International Market Entry Strategies: Export, Licensing & FDI
International Market Entry Strategies
Export Licenses FDI
Indirect Distribution Agreements JV- Acquisition-Greenfield
Direct Franchises
Manufacturing contracts
Patent License
Low level risk control or potential profit High level
Commitment of resources
Dissemination risk to be taken
Reactive (push) Proactive (pull)
Domestic market mature and saturated Corporate philosophy
Legal restrictions Perception of growth opportunities
Increasing costs Niche opportunities
Unfavourable economic conditions Imitation of competitors
Unfavourable demographic changes Following the customers
Facilitating factors Technology acquisition
Accumulation of experience
Decreasing barriers to international trade
Enhanced communication technologies
Managers drive and vision
Learning from other firms’ experience.
Other pull factors
Market development: market size, market growth, access to regional and global market, market structure
Resources exploitation or asset acquisition: Raw materials availability, Cheap unqualified labour force,
qualified labour force, innovative technological assets including brands and assets belonging to people/firms.
Efficiency enhancement: Cost of resources adjusted with productivity, Costs of other production factors,
Existence of a regional integration agreement favouring the setup of firms networks.
| PROS | CONS | |
|---|---|---|
| Indirect exports (piggy back) (foreign buyer, Agent or foreign companies) | Shared costs Less risky, company can use knowledge on markets | Lack of control in marketing, high dependency on partners. |
| Direct Exports | More control over exports High number of marketing actions More freedom for market selection | Investment and risk, Low flexibility Issues with transport, duties or barriers. |
| License Agreements | Quickness, less costly, use of local knowhow, reduced investment | Partner selection Control over licenses Limited to contract Hard to keep same standards |
| Joint Venture (partial acqui) | Shared costs/risks Quickness Resource exchange Local partner relationship use | Partner selection Cultural differences Shared control, Less independence Opportunistic behaviours from partners. |
| Full Acquisition | Avoid initial market entry costs, takes advantage of knowhow and relationships. Company already settled: less risk Quick cash flows | Difficulty of integration Synergies may not materialize High exit barriers Complexity in firm evaluation |
| Greenfield Development | Full control New image Long term profitability Avoids restrictions and inertia | Full costs and risk Cultural or geographical distance Takes time to recover the investment Uncertainty |