Market Expansion Strategies and Entry Modes in International Business

Market expansion strategies (concentration-specialization and spreading-flexibility)

Motivation for internationalizing: Proactive and Reactive:

• Reactive: market-competitive environment-political environment-economic environment-chance occurrence-extra inventory-exporting.
• Proactive: expanding sales-launch an offensive-power & prestige, lower costs of labor-less stringent rules-extend life of a product.

Rules of entry mode: Naive-Pragmatic – strategy.

Entry modes: Exporting-Contractual- Investment.

• Exporting: Types:
  • Direct (ad: control foreign markets-good info feedback-better protection of trademarks. Dis: higher start-up costs-high investment-info requirements)
  • Indirect (ad: fast market access-Little commitment-export management is outsourced. Dis: Little control over distribution-wrong choice of distributors-Potentially lower sales)
  • Intra-corporate (export intermediaries: Export management company-associations-international trading companies)
• Contractual: Types:
  • Licensing (ad: quick expansion-low risk-circumventing trade barriers. Dis: low profit-breach of contract-licensee becomes future competitor)
  • Franchising (ad: low political risk-low cost-expansion. Dis: conflicts with franchisee-requires monitoring)
  • Turnkey Projects (when clients pay contractors to design and construct new facilities. Ad: when foreign direct investment is limited. Dis: risk of revealing secrets)Management contract(one company provides to another managerial expertise. Ad: minimum investment-minimum political and economic risks. Dis: low profit-transfer knowledge to contractee)
• Investment: FDI (foreign direct investment: when a firm invests in facilities in a foreign country):
  • Acquisition (ad: quick market penetration-synergy. Dis: high acquisition costs-unforeseen problems. Greenfield (Ad: ownership advantages-locational advantages. Dis: high financial risks-unforeseen problems)Local manufacturing(ad: job creation-low trade barriers. Dis: expropriation-large capital investment)Assembly(Ad: circumventing trade barriers-local labor. Dis: local product laws)Commercial Subsidiaries(Ad: close to customers-info about clients. Dis: costs)Joint Venture(ad: maximum profits-sharing of resources. Dis: conflicts with partners-loss of control)