Question

Identify at least five (5) of the more popular options for entry into international markets? Provide a brief explanation of each strategic option, and a real-world example of its use.

Answer 1

In order to enter into an international market there are many direct and indirect options. The more popular options used are viz.

1. Exporting: Exporting includes making goods in the home country and then shipping it off to foreign markets. Exports can be direct or indirect in nature.In Direct Exporting there are no intermediaries and the company directly deals in the foreign market whereas, in case of Indirect exports the services of a home country agency (intermediaries who handle exporting on behalf of the organization) are employed to export the goods in the overseas market. Intermediaries include Trading Companies, Export management companies (EMCs), Export Merchants, Confirming Houses etc.Example:- The Boeing Company an American manufacturer of airplanes, rotorcraft, rockets, satellites, and missiles exports them across the world.
2. Licensing : In Licensing , a foreign company is granted the right to create a company’s product in the foreign country for a specific time in exchange for a fee. The licensing agreement is generally based on patents and technology. The strategy helps access new markets which may not be accessible by export from existing facilities. As it includes mostly transference of knowledge the company can expand easily without a large capital investment in a new market. Example includes licenses of Microsoft Office being granted to organizations or people in exchange for a fee.
3. Franchising:Franchising involves the organization (franchiser) providing the right to use its brand name , processes and products to a business owners (franchisees) to operate in an overseas market in exchange of a fee and a percentage of franchisees’ revenue or the royalty fee.. Examples include McDonald’s or KFC Restaurants in the Indian Market.
4. Strategic Alliance formation : In this case two or more different organizations come together to either form a new entity termed as ‘Joint Venture‘ or continue working cooperatively without creation of a new entity. Example Chery Jaguar Land Rover Automotive Company Ltd.) ,an automotive manufacturing company headquartered in China,is a 50:50 joint venture between UK-headquartered Jaguar Land Rover(subsidiary of Tata Motors of India) and Chinese state owned automaker Chery.It was formed to facilitate production of Jaguar Cars and Land Rover vehicles in China.
5. Wholly-owned subsidiary: Includes a business operation in a foreign country that a firm fully owns. It can be in two ways either a greenfield investment or an acquisition. A greenfield investment in a new project and involves high investment but is a good strategy in case of absence of competitors. Example:- Starbucks Japan is a wholly owned subsidiary of US based Starbucks Corp.