{"id":4391,"date":"2020-08-18T08:24:06","date_gmt":"2020-08-18T08:24:06","guid":{"rendered":"https:\/\/commerceiets.com\/?p=4391"},"modified":"2020-08-18T08:24:06","modified_gmt":"2020-08-18T08:24:06","slug":"mode-of-entry-into-international-business","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/mode-of-entry-into-international-business\/","title":{"rendered":"MODE OF ENTRY INTO INTERNATIONAL BUSINESS"},"content":{"rendered":"\n

DISCUSS THE DIFFERENT MODE OF ENTRY INTO INTERNATIONAL BUSINESS?<\/strong><\/h3>\n\n\n\n

INTERNATIONAL BUSINESS:<\/strong> International busines<\/a>s consists of business transactions between parties from more than one country. The parties involved in such transactions may include private individuals, individual companies, groups of companies, or governmental agencies.<\/p>\n\n\n\n

MODE OF ENTRY INTO INTERNATIONAL BUSINESS<\/strong><\/p>\n\n\n\n

Mode of entry may be defined as the institutional mechanism by which a firm makes it products or services available to the consumers in the international market. The following are the various mode of entry into international business:<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

EXPORTING<\/strong><\/p>\n\n\n\n

Exporting is the easiest mode of entry into international business. Therefore most firms begin their international expansion using this model of entry. Exporting is the sale of products and services in foreign countries that are sourced from the home country. The exports are of two types:<\/p>\n\n\n\n

Direct Exports:<\/strong> These include the sale of goods from the firm to the seller overseas directly. In this firm experience first hand information about the market. There is no intermediary involved.<\/p>\n\n\n\n

Indirect Exports:<\/strong> In this, the exporter hires the expertise of someone else to facilitate the exchange. The intermediary charges the fee for its services. There are several types of intermediaries:<\/p>\n\n\n\n

  • Manufacturers\u2019 export agents:<\/strong> who sell the company\u2019s product overseas<\/li>
  • Manufacturers\u2019 representatives<\/strong>: who sell the products of a number of exporting firms in overseas markets<\/li>
  • Export commission agents:<\/strong> who act as buyers for overseas markets<\/li>
  • Export merchants:<\/strong> who buy and sell on their own for a variety of markets.<\/li><\/ul>\n\n\n\n

    ADVANTAGES OF EXPORTING<\/p>\n\n\n\n

    • It involves very little risk and low allocation of resources for the exporter.<\/li>
    • It increase sales and reduce inventories.<\/li>
    • Exporting also provides an easy way to identify market potential<\/li>
    • It establishes recognition of a name brand.<\/li>
    • If the enterprise proves unprofitable, the company can simply stop the practice with no diminution of operations in other spheres and no long-term losses of capital investments.<\/li><\/ul>\n\n\n\n

      DISADVANTAGES OF EXPORTING<\/p>\n\n\n\n

      • Exporting can be more expensive because of the costs of fees, commissions, export duties, taxes, and transportation.<\/li>
      • Exporting could lead to less-than-optimal market penetration because of inappropriate packaging or promotion.<\/li>
      • Exported goods could also be lacking features appropriate to specific overseas markets.<\/li>
      • Additional market share could be lost if local competition copies the products or services offered by the exporter.<\/li>
      • The exporting firm also could face restrictions against its products from the host country.<\/li><\/ul>\n\n\n\n

        LICENSING<\/strong><\/p>\n\n\n\n

        In this mode of entry, the manufacturer of the home country leases the right of intellectual properties, i.e., technology, copyrights, brand name, etc., to a manufacturer of a foreign country. The license is granted for a predetermined fee. The manufacturer that leases is known as the licensor<\/strong> and the manufacturer of the country that gets the license is known as the licensee<\/strong>. In essence, the licensee is buying the assets of another firm in the form of know-how or R & D. The licensor can grant these rights exclusively to one licensee or nonexclusively to several licensees.<\/p>\n\n\n\n

        ADVANTAGES OF LICENSING<\/p>\n\n\n\n

        • Low investment of licensor.<\/li>
        • Low financial risk of licensor.<\/li>
        • Licensor can investigate the foreign market.<\/li>
        • Licensee\u2019s investment in R&D is low.<\/li>
        • Licensee does not bear the risk of product failure.<\/li>
        • Any international location can be chosen to enjoy the advantages.<\/li>
        • No obligations of ownership, managerial decisions, investment etc.<\/li><\/ul>\n\n\n\n

          DISADVANTAGES OF LICENSING<\/p>\n\n\n\n

          • It limits future profit opportunities associated with the property by tying up its rights for an extended period of time.<\/li>
          • By licensing these rights to another, the firm loses control over the quality of its products and processes, the use or misuse of the assets, and even the protection of its corporate reputation.<\/li>
          • Both parties have to manage product quality and promotion<\/li>
          • One party\u2019s dishonesty can affect the other.<\/li>
          • Chances of misunderstanding.<\/li>
          • Chances of trade secrets leakage of the licensor.<\/li><\/ul>\n\n\n\n

            FRANCHISING<\/strong><\/p>\n\n\n\n

            In this mode, an independent firm called the franchisee<\/strong> does the business using the name of another company called the franchisor<\/strong>.<\/p>\n\n\n\n

            Franchising is mode in which the franchisee is granted permission to use a name, process, method, or trademark. And also the franchisor firm assists the franchisee with the operations of the franchise or supplies raw materials, or both.<\/p>\n\n\n\n

            The franchisor generally also has a larger degree of control over the quality of the product. Payment under franchising agreements is that the franchisee pays an initial fee and a proportion of its sales or revenues to the franchising firm.<\/p>\n\n\n\n

            EXAMPLES: The prime examples of U.S. franchising companies are service industries and restaurants, particularly fast-food concerns, soft-drink bottlers, and home and auto maintenance companies i.e. McDonald\u2019s, KFC, Holiday Inn, Hilton etc.<\/p>\n\n\n\n

            ADVANTAGES OF FRANCHISING<\/p>\n\n\n\n

            • Low investment.<\/li>
            • Low risk.<\/li>
            • Franchisor understands market culture, customs and environment of the host country.<\/li>
            • Franchisor learns more from the experience of the franchisees.<\/li>
            • Franchisee gets the R&D and brand name with low cost.<\/li>
            • Franchisee has no risk of product failure.<\/li><\/ul>\n\n\n\n

              DISADVANTAGES OF FRANCHISING<\/p>\n\n\n\n

              • Franchising can be complicated at times.<\/li>
              • Difficult to control.<\/li>
              • Reduced market opportunities for both franchisee and franchisor.<\/li>
              • Responsibilities of managing product quality and product promotion for both.<\/li>
              • Leakage of trade secrets.<\/li><\/ul>\n\n\n\n

                MANAGEMENT CONTRACTS<\/strong><\/p>\n\n\n\n

                Management contracts are contracts under which a firm basically rents its expertise or know-how to a government or company in the form of personnel who enter the foreign environment and run the concern.<\/p>\n\n\n\n

                This method of involvement in foreign markets is often used with a new facility, after expropriation of a concern by a national government, or when an operation is in trouble.<\/p>\n\n\n\n

                TURNKEY PROJECTS<\/strong><\/p>\n\n\n\n

                It is a special mode of carrying out international business. It is a contract under which a firm agrees to fully carry out the design, create, and equip the production facility and shift the project over to the purchaser when the facility is operational. The amount of relevant remuneration is charged for the same.<\/p>\n\n\n\n

                ADVANTAGES OF TURNKEY PROJECTS<\/p>\n\n\n\n

                • These projects are suitable for the large scale production.<\/li>
                • These projects are undertaken in collaboration with management contracts to achieve the highest level of efficiency.<\/li><\/ul>\n\n\n\n

                  DISADVANTAGES OF TURNKEY PROJECTS<\/p>\n\n\n\n

                  • The project completion time is lengthy hence there are higher chances of currency risks.<\/li>
                  • Due to lengthy project duration, the returns are not available in short time.<\/li>
                  • Turnkey operations also face all the problems of operating in remote locations.<\/li><\/ul>\n\n\n\n

                    CONTRACT MANUFACTURING<\/strong><\/p>\n\n\n\n

                    Contract manufacturing is another method firms use to enter the foreign arena or international business scenario. In this case, an MNC contracts with a local firm to provide manufacturing services. In this arrangement, the MNC subcontracts the production in two ways:<\/p>\n\n\n\n