Question

Why companies choose intermeadite entry mode while going into foreign markets

Answer 1

why Companies choose Intermediate modes while going into foreign Market ?

There are three categories of entry modes

• Export Modes
• intermediate Modes
• Hierarchical Modes

COMPANIES CHOOSE INTERMEDIATE ENTRY MODE

There are many reasons that will encourage a company to switch to intermediate entry modes . in this case what happen is that production is moved to a foreign country to pursue the following benefits

1. Accessing government favour towards national suppliers
2. lower foreign production cost
3. the opportunity of being closer to the customer
4. transportation cost may render heavy or bulk production non-competitive

Three main intermeadite entry modes and there benefits are following

• Licensing
• Franchising
• Joint Ventures

1) LICENSING

This model provides a variety of benefits , espite incurring in a selection of risk which are due to the fact that this approach can create brand dilution or knowledge spillover .

• The licensor will maintain technological superiority
• the licensor will not have to invest in a foreign production facility
• through licensing the Product life cycle can be stretched by selling abroad
• profit in licensing are qi=uite high as the intangible brand add a lot of value
• government regulation may restrict investiment in fireign country
• Licensing can assist in overcoming restriction on imports

2 ) Franchising

the franchisor gives the right to the franchisee to use a brand and business format against the payment of a sum of money. Franchise agreements cover the right to use a total business concept, but a distinction can be made between product and trade name franchising where the relationship is very similar to trademark licensing and business format package. In this latter case, a relationship is created between an entrant the franchisor and a host country entity the franchisee to which the franchise is sold. The franchisor is therefore in the position of better controlling every aspect of the operation allowing to directly influence the way the franchisee will adapt the business format to the local resources and knowledge.

The franchising package will typically include:

• Trademark Name
• Copyright and Intellectual Property
• Design
• Patents
• Trade Secrets
• Know How
• Geographic Exclusivity
• Store Design
• Market Research for the Area
• Location Selection

There are some striking similarities between a licensing and franchise agreement, which make them sometimes hard to tell apart, depending on the nature of the deal.

3) Joint Ventures

A joint venture is a strategic alliance or a partnership between two or more parties which is caused by the opportunity to work together.

The venture is usually

• Complementary technology and management skills
• The opportunity to increase the speed of market entry
• The necessity to enter foreign markets through partnerships, due to the protective stances adopted by several developing countries aimed at protecting the domestic market.
• Cost savings, as global operations’ management, are very expensive.

Contract Manufacturing-

this is the modes enables the firm to have foreign sourcing without making the final commitment. enable the firm to develop and control research and development, marketing , distribution, sales and servicing of its product on international market,while handling over responsibility for production to local firm.