Mode of entry in to an international market refers to a channel through which an organization excels while gaining fame and name recognition in the international market. The chances are many, however the research is endless, but once you drive it in a specific direction, integrating all the necessary elements into it, the success is innate. There are certain stages of internationalization which are to be scrutinized under:-
Exporting
It is the simple mode of internationalizing a domestic business. It allows a firm to quickly enter in to the foreign market involving relatively less financial exposure. In addition, exporting permits a firm to enter a foreign market gradually and in the way that it is allowed to assess local conditions and fine-tune its productions to better suit the needs of the customers of the hosting country. Under this mode the coordination amongst the 3 key players take place;
1. Importer
2. Exporter (Transport provider and
3. Government.
There are three forms of exporting;
1. Indirect exporting
2. Direct exporting and
3. Intra corporate transfers
Licensing
It is a contractual arrangement in which a firm, (the licensor) sells the right to use its intellectual property (technology, patents, work methods, brand names, trade marks, copyrights, company name) to a firm (the licensee) in return for fees. The role of licensing in internationalization is;
• It helps the firm to survive and get completed within a rapid changing international industrial stimulus.
• The factors that contribute to the rapid growth of licensing are; protectionism and regulation of FDI, Emergence of small high-technology firms, the rising R&D costs, shortening product life cycles and cross-licensing respectively.
Franchising
Franchising is a form of licensing, where the franchiser provides significant assistance and / or exercises significant control over the franchisee’s method of operation. The following are the types of franchise agreements;
a.Product, trade name franchise: It is the distribution of product in a specified territory or location with the use of manufacturer’s trademark for example car dealerships, petrol service stations etc.
b.Business format franchises: It incorporates the licensing of a trademark for business in a specified territory along with an entire system for conducting a business. These now account for nearly 75% of all franchise businesses e.g. McDonalds, KFC etc.
Counter Trade,Specialized modes and direct investment
Counter trade is the sale of a good, service, know-how system or system in which one direction is conditional upon the sale of a good or service as part or full payment in the reverse direction. The specialized entry modes are as follows;
a. Management Contracts
b. Turnkey Projects
An investment in foreign country that also brings at least 10% ownership rights is termed as direct investment. Direct investment not only brings capital but it also brings into a country, the latest technology, and the management expertise.
The forms of direct investments are
1. Subsidiary establishment and
2. Joint Venture
Choice for an appropriate mode of entry into an international market would depend on a host of factors. Some of them are
• Nature of business
• Size of the company
• Availability of the resources
• International strategy and
• The control over businesses and brands respectively
All these factors combined determine the overall market attractiveness of the countries being considered.
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