Question

Explain what equity and non-equity entry modes are and summarize their main types.

Answer 1

Foreign market penetration equity strategies include both direct investment in overseas location facilities as well as joint ventures with companies in the same sector with a target market base. Direct investment enables the investing company to have more direct control over the activities, while a joint venture allows the investing company to take advantage of the experience of government regulations, business culture and customer awareness offered by its resident partner.

Non-equity entry modes permit investors to enter overseas markets with minimal investment and lower risk. Companies can use non-equity modes to reach these markets much faster than equity modes, as processes such as exporting and authorizing are much faster than pursuing direct investment opportunities or forming collaboration agreements with joint ventures. Licensing also provides companies with a higher return on their investments and reduces the number of trade barriers and restrictions that the applicant must tackle.

There are two main types of modes of market entry: equity and non-equity. The category of non-equity modes contains export and contractual agreements.The category of equity modes comprises: joint ventures and wholly owned subsidiaries In a non-equity mode, the two routes to choose from are the export and contractual agreements. Exporting is a way for a company to extend its products or services to a foreign market without having to invest in things such as facilities inside that country. There are two primary modes of export: Direct Exports and Indirect Exports.