Choosing Best Entry Strategy

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Christopher Rocas
November 16, 2012
International Business
Choosing The Best Entry Strategy

Abstract

Gliders is a small firm that manufactures sneakers with an embedded wheel that allows the person wearing them to skate. Gliders has brand recognition and is constantly innovating to produced upgraded wheels, fashions, and comfort features. While Gliders is still in its infant stages, it has already generated $56 million US dollars in sales last year. While the company continues to increase domestic sales it has determined a next step for the company is expansion globally. Based on market research, Gliders has decided to target Europe and have its first launch be Germany. The company management will do extensive analysis determining the best medium to break into the market. They have the following options: Indirect Exporting, Direct Exporting, Licensing, Wholly-Owned Foreign Direct Invest and a joint venture.

Alternative 1: Indirect Exporting

Pros
No Initial Investment
Low Risk
Low Reversibility

Cons
Low Revenues
Low Profit
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Low Control
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It is fantastic that this option provides not initial investment, low risk and ease of reversing the indirect exporting. Expanding internationally for a company in today’s economy can be an extremely risky move. The reason I strongly advise this option is due to the fact the risk is near zero. If the Gliders aren’t taken well overseas there has been minimal investment into the expansion besides time (which all will require). This Indirect Exporting strategy is a great way for the company to experiment with overseas and sees if monetary investment and increased amount of effort are worth it.

The opposite side of this is that Indirect Exporting will result in low profits, low revenues and very little control of how the sales takes place in Europe. They will be risking a 5-year time frame of having zero control and low profits if indirect exporting is there choice. Without having complete control of marketing other competitors can attempt to absorb the market aggressively while you take a low risk low reward type approach.

Alternative 2: Direct Exporting

Pros
Low Initial Investment
Low Risk
High Control
High Reversibility

Cons
Low Profits
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Low Revenues

Direct exporting is an extremely similar option to Indirect Exporting except there is slightly more risk and an initial investment. While the profits are still relatively low as well as revenues it has minimal risk. They are in control of marketing and have sales/operations managers training individuals overseas. The expected amount of cumulative profits is near double in 5 years that is of Indirect Exporting with similar risks.

The cons of Direct Exporting are once again the low profits and revenues generated compared to other viable options.

I believe this is the strategy for a more conservative company that wants to test international expansion. It allows for nearly double the amount of profits versus indirect exporting and minimal risk. If after 5 years they have decided that the international market isn’t what they expected they could leave the market rather easily and be ahead $25M USD.

Alternative 3: Licensing

Pros
High Revenue
No Initial Investment
High Profits
Low Cost

Cons
High Risk
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Low Reversibility

Licensing is by far the most interesting strategy when you look at it initially. I personally left my table matrix alone and expected high profits with high risk.

My reasoning behind this was you were allowing a company to basically clone your company and only pay 7% royalty fees. While this is indeed “free money” with minimal time invested upfront, the thought of having another company push your product heavily and pay you to do it seemed very...
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