People Innovation Excellence

Foreign Market entry modes

 

There are three basic entry decisions that management has to consider before going international (Hill, 2007) that is:

  1. Which market: the one being more attractive to the firm, seeking a balance between benefits, costs and risk.
  2. When to go abroad: or timing of entry can be described either as first-mover or later entrants. First movers are the first in the industry that enters a foreign market. While later entrants are those firms who follows other industry in entering foreign market.
  3. The scale: Is the size of commitment involvement the firm are willing to have either small or large scale. Entering small entry mean it give time to a firm to learn from the market chosen with less exposure to the market itself. While a large scale require rapid entry and involvement of significant resources.

Beside consideration of basic entry decisions, Hill (2007, p. 486-497) describes internationalization that can be obtain by a firm in six ways, That is:

  1. Exporting

It is considered to be the most used strategy for SMEs because of the lack of 9 resources (Dali, 1995) and certain degree of market knowledge and experience (Root, 1994)

  1. Turnkey projects

This is a kind of project where two entities/firms are responsible for putting up a plant or equipment (e.g., oil plants). This kind of market entry is used by firms in specific industries such as: construction, metal, petrochemical refining, chemicals and pharmaceutical

  1. Licensing

A licensing agreement is an arrangement where the licensor grants the right over intangible property to another entity for a specific period, and in return, the licensor receives a loyalty fee from the license (Hill, 2007).

  1. Franchising

Franchising is a specialized form of license, where the franchisee agrees to follow strict rules about how to carry with the business activities: the type of service, setting of the physical space, etc. Franchising involves longer-term commitments, whereas licensing involves a shorter term.

  1. Joint Ventures.

A joint venture is an entity formed by two or more independent firms working together. The firms agree to join together sharing revenues and costs, as well as the control of the new firm.

  1. Wholly Owned Subsidiaries.

In a wholly owned subsidiary the firm owns 100 percent of the stock. This entry mode, since it reduces the risk of losing control over the competence. It gives a firm tight control over operations in different countries.

Reff:

Hill, C.W.L., 2007. International Business Competing in the Global Marketplace, Irwin: McGraw Hill.

Masum, M.I., Fernandez, A., 2008. Internationalization Process of SMEs: Strategies and Methods.​


Published at :
Written By
Dony Saputra, S.Kom, M. Kom, MM
Deputy Head of IBM | SoBM
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