Question

In this assignment, you are required to write about the strategic advantages and disadvantages of different entry modes. Choose 2 modes of entry, and compare them. First, explain the theoretical background of both entry modes and how to enter the international markets. Then, give practical examples of how the two entry modes have been applied in practice by business(es).

Remember to present clearly the strategic advantages and disadvantages of each entry mode for specified companies and products, supported by examples and appropriate references.

Submission

Your paper is expected to show research into the issues with clearly documented links to class and outside readings. The paper must be consistently formatted in APA style, APA in-text, citations and references included. As a general guideline, the body of your paper, meaning your answers to the questions, is to be 3 to 4 pages (excluding the front page, table of contents, references, and possible appendix). Please ensure that you cover all the elements of the assignment and demonstrate your understanding of the given topic. Don't forget to synthesize, analyze, and evaluate related ideas and issues. Short quotations from a company website can be used, if appropriately indicated in the text and in-text cited according to the APA style, but you are not to submit a paper with the majority of its content copy-pasted from any website.

Save and submit your assignment using a naming convention that includes your first and last name and the activity number (or description). Do not add punctuation or special characters. Submit it by the posted due date.

Answer 1

Different modes of Entry in International Market :

1. Licensing

2. Franchising

3. FDI with alliances

4. FDI without alliances

5. Exporting

6. Special Modes

• Contract Manufacturing
• Managment Contracts
• Turnkey Projects

Licensing :

A business arrangement in which one company gives another company permission to manufacture its product for a specified payment.

Avantage & Disadvantage of Licensing :

Advantages:

There are various ways in which a licence agreement can give the licensee the possibility of increasing revenues and profits, and of enlarging market share :

1.  There is often a rush to bring new products onto the market. A licence agreement that gives access to technologies which are already established or readily available can make it possible for an enterprise to reach the market faster

2. Small companies may not have the resources to conduct the research and development necessary to provide new or superior products. A licence agreement can give an enterprise access to technical advances that would otherwise be difficult for it to obtain

3. A licence can also be necessary for the maintenance and development of a market position that is already well established but is threatened by a new design or new production methods. The costs entailed in following events and trends can be daunting, and quick access to a new technology through a licence agreement may be the best way to overcome this problem

4. There may also be licensing-in opportunities which, when paired with the company's current technology portfolio, can create new products, services and market opportunities

In Summarised Form, Advantages are as follows :

Low Financial Risk

Low Cost Way to Acess the market

Avoid Tarrifs, NTBs restriction on foreign invetment

Disadvatages:

1. The licensee may have made a financial commitment for a technology that is not 'ready' to be commercially exploited, or that must be modified to meet the licensee's business needs

2. An IP licence may add a layer of expense to a product that is not supported by the market for that product. It is fine to add new technology, but only if it comes at a cost that the market will bear in terms of the price that can be charged. Multiple technologies added to a product can result in a technology-rich product that is too expensive to bring to market

3. Licensing may create technology dependence on the supplier, who could choose to not renew a licence agreement, to negotiate licence agreements with competitors, to limit the markets in which you may use the licensed technology or to limit the acts of exploitation allowed under the licensing agreement.

4. Limited Market Oppurtunities/ Profit

5. Dependence on Licnsee

6. Potential conflicts with Licensee

7. Possibility of Creating Future Competitor

Franchising

Franchising is a business model wherein an individual operates their own location of a larger, more established company. For example, when you go to your local McDonald's, Subway, Dunkin' Donuts, or nearly any hotel in the United States, you are most likely at a franchise location.

Advantages :

• The risk of business failure is reduced by franchising. Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.
• Products and services will have already established a market share. Therefore there will be no need for market testing.
• You can use a recognised brand name and trade mark. You benefit from any advertising or promotion by the owner of the franchise - the 'franchisor'.
• The franchisor gives you support - usually as a complete package including training, help setting up the business, a manual telling you how to run the business and ongoing advice.
• No prior experience is needed as the training received from the franchisor should ensure the franchisee establishes the skills required to operate the franchise.
• A franchise enables a small business to compete with big businesses, more so than an independent small business, due to the pool of support from the franchisor and network of other franchisees.
• You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same territory.
• Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.
• You can benefit from communicating and sharing ideas with, and receiving support from, other franchisees in the network.
• Relationships with suppliers have already been established.

Disadvantages :

• Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor.
• The franchise agreement usually includes restrictions on how you can run the business. You might not be able to make changes to suit your local market.
• You may find that after some time, ongoing franchisor monitoring becomes intrusive.
• The franchisor might go out of business.
• Other franchisees could give the brand a bad reputation, so the recruitment process needs to be thorough.
• You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.
• All profits (a percentage of sales) are usually shared with the franchisor.
• The inflexible nature of a franchise may restrict your ability to introduce changes to the business to respond to the market or make the business grow.