GB 3 Qns

INTRODUCTION:
• Each of these entry strategies for international markets are different in

terms of the costs involved, level of risk, level of ease of execution, and
the level of reward. I have arranged these 5 modes of entry into
international business on a graph which suggests what are the trade-offs
in each of these entry strategies for international markets.
International-Expansion Entry Modes
International-Expansion
Joint Entry Modes Exporting
Venture
Licensing and
Franchising
Acquisition
Partnering and
Strategic Alliance
Exporting
Exporting is a typically the easiest way to enter an international market, and therefore most
firms begin their international expansion using this model of entry. Exporting is the sale of
products and services in foreign countries that are sourced from the home country.
exporting involves you directly exporting your goods and products to another overseas
market. For some businesses, it is the fastest mode of entry into the international business.
Direct exporting, in this case, could also be understood as Direct Sales. This means you as a
product owner in India go out, to say, the middle east with your own sales force to reach out
to the customers.
In case you foresee a potential demand for your goods and products in an overseas
market, you can opt to supply your goods to an importer instead of establishing your own
retail presence in the overseas market.
Then you can market your brand and products directly or indirectly through your sales
representatives or importing distributors.
And if you are in an online product based company, there is no importer in your value chain.
Advantages of Exporting
• our can select your foreign representatives in the overseas market.

• You can utilize the direct exporting strategy to test your products in
international markets before making a bigger investment in the
overseas market.
• This strategy helps you to protect your patents, goodwill, trademarks
and other intangible assets.
• Fast entry, low risk
• Low investment; Less risks
Disadvantages of Direct Exporting
• For offline products, this strategy will turn out to be a really high cost
strategy. Everything has to be setup by your company from scratch.
• While for online products this is probably the fastest expansion
strategy, in the case of offline products, there is a good amount of
lead time that goes into the market research, scoping and hiring of
the representatives in that country.
• Low control, low local knowledge, potential negative environmental
impact of transportation
• Unknown market; No control over foreign market; Lack of information
about external environment
Licensing and Franchising
• Companies which want to establish a retail presence in an overseas
market with minimal risk, the licensing and franchising strategy allows
another person or business assume the risk on behalf of the company.
• In Licensing agreement and franchise, an overseas-based business will
pay you a royalty or commission to use your brand name,
manufacturing process, products, trademarks and other intellectual
properties.
• While the licensee or the franchisee assumes the risks and bears all
losses, it shares a proportion of their revenues and profits you.
Advantages of Licensing and Franchising
• Low cost of entry into an international market

• Licensing or Franchising partner has knowledge about the local
market
• Offers you a passive source of income
• Reduces political risk as in most cases, the licensing or franchising
partner is a local business entity
• Allows expansion in multiple regions with minimal investment
• Fast entry, low cost, low risk
Disadvantages of Licensing and Franchising
• In some cases, you might not be able to exercise complete control on

its licensing and franchising partners in the overseas market
• Licensees and franchisees can leverage the acquired knowledge and
pose as future competition for your business
• Your business risks tarnishing its brand image and reputation in the
overseas and other markets due to the incompetence of their licensing
and franchising partners
• Less control, licensee may become a competitor, legal and regulatory
environment (IP and contract law) must be sound
Partnerships and Strategic Alliances
• Another way to enter a new market is through a strategic alliance with

a local partner. A strategic alliance involves a contractual agreement
between two or more enterprises stipulating that the involved parties
will cooperate in a certain way for a certain time to achieve a common
purpose.
• To determine if the alliance approach is suitable for the firm, the firm
must decide what value the partner could bring to the venture in terms
of both tangible and intangible aspects.
Advantages of Partnerships and Strategic Alliances
• Partnering with a local firm are that the local firm likely
understands the local culture, market, and ways of doing
business better than an outside firm. Partners are especially
valuable if they have a recognized, reputable brand name in
the country or have existing relationships with customers that
the firm might want to access.
• Shared costs reduce investment needed, reduced risk, seen as
local entity
Disadvantages of Partnerships and
Strategic Alliances
• The disadvantages of partnering, on the other hand, are lack of direct control and
the possibility that the partner’s goals differ from the firm’s goals. David Ricks,
who has written a book on blunders in international business, describes the case of
a US company eager to enter the Indian market: “It quickly negotiated terms and
completed arrangements with its local partners.
• Higher cost than exporting, licensing, or franchising; integration problems
between two corporate cultures
Acquisitions
• An acquisition is a transaction in which a firm gains control of another firm

by purchasing its stock, exchanging the stock for its own, or, in the case of
a private firm, paying the owners a purchase price. In our increasingly flat
world, cross-border acquisitions have risen dramatically. In recent years,
cross-border acquisitions have made up over 60 percent of all acquisitions
completed worldwide. Acquisitions are appealing because they give the
company quick, established access to a new market.
• You can retain the existing management of the newly acquired company to
benefit from their expertise, knowledge and experience while having your
team members positioned in the board of the company as well.
Advantages of Acquisitions
• Your business does not need to start from scratch as you can use the
existing infrastructure, manufacturing facilities, distribution channels
and an existing market share and a consumer base
• Your business can benefit from the expertise, knowledge and
experience of the existing management and key personnel by retaining
them
• It is one of the fastest modes of entry into an international business on
a large scale
• Fast entry; known, established operations
Disadvantages of Acquisitions
• Just like Joint Ventures, in Acquisitions as well, there is a possibility of

cultural clashes within the organisation due to the difference in organisation
culture
• Apart from that there mostly are problems with seamless integration of
systems and process. Technological process differences is one of the most
common issues in strategic acquisitions.
• High cost, integration issues with home office
• Complex process and requires experts from both countries; No addition of
capacity to the industry; Government restrictions on acquisition of local
companies may disrupt business; Transfer of problems of the host country’s
to the acquired company
Joint Venture
• When two or more firms join together to create a new business entity, it is
called a joint venture. The uniqueness in a joint venture is its shared
ownership. Environmental factors like social, technological, economic and
political environments may encourage joint ventures.
• Companies wishing to expand into overseas markets can form joint ventures
with local businesses in the overseas location, wherein both joint venture
partners share the rewards and risks associated with the business.
• Both business entities share the investment, costs, profits and losses at the
predetermined proportion.
• This mode of entry into international business is suitable in countries
wherein the governments do not allow one hundred per cent foreign
ownership in certain industries.
Advantages of Joint Venture
• Both partners can leverage their respective expertise to grow and expand within
a chosen market
• The political risks involved in joint-venture is lower due to the presence of the
local partner, having knowledge of the local market and its business
environment
• Enables transfer of technology, intellectual properties and assets, knowledge of
the overseas market etc. between the partnering firms
• Gain local market knowledge; can be seen as insider who employs locals;
maximum control
• Joint ventures provide significant funds for major projects; Sharing of risks
between or among partners; Provides skills, technology, expertise, marketing to
both parties.
Disadvantages of Joint Venture
• Joint ventures can face the possibility of cultural clashes within the
organisation due to the difference in organisation culture in both
partnering firms
• In the event of a dispute, dissolution of a joint venture is subject to
lengthy and complicated legal process.
• High cost, high risk due to unknowns, slow entry due to setup time
• Conflicts may develop; Delay in decision-making of one affects the
other party and it may be costly; The venture may collapse due to the
entry of competitors and the changes in the partner’s strength; Slow
decision-making due to the involvement of two or more decision-
makers.

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INTRODUCTION:

• Each of these entry strategies for international markets are different in

• our can select your foreign representatives in the overseas market.

• Low cost of entry into an international market

• In some cases, you might not be able to exercise complete control on

• Another way to enter a new market is through a strategic alliance with

• An acquisition is a transaction in which a firm gains control of another firm

• Just like Joint Ventures, in Acquisitions as well, there is a possibility of

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