1 st BBA The B School International

Introduction After deciding to enter a foreign market, the management task is to prefer the best mode of entry. There are mainly six different modes to enter to a foreign market; exporting, turnkey project, licensing, franchising, joint ventures and wholly owned subsidiary. Each of them has got both advantages and disadvantages. Now we can analyse them critically.

 Direct export
intermediary in host market agents and distributors - driven by profit margin
Advantages of direct exporting: Control over selection of foreign markets and choice of foreign representative companies Good information feedback from target market Better protection of trademarks, patents, goodwill, and other intangible property Potentially greater sales than with indirect exporting[. Disadvantages of direct exporting: Higher start-up costs and higher risks as opposed to indirect exporting Greater information requirements Longer time-to-market as opposed to indirect exporting.

 Indirect export intermediary located in domestic market firms with little experience with export exporter deals with export agents

Advantages of indirect exporting:

Fast market access Concentration of resources for production Low risk exists for those companies who consider their domestic market to

be more important and for those companies that are still developing their R&D, marketing, and sales strategies. The management team is not distracted

Disadvantages of indirect exporting:

Higher risk than with direct exporting Little or no control over distribution, sales, marketing, etc. as opposed to

direct exporting Inability to learn how to operate overseas Potentially lower sales as compared to direct exporting, due to wrong choice of market and distributors by export partners

 Firms specialised in design, construction and start-up are

suitable. Accepting contracts for foreign clients. Fully ready plant will hand over to the client. Contractor give technologies and knowhow to the foreign client Advantages: Grate economic return from the knowhow Risks of long-term investments can be avoided. Can enter into another nation where FDI is limited. Disadvantages: No long term retunes :- this can be avoided by taking minority interests. Client may become a competitor in the word market. Selling of competitive advantages.

 Licenser gives right of intangible properties to other entity for a

particular period of time. Licenser receives a royalty fee. Intangible property includes patents, inventions, formulas, designs, copyrights, trade marks Advantages: licenser does not need to bear cost and & risks associating with development of new entity. No need to put financial resources in an unfamiliar market. Way to enter in to new market even entries are prohibited. Way to gain profit by producing nothing. Disadvantages: No tight control over production marketing, strategy since licensee is the risk taker Licensor cant use cash other than royalty fee for supporting other entities in other countries. losing knowhow and technological competitive advantage. (cross licensing agreement can be used to reduce this risks)

 Similar to licensing, but strict rules will be given to the

franchisees. Franchiser assists franchise to run business. Return will be a certain percentage of revenue. Mainly by service firms Advantages No costs for start up and running Globalization through low risks and costs Enrty to prohibited countries Disadvantages Poor quality control Great number of franchisees will make control more difficult. This risk can be avoided by starting a subsidiary in each country where they operate.

 Popular mode. Jointly owned

Advantages: Local partners knowledge of host countries' competitive

conditions, culture language, political systems business systems, etc Sharing development cost Most countries allows only joint ventures.

Disadvantages: lack of legal structure

poor proprietary rights

lack of trust
mutual conflicts resource allocation

access to technology profit sharing problems sharing competitive technologies

 Owning 100% stake

May be through Greenfield venture or acquisitions. VODAFONE

Advantage: Tight control over technological competencies Keeping competitive advantage Easy to realise experience curve and location economies 100% share of profits Disadvantages: most costlier mode High risk Acquisition may crate cultural conflict