9.3c - Methods of Entering International Markets Flashcards
What are the main methods that a business could use to start operating in other countries?
- Exporting
- Licensing
- Alliances
- Direct investment
Direct exporting definition
When a business markets and sells a product into an international market by itself
Indirect exporting definition
When a business gets another business with local knowledge to market a product in an international market
Advantages of exporting to operate in other countries:
- Lower risk than other strategies
- Less investment than other strategies
- Uses existing facilities to produce products (economies of scope)
Disadvantages of exporting to operate in other countries:
- Import tariffs and quotas may increase price of product
- May incur transport costs
- Infrastructure can be expensive
Licensing definition
When another company either buys stock to service local demand or is given permission to manufacture the products and sell in another country
Advantages of licensing to operate in other countries:
- Low risk (market development)
- Speeds up entry
- Avoiding import tariffs and quotas
- Infrastructure is already in place
Disadvantages of licensing to operate in other countries:
- Lack of control over marketing
- Licensee may gain enough knowledge to become a competitor
- Do not benefit from economies of scope
What can licensing include?
- IP
- Franchising
Alliances definition
When a business works with a foreign business to create a new company that they each own a part of
Advantages of alliances to operate in other countries:
- May not be viewed as a foreign company
- Risk is spread
- Making specialist use of knowledge
Disadvantages of alliances to operate in other countries:
- More significant risk
- Starting brand name from scratch
- Requires cooperation between differing businesses who may have different objectives and cultures
Direct investment definition
When a business physically sets up in international locations or takes over a foreign business
Advantages of direct investment to operate in other countries:
- Gain knowledge of local market
- Market development as opposed to diversification
- Allows for use of specialist skills
- Enter quickly
- Economies of scale and possibly synergies
Disadvantages of direct investment to operate in other countries:
- High risk
- Only possible with secure financial resources
- Needs clear strategy
- May be seen as foreign outsider
- Negative reputations of MNC’s
