Various entry strategies in the International Business
Any business transaction between parties from more than one country is a part of international business. The buying and selling of goods, product or services across the national boundaries of a country are known as international business.
There are a variety of ways in which a company can enter a foreign market. No one market entry strategy works for all international markets.
Exporting is the easiest, most cost-effective and most commonly used method of entering a new international market. Some businesses do not actively plan to become exporters; they may simply start accepting orders from overseas customers. However, many businesses are planned exporters who wish to expand their international presence. Exporting has many advantages in that it requires less investment. Exporting also allows concentrating production in a single location, allowing for better economies of scale and quality control measures.
Licensing is a relatively sophisticated arrangement where a firm transfers the rights to the use of a product or service to another firm. It is a useful strategy if the purchaser of the license has a relatively large market share in the market you want to enter.
Franchising is a process for rapid market expansion but it is gaining traction in other parts of the world. Franchising works well for firms that have a repeatable business model that can be easily transferred into other markets. Franchising is a specialized form of Licensing in which the franchiser not only sells an intangible property to the franchise but also insists the franchise agree to abide by strict rules as to how it does business.
- Joint Ventures
Joint ventures area a particular form of partnership that involves the creation of a third independently managed company. It is the 1+1=3 process. Two companies agree to work together in a particular market, either geographic or product and create a third company to undertake this. Risks and profits are normally shared equally. The best example of a joint venture is the Sony/Ericsson Cell Phone.
- Turnkey Projects
Turnkey projects are particular to companies that Provide services such as environmental consulting, architecture, construction and engineering. A turnkey project is where the facility is built from the ground up and turned over to the client ready to go – turn the key and the plant is operational. This is a very good way to enter foreign markets as the client is normally a government and often the project is being financed by an international financial agency such as the World Bank so, the risk of not being paid is eliminated.
- Foreign Direct Investment
It is the direct ownership of facilities in the target country. It involves the transfer of resource including capital, technology, and personnel. It may be made through the acquisition of an existing entity or the establishment of a new enterprise.