What are the entry strategies for entering an international market?

The organisation has broadly these options for entry – Exporting, licencing, joint venture or direct investing.

Exporting can be indirect as well as direct.

In Indirect exporting, the organisation gets into contract with another domestic organisation which takes responsibility for moving products overseas. The different kinds of such organisations are –

Commission agents locate the buyer firms in foreign countries. They negotiate the price and get commission from the foreign clients.

Export management companies (EMC) carry out business transactions in the name of the manufacturer. They receive a commission, salary, etc. for their service.

Export trading companies (ETCs) purchase products for resale in international markets.

Export Merchants purchase products from manufacturers, and package and market the products basis their own requirements to their clients. The business is done in their own name, and they are themselves responsible for the risks involved.

Export Agents on the other hand represent the manufacturer. They don’t carry the risks associated with the business.

Country-Controlled Buying Agents are governmental agencies in the foreign country that locate and purchase goods basis the requirements.

In Direct Exporting, the organisation has no independent intermediaries involved. It sells its own products in the international market or markets. This is achieved by any of the following options-

Foreign Sales Representatives or Agents are sales representatives working on a commission basis. They travel to foreign countries to get business. They do not take responsibility of the risks involved and work on a contract basis. They may have the exclusive rights with the sellers.

Foreign Distributor sells the products at a profit and takes the title to the products bought.

Foreign Retailers sell the products in foreign country. They are contacted by organisations sales representatives, etc.

Overseas sales branch or subsidiary handles sales and distribution of the products in a foreign country. The functions may even include promotion and warehousing.

Licencing – The organisation licences a foreign organisation to use a manufacturing process, trademark, patent, trade secrets, etc. at a fee or loyalty. It is an easy way to get access to international market. This provides for low cost and low risk entry into the international market. Both the organisations are benefitted by licensing. The licensor doesn’t needs to handle all the processes except sharing knowledge, and the licensee gets the expertise, brand name and established business processes.

The disadvantage of Licencing is that the licensor has limited control over the licensee. An organisation has complete control over its own functions but it lacks that control over the licensee organisation. The organisation also passes most of the learnings and once the license contract ends, the licensee organisation had absorbed most of the learnings and becomes capable of operating on its own. Organisations try to make the licensee dependent on them in various ways to ensure that they don’t become a competitor once the contract ends. For example, Coca Cola provides the proprietary ingredients to the licensee for making the cola.

There are different licensing agreements signed by organisations.

In Management contract, the organisation lets an organisation in foreign country manage its business for a fee. For example, well known Hotels like Marriott.

In Contract manufacturing, the firm lets a local manufacturer produce the products. The organisation has less control on the manufacturing process but it helps them gain partnership in the new market. It benefits by not worrying about the manufacturing and focusing on R&D and core expertise.

In franchising, the franchiser grants the franchisee the right to use its trademark or trade-name as well as certain business systems and processes, to produce and market a good or service according to certain specifications. The franchisee usually pays a starting fee and some percentage of sales in the form of royalty. The franchiser benefits through rapid expansion of brand name with less management and investment in operations. Franchiser on the other hand is benefitted by getting a well-established brand name and expertise transfer from franchisor.

Joint venture takes place when a foreign investor joins hands with a domestic investor to form a new company. This is done for many reasons like government policy, expertise of one organisation benefiting the other like financial investment, managerial resources, etc.

Benefits of joint venture – it enables parties to develop new product. There is cost saving in operations and marketing. It saves time and investment, gives access to technological know-how and new international market.

Direct investing involves ownership of the manufacturing facility in a foreign country. This involves greater risks but high returns as well when it is successful. The organisation enjoys patent and trademark protection, sops or tax incentives from the government for creating jobs in the country, free hand in controlling marketing and production functions. It gains major advantages in the form of government incentives, availability of cheap labour and supplies. The overall image of the organisation enhances as it provides jobs to locals and improves their standard of living. Getting into different market segments and launching of new products in the same country becomes easy. Because of local operations, the organisation builds good relations with the government, customers, suppliers and distributors. This helps the organisation in expanding its operations and business.

There can be problems for the organisation in direct investment if there are changes in government policies, labour laws, economic slowdown, etc. Sometimes the organisations even have to close down its operations because of these challenges.