The mode of entry is the path or the channel set by a company to enter into the international market. Many alternative modes of entry are available for an organization to choose from and expand its business.
Some of the basic modes or paths companies use to enter into the global market are as follows −
For some companies, internet is a new mode of marketing while for some it is the only source of marketing. With the change in recent trends, a large number of innovative enterprises promote their goods and services on the internet through E-marketing.
For example, online shopping websites like Amazon provide a wide range of products for all age groups. A customer only needs an active internet connection to browse through the website and order any product of his choice. The product gets delivered at your doorstep and shopping is made simple and easy with E-marketing.
Licensing is a process of creating and managing a contract between the owner of a brand and a company which wants to use the brand in association with its product. It refers to that permission as well which is given to an organization to trade in a particular territory. Licensing further has different channels namely.
It is that form of business where the owner of a firm or the franchiser distributes his products and services through affiliated dealers or the franchisees. Franchising comes with its own benefits. The franchiser here provides brand name, right to use a developed business concept, expertise, and also the equipment and material required for the business.
For example, Domino’s Pizza, Pizza Hut, and McDonald’s are a few fast food chains we can’t do without. They have a significant presence around the world. However, they have standard recipes and follow the same techniques across all the branches. Such aspects are governed and monitored by the main branch or the franchiser.
It is a type of project which is constructed and sold to buyer as a complete product. Once the project is established and handed over to the buyer, the contractor no more holds any ownership over it.
For example, the local government has published an invitation for contractors to make proposals or put in their tenders for the construction of a highway. Many contractors put forth their proposals and the best out of all is chosen. The contractor is assigned the task of constructing the highway. A certain amount is paid in cash to the contractor after negotiation. The government promises to pay the remaining amount after the completion of the project. After the work is finished, the contractor hands over the project to the concerned government. This is an example of turnkey contracts.
The companies or individuals who handle the business or market representing their home country in some foreign country are called international agents and distributors. These agents may work with more than one enterprise at a time. So, their level of commitment and dedication towards achieving their goals should be high.
International distributors are like international agents; the only thing that makes them different is that the distributors claim ownership over the products and services whereas agents don’t.
For example, travel agents who book tickets and deal with the passport and visa issues of their clients are international agents. Amway with its large variety of products being distributed in more than one country is an example of international distributor.
A large number of companies share the international market ground collaboratively. These companies collaborate while remaining apart and distinct based on non-equity strategic alliance. The companies may or may not belong to the same countries.
For example, Maruti Suzuki’s is a strategic alliance between the Government of India, under the United Front (India) coalition and Suzuki Motor Corporation, Japan.
When two parties having distinct identities come together to establish a new company it is known as a joint venture. The profit gained and also the loss incurred by the company is shared or borne by both the parties.
For Example, Hulu is a profitable joint venture extremely popular as a video streaming website. It is a joint venture of NBC Universal Television Group (Comcast), Fox Broadcasting Company (21st Century Fox), and Disney-ABC Television Group (The Walt Disney Company).
When a company invests in a new project, plant or machinery overseas, i.e., at the global level, it is said to be undertaking overseas manufacturing. The major advantage is that the business suits the existing local standards, and the products match with the demands of the customers of that particular area.
International Sales Subsidiary is to a certain extent like overseas manufacturing. However, it is less risk prone when compared to overseas manufacturing. It comes with its own set of benefits too. It possesses the characteristics of a distributor authorized by a local company. A project or plant established in some foreign country but governed by a different company in the home country is international sales subsidiary. This is also referred to as Foreign Direct Investment (FDI).
We have learnt about the different modes of entry into the international market and we can summarize it by marking the stages of internationalization. Some companies do not aim to expand their business overseas and thus need not worry about single stage but enterprises who tend to expand their business globally need to consider the stages represented above through various modes.