• When an organization has made a decision to enter an overseas
market, there are a variety of options open to it.
• These options vary with cost, risk & the degree of control which
can be exercised over them.
• One of the most important strategic decisions in international
business is the mode of entering the foreign market.
A market entry strategy is the planned
delivering goods or services to a target
market and distributing them there.
When importing or exporting services, it
refers to establishing and managing
contracts in a foreign country.’’
An organization willing to “go international”
faces 3 major issues.
• Marketing – which countries, which
segments, how to manage, how to enter,
with what information.
• Sourcing – whether to obtain products,
make or buy.
• Investment & Control – Joint Venture,
global partner, acquisition.
• Exporting is the most traditional and well established form of
operating in foreign markets.
• Exporting can be defined as the marketing of goods
produced in one country into another.
• Whilst no direct manufacturing is required in an overseas
country, significant investments in marketing are required.
• The tendency may be not to obtain as much detailed
marketing information as compared to manufacturing in
• Those firms who are aggressive have clearly defined plans and
strategy, including product, price, promotion, distribution and
• In countries like Tanzania and Zambia, which have embarked on
structural adjustment programs, organizations are being
encouraged to export, motivated by foreign exchange earnings
potential, saturated domestic markets, growth and expansion
objectives, and the need to repay debts incurred by the borrowings
to finance the programs.
• The type of export response is dependent on how the pressures
are perceived by the decision maker.
The advantages of exporting are :
• Manufacturing is home based thus, it
is less risky than overseas based
• Gives an opportunity to "learn"
overseas markets before investing in
bricks and mortar
• Reduces the potential risks of
The disadvantage is
mainly that one can be at
the "mercy" of overseas
agents and so the lack of
control has to be weighed
against the advantages.
• Players : Franchisor & Franchisee.
• In terms of distribution, the franchisor is a
supplier who allows an operator, or a
franchisee, to use the supplier's trademark
and distribute the supplier's goods.
• In return, the operator pays the supplier a
• Thirty three countries, including the United
States, and Australia, have laws that regulate
• Franchising is the practice of using another
firm's successful business model.
• For the franchisor, the franchise is an alternative to
building „Chain Stores‟ to distribute goods that
avoids the investments and liability of a chain.
• The franchisor's success depends on the success of
• The franchisee is said to have a greater incentive
than a direct employee because he or she has a
direct stake in the business.
• Freedom of Employment
• Proven products &
• Proven Trade Mark
• Reduced Risk of Failure
Licensing is defined as
"the method of foreign
operation whereby a firm in
one country agrees to permit
a company in another
country to use the
trademark, know-how or
some other skill provided by
• Licensing involves little expense and involvement.
• The only cost is signing the agreement and policing
• It is quite similar to the "franchise" operation.
• Coca Cola is an excellent example of licensing.
• In Zimbabwe, United Bottlers have the license to
• Good way to start in foreign
operations and open the door
to low risk manufacturing
• Linkage of parent and receiving
partner interests means both
get most out of marketing effort
• Capital not tied up in foreign
• Options to buy into partner
exist or provision to take
royalties in stock
• Limited form of participation - to length of
agreement, specific product, process or
• Potential returns from marketing and
manufacturing may be lost.
• Partner develops know-how and so
license is short.
• Licensees become competitors -
overcome by having cross technology
transfer deals and
• Requires considerable fact finding,
planning, investigation and interpretation.
• Joint ventures can be defined as
"an enterprise in which two
or more investors share ownership
and control over property rights and
• It is a very common strategy of
entering the foreign market.
• Any form of association which implies collaboration for
more than a transitory period is a joint venture.
• A joint venture may be brought about by a foreign
investor showing an interest in local company,
• A local firm acquiring an interest in an existing foreign
• By both the foreign and local entrepreneurs jointly
forming a new enterprise.
• Sharing of RISK.
• Joint financial strength.
• May be only means of entry in
• Partners do not have full
control of management.
• May be impossible to recover
capital if need be.
• Partners may have different
views on expected benefits.
• Largest indirect method of
exporting is countertrade.
• Competitive intensity means more
and more investment in
• In this situation the organization
may expand operations by
operating in markets where
competition is less intense but
currency based exchange is not
• Also, countries may wish to trade in spite of the degree of
competition, but currency again is a problem.
• Countertrade can also be used to stimulate home industries or
where raw materials are in short supply.
• It can, also, give a basis for reciprocal trade.
• Estimates vary, but countertrade accounts for about 20-30% of
world trade, involving some 90 nations and between US $100-
150 billion in value.
Its main attraction is that it can give a firm a way to finance
export when other means are not available.
o Variety is low so marketing is limited
o Difficult to set prices and service quality
o Inconsistency of delivery and specification,
o Difficult to revert to currency trading - so quality may decline
further and therefore product is harder to market.
• Turnkey contracts are common
in international business in the
supply, erection &
commissioning of plants, as in
the case oil refineries, steel
mills, cement & fertilizer plants
etc.. Construction projects &
• A turnkey operation is an agreement by the seller to supply a
buyer with a facility fully equipped & ready to be operated by
the buyer, who will be trained by the seller.
• The term is used in fast food franchising when a franchiser
agrees to select a store site, build he store, equip it, train the
franchisee & employee.
• Many turnkey contracts involve government/public sector as
• A turnkey contractor may subcontract different phases/parts of
• A company doing international
marketing contracts with firms in foreign
countries to manufacture or assemble
the products while retaining the
responsibility of marketing the product.
• This is a common practice in
• Many multinationals employ this in India
example: Park Davis Hindustan Lever,
• It frees the company from risks of
investing in foreign countries.
• It does not have to commit
resource for setting up
• There can be a loss on
• Less control over manufacturing
• Risk of developing potential
• This is sometimes used as an entry
• When there is no commercial
transaction between 2 nations
because of political reasons,
• or when direct transactions between
2 nations are difficult &
• if one nation wants to enter other
• then the nation will have to operate
from the third country base.
• It may be helpful to take advantage of the friendly trade
relations between the third party & the foreign market
• Sometimes commercial reasons encourage third country
• Example: Rank Xerox found it convenient to enter USSR
through its Indian joint venture Modi Xerox.
• This strategy is also known as an
• M&As have been imp & powerful driver
• Between 1980 – 2000 the value of
cross border grew at an average annual
rate of 40%.
• A large no. of foreign firms have
entered India through acquisition.
• Example: Automobiles, Pharmacy,
banking, telecom etc.
• Increasing the market
• Acquisition of Technology.
• Optimum utilization of
• Minimization of Risks.
• Tax Benefits
• Some of the units acquired
would have problems such
as old plant, obsolete
technology, surplus, or
• The firm may not have the
experience & expertise to
manage the unit taken over
if it is an entirely new field.