International Market Entry Modes and Strategies

Selecting and Managing Entry Modes

Foreign market entry options are categorized into three primary methods, each with distinct subtypes:

• Trade: Export, import, and countertrade.
• Contract: Licensing, franchising, management contracts, and turnkey projects.
• Investment: Wholly owned subsidiaries, joint ventures, and strategic alliances.

Exporting and Importing

These represent the most common methods of buying and selling internationally.

Developing an Export Strategy

• Identify potential markets.
• Match needs to organizational abilities.
• Initiate meetings.
• Commit necessary resources.

Direct vs. Indirect Exporting

• Direct Exporting (Selling to buyers): Utilizing sales representatives or distributors.
• Indirect Exporting (Selling to intermediaries): Utilizing agents, export management companies, or export trading companies.

Forms of Countertrade

Countertrade is often utilized by nations lacking adequate hard currency. Risks include price fluctuations of bartered goods on world markets.

• Barter: Direct exchange without money (the oldest form).
• Counterpurchase: Sale to a nation in return for a promise of future purchase.
• Offset Agreement: Offsetting a hard-currency sale with a future hard-currency purchase.
• Switch Trading: Selling an obligation to purchase from a country.
• Buyback: Exporting industrial equipment in return for products produced by that equipment.

Export and Import Financing

Financing methods vary by the level of risk assumed by the exporter versus the importer:

• Open Account: Highest exporter risk, lowest importer risk.
• Documentary Collection: Moderate risk for both parties.
• Letter of Credit: Lower exporter risk, higher importer risk.
• Advance Payment: Lowest exporter risk, highest importer risk.

Documentary Collection vs. Letter of Credit

• Documentary Collection: A bank acts as an intermediary without accepting financial risk.
• Letter of Credit: The importer’s bank guarantees payment to the exporter upon fulfillment of terms.

Licensing and Franchising

• Licensing: A company (licensor) grants another firm (licensee) the right to use intangible property for a specific time.
• Franchising: A company (franchiser) supplies another (franchisee) with intangible property over an extended period.

Investment and Project Strategies

• Turnkey Project: A company designs, constructs, and tests a production facility for a client.
• Wholly Owned Subsidiary: Full ownership of foreign operations.
• Joint Venture: A partnership between two or more firms to create a new entity.
• Strategic Alliance: A collaborative agreement between firms to achieve mutual goals.