UGC NET Study Notes on Forms of Foreign Market Entry || Commerce || Management

By BYJU'S Exam Prep

Updated on: September 14th, 2023

An International market firm has alternative foreign markets to enter. Hence the firm has to analyse the different alternatives and evaluate the respective cost-benefit and risks and select the most suitable one. The various forms of market entry are as follows:

  1. Exporting
  • It is the most traditional and widely used mode of foreign entry.
  • This strategy is used when the volume of foreign business is small, high cost of production in the foreign market, the company has no permanent interest in the foreign market, saturated home country market etc.
  • Exporting could be done either :
    • Directly – The Company sells its products abroad through its own distribution arrangements or agents.
    • Indirectly – the company’s products may be modified, and distribution will be done through other companies in a foreign country.
  1. Licensing
  • A firm in one country (the licensor) permits a firm in another country (the licensee) to use its intellectual property such as trademarks, patents, technology, know-how etc. to produce and market the product or service on their behalf in the foreign market.
  • The monetary benefit here is the royalty or fees the licensee pay to the licensor.
  1. Franchising
  • Franchising is a form of licensing in which a parent company (the franchiser) grants another independent entity (the franchisee) the right to do business in a prescribed manner.
  • This right maybe selling the franchiser’s products, using its name, marketing techniques, technology etc.
  • One of the common forms of franchising involves the franchiser supplying an important ingredient part, material etc. for the finished product.
  1. Contract Manufacturing
  • Contract manufacturing is a form of outsourcing.
  • Under this method, the home country company gives the right to manufacture the product or part to a foreign company.
  • The home country will perform the entire marketing function.
  1. Fully Owned Companies
  • This is a method of foreign entry through direct investment.
  • The companies initially conduct a feasibility study on the foreign market. After this, the companies establish their own factories and production centres in the foreign market and do the business.
  • The companies that have long term interest in the foreign market normally follows this strategy.
  1. Assembly Operations
  • This method is a mixture of exporting and overseas manufacturing.
  • Here, the parts of a product are manufactured in the home country, and they are assembled in a foreign country.
  • A manufacturer who wants many of the advantages of the overseas manufacturing facilities and yet does not want to go that far may find it desirable to establish overseas assembly facilities in selected markets.
  1. Joint Ventures
  • This is one of the most common strategies of entering into foreign markets.
  • The essential feature of a joint venture is that ownership and management are shared between a foreign firm and a local firm.
  1. Mergers and Acquisitions
  • Mergers and Acquisitions (M&A) have been a very important market entry as well as an expansion strategy.
  • They provide instant access to markets and distribution network.
  • Competition can also be avoided by this method.
  1. Strategic Alliance
  • This strategy seeks to enhance a long term competitive advantage of the firm by forming an alliance with its competitors in foreign markets instead of competing with each other.
  • The alliance could be in marketing, sales, technology development etc. 

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