There are four possible mechanisms to enter a foreign market:
Exporting refers to the direct selling of domestically-produced goods in a foreign country. It is a traditional method of reaching foreign markets, and a well-established one. Exporting does not need the goods to be produced in the target country and hence no investment in production facilities is required there. Most of the costs associated are due to marketing expenses.
Licensing permits a company in the target country to use the property of the licensor by payment of a fee. Such property is mostly intangible, like trademarks, patents, and production techniques. Licensing has the potential to provide a very large ROI because there is little investment required on the part of licensor. However potential returns from manufacturing and marketing activities may be lost to the licensee.
Joint Ventures
There are five common objectives of a joint venture: market entry, reward/risk sharing, sharing of technology and product development, and managing government regulations. Political connections and distribution channel are other potential banefits.
Foreign direct investment refers to direct ownership of facilities in the target country. It involves the transfer of capital, technology, and personnel to the target country. FDI may be done through acquisition or through establishment of a new enterprise and provides a high degree of control in operations and better opportunity to understand the consumers and competition.
- Exporting
- Licensing
- Joint Venture
- Direct Investment
Exporting
Exporting refers to the direct selling of domestically-produced goods in a foreign country. It is a traditional method of reaching foreign markets, and a well-established one. Exporting does not need the goods to be produced in the target country and hence no investment in production facilities is required there. Most of the costs associated are due to marketing expenses.
Exporting requires coordination among five players:
- Exporter
- Importer
- Transport provider
- Government of domestic country
- Government of target country
Licensing
Licensing permits a company in the target country to use the property of the licensor by payment of a fee. Such property is mostly intangible, like trademarks, patents, and production techniques. Licensing has the potential to provide a very large ROI because there is little investment required on the part of licensor. However potential returns from manufacturing and marketing activities may be lost to the licensee.
Joint Ventures
There are five common objectives of a joint venture: market entry, reward/risk sharing, sharing of technology and product development, and managing government regulations. Political connections and distribution channel are other potential banefits.
JVs work best when:
- the partners' strategic goals converge and competitive goals diverge;
- none of the partners are comparable to industry leaders; and
- there exist learning opportunities despite limited access to each other’s proprietary skills.
The key issues are ownership, control, agreement length, pricing, technology, capabilities and resources sharing and government intentions.
Foreign Direct Investment
Foreign direct investment refers to direct ownership of facilities in the target country. It involves the transfer of capital, technology, and personnel to the target country. FDI may be done through acquisition or through establishment of a new enterprise and provides a high degree of control in operations and better opportunity to understand the consumers and competition.
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