Market Entry Strategies: A Detailed Analysis

Export Modes

(Low control, low risk, high flexibility). The most common mode of initial entry into international markets.

1. Indirect Modes

Suitable for a firm with limited international expansion objectives and resources that wants to enter gradually.

• Export Buying Agent: Individuals or companies that buy goods on behalf of other companies. They represent the foreign buyer and are located in the exporter’s country, acting in the interests of the overseas buyer.
• Broker: Specialists in contractual functions, bringing buyers and sellers together. Based in the home country (paid 5%).
• Export Houses: Companies that export many products and use their network to distribute other companies’ products, reducing administrative and shipping costs. However, they may sell competitive products or not promote yours effectively.
• Piggyback: A smaller, inexperienced company (rider) uses a larger company (carrier) to export to an area where the carrier already operates. The smaller company gains knowledge, while the carrier expands its portfolio at a lower cost. However, the rider may not maintain product quality.

2. Direct Modes

• Agent: A representative of the company in a foreign country who finds buyers for a product. Agents may have exclusive, semi-exclusive, or non-exclusive rights in a specific region.
• Distributor: A representative of the exporter who decides the conditions and prices of sale. The manufacturer loses control over the product.
• Cooperative Export: Often used by SMEs that need a partner to export. Both gain a wider portfolio and lower administrative and shipping costs.

Intermediate Modes

(Shared control/risk, split ownership).

• Contract Manufacturing: An entry strategy that allows partners to transfer knowledge and skills to create foreign sales. Production occurs in a foreign market to reduce costs and be closer to customers.
• Licensing: A way for a firm to establish local production in foreign markets without capital investment. It differs from contract manufacturing in that it is longer-term and transfers more value chain functions to the licensee. Examples include Coca-Cola and Pepsi.
• Franchising: Similar to licensing but includes more. Direct franchising involves the mother company controlling all franchisees, while indirect franchising uses a master franchisee to manage franchisees in a region. There are two contract types: brand or trademark franchising (similar to licensing) and business package franchising, which provides a whole package with name, technology, and equipment.
• Contract Management: Contracting a management team to run a subsidiary.
• Joint Venture or Strategic Alliance: Partnerships between two or more parties. A strategic alliance does not involve equity, while a joint venture can be a functional contract with equity, creating a new company, or without equity, implying shared risk and profits. Joint ventures can involve dividing the value chain (X) or each partner doing their own value chain activities (Y).

Hierarchical Modes

(High control, high risk, low flexibility). Firms own and control the foreign entry mode.

• Domestic Sales Representative: A sales representative located in the home country who travels abroad to perform sales.
• Sales Subsidiary: A firm has a subsidiary in the host country to generate sales, while the rest of the value chain remains in the home country.
• Sales and Production Subsidiary: Similar to a sales subsidiary, but production is also moved abroad. This is beneficial when the economy is growing and stable in the long term.
• Regional Headquarters: Created to coordinate host country activities. It can move only marketing and sales abroad or the entire value chain.
• Transnational Organizations: When a firm invests in a foreign-based facility, they can acquire an existing one (acquisition), which is common in saturated markets or for inexperienced companies, or create a new subsidiary from scratch (greenfield), allowing a fresh start.