Student ID: M0414102
Foreign market entry modes
Exporting is the process of selling of goods and services produced in one country to other countries. There are two types of exporting: direct and indirect.
* Direct Exports
The most basic mode of exporting made by a (holding) company, capitalizing on economies of scale in production concentrated in the home country and affording better control over distribution. Direct export works the best if the volumes are small. Large volumes of export may trigger protectionism. The main characteristic of direct exports entry model is that there are no intermediaries.
* Control over selection of foreign ...view middle of the document...
* Export management is outsourced, alleviating pressure from management team
* No direct handle of export processes.
* Little or no control over distribution, sales, marketing, etc. as opposed to direct exporting
* Wrong choice of distributor, and by effect, market, may lead to inadequate market feedback affecting the international success of the company
* Potentially lower sales as compared to direct exporting (although low volume can be a key aspect of successfully exporting directly). Export partners that incorrectly select a specific distributor/market may hinder a firm's functional ability.
An international licensing agreement allows foreign firms, either exclusively or non-exclusively to manufacture a proprietor’s product for a fixed term in a specific market.
* Obtain extra income for technical know-how and services
* Reach new markets not accessible by export from existing facilities
* Quickly expand without much risk and large capital investment
* Pave the way for future investments in the market
* Retain established markets closed by trade restrictions
* Political risk is minimized as the licensee is usually 100% locally owned
* Is highly attractive for companies that are new in international business.
* Lower income than in other entry modes
* Loss of control of the licensee manufacture and marketing operations and practices leading to loss of quality
* Risk of having the trademark and reputation ruined by an incompetent partner
* The foreign partner can also become a competitor by selling its production in places where the parental company is already in.
The franchising system can be defined as: "A system in which semi-independent business owners (franchisees) pay fees and royalties to a parent company (franchiser) in return for the right to become identified with its trademark, to sell its products or services, and often to use its business format and system."
Compared to licensing, franchising agreements tends to be longer and the franchisor offers a broader package of rights and resources which usually includes: equipment, managerial systems, operation manual, initial trainings, site approval and all the support necessary for the franchisee to run its business in the same way it is done by the franchisor. In addition to that, while a licensing agreement involves things such as intellectual property, trade secrets and others while in franchising it is limited to trademarks and operating know-how of the business.
* Low political risk
* Low cost
* Allows simultaneous expansion into different regions of the world
* Well selected partners bring financial investment as well as managerial capabilities to the operation.
* Maintaining control over franchisee may be difficult
* Conflicts with franchisee are likely, including legal disputes