Question

What are the relative advantages and disadvantages of the basic entry strategies that firms have available to them when they enter international markets.

Answer 1

Direct exporting-Direct exporting means you export your goods and products directly to another overseas market. It is the fastest mode of entry to international business for some businesses.

Advantages:

Within the overseas market you can select your foreign representatives.The direct export strategy can be used to test your products on international markets before making a bigger investment in the overseas market.This strategy helps safeguard your patents, goodwill, trademarks and other intangible assets.

Disadvatages:

This strategy will turn out to be a truly high cost strategy for offline products. Everything has to be set from scratch by your company. While this is probably the fastest expansion strategy for online products, there is a good amount of lead time in the case of of offline products that goes into market research, scoping and hiring the representatives in that country.

Licensing-Companies that want to establish a retail presence in a minimally risky overseas market, the licensing and franchising strategy allows another person or business to take on the risk on behalf of the company.

Advantages:

Low cost of entry into an international market Licensing or franchising partner has knowledge of the local market Offers you a passive source of income Reduces political risk as in most cases the licensing or franchising partner is a local business entity.

Disadvantages:

In some cases, you may not be able to exercise complete control over its licensing and franchising partners in the overseas market Licensees and franchisees may leverage the knowledge acquired and pose as future competition for your business Your business risks tarnishing its brand image and reputation in the overseas and other markets because of their licensing and franchising incompetence.

Joint Venture-A joint venture is one of the preferred ways for businesses that don't mind sharing their brand, knowledge and expertise to enter international business.

Advatages:

Both partners can leverage their respective expertise to grow and expand within a chosen market Due to the presence of the local partner, knowledge of the local market and its business environment, the political risks involved in the joint venture are lower Enabling the transfer of technology, intellectual properties and assets, knowledge of the overseas market, etc.

Disadvantages:

Joint ventures may face the possibility of cultural clashes within the organization due to the difference in organizational culture in both partner companies In the event of a dispute, the dissolution of a joint venture is subject to lengthy and complicated legal processes.