Question

What are the modes of entry that companies use?

Answer 1

There are several modes of entry that organizations use for entry into a new market. They are as follows:

- Exporting: This mode is marketing and direct sale of locally produced goods in another country. This is a traditional and established method of expanding in different countries. It does not require production in the target country and hence most of the expenses are related to marketing. This is one of the easiest ways to reach the international market. Fast-entry, low risk is the advantages of this type of entry.

- Licensing: An organization can get into an international market quickly while taking limited financial and legal risks through licensing agreements with foreign companies. Licensing permits an organization in the target country to use the property of the licensor which is usually intangible, such as trademarks, patents, and production techniques.

- Franchising: Under this option an international franchise agreement, a franchisor grants a foreign company (the franchisee) the right to use its brand name and to sell its products or services.

- Contract Manufacturing and Outsourcing: This option is used because of the high cost involved in manufacturing the goods or providing services is higher. In this, an organization might contract with a local company in a foreign country to manufacture one of its products. They would still have there a brand label on the finished product. The same goes for information technology, nonmanufacturing functions which can also be outsourced to nations with lower labor costs.

- Partnerships and Strategic Alliances: Organizations can also enter a new market through a strategic alliance or partnership with a local partner. It works by having a contractual agreement between two or more organizations stipulating that the involved parties will cooperate in a certain way for a certain time to achieve a common purpose.

- Acquisitions: This is a method where a firm gains control of another firm by purchasing its stock, exchanging the stock for its own, or paying the owners a purchase price. Although expensive this method gives the company quick, established access to a new market.

- (FDI) Foreign Direct Investment and Subsidiaries: This is done through formal establishment of business operations in different countries by building factories, offices, and distribution networks to serve local markets in a country other than the home country.