Whether you are starting your first company or you are a dedicated entrepreneur diving into a new venture, Bizfluent is here to equip you with the tactics, tools and information to establish and run your ventures. Whilst many of the details vary, most contracts contain the supply of credit/production inputs, specifications regarding quantity, quality and timing of producer deliveries and a formula or price mechanism. 2. Acquisition of a local business is one of the fastest ways to enter an international market. This propelled McDonald's from being a middling market player to big success. She owns her own content marketing agency, Wordsmyth Creative Content Marketing, and she works with a number of small businesses to develop B2B content for their websites, social media accounts, and marketing materials. vi) Building of relationships and infrastructural developments "correct formats". Companies that desire more control over operations will look at acquisition or direct exporting as the more favorable choices. 8. Exporting can be direct (there is no intermediary; goods are sold from the company headquarters directly) or indirect (goods are sold to an intermediary who then is responsible for the sale of these goods in the foreign market). However, transitioning from a domestic business to an international one can be complicated, and companies that dont understand the details involved are likely to struggle when entering the international market. This also can occur by Government decree, or by the erection of non-tariff barriers to trade. 4. Describe briefly the different methods of foreign market entry. 6. iii) Time - processing, transport and storage - so credit is needed e.g. Entry from a foreign base includes licensing, joint ventures, contract manufacture, ownership and export processing zones. and Neale, C.W. It decided to co-brand certain products in order to leverage Fujitsus excellent reputation in IT services with Citgos broader resource pool and global reputation. This type of agreement benefits both parties and gave Citgo an opportunity to build brand recognition in Japan for other products it might introduce at a later date. 11. The licensee provides some of the capital, absorbs some of the risk and should provide an independent income stream, as it pays the fees associated with the license itself. McDonald's offers franchising options in many countries and has learned that making small changes that appeal to new international customers can have a large effect on success. This gives the home company a physical point of entry into the foreign market and gives the partner company a new opportunity in its existing markets. The new middle class in China did not have that knowledge at the time. This, however, should not occur, if the link involves the close monitoring and action by the various players in the system, who are aware, through market intelligence, of any possible changes. A company looking to expand into foreign markets needs to consider three things as part of its entry strategy: These three key pieces all combine into a set of entry modes: the various ways a company can enter a foreign market. "World Bank Discussion Paper" pp 198, 1993. Some products are handled by multinationals, others by formal integration by processors, building up import/distribution firms. The franchisee comes to the table with capital to invest, but the home company gives up a portion of control over the international franchise. Khoury, S.J "Countertrade: Forms, Motives, Pitfalls and Negotiation Requisites". In S. Carter (ed.) An example of the institutional arrangements13 involved is given in table 7.3. This can be the fastest way to enter an international market, and it protects the companys intellectual property, but the logistics and shipping may add additional cost to the product and complications to the process. In the case of Kenyan fresh vegetables familial ties are very important between exporters and importers. Korey, G. "Multilateral Perspectives in International Marketing Dynamics". The first point is sourcing: The company needs to decide whether it plans on directly exporting goods from its existing facilities into the foreign markets or if it intends to have some kind of production physically within the new region. Partnering can be difficult if the firms involved end up wanting to move in different directions or if the agreement dissolves and leaves the foreign company as a new competitor. Within these two possibilities, marketers can adopt an "aggressive" or "passive" export path. (may be straight or closed or clearing account method), Customer agrees to buy goods on condition that the seller buys some of the customer's own products in return (may be time, method of financing, balance of compensation or pertinence of compensating product based). This involves considering whether to bring in local advisers and in what forms. Acquisition involves purchasing an existing company in the new region and integrating it as a subsidiary within the parent company. If the company is open to foreign production of its usual products, most of the other options are available. 3. There can be issues involving governments, regulations and other legal issues when operating overseas. Network and Centre for Agricultural Marketing Training in Eastern and Southern Africa, 1991. 13. Each method has its peculiar advantages and disadvantages which the marketer must carefully consider before making a choice. Entry from the home base (direct) includes the use of agents, distributors, Government and overseas subsidiaries and (indirect) includes the use of trading companies, export management companies, piggybacking or countertrade. They act as a contact point between suppliers and buyers, obtain vital market information, liaise with Governments over quotas etc. Organisations are faced with a number of strategy alternatives when deciding to enter foreign markets. January 1987, pp 71-82. The advantages lie in the acquisitions knowledge of regional cultures, markets and strategies as well as its already-established management and corporate structure. Direct exchange of one good for another. Licensing agreements allow a company the logistical advantage of having physical operations in a new region without having to build production facilities from the bottom up. European Journal of Marketing, Vol. Indirect exporting carries lower risk to the company in general, but direct exporting is recommended for companies that expect international marketing to become a significant part of their operational strategy. Give examples. If the company does not want to make an investment in overseas production facilities, its choice is then to export its goods from existing plants. Direct - Agent, distributor, Government, overseas subsidiary, Indirect - Trading company, export management company, piggyback, countertrade, A zone within a country, exempt from tax and duties, for the processing or reprocessing of goods for export. Licensing allows a foreign company to operate using the home companys strategies, technology and/or trademarks to produce the home companys product under specific terms. It consciously guarded against the creation of an unwieldy bureaucratic structure. Most arrangements include some form of vertical integration between producers and downstream activities. 1. 15, No. Some are very active, witness the Horticultural Crops Development Authority (HCDA) of Kenya and the Citrus Marketing Board (CMD) of Israel, the latter being a Government agency which specifically got involved in supply quotas. 1. Review the general problems encountered when building market entry strategies for agricultural commodities. Often processors enter into contracted outgrower arrangements or supply raw inputs. Shipley, D.D. Argentina beef. "Strategies for International Industrial Marketing". 2022 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. iv) Transaction costs - logistics, market information, regulatory enforcement. 20, No. Table 7.4 Linkages between exporters and foreign buyers/agents. 26, No. 7, 1986, pp 34-42. Having done all the preparatory planning work (no mean task in itself! This often occurs when the home company reaches out to an existing company in the foreign region and offers a new opportunity. Journal of Business Research, Vol. "International Transport and Handling of Horticultural Produce" in S. Carter (ed.) Once again, it can not be over-emphasized that the smooth flow between producers, marketers and end users is essential. This allows the investors involved to pool their resources both financially and in terms of R&D, critical information and existing experience. In addition to this content, she has written business-related articles for sites like Sweet Frivolity, Alliance Worldwide Investigative Group, Bloom Co and Spent. In Successful African Development", EDI Development Policy Case Series, No. and provide information, or even get involved in quality standards. The most common entry modes into international markets are: Exporting is directly selling goods from one country into others. 51. One of the most important factors is contract coordination. Mauritius: "A Case Study of the Export Processing Zone. Franchising is similar to licensing, although a franchise usually offers the entire package of a companys standard operations, while a licensee may have its own business methods. A systematic assessment of the different entry methods can be achieved through the use of a matrix (see table 7.2). Bheenich, R. and Shapiro, M.O. Keegan, W.J. In some countries, in order to enter the market, a foreign company must form a partnership or joint venture with an existing company in that country to avoid foreign businesses holding 100% of ownership in certain markets. This institutional arrangement has now, incidentally, spilled over into the domestic market where firms are wishing to target higher quality, higher priced segments. A company thats willing to share control in order to mitigate risk will look at licensing, franchising and partnering as agreeable options. Franchising is offering a potentially independent business owner the rights to operate a franchise using the companys strategies, business format and technology. Method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, processing, trademark, knowhow or some other skill by the licensor. Its best to examine each nations laws when deciding how to move into international markets. Khoromana, A.P. Its incredibly important to get to know the regional laws, regulations and rules as well as the work culture and new customer base that any new department or subsidiary will be required to handle. 7. Starbucks faced a major hurdle when entering Chinas markets, as Chinese culture distinctly favors tea over any other beverage. An enterprise in which two or more investors share ownership and control over property rights and operation. ), the prospective global marketer has then to decide on a market entry strategy and a marketing mix. Exporting can be a good test run to explore foreign markets, and moving business transactions online can help streamline the process, but it will require preparation by the sales and marketing teams to ensure success. Institutional links between producers and processors/exporters. European Journal of Marketing, Vol. Piercy, N. "Company Internationalisation: Active and Reactive Exporting". When entering the Chinese household market, IKEA managed success, whereas Home Depot did not do well. Partnering can also be called a joint venture or a strategic alliance and occurs when two or more companies agree to invest in a new opportunity in a foreign market.
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