Market Entry Modes

International Management

Week 7

Market Entry Modes

Exporting

Direct: Export directly to the customer. (Selling Dell computer online to different countries). More expensive. More control over export processes. Potentially higher profits. Closer relationship to market, react accordingly when there are changes.

Indirect: export to consumer via export agent. (selling Dell computer in a store).

Advantages

* Low capital investment in a host country.

* No costs of establishing manufacturing operations

* Kited political risk

* Export subsidies and other export enhancing activities.

* Long term: experience curve economies and location economies.

* Short term: capacity utilization

Disadvantages

* Possible high transportation costs (between countries)

* Tariff barriers

* Possible lack of control over marketing agents

* Information deficit in order to respond to demand changes; not close to country/market/customers. Harder to tell what the market is doing from far away.

* Consumer-imposed restrictions (preference to buy domestically manufactured goods)

* Cost intensive after-sales-service

* Exchange rate risks

Licensing:

licensor grants rights to intangible property(process, product, distribution, brand). Specified period.

Royalty fees

typical for manufacturing companies

Advantages

* Reduces development costs and risks associated with entering a foreign market

* Low commitment of financial and personnel resources

* Attractiveness for companies:

-lacking the capital to develop foreign operations

-unwilling to commit resources to an unfamiliar foreign market

* Overcomes restrictive barriers to FDA

* Other companies can develop business application of intangible property

Disadvantages

* Lack of control over technology (used by host company)

-risk of know-how diffusion

-products of inferior quality (company’s image may be damaged)

* High transaction costs (e.g. find a reliable...