Sunday, 26 February 2012

Market Entry modes


Market Entry modes

When a company is looking too expanded or enters a new marketing, cross boarders or in an international market place. They must consider what would be the best approach for them to do so.  There are a number ways an organisation can start to sell their products in international markets.

1.                   Direct export. The company produces their products in their home market and then sells them to customers overseas. Has little risk to the business but no control of products after exported.

Example of direct exporting is that of small companies or international sellers on E Bay where either the small business or user makes or buys products in their home country to sell in other foreign markets. They do so by advertising online stores or e bay accounts and shipping directly to the consumer in the foreign market.

2.                   Indirect export, the company sell their products to a third party who then sells it on within the foreign market.  The risk is low and little control of product after it has entered the market.

Indirect exporting example would be that of Sony and Samsung who sell their goods in many different foreign and local markets by the use of export agents and foreign companies like the good guys.

3.                   Licensing another less risky market entry method here the Licensor will grant a company in the foreign market a license to produce the product, use the brand name etc. in return that they will receive a royalty payment.  Another low risk entry method, with a little more control the just exporting as there can be regulations and standards of use.

Example of licensing is that of video game industry, such as Activation makes Call of duty games and then sells licensing to PlayStation and X box to manufacture the games for their game consoles.  Usually used in technology and music industry so the inventors or artists can sell their ideas to be used by others.

4.                   Franchising is another form of licensing. Here the company puts together a package of ingredients that made them a success in their home market and then franchise this package to overseas investors. A riskier entry method, with a little more control the just exporting as there can be regulations and standards of use, but can involve risk to the brand name or image.

Franchising is another way a company can gain entry in to a market is mostly done in fast food industry; largest franchisees are Mc Donald’s and KFC.

5.                   Joint Venture. To share the risk of market entry into a foreign market, two companies may come together to form a company to operate in the host country. The two companies may share knowledge and expertise to assist them in the development of company; of course profits will have to be shared out also.

Joint Ventures are way two or more companies can join to entry new markets, well limiting their risk and not being too exposed. Example of joint venture is that of Sony-Ericsson mobile phone company that joined together to enter and compete in mobile industry and markets globally.



6.                   Strategic Alliances are collaboration between companies in various countries to share and exchange resources and value creating activities.       

Strategic alliances are another for companies to join together to limit risk and entry foreign markets. Usually would be found in the Airline industry where alliances are form to meet more of the customers’ needs traveling around the world.       

7.                   Foreign Direct investment is where a company well directly invest in a foreign market to gain entry. This can be done by buying business there, setting new one up in the market or partnership with a local company.  (Fletcher & Brown, 2008)

A good example of foreign direct investment is that of GM with Holden and Toyota both opening manufacturing plants in Australia to gain entry in to our foreign market as well as other that we trade with. 

As you can see there are many entry modes a company can choose to enter a new market, but the company must know what risk and control they wish to have over that entry in to a new market. The less the control the easier the entry and more control the company want to keep the harder the entry, so a company must choose their control and risk levels and how and why they want to enter a market to gain new foreign market share and obtain their goal and objectives.



Reference List


Fletcher & Brown, 2008. International Marketing: An Asia-Pacific Perspective. 4th ed. NSW: Pearson Education.


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