Market Entry Modes
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Market Entry Modes

There are difference in  market entry modes with  the risk involved,   control over the resources and the   rate of return on  the investment.  There are two main  types of market entry modes and they are  as follows;  

  • Equity Mode
  • Non-equity Mode

Export and contractual agreements  comes under the  non-equity mode  category  and   equity mode category  include  subsidiaries and  joint ventures.

Export can be defined as   selling  goods or  services  in  another country away from the country which items are produced.  The exports also can be categorized into two types and they are  as follows;

  • Direct Exports
  • Indirect Exports

Basic mode of exporting is the direct export. In the event volume of export is  rather small  and in that case  direct export  works well  and in the case of large  quantity of exports  it is necessary the protection.

On sales commission basis   sales representative are  engaged in sales of goods.  Support services such as advertising    goods presentations,  clearance of customs,  legal  needs, technical service are required.

Importing distributors purchase products   and  sell it in their local markets to  wholesalers  and  retail traders. Import  of distributors   are searching market entry strategy for products and services. This mode is ideal for goods such as   toys, appliances  prepared foods items etc.

There is a control over  selection of  markets in other countries as   foreign  companies can be selected. It is possible to get  feedback from   the consumers, protection of the trademarks, goodwill  and other intellectual property. Potentiality is greater in  sales than  with indirect exporting.

  • Higher costs
  • Risk  comparing with  indirect exports
  • More  data requirement
  • More time  to market the product  comparing with indirect export

It is the exporting through   domestically based  intermediaries  and there is no  control over the products in foreign market for the exporter.

Export Trading Companies are providing  support services  for the export process  for suppliers.   Suppliers are not familiar with   export procedures  and   Export Trading Companies are performing all the  required work.  They  find out   foreign  buyers and  sent the quotations  and made necessary inquiries etc.

Export Management companies are  also similar in nature to Export Trading Companies.   They  take on export credit risks and carry on type of products  and not  represent  competing goods.  Normally  these companies  are  trading on behalf of   suppliers.

Export merchants  are  companies which are in wholesale  business  and they  purchase unpackaged products from suppliers or from producers for  selling  in foreign markets   and they are doing  the selling on their own brand names.  Disadvantages of   engaging  export merchants   is presence of identical products   on various  brands and  various pricing in the market.  Activities of the export merchants obstruct exports by producers.

Confirming Houses are  intermediate sellers.  They are working for foreign buyers.   They receive goods  from  the suppliers and   negotiate purchase  deliveries  and pay the  supplier.  In the event client likes the product   he can become trade representative.   Supplier unaware  and lack the controlling power what   a confirming House   does with their product and this is a disadvantage.

Purchasing agents are  also  like  confirming Houses but they do not make payments to suppliers direct.   Payments are taken place  among supplier,  and foreign buyer.

  • Speedy market access
  • Concentration can be focused on production resources
  • Financial commitment  are not involved or  very little.
  • Most  expenses are covered by the export partner
  • Risk is less for those companies   who  regard   their domestic market to be more  significant  and  those companies are still developing   sales strategies
  • No distraction for the management team
  • Export processes are not directly handled
  • Risk is higher
  • No  any control over Distribution, sales marketing etc ( If there is control it is little )
  • No possibility  to learn  how to  do  foreign business
  • Inadequate   feedback from customers
  • Company’s international  success is affected
  • Sales are lower

International license agreement  allows  overseas companies  to produce proprietor’s products for  a  specific time duration in specific market. Licensor in the home country  makes  rights or resources available to the   in foreign country.  Patents  are included  the rights and resources.

Licensee is able to  manufacture and sell in the host country a similar  product   to  licensor  has  been producing  and selling in the  home country  without having the licensor  to imitate  operation in overseas.  Incisor  earnings usually  one time payment  technical fees  and  royalty payments  according to the  sales.

This mode of  entry  transference of  knowhow  between the  parental company and licensee  decision making an international licensee agreement depend   on the host  government  show for  intellectual  property and  licensor to select  the right   associates and   deprived  them to   compete in  each market.  It is a flexible work  agreement  that can be  tailor made to  the requirements of licensor and licensee.

  • Gain  extra revenue  for know how and services offered
  • Not accessible markets can be reached  with existing facilities
  • Speedily  develop  less risk  no much capital investment
  • Scoop for  future  investment in the market
  • Established markets can be retained  without trade restrictions
  • Political risk is  less  as licensee is 100% owned by locals
  • Attractive to companies which are new to international trade
  • This entry mode  revenue is low
  • Licensee  loss control over manufacture and  marketing
  • Trade mark reputation risk
  • There is the possibility the overseas partner  become a competitor

This system is  semi –independent business owners  pay fees and royalties to a parent company  to sell its products. Franchising  agreements   are for   longer periods and  franchiser offer  packages of rights and resources  including   equipment, managerial systems, operation manual, training,  site  approval and other support required for franchise   to operate  business.  Moreover,   licensing agreement  such as intellectual property,  trade secrets and  in franchising it is limited.

  • Political risk is low
  • Cost is less
  • Simultaneously   develop into  different parts of the world
  • Financial investment  and managerial skill  partner can be selected
  • They can be turned into future competitors
  • There is the possibility of  agreement entered with wrong parties
  • Wrong partner can tarnish the image of the company
  • This mode  requires   larger  investment

Clients pay contractors design and  build  new facilities  and provide  training to people in  a Trunkey project.  This is a way for a  overseas company to exports its products  to other countries  building plants etc.  This an entry strategy is ideal  for  industrial  companies. Advantage is  the possibility to establish a plant and  make profits  in overseas country.

Disadvantage is the risk involved for  disclosing  company secrets  to competitors. By entering  a market with turnkey project  is that specific company has no long term interest.

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