Multinational companies look for opportunities for growth in new, foreign markets world-wide. These markets are potential targets for new sales for a company's products and services. Companies can target both developed markets and emerging markets. Entry into international markets is contrasted with off-shoring, where companies look to move production or support processes to foreign economies.
Modes of entry are classified based on two broad categories: equity and non-equity modes. Modes of entry into foreign markets differ on three dimensions: the amount of risk present, the amount of control and commitment of the company's resources it requires, and the return on investment they promise to the multinational company.
Exporting: Exporting can either involve direct exports, which is the most basic mode of entry into a foreign market. It may also involve indirect exports, a process in which the exporting company loses control of the sale of its goods and services in the foreign markets to a trading or merchant company.
Licensing: A licensing agreement allows foreign firms to manufacture a proprietor's product under copyright or patent, by paying the proprietor a licensing fee. The main advantage of this strategy is that it allows proprietors to penetrate foreign markets without assuming costs or risk. A disadvantage may be a lack of control over quality, and loss of secrecy of production processes and technology.
Franchising: Franchising is a mode of entry similar to licensing where the franchiser agrees to transfer a package of products, systems and services that it had developed to a franchisee for a fee. The franchisee then finances the business and brings local market knowledge and entrepreneurship.
Wholly owned subsidiaries: Wholly owned subsidiaries can either be greenfield projects or acquisitions. Greenfield projects imply investing in an entirely new project in a foreign country. This is a costly option, but allows the company to design exactly the business processes it needs without trade-offs from existing processes. An acquisition involves purchasing an existing business, or resources. Acquisitions are usually then integrated with the parent company in order to find synergies and cost savings or may be completely restructured to provide the parent company's products or services.
Strategic alliance: A strategic alliance is a type of cooperative agreement between firms. These firms may agree to share resources (such as distribution channels). Strategic alliances are becoming increasingly popular, and they are often focused on creating new products and services rather than helping each other support existing businesses.
Joint venture: A joint venture is a type of strategic alliance where both firms commit resources to a new and separate undertaking. Joint ventures allow the firms to share risks, technology and other resources (such as knowledge) in order to pursue new opportunities. Joint ventures often fail when the two parent companies have conflict over the direction of the joint venture, the use of resources, and frustrations that arise from not having direct, hierarchal control over such an undertaking.© BrainMass Inc. brainmass.com July 31, 2021, 6:40 pm ad1c9bdddf