Question

There are 6 different market entry strategies I can use to have an international business course taught in Kenya. Please provide the pros and cons for each market entry strategy:

1. exporting

2) turnkey projects

3. licensing

4. franchising

5. joint ventures with a host country company

6. wholly owned subsidiary

Answer 1

1.Exporting:

Pros:

• Higher profits: International customers tend to place larger quantity of good than domestic customers. It increases the profit of the exporter.
• Lower costs: Expanding the business results in higher production. The higher production will lead to reduction in cost per quantity.
• Reduced vulnerability: If the business in operation in more than one economy, then the unfavourable conditions of domestic country can the offset by the favourable condition of other economy or vice versa.

Cons:

• Competiotion: Expanding the market will increase the competition.
• Product modification: For international market, product must be modified according to their use. As product requirement differ in different markets.
• Extra costs: Extanding the business in different economy needs deep research in the market about the price trends, consumption trends, demand, market strategy of potential competitors etc. It will result in extra costs.

2. Turnkey projects

Pros:

• Focus firm's resources on the area of its expertise.
• It avoid all long term operational risks

Cons:

• It includes the risks of revealing the company secrets to rivals.
• The plant constructed faces the risk of takeover by the host country.

3. Licensing

Pros:

• It has low financial risks as the licensor is not spending any money and is getting a fee against the lease of the rights to use the brand name, technology, method process etc.
• It helps in avoiding tariffs, NTBs, or restrictions on foreign investments.

Cons:

• It generates the risk for having a future competitor as the licensee knows the methods and technology of the licensor's product.
• Risk of deterioration of the goodwill of the licensor in case the licensee is unable to provide the same quality of the product.

4. Franchising

Pros:

• It allows expansion in different regions in the world simultaneously.
• Franchisor can avail the benefit of lower cost as the operational cost is borne by the franchisee.

Cons:

• The franchisee can take advantage of the learned knowledge from the franchisor and become future competitor.
• Conflicts between the franchisor and franchisee can result in legal actions.

5. Joint venture with a host country company

Pros:

• Joint venture results in lower costing for both ventures as technology of two companies are merged. The ventures can provide the use of their technology to develop the product.
• It helps in networking with the potential customers or create political relations as the company of host country has the access to those sources.

Cons:

• Conflicts can arise over decision of new investment. A good investment to one company may seem a bad one for other company.
• Conflicts over the sharing terms of unexpected revenues may arise as both ventures would like to have a big share of the revenue.

6. Wholly owned subsidiary

It can by done by acquisition or by establishing their own subsidiary.

Pros:

• It gives total control to the firm to take decisions regarding investment, technology to be used etc.
• It is the fastest way of entering a new market.

Cons:

• It includes a large investment whether for acquisition or for establishment of new business.
• Acquisition can increase the level of debt in case the acquired company has a large debt.
• On the other hand, establishing a new subsidiary does not guarantees the profit. It can incur loss as well.