Question

'There is no one best way to enter foreign markets. It is a case of horses for courses.’ discuss this statement considering advantages and shortcomings of market entry strategies within the context of host-country characteristics. support the discussion with relevant examples.

Answer 1

According to me this statement means that there i some connection between getting out of the gates early or first in a race. The first entrant in to the market normally has the strongest grip in the market.As far as there is no good way to enter a foreign market is concerned, I disagree and I certainly think that with proper research and strategic planning a company can successfully transition into foreign markets.

Following are certain advantages and disadvantages of Different Market entry Strategies:

1 Indirect Export It refers to sale and purchase of goods or service through some domestic intermediary. Example Oil, Metals or other commodities can be sold through Brokers.

Advantages:

It has low entry cost. It has low financial risk.Domestic Intermediary has the responsibility of market entry procedures.There is less requirement of staffing and marketing costs are also low.

Disadvantages

The profits are low. There is full dependence upon intermediary who can turn to be fraudulent. There is lack of knowledge of foreign markets. The intermediary itself can start production thus threatening our business.

2. Direct Export

It involves direct exporting through a foreign representative office or foreign distribution network.

Advantages.

It provides direct contact with foreign markets. We can have direct relation with foreign customers. We are aware of foreign market signals permanently and can respond accordingly.

Disadvantages

It is very expensive to have a foreign office and to maintain such huge network. The transportation costs are high and there are certain trade barriers also.

3.Licensing

It refers to sales abroad of rights covered by patent or design or any intellectual property to be used for commercial purposes.

Advantages

It ensures regular and steady income. Entry costs are low.The financial risk is low. The foreign presence can be gained easily. This method saves on expenses of huge staff. Licensee get to know the local conditions.

Disadvantages

Quality cannot be properly maintained over the foreign markets. The licensee may turn to be disloyal or fraudulent. There is likelihood of loosing control over foreign technologies and know how.

4. Joint Venture Subsidiary

As the name suggests it refers to creation of foreign subsidiary jointly controlled by the parent company and the foreign partner.

Advantages

It leads to creation of synergy factor. There is better sharing of knowledge and experience of two parties. Risk is divided between two parties.

Disadvantages

Entry cost is very high. There is risk of conflict between two parties.The registration procedure is complicated.

5. Creation of wholly owned subsidiary

It means creating a foreign subsidiary with 100% control by the foreign company.

Advantages

The company has full control over the subsidiary. It results in high profitability. It enhances the image of such company in local market also.

Disadvantages

The entry cost is high. The risk factor is high as there is 100% control and risk is not divided. The registration procedures are complicated.

6.Mergers and Acquisitions.

It refers to the merger or the acquisition of existing foreign entity.

Advantages

There is great advantage of economies of scale. There is combination of resources and knowledge of local company and foreign partner. There is possibility of capturing huge market share.

Disadvantages

This is a costly affair. Risk involved is high. In case of acquisition purchase consideration has to be determined. In case of merger proper ratio of profit and loss distribution has to be determined. In mergers and acquisitions some people may loose jobs which may cause resentment. It also calls for necessity of integrating the entire company into present operations.