ENTRY STRATEGIES IN FOREIGN MARKETS
The content of this supplementary note links with the following chapters: 10 (page 249), 13 (page 300) The key role of international development is discussed in Chapter 10, in view of the globalisation of the European and of the world economy. One of the critical questions to examine in establishing an international development strategy is to select the entry mode in the target foreign country and the distribution channel. Several alternative entry strategies can be considered, as shown in Figure Web 13.1, from a base of either domestic or foreign production. Figure Web 13.1 Entry Strategies in Foreign Markets Domestic production Indirect exporting
Casual exporting Trading companies Export management company Co-operation in exporting
and / or
International representative Local agents Foreign distributeurs Commercial subsidiary
Contract manufacturing Licensing and franchising Joint ventures 100 per cent ownership
Source Tepstra and 8 edition
Market-Driven Management: Supplementary web resource material
© Jean-Jacques Lambin, 2007 Published by Palgrave Macmillan
13: ENTRY STRATEGIES IN FOREIGN MARKETS
Indirect export The market-entry technique that offers the lowest level of risk and the least market control is indirect export, in which products are carried abroad by others. The firm is not engaging in international marketing and no special activity is carried on within the firm; the sale is handled like domestic sales. There are several different methods of indirect exporting: • The simplest method is to deal with foreign sales through the domestic sales organisation. For example, if a firm receives an unsolicited order from a customer in Spain and responds to the request on a one-off basis, it is engaging in casual exporting. Alternatively, a foreign buyer may approach to the firm. Products are sold in the domestic market but used or resold abroad. This type of arrangement may arise if, for example, a foreign department store has a buying office in the firm’s home country. If the exporting firm does not follow up the contact with a sustained marketing effort, it is unlikely to gain future sales. A second form of indirect exporting is the use of international trading companies with local offices all over the world. Perhaps the best-known trading companies are the Sogo Sosha of Japan such as Mitsui or Mitsubishi. The size and market coverage of these trading companies make them attractive distributors, especially with their credit reliability and their information network. The trading companies of European origin are important primarily in trade with former European colonies, particularly Africa and Southeast Asia. The drawback to the use of trading companies is that they are likely to carry competing products and the firm’s products might not receive the attention and support the firm desires. A third form of indirect exporting is the export management company located in the same country as the producing firm and which plays the role of an export department. That is the firm has the performance of an export department without establishing one in the firm. The economic advantage arises because the export company performs the export function for several firms at the same time. The producer can establish closer relationships and gains instant foreign market contacts and knowledge. The firm is spared the burden of developing in-house expertise in exporting. The method of payment is the commission and the costs are variable. Export management companies handle different but complementary product lines which can often get better foreign representation than the products of just one manufacturer.
Indirect export can open up new markets without requiring special expertise or investment. Both the international know-how and the sales achieved by...