Foreign market entry modes essay
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The mode of entry chosen in entering a foreign market greatly influences the kind of success the company is likely to experience. Companies look to foreign markets in a bid to expand their territory and maximize profit. Two important modes of entry are “market penetration methods” and “indirect exporting”. Entry into foreign markets can also be achieved through the following methods: licensing, joint venture and direct investment. The choice of entry mode chosen is greatly dependent on the structure of the potential market. Hence, it would be difficult to label one mode of entry as “proper” and another “improper”.
Considering the market penetration methods, evolutionary assessment is pivotal when entering and budding international markets. The challenges of penetrating and developing an international market are enormous. Some companies consider this to be a stumbling block. Entering a new market can be compared to building a new business venture from start. Companies that take this approach often treat this situation as an extension of their business. According to Foley (2010), advantages of this method are; there is greater knowledge of local market, specialized skills can be better applied, there is minimal knowledge spill over, the company be viewed as an insider company. However the following disadvantages exist; higher risk is experience than when compared to other modes, it requires more resources and commitment, it may be difficult to manage the local resources.
Indirect exporting/importing shifts the responsibility for entering a foreign market to a specialist in the export/importation business. A variety of these intermediaries exist namely: export management companies (EMCs), agents, brokers and commission houses and complementary exporters. The advantages of this method are; it minimizes risk and investment, it is faster to enter a new market using this method, market scale is maximized since it uses existing facilities. The disadvantages however are; trade barriers and tariffs add to cost incurred, high cost of transportation, access to local information is limited, and the company is viewed as an outsider company (Arnold, 2003).