Miss
2 Literature Review
2.1 Type of entry mode
For the sake of expanding sales, acquiring resources and minimizing risks, domestic firms commenced to engage in international business, which contains many factors such as marketing objectives, strategic reasons, behavior motivations or economic rationales in the process (Peng, 2006). For domestic firms, foreign market is far different from their own countries’, thus it is vital for these firms to choose an appropriate mode to enter foreign market.
Hill (2005) stated that there are normally six modes that a firm can choose to enter foreign markets: exporting, turnkey projects, licensing, franchising, initiating joint ventures with a host-country firm and establishing a new wholly owned subsidiary in the host country. Exporting, which means shipping goods abroad for sale or exchange, remains the most popular entry mode so far. Many firms in manufacturing industry act as exporters to initiate their global expansion and some may switch to other modes later. Diebold (Hill 2005) is an example to use this mode. Turnkey projects refer to projects in which clients pay contractors for designing and constructing new facilities and training personnel. The term “turnkey” means proverbial “key” to the facilities ready for operations since on completion of the project, contractors hand it to clients. In a licensing agreement, a licensor grants another entity the rights to use certain intangible property for a specified period, and in return, the licensee pays a royalty fee to the licensor (Hill, 2005). In specific, the intangible property includes patent, inventions, formulas, process, designs, copyrights and trademarks. As a specialized form of licensing, franchising is a project in which the franchiser sells not only the intangible property, but also the model of doing business to the franchisee (Hill, 2005). This is not one-off sales since the franchiser will provide assistance in running the business to the franchisee on an
2.1 Type of entry mode
For the sake of expanding sales, acquiring resources and minimizing risks, domestic firms commenced to engage in international business, which contains many factors such as marketing objectives, strategic reasons, behavior motivations or economic rationales in the process (Peng, 2006). For domestic firms, foreign market is far different from their own countries’, thus it is vital for these firms to choose an appropriate mode to enter foreign market.
Hill (2005) stated that there are normally six modes that a firm can choose to enter foreign markets: exporting, turnkey projects, licensing, franchising, initiating joint ventures with a host-country firm and establishing a new wholly owned subsidiary in the host country. Exporting, which means shipping goods abroad for sale or exchange, remains the most popular entry mode so far. Many firms in manufacturing industry act as exporters to initiate their global expansion and some may switch to other modes later. Diebold (Hill 2005) is an example to use this mode. Turnkey projects refer to projects in which clients pay contractors for designing and constructing new facilities and training personnel. The term “turnkey” means proverbial “key” to the facilities ready for operations since on completion of the project, contractors hand it to clients. In a licensing agreement, a licensor grants another entity the rights to use certain intangible property for a specified period, and in return, the licensee pays a royalty fee to the licensor (Hill, 2005). In specific, the intangible property includes patent, inventions, formulas, process, designs, copyrights and trademarks. As a specialized form of licensing, franchising is a project in which the franchiser sells not only the intangible property, but also the model of doing business to the franchisee (Hill, 2005). This is not one-off sales since the franchiser will provide assistance in running the business to the franchisee on an