Question

. Identify and briefly describe the various entry modes available for companies to enter foreign markets. What are the pros and cons of a greenfield investment versus an acquisition

Answer 1

There are basically five most common entry models which are : exporting, licensing, franchising , acquisition, and greenfield investment.

Exporting :

Three types of exporting options are there; Indirect Exporting, Cooperative Exporting, Direct Exporting.

Indirect exporting is the use of export merchants and export agents.

Direct exporting set up own export department.

cooperative exporting ;

Piggybacking - company uses overseas distribution network of another company.

Licensing :-

Exchange of propriety assets in return for loyalty fees. advantage of licensing are ;Brand travels across borders, no shipping or transportation of goods

Franchising :-

Right to use trademarks, business know-how, business models - similar to licensing. Minimum investment for overseas expansion. Profits tied to motivation of franchisees. Knowledge of local franchisees customer preferences.

Greenfield Investment Vs Acquisition:

Greenfield Investment is a type of Foreign Direct Investment in which the multinational company starts from scratch in a foreign country by purchasing land and equipment and hiring a workforce.

Pros: Cheaper than other modes of Foreign Direct Investment.

Cons: Setting up a building, hiring workers, entering the foreign market, fighting competition, etc. will take time.

Acquisition is a type of Foreign Direct Investment in which a multinational company purchases a company in a foreign country and keeping it the way it is.

Pros: Since the company being purchased already has land set up, workers hired and access to the foreign market, start time is very low. Since brands owned by the company being purchased may already have high awareness and demand in foreign market, marketing process will be easier.

Cons: Purchase of a company will cost far more than purchasing a building, land, equipment and hiring workers yourself.