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Here are 6 Brand Integrations you may have missed. While a global supply chain has its own vulnerabilities, which are usually beyond the control of the company (for example: the Tsunami in Japan), there are many reasons why a company would want to enter into international markets. However, they are expensive, which in the past had put them out of reach as a strategy for companies in the undeveloped world to pursue. Each of these entry strategies for international markets are different in terms of the costs involved, level of risk, level of ease of execution, and the level of reward. The intellectual property aspects of licensing new technology or patents is discussed in Chapter 13 "Harnessing the Engine of Global Innovation". 5 (October 2000): 92550. For example, in Saudi Arabia, non-Saudi companies looking to do business in the country are required by law to have a Saudi partner. Additional risks of acquisitions are discussed in Chapter 9 "Exporting, Importing, and Global Sourcing". If the acquiring firm is in a country with a strong currency, the acquisition is comparatively cheaper to make. Your business can opt for different modes of entry into international business based on the size of your business, your expansion strategies, the potential size, the demand of your chosen international market, the economic and the business environment of the overseas nation etc. A company boasted of lait frais usage, which translates to used fresh milk, when it meant to brag of lait frais employ, or fresh milk used. The terrific pens sold by another company were instead promoted as terrifiantes, or terrifying. How is this different from a Joint Venture, you would think? Strategic alliances are also advantageous for small entrepreneurial firms that may be too small to make the needed investments to enter the new market themselves. You can utilize the direct exporting strategy to test your products in international markets before making a bigger investment in the overseas market. - Page-Answers, Modes of Entry into International Business [Advantages & Disadvantages]. China has many restrictions on foreign ownership, for example, but even a developed-world country like the United States has laws addressing acquisitions. The Chinese have a Why not me? attitude. Firms must, however, have a way to distribute and market their products in the new country, which they typically do through contractual agreements with a local company or distributor. This requirement is common in many Middle Eastern countries. And therefore, they wish to explore that product in that international market together. Because the cost of exporting is lower than that of the other entry modes, entrepreneurs and small businesses are most likely to use exporting as a way to get their products into markets around the globe. DataCamp Review (2021) Are DataCamp Courses Worth it? In another example, a company intending to say that its appliance could use any kind of electrical current, actually stated that the appliance wore out any kind of liquid. And imagine how one company felt when its product to reduce heartburn was advertised as one that reduced the warmth of heart!David A. Ricks, Blunders in International Business (Hoboken, NJ: Wiley-Blackwell, 1999), 101. Now, however, Olam has opened processing plants in Tanzania, Mozambique, and Nigeria. An international market could have a higher purchasing power and, therefore, the same products can earn better profits in that market. Lets understand in detail what each of these modes of entry entail. Large firms or firms with deep pockets might begin with an acquisition to gain quick access or to achieve economies of scale. Theyre very quick on their feet. Certain required documents, however, such as the industrial license, foreign collaboration agreements, capital issues permit, import licenses for machinery and equipment, etc., were slow in being issued. ASAP Releases Winners of 2010 Alliance Excellence Awards, Association for Strategic Alliance Professionals, September 2, 2010, accessed February 12, 2011, http://newslife.us/technology/mobile/ASAP-Releases-Winners-of-2010-Alliance-Excellence-Awards. What has changed over the years is the strength of different currencies. Having a dedicated team allows Cisco to invest in training the managers how to manage the complex relationships involved in alliances. I explored this strategy in the case where one of the established companies of the other country already had a loyal audience with them. Therefore, you as a marketer need to understand the cultural fabric of the country you target and craft a marketing plan for it. An advantage is that the firm retains control of all its operations. before opting for different modes of entry into the international business. An international entry mode in which a firm gains control of another firm by purchasing its stock, exchanging stock, or, in the case of a private firm, paying the owners a purchase price. This is done better when the company serves the international market with personalized and culturally relevant market. This strategy helps you to protect your patents, goodwill, trademarks and other intangible assets. In this article, I will be telling you about product differentiation using the example of Pepsi and Coca-Cola. In the alliance, Cisco decided to co-brand with the Fujitsu name so that it could leverage Fujitsus reputation in Japan for IT equipment and solutions while still retaining the Cisco name to benefit from Ciscos global reputation for switches and routers.Steve Steinhilber, Strategic Alliances (Cambridge, MA: Harvard Business School Press, 2008), 113. You as a future business leader, need to solidify the basic concepts of marketing to be able to solve bigger and complex marketing problems. But the overall costs of partnerships and alliances are higher than exporting, licensing, or franchising, and there is a potential for integration problems between the corporate cultures of the partners. If the target country has sound rule of law and strong adherence to business contracts, licensing, franchising, or partnerships may be middle-of-the-road approaches that are neither riskier nor more expensive than the other options. The positioning problem, the consumer behavior problem and the nomenclature problem. Leverage low-cost labour, cheaper material etc. In addition, some countries require foreign-owned companies to partner with a local firm if they want to enter the market. Some of the modes of entry into international business you can opt for include direct export, licensing, international agents and distributors, joint ventures, strategic alliance, and foreign direct investment. They need the ability to understand the needs of their customers in emerging markets, and turn them into product and service offerings quickly.Art Kleiner, Getting China Right, Strategy and Business, March 22, 2010, accessed January 23, 2011, http://www.strategy-business.com/article/00026?pg=al. Different entry strategies for international markets have different advantages and disadvantages. 11, October 2010, accessed February 14, 2011, http://www.dallasfed.org/research/staff/2010/staff1003.pdf. Know the advantages and disadvantages of each entry mode. He is an engineer by qualification and also an MBA from the Indian Institute of Management (IIM), Udaipur. Acquisition is also a good strategy when an industry is consolidating. Despite all of this extra effort, the project was not greatly expedited, and the lower royalty fee reduced the firms profit by approximately half a million dollars over the life of the agreement.David A. Ricks, Blunders in International Business (Hoboken, NJ: Wiley-Blackwell, 1999), 101. The costs and risks are high given the costs of establishing a new business operation in a new country. In this article, I will share with you what are the different modes of entry into international business. David Rickss book on international business blunders relates the following anecdote for US companies doing business in the neighboring French-speaking Canadian province of Quebec. The effects of economies of scale can be magnified when a larger base of customers come into the business. While every business dreams of global domination within its industry, you need to plan its internationalization strategy based upon your finances, existing capabilities, the growth potential of the overseas market etc. In terms of marketing and promotion, the firm will need to let potential buyers know of its offerings, be it through advertising, trade shows, or a local sales force. There could be tech companies who already serve customers around the world despite being centered at only their home country. Darpan has worked as a Product Head of the biggest vertical of an education technology company in New Delhi. Get in touch with us at darpan (at) superheuristics (dot) com. Exporting is the sale of products and services in foreign countries that are sourced from the home country. When businesses grow successfully within their domestic markets, they attempt to expand their businesses into international markets, in an attempt to replicate its success in overseas markets. In Licensing agreement and franchise, an overseas-based business will pay you a royalty or commission to use your brand name, manufacturing process, products, trademarks and other intellectual properties. I will be discussing this below in 'What are the different modes of entry into international business?'. The Euro, European Commission, accessed February 11, 2011. The disadvantages of greenfield ventures are the slow time to enter the market because the firm must set up operations and the high costs of establishing operations from scratch. As of 2011, seventeen of the twenty-seven EU members use the euro, giving businesses access to 331 million people with that single currency.The Euro, European Commission, accessed February 11, 2011, http://ec.europa.eu/euro/index_en.html. I will put in my effort to explain to you what each of these entail for an offline product as well as for an online product based company. Shaker A. Zahra, R. Duane Ireland, and Michael A. Hitt, International Expansion by New Venture Firms: International Diversity, Mode of Market Entry, Technological Learning, and Performance,, Michael E. Porter and Mark R. Kramer, The Big Idea: Creating Shared Value,, Andrew J. Cassey, Analyzing the Export Flow from Texas to Mexico,. Licensing or Franchising partner has knowledge about the local market, Reduces political risk as in most cases, the licensing or franchising partner is a local business entity, Allows expansion in multiple regions with minimal investment, Licensees and franchisees can leverage the acquired knowledge and pose as future competition for your business, Your business risks tarnishing its brand image and reputation in the overseas and other markets due to the incompetence of their licensing and franchising partners, The political risks involved in joint-venture is lower due to the presence of the local partner, having knowledge of the local market and its business environment, Enables transfer of technology, intellectual properties and assets, knowledge of the overseas market etc. Olam has lowered its processing and shipping costs by 25 percent while greatly reducing carbon emissions.Michael E. Porter and Mark R. Kramer, The Big Idea: Creating Shared Value, Harvard Business Review, JanuaryFebruary 2011, accessed January 23, 2011, http://hbr.org/2011/01/the-big-idea-creating-shared-value/ar/pr. Also Read:Ansoff Matrix Samsungs Journey from a Grocery Store to Diversified Conglomerate. Super Heuristics was founded in February 2018 by Darpan Saxena. This acquired company can be directly or indirectly involved in offering similar products or services in the overseas market. For example, Olam International, a cashew producer, originally shipped nuts grown in Africa to Asia for processing. The advantages of partnering with a local firm are that the local firm likely understands the local culture, market, and ways of doing business better than an outside firm. They are smooth and not pushy. This protects the business from uncertainties. By choosing to export, a company can avoid the substantial costs of establishing its own operations in the new country, but it must find a way to market and distribute its goods in that country. Also Read:Ansoff Matrix identify your next growth strategy. Each mode of market entry has advantages and disadvantages. Here is whats the difference between a Licensing/Franchisee kind of a setup and a Joint Venture. In this article I discussed with you the 5 modes of entry into the international business which I discovered during my research of how to expand the business that I work for internationally. For example, you must be an American citizen to own a TV station in the United States. 1. The main objective of this site is to provide answers to the many questions asked by students and professional looking to learn about Marketing, Strategy and Analytics. If your currency is strong, you can get a bargain.Playing on a Global Stage: Asian Firms See a New Strategy in Acquisitions Abroad and at Home, Knowledge@Wharton, April 28, 2010, accessed January 15, 2011, http://knowledge.wharton.upenn.edu/article.cfm?articleid=2473. While the licensee or the franchisee assumes the risks and bears all losses, it shares a proportion of their revenues and profits you. Then you can market your brand and products directly or indirectly through your sales representatives or importing distributors. While larger firms have specialists that manage the exchange rates, small businesses rarely have this expertise. There are 5 modes of entry into international business that a business needs to choose from. In case of a Joint Venture, both the brands have a similar level of brand strength for that particular product. Even with exporting, firms still face the challenges of currency exchange rates. ASAP Releases Winners of 2010 Alliance Excellence Awards, Association for Strategic Alliance Professionals, September 2, 2010, accessed February 12, 2011. Usually, your job as a marketer would be the stabilize your product portfolio as well as customer portfolio to make your business robust against seasonality and these uncertainties. Direct exporting, in this case, could also be understood as Direct Sales. This, in turn, helps all the businesses in the local community.Michael E. Porter and Mark R. Kramer, The Big Idea: Creating Shared Value, Harvard Business Review, JanuaryFebruary 2011, accessed January 23, 2011, http://hbr.org/2011/01/the-big-idea-creating-shared-value/ar/pr. Even small firms can access critical information about foreign markets, examine a target market, research the competition, and create lists of potential customers. The proess of establishing of a new, wholly owned subsidiary (also called a greenfield venture) is often complex and potentially costly, but it affords the firm maximum control and has the most potential to provide above-average returns. This decision needs to be deliberated by you as the marketer by analyzing all the possible options and making the choice basis a suitable framework. From my research, I write this article to share with you the 5 modes of entry into international markets that you should know about while creating an expansion strategy for your company or product. This is another reason why a company should expand internationally. This strategy is viable when the demand or the size of the market, or the growth potential of the market in the substantially large to justify the investment. The advantage of this mode of entry is that firms avoid the expense of establishing operations in the new country. A truly multinational company is one which has a globalized supply chain spread across different parts of the world. This mode of entry into international business is suitable in countries wherein the governments do not allow one hundred per cent foreign ownership in certain industries. The primary reasons that companies opt to expand into foreign markets are to: This is an obvious reason for a lot of local companies to enter into an international markets. Acquisitions are appealing because they give the company quick, established access to a new market. Firms export mostly to countries that are close to their facilities because of the lower transportation costs and the often greater similarity between geographic neighbors. Understand the dynamics among the choice of different entry modes. This companies can offer their technology products to a new customer, any where in the world, at no additional costs. Take global competitors head-on on their home turf. What is the possible relationship among the different entry modes. When the company has enough number of big ticket customers in some part of the world, they can think about setting up an office there and further expand their customer base. Walmart, for example, failed several times over nearly a decade to effectively grow its business in Mexico, until it found a strong domestic partner with similar business values. Some of the reasons because of which companies opt for foreign direct investment strategy as the mode of entry into international business can include: Restriction or import limits on certain goods and products. [] Informations on that Topic: superheuristics.com/5-modes-of-entry-into-international-markets/ [], Get instant access to my Marketing Library and all of its ebooks for FREE right now. Table 8.1 International-Expansion Entry Modes. Companies can take advantage of low-cost labour, cheaper material. Which means that the next time you need to analyze a marketing case or need to participate in a marketing case competition, you know exactly how to ace the case. By choosing to license or franchise its offerings, a firm lowers its financial risks but also gives up control over the manufacturing and marketing of its products in the new country. What would influence a firms choice of the five entry modes? The firm may have to acquire the knowledge and expertise of the existing market by hiring either host-country nationalspossibly from competitive firmsor costly consultants. Your business can benefit from the expertise, knowledge and experience of the existing management and key personnel by retaining them, It is one of the fastest modes of entry into an international business on a large scale. These were Nike sneakers that he was wearing. Acquisitions enable fast entry and less risk from the standpoint that the operations are established and known, but they can be expensive and may result in integration issues of the acquired firm to the home office. Direct exporting involves you directly exporting your goods and products to another overseas market. Theyre prone to fearless experimentation: imitating other companies here and there, trying new ideas, and then, if they fail, rapidly adapting and moving on. As a result, he sees China becoming not only a very large consumer market but also a strong innovator. Strategic acquisition implies that your company acquires a controlling interest in an existing company in the overseas market. Reduce over dependence on any one market, 4. Which entry mode a firm chooses also depends on the firms size, financial strength, and the economic and regulatory conditions of the target country. It is. Every multinational business was somewhere started as a local business and over the time has adopted different modes of entry into the international business. For example, Cisco formed a strategic alliance with Fujitsu to develop routers for Japan. Wholly owned subsidiaries are discussed further in Chapter 9 "Exporting, Importing, and Global Sourcing". Likewise, when Walmart enters a new market, it seeks to source produce for its food sections from local farms that are near its warehouses. Best Case Study Competitions In India In 2021, Understanding Product Life Cycle of Apple iPhone [E-Book], Segmentation and Targeting Success story at BMW. An international entry mode involving the granting of permission by the licenser to the licensee to use intellectual property rights, such as trademarks, patents, or technology, under defined conditions. The five most common modes of international-market entry are exporting, licensing, partnering, acquisition, and greenfield venturing. As Wharton professor Lawrence G. Hrebiniak explains, Mergers fail because people pay too much of a premium. A strategic alliance involves a contractual agreement between two or more enterprises stipulating that the involved parties will cooperate in a certain way for a certain time to achieve a common purpose. Achieve economies of scale with a larger customer base, 3. Tse sees entrepreneurial China as entrepreneurial people at the grassroots level who are very independent-minded. There are 5 main reasons why a company would want to expand internationally. One factor that has helped reduce the number of currencies that firms must deal with was the formation of the European Union (EU) and the move to a single currency, the euro, for the first time. This choice, like any other, is a trade off. For example, Mexico accounts for 40 percent of the goods exported from Texas.Andrew J. Cassey, Analyzing the Export Flow from Texas to Mexico, StaffPAPERS: Federal Reserve Bank of Dallas, No. Partnerships and strategic alliances reduce the amount of investment that a company needs to make because the costs are shared with the partner. In case you foresee a potential demand for your goods and products in an overseas market, you can opt to supply your goodsto an importer instead of establishing your own retail presence in the overseas market. The team follows a consistent model, using and sharing best practices for the benefit of all its alliances.Steve Steinhilber, Strategic Alliances (Cambridge, MA: Harvard Business School Press, 2008), 125. Playing on a Global Stage: Asian Firms See a New Strategy in Acquisitions Abroad and at Home,, Table 8.1 "International-Expansion Entry Modes", http://hbr.org/2011/01/the-big-idea-creating-shared-value/ar/pr, http://www.dallasfed.org/research/staff/2010/staff1003.pdf, Chapter 9 "Exporting, Importing, and Global Sourcing", Chapter 13 "Harnessing the Engine of Global Innovation", http://newslife.us/technology/mobile/ASAP-Releases-Winners-of-2010-Alliance-Excellence-Awards, http://knowledge.wharton.upenn.edu/article.cfm?articleid=2473, http://www.strategy-business.com/article/00026?pg=al, Low control, low local knowledge, potential negative environmental impact of transportation, Less control, licensee may become a competitor, legal and regulatory environment (IP and contract law) must be sound, Shared costs reduce investment needed, reduced risk, seen as local entity, Higher cost than exporting, licensing, or franchising; integration problems between two corporate cultures, Fast entry; known, established operations, High cost, integration issues with home office, Greenfield Venture (Launch of a new, wholly owned subsidiary), Gain local market knowledge; can be seen as insider who employs locals; maximum control, High cost, high risk due to unknowns, slow entry due to setup time. And in this case, I shall explain the little difference in the subsequent part of the article. The Internet has also made exporting easier. In addition, firms that market and distribute products through a contractual agreement have less control over those operations and, naturally, must pay their distribution partner a fee for those services. Also Read:6 Brand Integrations with Gully Boy You Didnt Know About, Get to know how to analyze a marketing case study comprehensively in just 5 slides. and franchising are two specialized modes of entry that are discussed in more detail in Chapter 9 "Exporting, Importing, and Global Sourcing". Companies wishing to expand into overseas markets can form joint ventures with local businesses in the overseas location, wherein both joint venture partners share the rewards and risks associated with the business. The result? I have mentioned those below when I discuss 'Why should companies expand internationally?'. The edible cutlery problem is three problems in one, and pricing is not one of them. Greenfield ventures give the firm the best opportunity to retain full control of operations, gain local market knowledge, and be seen as an insider that employs locals. Having an idea of the different modes of entry into international business will give you a head start in creating a solid international strategy for you business. Technological process differences is one of the most common issues in strategic acquisitions. Failing to consider the values or reliability of a potential partner can be costly, if not disastrous. An international entry mode involving a contractual agreement between two or more enterprises stipulating that the involved parties will cooperate in a certain way for a certain time to achieve a common purpose. Each of these entry vehicles has its own particular set of advantages and disadvantages. When deciding whether to pursue an acquisition strategy, firms examine the laws in the target country. This means you as a product owner in India go out, to say, the middle east with your own sales force to reach out to the customers. At the same time, their product line had gaps which I was able to fill up. Companies are starting to consider the environmental impact of where they locate their manufacturing facilities. Partners are especially valuable if they have a recognized, reputable brand name in the country or have existing relationships with customers that the firm might want to access. Apart from that there mostly are problems with seamless integration of systems and process. 1.9x Revenue Growth through Buyer Persona, Elements of a Great E-mail Marketing Campaign. In order to develop a plan of action for how I am going to take this further, I started with a really basic research What are the various modes of entry into the international business? Beyond importing, international expansion is achieved through exporting, licensing arrangements, partnering and strategic alliancesAn international entry mode involving a contractual agreement between two or more enterprises stipulating that the involved parties will cooperate in a certain way for a certain time to achieve a common purpose., acquisitions, and establishing new, wholly owned subsidiaries, also known as greenfield venturesAn international entry mode involving the establishment of a new, wholly owned subsidiary.. Explore markets with better profitability, 2. They need to be close to these markets, because of their size. I have spent the last two weeks working on an international expansion strategy for one of the products that I head at my workplace. In recent years, cross-border acquisitions have made up over 60 percent of all acquisitions completed worldwide. There is a huge dynamism among them.Art Kleiner, Getting China Right, Strategy and Business, March 22, 2010, accessed January 23, 2011, http://www.strategy-business.com/article/00026?pg=al. Therefore, just like two pieces of jigsaw, it made complete sense for them to carry my product. Companies which want to establish a retail presence in an overseas market with minimal risk, the licensing and franchising strategy allows another person or business assume the risk on behalf of the company. Product Differentiation is the Secret Ingredient (Pepsi vs. Coca-Cola). Found the article interesting? Also Read:This Airline is So Going to Shut Down! A Strategy Faux Pas. An international entry mode involving the establishment of a new, wholly owned subsidiary. Likewise, a foreign firm is not allowed to own more than 25 percent of a US airline.Playing on a Global Stage: Asian Firms See a New Strategy in Acquisitions Abroad and at Home, Knowledge@Wharton, April 28, 2010, accessed January 15, 2011, http://knowledge.wharton.upenn.edu/article.cfm?articleid=2473. Tse says, Companies are coming to realize that they need to integrate more and more of their value chains into China and India. While the crux remains the same for both the types of businesses, how you carry out the strategy could have slight differences.