Global Market Entry Strategies Part II

By M. Isi Eromosele

Choosing the Mode of Entry - The issues to be considered include market size and growth potential, market risk, government regulations, competitive environment, local infrastructure and market development. Additional ones include company objectives, need for control, internal resources, assets and capabilities, flexibility and mode of entry choice

Mode of Entry Choices

The options include Exporting, Contractual Agreements, International Strategic Alliances and Direct Foreign Investment.

Exporting - A company may minimize the risk of dealing internationally by exporting domestically manufactured products either by minimal response to inquiries or by systematic response to demands in foreign markets. Exporting requires minimal capital and is easy to initiate. Exporting is also a good way to gain international experience.

Contractual Agreements - Contractual agreements are long-term, non-equity association between a company and another in a foreign country. The following are two forms of contractual agreements:

• Licensing - Licensing is a viable alternative where risk of expropriation and resistance to foreign investments create uncertainty. Licensing encompasses a contractual agreement whereby a multinational marketer makes insubstantial assets such as patents, trade secrets, technology know-how, trade marks and company brand name to foreign companies in return for royalty payments. The transfer of these assets is usually accompanied by technical support to ensure appropriate use.
• Franchising - In franchising, the franchiser provides a standard package of products, systems and management services and the franchisee provides market knowledge, capital and personal involvement in management

International Strategic Alliances - Strategic alliances have grown in importance over the last two decades as a competitive strategy in global market management. An International Strategic Alliance is a business relationship established by two or more companies to cooperate out of mutual need and to share risk in achieving a common business objective. ISAs are sought as a way to increase competitive strengths and shore up weaknesses. ISAs offer opportunities for rapid expansion into new markets, access to new technology, more efficient production and reduced marketing costs.

A great example of a successful ISA is the One World airlines industry partnership involving American Airlines, Cathay Pacific, British Airways, Air Canada, Aer Lingus and Quantas that calls for them to share resources and passenger information to the benefit of all involved.

Direct Foreign Investment - A fourth method of foreign market expansion and entry is direct foreign investment. Companies may manufacture locally to capitalize on low-cost labor, to avoid high import taxes, to reduce high costs of transportation, to gain access to raw materials, as means for gaining market entry or expanding market share. Foreign Japanese car makers have established car factories in the United States in order to gain the aforementioned benefits. Firms may either invest in or buy local companies or establish new operations facilities.

A company interested in entering the international market must analyze the risk and commitments involved with each entry and select the entry strategy that best fits the company’s business goals.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

Copyright Control © 2011 Oseme Group