Market Entry Modes

Topics: Joint venture, International trade, Investment Pages: 8 (2813 words) Published: April 1, 2012

One of the most significant decisions to be taken in business is how to enter a new overseas market because of commitments to be made; commitment in terms of dollars to be invested, personnel for managing the international organization, and determination to stay in the market long enough to realize a return on these investments, therefore selecting the most appropriate market entry mode is vital. A mode of entry into an international market is the channel which the organization employs to gain entry to a new international market. In this report I will go through different alternatives of Market entry divided into two main methods; direct and indirect each sub-categorized into several options. Here I will be considering modes of entry into international markets such as the Exporting, Contract manufacturing, Franchising, Strategic International Alliances, International Joint Ventures and Foreign Direct Investment. In this section examples of companies and their strategy and my own experience will be presented.  Finally stages and strategy of international marketing strategy using SOSTAC plan (Situation, Objectives, Strategy, Tactics, Actions and Control) will be covered.

International market entry methods:
Exporting accounts for some 10 percent of global economic activity. [1] Exporting can be either direct or indirect. Direct exports represent the most basic mode of exporting, capitalizing on economies of scale in production concentrated in the home country and affording better control over distribution. With direct exporting, the company sells to a customer in another country. This method is the most common approach employed by companies taking their first international step because the risks of financial loss can be minimized. However more information will be needed to choose the market and more costs than indirect method the company will get more feedback from targeted countries and have Control over selection of foreign markets.

Indirect exporting usually means that the company sells to a buyer (importer or distributor) in the home country, which in turn exports the product. Therefore indirect exporting the sale is like a domestic sale. In fact the firm is not really engaging in global marketing, because its products are carried abroad by others. Such an approach to exporting is most likely to be appropriate for a firm with limited international expansion objectives. This method may also be adopted by a firm with minimal resources to devote to international expansion, which wants to enter international markets gradually, testing out markets before committing major resources and effort to developing an export organization. Indirect exporting can be achieved using Domestic Purchasers, Trading companies piggybacking and export management companies. Therefore it has advantages of fast market access, little or no financial commitment and low risk. From the other side the company will have little or no control over distribution, sales and marketing, and will not fully learn how to operate overseas. Choosing direct or indirect modes as well established form of operating in foreign markets should be wise and with evaluating the company resources. The below example will show my own experience regarding the export mode, which is a Malaysian industrial lubricant manufactures approach to enter the Middle East market. The company A, who is selling the products through direct export into South East market, intended to enter the Middle East. As an SME, the company could not get enough information to of the market, competitors and procedures and approvals needed to enter the tenders which the common way to purchase specialty industrial lubricants. During 3 years of effort the achievement is not considerable. The solution was to appoint a local distributor and marketing arm, which has the experience and enough information of the market. The sales during next two years has gone up sharply with...
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