ESTABLISHING MARKET ENTRY MODE

Establishing Market Entry Mode

 

KIMATI ELITRUDAH

BAPRM 42582

Once a company has decided to market in a foreign country, it must determine the best mode of entry. Its choices arc exporting, joint venturing and direct investment.  These routes to servicing foreign markets, along with the options that each one offers. As we can sec, each succeeding strategy involves more commitment and risk, but also more control and potential profits.

 

Importing. The simplest way to enter a foreign market is through exporting. The company may passively export its surpluses from time to time, or it may make an active commitment to expand exports to a particular market. In either case, the company produces all its goods in its home country. It may or may not modify them for the export market. Exporting involves the least change in the company's product lines, organization, investments or mission.

 

Indirect Exporting. Companies typically Start with indirect exporting, working through independent home-based international marketing intermediaries. Indirect exporting involves less investment because the firm does not require an overseas sales force or set of contacts. It also involves less risk. These home-based intermediaries – export merchants or agents, co-operative organizations, government export agencies and export-management companies - bring know-how and services to the relationship, so the seller normally makes fewer mistakes.

 

 Direct Exporting. Sellers may eventually move into direct exporting, whereby they handle their own exports. The investment and risk are somewhat greater in this strategy, but so is the potential return. A company can conduct direct exporting in several ways. It can set up a domestic export department that carries out export activities. Or it can set up an overseas sales branch that handles sales, distribution and perhaps promotion. The sales branch gives the seller more presence and programme control in the foreign market and often serves as a display centre and customer service centre. Or the company can send home-based salespeople abroad at certain times in order to find business. Finally, the company can do its exporting either through foreign-based distributors that buy and own the goods or through foreign-based agents that sell the goods on behalf of the company in exchange for an agreed fee or commission.

 

Joint Venturing. A second method of entering a foreign market is joint venturing joining with foreign companies to produce or market the products or services. Joint venturing differs from exporting in that the company joins with a partner to sell or market abroad. It differs from direct investment in that an association is formed with someone in the foreign country. There are four types of joint venture: licensing, contract manufacturing, management contracting and joint ownership.

 

Licensing is a simple way for a manufacturer to enter international marketing. The company enters into an agreement with a licensee in the foreign market. For a fee or royalty, the licensee buys the right to use the company's manufacturing process, trademark, patent, trade secret or other item of value. The company thus gains entry into the market at little risk; the licensee gains product-ion expertise or a well-known product or brand name without having to start from scratch. Coca-Cola markets internationally by licensing bottlers around the world and supplying them with the syrup needed to produce the product. Tokyo Disneyland is owned and operated by Oriental Land Company under licence from the Walt Disney Company. Licensing has potential disadvantages, however. The firm has less control over the licensee than it would over its own production facilities. Furthermore, if the licensee is very successful, the firm has given up these profits, and if and when the contract ends, it may find it has created a competitor.

 

Contract Manufacturing. Another option is contract manufacturing. The company contracts with manufacturers in the foreign market to produce its product or provide its serviec. Many western firms have used this mode for entering Taiwanese and South Korean markets. The drawbacks of contract manufacturing are the decreased control over the manufacturing process and the loss of potential profits on manufacturing. The benefits are the chance to start faster, with less risk, and the later opportunity either to form a partnership with or to buy out the local manufacturer.

 

 Management contracting, the domestic firm supplies management know how to a foreign company that supplies the capital. The domestic firm exports management services rather than products. Hilton uses this arrangement in managing hotels around the world. Management contracting is a low-risk method of getting into a foreign market, and it yields income from the beginning. The arrangement is even more attractive if the contracting firm has an option to buy a share in the managed company later on. The arrangement is not sensible, however, if the company can put its scarce management talent to better uses or if it can make greater profits by undertaking the whole venture. Management contracting also prevents the company from setting up its own operations for a period of time.