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Entry Modes of Entry Modes of InternationalInternational

By:Manish SaranL2S2, Sec-D

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Globalization Is Gaining

The world economy is becoming a single, interdependentsystem

ExportDomestic product sold abroad

Import

Foreign product solddomestically

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Categorizing

High Income Countries: Per capita income greater than $9,386

Middle Income Countries: Per capita income between $765 and$9,386

Low Income Countries: Per capita income of less than $765

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Does It Make Sense to Go

YES YES

Is there

internationaldemand

for thefirms

product?

NONO

Stay Domestic

Can theproduct bemodified

to fit aforeign

market?

NONO

YES YES

Is theforeign

businessclimate suited toimports?

NONO

Does thefirm

have orcan it get

thenecessary skills

andknowled

geto do

businessabroad?

YES YES

NONO

YES YES

Go International

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Factors included in making foreignmarket entry decisions

Degree of control Level of resource commitment Degree of dissemination risk

Possibility of a foreign partner firm obtaining technologyor other know-how from the home-country firm andexploiting it for its own commercial advantage. For

example, Japanese companies quickly assimilated RCAscolor TV technology once RCA licensed it to a number ofJapanese companies.

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Degree of Export

Direct exporting (sell to buyers) Sales representatives Distributors

Indirect exporting (sell to intermediaries)

Agents Export management companies

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Licensing

Advantages

Finance expansion Reduce risk Reduce counterfeits Upgrade technologies

Restrict licensors future Reduce global consistency Lend strategic property

Disadvantages

Company owning intangible property (licensor) grantsanother firm (licensee) the right to use it for a

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Franchisin

Advantages Low cost and low risk Rapid expansion Local knowledge

Cumbersome Lost flexibilityDisadvantages

Company (franchiser) supplies another (franchisee)withintangible property (brand aspects such as

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Management

Company supplies another firms with managerialexpertise

Advantages Few assets risked Nations finance projects

Disadvantages Personnel at risk Create competitor

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Turnkey Project

Advantages Firms specialize in corecompetency Nations obtain infrastructureProjects

Politicized process Create competitor

Disadvantages

Company designs, constructs, and tests aproduction

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Wholly Owned Subsidiary

Facility entirely owned and controlled by a singleparent

Advantages Day-to-day control Coordinate subsidiaries

Disadvantages Expensive High risk

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Joint Venture

Separate company created and jointly owned by two ormore independent entities to achieve a common business

Advantages Reduce risk level Penetrate markets Access channels Protect interests

Disadvantages

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Strategic

Disadvantages Create competitor Partner conflict

Advantages Share project cost Tap competitors strength

Gain channel access Protect interests

Entities cooperate (but do not form a separatecompany) to achieve strategic goals of each

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Risk, Control,

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Factors Influencing Choice of Foreign

Market Entry Mode