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Basic Modes of Marketing Entry
The mode of entry is the path or the channel set by a company to enter into the international market.
Ways to Enter Foreign Market
Some of the ways or modes of entering a foreign market are as discussed below.
Exporting is a cross-border sale of domestically grown or produced goods.
Indirect exporting is the safest way to enter the market because there is no direct exposure to the overseas market and its hazards. The organization is just selling their goods to a foreign market agent, who then sells it to an intermediary. A number of companies use indirect export as an entry technique to evaluate if their brand will be accepted in a foreign market.
In circumstances in which the foreign firm is receptive, an organization may adopt higher level of commitment, presence, and greater risk international market entry methods to further ingrain their position in the foreign market.
A direct export is similar to an indirect export, except it does not include an agent selling the product to the middleman. Direct exporting is a popular entrance mode for businesses that want to gain access to a foreign market while minimizing the risks linked with other entry methods.
Licensing happens when a company in a foreign market, known as the licensee, enters into an agreement with the licensor, who grants the licensee the right to utilize a valuable manufacturing technique, trademark, patent, or trade secret in exchange for a fee or royalty. The licensee shall manufacture and promote the licensor’s items in his allotted territory.
Following that, the licensee will pay the licensor royalties based on the product's sales volume. The producing company avoids high tolls and other trade obstacles, as well as currency swings, high transportation expenses, and political dangers.
The drawback of licensing is that the company has less influence over the licensee than it would if it had its own manufacturing facilities. Once the know-how is imparted, the foreign firm may begin to function independently after a few years, and the international firm may lose that market. As a result, the licensor must create a mutual benefit in working together, and one way to do so is to stay inventive so that the licensee continues to rely on the licensor.
When a small business employs another company to manufacture its products, this is known as contract manufacturing. It allows small business owners to start selling their goods without having to raise the significant sums of money required to develop and maintain a factory.
The contract manufacturer is frequently given a design or formula to copy or improve upon by the hiring business. Typically, the employing company concentrates on product marketing and sales.
For example, a small business, might desire to market speciality cleaning solutions based on a formula created by the owner. A contract manufacturer might be hired to build and package the cleaners according to the small business owner's specifications. The company would then be able to focus on finding new clients for its products and managing sales from a single location.
Management Contracting is an agreement between a project's investors or owners and a management firm hired to coordinate and oversee the contract.
A management company is hired by a business or firm to undertake specific tasks. The management firm will be paid for their efforts. The management business would be in charge of the enterprise's or a single department's operational control under the management contract. As a result, the management firm you select will be able to make all operational choices related to the function you've defined, namely marketing.
Joint ownership ventures are formed when a corporation joins forces with international investors to form a local business in which they both own and control a portion of the company. A corporation may purchase a stake in a local enterprise, or the two parties may form a joint venture. For economic or political reasons, dual ownership may be required. The company may not have the necessary financial, physical, or managerial resources to pursue the initiative on its own.
Alternatively, a foreign government may make joint ownership a requirement for admittance.
Direct Investment (Advantages & Disadvantages)
A corporation entering an international market through foreign direct investment makes a significant investment in the country. Mergers and acquisitions, joint ventures, and greenfield investments are some of the ways to get into international business using the foreign direct investment method.
This method of direct investment is feasible when market demand, market size, or market growth potential are sufficiently large to warrant the investment.
Foreign Direct Investment Benefits
Leverage low-cost labor, cheaper material, etc., to lower production costs and gain a competitive advantage over competitors
Many foreign companies can receive subsidies, tax breaks, and other concessions from local governments for investing in their country.
Foreign Direct Investment's Drawbacks
The company faces a significant amount of political risk, particularly if the government decides to enact protectionist laws to protect and support domestic businesses against overseas competitors.
This method necessitates a significant expenditure in order to join a worldwide market.
Piggyback marketing is a marketing approach in which two companies collaborate rather than compete to represent each other's complimentary items in a competitive market. Because both partners represent each other in their respective marketplaces, piggybacking is a cost-effective method.
It is vital to remember that piggyback marketing works best when the two companies selling complimentary products are working together.
Consider the case of a car manufacturer. Typically, a car manufacturer will purchase tyres or batteries from other businesses. Tires and automobiles are complimentary rather than competitive items.
It is a type of project that is built and sold to the buyer as a finished product. The contractor no longer owns the project once it has been established and handed over to the buyer.
For example, the local government has issued an invitation to contractors to submit proposals or tenders for the construction of a highway. Several contractors submit proposals, and the best of them is chosen. The roadway construction is delegated to the contractor. After negotiations, a specified amount is paid in cash to the contractor. The government has promised to pay the balance after the project is completed. After the work is completed, the contractor turns the project over to the authorities concerned.
Greenfield investment is a type of entrance in which a company starts from the ground up in a new market and opens its own stores while leveraging its knowledge. It entails asset transfers, talent management, proprietary technologies, and manufacturing know-how. It necessitates the ability to operate and manage in a different culture with its own set of business practises, labor force, and government restrictions.
The level of risk varies depending on the host country's political and economic conditions. Despite the risks, many businesses prefer this way of entry since it gives them complete control over strategy, operations, and profitability.
In the above ways, we can see that many alternative modes of entry are available for an organization to choose from and expand its business.
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