In an increasingly globalized world, many businesses may find international expansion to be an attractive option for market expansion. Entering a foreign market is not easy however, and there are multiple options for any company looking to enter a foreign market. A company can enter a new country in several ways: as an exporter; through a licensing agreement; in a joint venture; or by way of a wholly owned subsidiary. It is important for managers to understand these different entry strategies before entering a new country.
Exporting is the simplest method of entering a foreign market. By exporting to a foreign country, a company is able to enter this country without actually establishing itself in the country. The company must simply manufacture products that can then be shipped to the foreign country. Exporters can take two forms, direct exporters and indirect exporters. Direct exporters sell directly to foreign buyers and may have sales teams in those countries. Indirect exporters rely on domestic intermediaries who broker the relationship with foreign buyers.
Licensing is a good strategy for a company that has an in demand product or brand, but lacks the resources to expand internationally. When a company licenses its products in a foreign country, it sells the rights to manufacture the product in a foreign country to another manufacturer. This means that a company does not need to invest in developing the market but can simply collect payment from a foreign firm.
A joint venture involves entering a new market with a local partner. Joint ventures have the advantage of providing companies with a partner who knows the local environment well. This means that there is less risk of failing due to an inability to understand local customs, laws or culture. The disadvantage of a joint venture is that it does not give a company total control over the operation; the firm must be able to work well with its foreign partner to succeed.
Wholly Owned Subsidiary
Entering a foreign market with a wholly owned subsidiary involves creating a local firm without the aid of a local partner. There are two ways of doing this. The first is through what is called greenfield development. This involves creating a new organization in the foreign country from the ground up. The second method is what is referred to as brownfield development. This involves purchasing an existing company in a foreign country. Brownfield developments can be beneficial because they offer local expertise, but they can be difficult because there may be resistance from those in the company to new ownership.