interest and disagreements between franchisor and franchisee
- Dependence on franchisee for quality control and brand reputation
- Limited opportunities for differentiation and brand recognition

Application Areas of Franchising:

- Companies with a successful business model and brand looking to expand globally
quickly and with low investment costs
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 - Companies looking to share risks and investment costs with other companies
- Companies looking to access local market knowledge and expertise

Examples of Franchising:
- McDonald's franchising its restaurants to companies in various countries to
operate McDonald's restaurants
- Subway franchising its sandwich shops to companies in various countries to
operate Subway restaurants

Franchising can be an effective mode of international business for companies looking to

expand globally quickly and with low investment costs. However, it also poses certain risks
and requires careful management to ensure quality control and protection of the interests
of both franchisor and franchisee.

IV. Contract Manufacturing:

Introduction: Contract manufacturing is a mode of international business in which a

company contracts with another company (the contract manufacturer) to produce its
products or components of its products on its behalf.

Advantages of Contract Manufacturing:

- Lower investment costs compared to other modes of international business
- Access to local manufacturing expertise and resources
- Reduced production costs and increased efficiency
- Opportunities for revenue generation through cost savings and economies of scale
Disadvantages of Contract Manufacturing:
- Dependence on the contract manufacturer for quality control and product innovation
- Risk of loss of intellectual property and trade secrets
- Limited control over manufacturing processes
- Limited opportunities for differentiation and brand recognition

Application Areas of Contract Manufacturing:

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 - Companies looking to reduce production costs and increase efficiency
- Companies looking to access local manufacturing expertise and resources
- Companies looking to expand their production capacity quickly

Examples of Contract Manufacturing:

- Apple Inc. contracting with Foxconn, a Taiwanese company, to manufacture its
iPhones and other products
- Nike contracting with companies in various countries to manufacture its footwear
and apparel

Contract manufacturing can be an effective mode of international business for companies

looking to reduce production costs and increase efficiency. However, it also poses certain
risks and requires careful management to ensure quality control and protection of
intellectual property rights.

V. Management Contract:
Introduction: A management contract is a mode of international business in which a
company contracts with another company to manage its operations in a foreign market.

Advantages of Management Contracts:

- Lower investment costs compared to other modes of international business
- Access to local market knowledge and expertise of the management contractor
- Reduced risk of product failure in the foreign market
- Opportunities for revenue generation through management fees

Disadvantages of Management Contracts:

- Dependence on the management contractor for operational efficiency and
decision-making processes
- Risk of conflicts of interest and disagreements between the contracting parties
- Limited control over operations and decision-making processes
- Limited opportunities for differentiation and brand recognition
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Application Areas of Management Contracts:
- Companies looking to enter new markets quickly and with low investment costs
- Companies looking to access local market knowledge and expertise
- Companies looking to share risks and investment costs with other companies

Examples of Management Contracts:

- InterContinental Hotels Group contracting with local companies in various
countries to manage its hotels
- Marriott International contracting with local companies in various countries to
manage its hotels

Management contracts can be an effective mode of international business for companies

looking to enter new markets quickly and with low investment costs. However, it also
poses certain risks and requires careful management to ensure quality control and
protection of the interests of both contracting parties.

VI. Assembly Operations:

Introduction: Assembly operations involve the production of products by assembling

components manufactured in different locations or countries.

Advantages of Assembly Operations:

- Lower investment costs compared to other modes of international business
- Access to local manufacturing expertise and resources
- Reduced production costs and increased efficiency
- Opportunities for revenue generation through cost savings and economies of scale
Disadvantages of Assembly Operations:
- Dependence on suppliers for quality control and delivery of components
- Risk of supply chain disruptions and delays
- Limited control over manufacturing processes
- Limited opportunities for differentiation and brand recognition
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Application Areas of Assembly Operations:
- Companies looking to reduce production costs and increase efficiency
- Companies looking to access local manufacturing expertise and resources
- Companies looking to expand their production capacity quickly

Examples of Assembly Operations:

- Apple Inc. assembling its products in China from components manufactured in
various countries
- Tesla assembling its electric vehicles in the United States from components
manufactured in various countries

Assembly operations can be an effective mode of international business for companies

looking to reduce production costs and increase efficiency. However, it also poses certain
risks and requires careful management of the supply chain to ensure quality control and
timely delivery of components.

VII. Fully Owned Manufacturing Facilities:

Introduction: Fully owned manufacturing facilities involve the establishment of a physical

presence in a foreign market through the ownership and operation of a manufacturing
facility.
Advantages of Fully Owned Manufacturing Facilities:
- Greater control over manufacturing processes and decision-making
- Opportunities for differentiation and brand recognition
- Access to local market knowledge and expertise
- Reduced production costs and increased efficiency
Disadvantages of Fully Owned Manufacturing Facilities:
- Higher investment costs compared to other modes of international business
- Increased regulatory and legal requirements
- Greater exposure to political and economic risks
- Longer time to market entry
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Application Areas of Fully Owned Manufacturing Facilities:
- Companies with a long-term commitment to a foreign market
- Companies with unique or specialized manufacturing capabilities
- Companies looking to reduce production costs and increase efficiency through
vertical integration
Examples of Fully Owned Manufacturing Facilities:
- Toyota operating its manufacturing facilities in various countries to produce its
vehicles
- Samsung operating its manufacturing facilities in various countries to produce
electronic devices
Fully owned manufacturing facilities can be an effective mode of international business for
companies looking to establish a long-term presence in a foreign market and gain greater
control over their manufacturing processes. However, it also poses certain risks and
requires significant investment and management expertise.

VIII. Joint Venturing:

Introduction: Joint venturing is a mode of international business in which two or more
companies (the joint venture partners) combine their resources and expertise to undertake
a specific business project or activity in a foreign country.
Advantages of Joint Venturing:
- Shared investment costs and risks
- Access to local market knowledge and expertise
- Reduced competition in the foreign market
- Opportunities for revenue generation through profit-sharing arrangements

Disadvantages of Joint Venturing:

- Dependence on joint venture partners for decision-making and operational
efficiency
- Risk of conflicts of interest and disagreements between joint venture partners
- Limited control

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IX. Counter Trade:

Introduction: Counter trade is a mode of international business in which goods or services

are exchanged without the use of currency. Instead, payment is made through a barter
system or through the exchange of goods or services of equal value.

Advantages of Counter Trade:

- Provides a means of payment in situations where currency exchange is difficult or
impossible
- Can help companies avoid currency exchange risks
- Provides opportunities for companies to trade with countries that have currency
restrictions or shortages
- Can help companies reduce inventory levels and improve cash flow

Disadvantages of Counter Trade:

- Difficulties in valuing and exchanging goods or services of equal value
- Increased complexity and costs associated with logistics and transportation
- Greater exposure to quality control and regulatory risks
- Limited opportunities for differentiation and brand recognition

Application Areas of Counter Trade:

- Companies operating in countries with currency restrictions or shortages
- Companies exporting to countries with bartering traditions
- Companies looking to reduce inventory levels and improve cash flow

Examples of Counter Trade:

- Russia exchanging oil for goods with countries that faced currency restrictions in
the 1990s
- India exchanging tea for wheat with the Soviet Union in the 1970s

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Counter trade can be an effective mode of international business in certain situations,
particularly in countries with currency restrictions or shortages. However, it also poses
certain risks and has limited opportunities for differentiation and brand recognition.

X. Mergers and Acquisitions:

Introduction: Mergers and acquisitions involve the consolidation of two or more companies
through a merger or acquisition.

Advantages of Mergers and Acquisitions:

- Access to new markets and customers
- Increased market power and economies of scale
- Opportunities for cost savings and efficiency gains
- Access to new technologies and intellectual property

Disadvantages of Mergers and Acquisitions:

- Integration challenges and cultural differences between the merging companies
- Risk of overpaying for the acquisition or merger
- Regulatory and legal challenges
- Loss of key personnel and talent

Application Areas of Mergers and Acquisitions:

- Companies looking to expand their market share or enter new markets
- Companies looking to access new technologies and intellectual property
- Companies looking to achieve cost savings and efficiency gains through
consolidation

Examples of Mergers and Acquisitions:

- Facebook acquiring WhatsApp to expand its messaging capabilities
-Disney acquiring Marvel Entertainment to access its portfolio of intellectual
property
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Mergers and acquisitions can be an effective mode of international business for companies
looking to expand their market share, access new technologies and intellectual property,
and achieve cost savings and efficiency gains. However, it also poses certain risks and
requires careful management of integration and cultural differences.

XI. Strategic Alliance:

Introduction: A strategic alliance is a mode of international business in which two or more

companies form a partnership to pursue a specific business opportunity or activity.

Advantages of Strategic Alliances:

- Shared investment costs and risks
- Access to local market knowledge and expertise
- Opportunities for revenue generation through profit-sharing arrangements
- Access to new technologies and intellectual property

Disadvantages of Strategic Alliances:

- Dependence on partners for decision-making and operational efficiency
- Risk of conflicts of interest and disagreements between partners
- Limited control over operations and decision-making processes
- Limited opportunities for differentiation and brand recognition

Application Areas of Strategic Alliances:

- Companies looking to pursue a specific business opportunity or activity
- Companies looking to share risks and investment costs with other companies
- Companies looking to access local market knowledge and expertise

Examples of Strategic Alliances:

- Microsoft partnering with Nokia to develop and market mobile phones
- Starbucks partnering with PepsiCo to produce and distribute its ready-to-drink
beverages
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Strategic alliances can be an effective mode of international business for companies looking
to pursue a specific business opportunity or activity, share risks and investment costs, and
access local market knowledge and expertise. However, it also poses certain risks and
requires careful management to ensure quality control and protection of the interests of
both partners.

XII. Third Country Location:

Introduction: A third country location is a mode of international business in which a

company establishes its operations in a third country to serve a foreign market.

Advantages of Third Country Location:

- Lower investment costs compared to establishing operations in the foreign market
- Access to local infrastructure and resources
- Reduced exposure to political and economic risks in the foreign market
- Opportunities for revenue generation through exports to the foreign market

Disadvantages of Third Country Location:

- Limited local market knowledge and expertise
- Increased logistics and transportation costs
- Greater exposure to regulatory and legal risks
- Longer time to market entry

Application Areas of Third Country Location:

- Companies looking to reduce investment costs and risks associated with entering a
foreign market
- Companies looking to access local infrastructure and resources
- Companies looking to diversify their customer base and reduce dependence on a
single foreign market

Examples of Third Country Location:

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 - Nissan establishing its manufacturing facility in the United Kingdom to serve the
European market
- Huawei establishing its research and development center in Canada to access local
talent and expertise

Third country location can be an effective mode of international business for companies
looking to reduce investment costs and risks associated with entering a foreign market,
access local infrastructure and resources, and diversify their customer base. However, it
also poses certain risks and requires careful management of logistics and transportation, as
well as regulatory and legal requirements.

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 REFERENCES

Brouthers, K. D., Nakos, G., & Dimitratos, P. (2015). SME entrepreneurial orientation,
international performance, and the moderating role of strategic alliances.
Entrepreneurship Theory and Practice, 39(5), 1161-1187.

Czinkota, M. R., Ronkainen, I. A., & Moffett, M. H. (2019). Fundamentals of international

business. Taylor & Francis.

Daniels, J. D., Radebaugh, L. H., & Sullivan, D. P. (2018). International business:

Environments and operations. Pearson Education Limited.

Hill, C. W. L., Hult, G. T. M., & DeFranco, A. L. (2019). International business: Competing
in the global marketplace. McGraw-Hill Education.

Rugman, A. M., & Collinson, S. (2019). International business. Pearson Education

Limited.

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