FOREIGN MARKET ENTRY

STRATEGIES
EXPORTING – Exporting is the process of delivering goods from home
country to another country.
It is appropriate strategy in following conditions:
 A. The volume of foreign business is not large enough to justify
production in the foreign market.
 B. Cost of production in the foreign market is high.
 C. The foreign market is characterized by production bottlenecks.
 D. There are political or other risks of investment in the foreign
country.
 E. Foreign investment is not permitted by concerned foreign
country.
 F. Other alternatives are not so profitable in comparison to
exporting.
 For exporters data refer : http://www.infodriveindia.com/
 LICENSING –

 Under international licensing agreement, a firm in one country (the

licensor) permits the firm in another country (the licensee) to use its
intellectual property (such as patents, trademarks, copyrights,
technology, marketing skills or other specific skills.

 The monetary benefit to the licensor is the royalty or fees which license
pays.

 In cross-licensing there is a mutual exchange of patents or technology

between two firms. In this case cash payment of fees or royalty may or
may not be paid.

 Licensing e.g.
 FRANCHISING – Franchising is a form of licensing in which a parent
company (the franchiser) grants another independent company (the
franchisee) the right to do business in a prescribed manner.

 The right can take the form of selling the franchisor’s product, “using its
band name, production and marketing techniques, or general business
approaches”. Franchising e.g.

 One of the important form of franchising involves the franchisor supplying

an important ingredient to franchisee. For e.g.. Coca-Cola supplying Soft
drink syrup to its bottlers.

 Why Licensing & Franchising – key reason is because it neither requires

capital investment nor requires knowledge and marketing strengths in foreign
markets.
 CONTRACT MANUFACTURING –

 Under contract manufacturing , a company doing international

marketing contracts with firms in foreign countries to manufacture or
assemble the products while retaining the responsibility of marketing
the product.

 Contract manufacturing has following advantages :

 a. The company does not have to commit resource for setting up
production facilities.
 b. No investment risks.
 It enables the marketer to get started immediately, if the
production capacity in foreign country is well established.
 Disadvantages
a. In some cases, there will be the loss of potential profits from
manufacturing
b. Less control over manufacturing process
c. It has risk of developing potential customers.

 MANAGEMENT CONTRACT –
 Under management contract, the supplier brings together a package
of skills that will provide an integrated service to the client without
incurring the risk & benefit of ownership. Thus acc. to Kotler mgmt.
contracting is a low risk method of getting into a foreign market and
it starts yielding income right from the beginning.
TURNKEY CONTRACTS –

Turnkey contracts are common in international business in

the supply, erection & commissioning of plants as in case
of refineries, steel mills, cement etc.

It is basically an arrangement by the seller to supply a

buyer with a facility fully equipped and ready to be
operated by the buyer’s personnel, who will be trained by
the seller.

 A turnkey contractor may subcontract different

phases/parts of the project.
JOINT VENTURES –

Joint ventures is a form of association which implies

collaboration for more than a transitory period .It
encompasses many diverse types of joint overseas
operations, viz,
a. Sharing of ownership and management in an enterprise.
b. Licensing/Franchising agreements.
c. Contract manufacturing
d. Management contracts.

The essential feature of s joint venture is that ownership and

management are shared b/w a foreign firm and a local firm.
In some cases there are more than two parties involved.
One important advantage of joint venturing is that it
permits a firm with limited resources to enter more foreign
markets than might be possible under a policy of forming
wholly owned subsidiaries.

 THIRD COUNTRY LOCATION –

 When there are no commercial transactions between two nations
because of political reasons or when direct transactions between
two nations are difficult due to political reasons or the like. For e.g.
Taiwanese entrepreneur's found it easy to enter People’s Republic of
China through bases in Hong Kong.

 In the past, government of India of India did not permit trade with
South Africa and Mauritius.
 MERGERS AND ACQUISITIONS –

 ACQUISITIONS–

 An acquisition, also known as a takeover or a buyout, is the buying

of one company (the ‘target’) by another.

 An acquisition may be private or public, depending on whether the

acquiree or merging company is or isn't listed in public markets. An
acquisition may be friendly or hostile.

 In the case of a friendly transaction, the companies cooperate in

negotiations; in the case of a hostile deal, the takeover target is
unwilling to be bought or the target's board has no prior knowledge
of the offer
 MERGER-

 A merger happens when two firms agree to go forward as a single

new company rather than remain separately owned and operated.
This kind of action is more precisely referred to as a "merger of
equals".

 The firms are often of about the same size. Both companies' stocks
are surrendered and new company stock is issued in its place.

 For example, in the 1999 merger of Glaxo Wellcome and SmithKline

Beecham, both firms ceased to exist when they merged, and a new
company, GlaxoSmithKline, was created.
COUNTERTRADE –

Countertrade is a form of international trade in which

certain export and import transactions are directly linked
with each other and in which the import of goods are paid
for by export of goods instead of money payments.