Explain different modes of entry into international business
Answers
Foreign market entry modes or participation strategies differ in the degree of risk they present, the control and commitment of resources they require, and the return on investment they promise.[1]
There are two major types of market entry modes: equity and non-equity modes. The non-equity modes category includes export and contractual agreements.[2] The equity modes category includes: joint venture and wholly owned subsidiaries.[3]
Exporting
Exporting is the process of selling of goods and services produced in one country to other countries.[4]
There are two types of exporting: direct and indirect.
Direct Exports
Direct exports represent the most basic mode of exporting made by a (holding) company, capitalizing on economies of scale in production concentrated in the home country and affording better control over distribution. Direct export works the best if the volumes are small. Large volumes of export may trigger protectionism. The main characteristic of direct exports entry model is that there are no intermediaries.
Passive exports represent the treating and filling overseas orders like domestic orders.[5]
Types
Sales representatives
Sales representatives represent foreign suppliers/manufacturers in their local markets for an established commission on sales. Provide support services to a manufacturer regarding local advertising, local sales presentations, customs clearance formalities, legal requirements. Manufacturers of highly technical services or products such as production machinery, benefit the most from sales representation.
Importing distributors
Importing distributors purchase product in their own right and resell it in their local markets to wholesalers, retailers, or both. Importing distributors are a good market entry strategy for products that are carried in inventory, such as toys, appliances, prepared food.[6