There are two main methods for entering a foreign market: indirect exporting and direct exporting. Indirect exporting involves selling products domestically to another party who then exports the products, while direct exporting involves a manufacturer directly managing export sales. Direct exporting provides greater control but also higher costs and risks. When directly exporting, a company can establish different organizational forms in foreign markets such as using agents, distributors, branches/offices, licensing, joint ownership, or wholly owned subsidiaries. The optimal organizational form depends on factors like the stage of market entry, costs, control desired, and local regulations.

1. Methods of Entry in a Foreign Market
Two methods:
1) Indirect
2) Direct

2. Indirect Exporting
Meaning: Almost equivalent to domestic sales.
The company will sell its products in its own
country to another party which will take the
responsibility of actual exportation. By:
1) Selling to a Merchant Exporter or Export House in
India
2) Selling to Visiting/Resident Buyers

3. Direct Exporting
Meaning: Manufacturer takes upon himself the task of
managing the export sales. Greater involvement/greater
control/higher costs.

4. Indirect vs. Direct Exporting
INDIRECT
DIRECT
Risk
Low
High
Resources
Low
High
Dependence
High
Low
International Goodwill
Low
High
Cost to ultimate user
High
Low
Adaptability to market
Low
High
Expertise built
Low
High
Market Intelligence
Low
High
Reach
High
Low
Entry Problems
Low
High
Export Incentives
Low
High

5. Direct Exporting
Forms of organization inside the country:
1)
2)
3)
4)
5)
Built-in Export Department
Self-contained Export Department
Separate Export Company
Combination Export Managers
Joint Marketing Groups

6. Direct Exporting
Forms of organization in Foreign Markets:
1)
2)
3)
4)
5)
6)
Appointment of Exclusive Agents
Distributors
Establishment of Branches/Marketing Offices
Licensing Arrangements
Joint Ownership
Wholly owned subsidiary

7. Forms of organization in Foreign Markets
Stage 1
Stage 2
Stage 3
Stage 4
Stage 5
AGENT
EXPORTING
FIRM
OWN
MARKETING
OFFICE
DISTRIBUTOR
LICENSING
ARRANGEMENT
JOINT
OWNERSHIP
WHOLLY
OWNED
SUBSIDIARY

8. Forms of organization in Foreign Markets
Appointment of Exclusive Agents:
1.
2.
3.
4.
5.
Most widely used
Simplest and least expensive
Sole representative of the manufacturer in the importing country
He may, however, handle non-competing lines
Gets a commission for his services
Distributors:
1.
A distributor may/may not be the sole importer of the manufacturer’s
products
2. Buys and holds large stocks
3. May be granted exclusive rights
4. Usually operates on his own account
5. May also own wholesale and retail outlets
Selling through Overseas Import Houses e.g. entry into Japan
through trading houses.
1.

9. Forms of organization in Foreign Markets
Establishment of Own Marketing Offices/ Branches:
1.
2.
3.
4.
5.
6.
7.
Obtain complete knowledge of the market
Provide after-sales service
Hold goods as ready stocks
Act as a showroom
Adds to the company’s prestige
Effective in countering a competitor’s campaign
Takes care of the regional requirements

10. Forms of organization in Foreign Markets
Licensing Arrangement:
1.
2.
3.
4.
The licensor permits the licensee to manufacture goods in the
former’s brand name in exchange of a fee/royalty.
The exporting company allows the company in the importing country
the use of its brand name, patent rights, trade marks and copyrights
and provides the necessary know-how for it.
The geographical area is specified in the licensing agreement.
The licensor does not make any financial commitment in terms of
equity investment.

11. Forms of organization in Foreign Markets
Joint Ownership:
1.
2.
3.
4.
5.
6.
7.
8.
The home company and the local firm jointly provide the equity capital
of the company set up to take over the production and marketing
function.
Depending on legislation on foreign investment in the target country
the home company can have either majority or minority participation.
A via media between the establishment of a plant abroad and the
licensing arrangement.
Higher returns
Greater control
Greater investment
Higher risks
Management powers and responsibilities shared

12. Forms of organization in Foreign Markets
Wholly-owned Subsidiary:
1.
2.
3.
4.
No division of power.
The home company will have to bear the entire financial burden.
Advantage of availability of cheaper raw materials/labour
Overcome tariff and non-tariff barriers.

13. Channels of Distribution
Definition: The whole set of interrelated
marketing agencies which are involved in
making the goods available from the producer
to the consumers.

14. Factors affecting Channel Decision
1)Characteristics of the Product
2) Firm’s own resources
3) Costs involved
4)Behaviour of competition
5) Existing channels in the market concerned