An international entry mode is an institutional agreement necessary for the entry of a company’s products, technology and human capital into a foreign country or market. The reluctance of firms to change entry modes once they are in place, and the difficulty involved in doing so, make the mode of entry decision a key strategic issue for firms operating in today’s rapidly internationalizing market place. The choice of mode will depend on internal characteristics (eg firm size, international experience) and external characteristics (eg the sociocultural distance between the host country and the home country) as well as the trade-off between desired mode characteristics (risk adverse, control and flexibility). The diagram below conveys 3 broad categories of modes of entry, and their fundamental trade offs.
Further to the issues discussed above, no matter which of three of the export modes the manufacturer uses in a market, it is important to think about what level of ‘mindshare’ the manufacturer occupies in the mind of the export partner, as there has been a strong proven correlation between mindshare levels and how willing the export intermediary is to place on company brand in front of another, or how likely the intermediary is to defect. Good mind share will depend on scoring well across the three drivers of commitment and trust, collaboration and mutuality of interest & common purpose.
Baring in mind the factors discussed above we will now review the different types of entry modes, beginning with export modes, as they are typically the modes used in initial entry to international markets, as they require a lower financial investment than other modes and can be viewed as a ‘toe in the water; for in experienced and smaller firms or where there may be risks (eg political, economic environmental) preventing FDI. The three major types of exporting are indirect, direct and cooperative. Indirect export modes are modes in which the...