Question

Provide the pros and cons for each of the nonequity and equity modes of entry.

Answer 1

Investment in foreign countries can offer better earning and growth opportunities for the business, however, it is essential to determine the mode of entry into such markets. If the mode of entry in the market will be correct, the company can establish itself in a better manner. The two most prominent methods which are being used by companies to take entry into foreign locations are 'Equity and Non-Equity' mode. The pro's and con's of both of these modes are discussed as follows:

Entry Modes	Pros	Cons
Equity Mode	It includes investment in facilities in foreign location and joint ventures. More direct control on the operations of the company in which the investment is being made. The investing company can benefit from the resident company’s knowledge of various aspects of business like local government’s regulations, business culture etc.	Higher level of investment is required. Both monetary resources and relationship building is required for building a better business model. High risk for investing companies due to potential instability in the target market.
Non – Equity mode	It is less risky, and the investment required is also minimum. It is a much faster way to enter into market. Other modes like licensing also gives the company a higher rate of return on their investments.	Lack of physical presence of the company does not attract much consumers as well as business partners. If exporting is done, it involves high cost of custom duty as well as other costs like transportation etc. The licensee usually have less control over the product and services in the source country.