What are the various modes of entry in international business which could be used a part of strategy to enter foreign market. -MBA Notes

Answer:
After scanning the best potential international markets which meet the corporate competitiveness criteria of the firm, the firm has to evaluate the most profitable way of market entry so as to sell its products and services to potential customers in these markets.

 
There are several methods for international market entry- exporting, franchising, licensing, joint venture and wholly owned subsidiary. The entry method suitable to firm requirement shall depend on a variety of factors, such as the nature of firm’s product or service, the conditions for market penetration, entry and exit barriers and financial commitment required for getting into international markets.

 The various modes of entry in international business are:

Mode	Exporting
Factors favouring the entry mode in target market	1. Opportunities for limited sales in the target country. 2. Chances product or new product adaptation. 3. Distribution channels are usually close to manufacturing sites. 4. Economies of scale cannot be attained in production and logistics, hence high production cost in domestic market Liberal import policies of target country. 5. High political risk in target country.
Advantages	1. Minimises the potential risk in trade as firms need not invest in target market. 2. Ease in market entry 3. Better utilisation of production facility and resources
Disadvantages	1. Trade barriers and tariffs and other cost make products and services uncompetitive. 2. In case of far away market, transport, packaging and logistics costs put additional burden. 3. Problems in accessing the local market information. 4. Firm is viewed and regarded as an alien and outsider.
Mode	Licensing
Factors favouring the entry mode in target market	1. Firms are facing import control and investment barriers for entry. 2. Country provides protection to domestic industry and allows foreign firms through licensing or franchising only. 3. If the firms foresee low sales potential in target market. 4. If the firms foresee large cultural distance in potential market. 5. Firm foresee that licensee lacks ability to become a potential competitor in future
Advantages	1. Licensing minimises risk and investment of licensor, i.e. exporter. 2. Ensures speed in entering the target market. 3. Licensing help in circumventing the various trade barriers 4. Licensing offers higher return on investments as investment from firms is virtually zero as product technology offering.
Disadvantages	1. In licensing, firm lack the control of market and use of assets in target market. 2. Sometimes, licensee becomes potential competitor. 3. When we give license to other companies we have share our technical knowhow and R&D with them This results in proliferation as the licensee may use the knowledge for other purpose. 4. Usually, the license period is limited and offsets firm’s chances for long term flows of profits.
Mode	Joint ventures
Factors favouring the entry mode in target market	1. When there are import barriers in target market. 2. When firm have large cultural distance from target markets and its way of functioning. 3. Firms itself can employ all resources needed to tap market. 4. Country prescribes certain percent of equity participation. 5. There are potential chances of some political risk and expropriation. 6. A local partner is better in distribution knowledge, technical skills, natural resources, brand name,etc.
Advantages	1. This method overcomes the problem of ownership restrictions and cultural distance in target markets. 2. Joint venture helps in combining the resources of foreign and local companies. 3. Joint ventures provide chances for learning from partner. 4. Firm is viewed and regarded as insider. 5. Firm require less finances as local firm also contribute.
Disadvantages	1. Joint ventures are prone to disputes and are difficult to manage as power and authority is diluted. 2. It is tough to control the administrative, strategic and operational decisions. 3. Joint ventures has higher risk exposure than exporting and licensing 4. Firm’s technical and scientific knowledge get spilled over to local partners and they may eventually become competitor for the firm.
Mode	Wholly owned subsidiary
	1. High import barriers in firms and foreign ownership are allowed. 2. There is little cultural distance in target country. 3. The firm has good sales potential in target market. 4. There is low political risk for the firm.
	1. Firm has good knowledge of local market and accordingly devise strategies. 2. Firm can apply specialised skills in good manner. 3. Chances of know-how proliferation get minimised. 4. The firm is viewed as an insider.
	1. This method has greater risk than other modes of entry. 2. It requires more financial and non financial resources and commitment from firm. 3. It is possible that firm could not manage the local resources due to change in working conditions and technology.

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