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Market Entry Strategies: Direct Exporting

There are many strategies for companies to enter foreign markets, including direct exporting, licensing, franchising, partnering, joint ventures, buying an existing company, piggybacking, turnkey projects, and greenfield investments. The best strategy depends on factors like tariffs, required product adaptation, costs, and differences between the local and home markets. Partnering is particularly useful in markets with different business or social cultures, as local partners provide knowledge, contacts, and customers.

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95 views2 pages

Market Entry Strategies: Direct Exporting

There are many strategies for companies to enter foreign markets, including direct exporting, licensing, franchising, partnering, joint ventures, buying an existing company, piggybacking, turnkey projects, and greenfield investments. The best strategy depends on factors like tariffs, required product adaptation, costs, and differences between the local and home markets. Partnering is particularly useful in markets with different business or social cultures, as local partners provide knowledge, contacts, and customers.

Uploaded by

arpit verma
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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MARKET ENTRY STRATEGIES

There are a variety of ways in which a company can enter a foreign market. No one
market entry strategy works for all international markets. Direct exporting may be the
most appropriate strategy in one market while in another you may need to set up a joint
venture and in another you may well license your manufacturing. There will be a
number of factors that will influence your choice of strategy, including, but not limited to,
tariff rates, the degree of adaptation of your product required, marketing and
transportation costs. While these factors may well increase your costs it is expected the
increase in sales will offset these costs. The following strategies are the main entry
options open to you.

Direct Exporting
Direct exporting is selling directly into the market you have chosen using in the first
instance you own resources. Many companies, once they have established a sales
program turn to agents and/or distributors to represent them further in that market.
Agents and distributors work closely with you in representing your interests. They
become the face of your company and thus it is important that your choice of agents
and distributors is handled in much the same way you would hire a key staff person.

Licensing
Licensing is a relatively sophisticated arrangement where a firm transfers the rights to
the use of a product or service to another firm. It is a particularly useful strategy if the
purchaser of the license has a relatively large market share in the market you want to
enter. Licenses can be for marketing or production. licensing).

Franchising
Franchising is a typical North American process for rapid market expansion but it is
gaining traction in other parts of the world. Franchising works well for firms that have a
repeatable business model (eg. food outlets) that can be easily transferred into other
markets. Two caveats are required when considering using the franchise model. The
first is that your business model should either be very unique or have strong brand
recognition that can be utilized internationally and secondly you may be creating your
future competition in your franchisee.

Partnering
Partnering is almost a necessity when entering foreign markets and in some parts of the
world (e.g. Asia) it may be required. Partnering can take a variety of forms from a simple
co-marketing arrangement to a sophisticated strategic alliance for manufacturing.
Partnering is a particularly useful strategy in those markets where the culture, both
business and social, is substantively different than your own as local partners bring local
market knowledge, contacts and if chosen wisely customers.

Joint Ventures
Joint ventures are a particular form of partnership that involves the creation of a third
independently managed company. It is the 1+1=3 process. Two companies agree to
work together in a particular market, either geographic or product, and create a third
company to undertake this. Risks and profits are normally shared equally. The best
example of a joint venture is Sony/Ericsson Cell Phone.

Buying a Company
In some markets buying an existing local company may be the most appropriate entry
strategy. This may be because the company has substantial market share, are a direct
competitor to you or due to government regulations this is the only option for your firm to
enter the market. It is certainly the most costly and determining the true value of a firm
in a foreign market will require substantial due diligence. On the plus side this entry
strategy will immediately provide you the status of being a local company and you will
receive the benefits of local market knowledge, an established customer base and be
treated by the local government as a local firm.

Piggybacking
Piggybacking is a particularly unique way of entering the international arena. If you have
a particularly interesting and unique product or service that you sell to large domestic
firms that are currently involved in foreign markets you may want to approach them to
see if your product or service can be included in their inventory for international
markets. This reduces your risk and costs because you are essentially selling
domestically and the larger firm is marketing your product or service for you
internationally.

Turnkey Projects
Turnkey projects are particular to companies that provide services such as
environmental consulting, architecture, construction and engineering. A turnkey project
is where the facility is built from the ground up and turned over to the client ready to go
– turn the key and the plant is operational. This is a very good way to enter foreign
markets as the client is normally a government and often the project is being financed
by an international financial agency such as the World Bank so the risk of not being paid
is eliminated.

Greenfield Investments
Greenfield investments require the greatest involvement in international business. A
greenfield investment is where you buy the land, build the facility and operate the
business on an ongoing basis in a foreign market. It is certainly the most costly and
holds the highest risk but some markets may require you to undertake the cost and risk
due to government regulations, transportation costs, and the ability to access
technology or skilled labour.

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