Module 3 Essay International Expansion PDF

Preview

Summary

Essay on International expansion...

Description

Running Head: INTERNATIONAL-EXPANSION ENTRY MODES

International-Expansion Entry Modes Student Name University Name

INTERNATIONAL-EXPANSION ENTRY MODES

2

International-Expansion Entry Modes International-expansion entry modes refer to the method in which a company decides to pursue expansion into a new country or region's market. In this essay, I will describe the five most common international- expansion entry modes and discuss each of their advantages and disadvantages. The international expansion consists of the following modes: ·

Exporting

·

Licensing and Franchising

·

Partnering and Strategic Alliance

·

Acquisition

·

Greenfield Venture The first mode examined is exporting. According to Saylor Academy, “exporting is the

sale of products and services in foreign countries that are sourced from the home country” [ CITATION Car11 \l 1033 ]. A company using this mode has its advantages and disadvantages. One advantage is that it is the easiest mode and thus the mode that the majority of companies choose to expand into international markets. The reason this mode is easy is that the company does not launch a brick-and-mortar presence in a foreign country, thus huge expenses are avoided. The low costs of using this method make this entry mode popular with small businesses and entrepreneurs[ CITATION Car11 \l 1033 ]. The company sells its product wholesale to an importer, and the importer sells the product in a way that makes them a profit[ CITATION Mic192 \l 1033 ]. Exporting as an international entry mode is considered the least risky and easiest to bounce back from if the venture should fail. A disadvantage of using

INTERNATIONAL-EXPANSION ENTRY MODES

3

exporting as a mode of international entry is the addition of a middle man between you and your customers. Also, the importer or middleman will want your product at a lower price than you normally would sell it for[ CITATION Mic192 \l 1033 ]. Another disadvantage is the cost of transporting goods to another country can be expensive and have undesirable effects on the environment. More disadvantages of exporting as a mode of international expansion are tariffs which cause a company to lose profits and the loss of company control over product operations causing the company to pay a distribution partner a fee to perform those services[ CITATION Car11 \l 1033 ]. The next mode of international expansion is Licensing and Franchising. The payment from another person or business for use of your name, trademark, manufacturing process and products is a licensing agreement or franchise. Licensing is used for intangible property such as trademarks, patents, and production techniques. An advantage to licensing is the potential to make a large profit because the licensing from the company requires very little investment. A disadvantage is that because the license has been purchased it removes control over the production and marketing of the product potential returns from manufacturing and marketing can be lost [ CITATION Bab19 \l 1033 ]. A franchise is the granting by a company to allow a foreign company the right to use its brand and to sell its product or service[ CITATION Bab19 \l 1033 ]. One advantage of this type of entry mode is that it allows a company to establish a brick-andmortar presence in another region or country with the smallest amount of risk to the company. The majority of the risk is taken on by the person who purchases the franchise [ CITATION Mic192 \l 1033 ]. The third mode is partnering and strategic alliance. A contractual agreement between two or more companies specifying that all parties will collaborate for a certain amount of time with

INTERNATIONAL-EXPANSION ENTRY MODES

4

the same goal[ CITATION Car11 \l 1033 ]. One advantage of using this mode to enter the international market is the partnership/alliance with a local company. A local company understands the local culture, market, and how to conduct business in that market. Another advantage of this mode of entry is the access to customer relationships that are already formed with a partner who has established a trustworthy brand that is recognized in the market. Also if a small company needs investments to move into an international market then this mode is advantageous to them because it helps with the cost and risks. A disadvantageous of using partnerships and alliances is the risk that you will relinquish direct control and your goal may not match your partner's goal [ CITATION Car11 \l 1033 ]. The next mode of international expansion entry mode is acquisitions. According to Saylor Academy, “an acquisition is a transaction in which a firm gains control of another firm by purchasing its stock, exchanging the stock for its own, or, in the case of a private firm, paying the owners a purchase price”[ CITATION Car11 \l 1033 ]. Acquiring a foreign company through acquisition mode allows quick established access to the new market. Another benefit of acquisitions is that many of these companies are allowed to keep their current management to direct the company, therefore, benefiting from their knowledge, experience, and connections in the new market[ CITATION Mic192 \l 1033 ]. The business does not need to start from scratch because of existing infrastructure, manufacturing facilities, distribution channels, existing market shares, and a consumer base. Another advantage is the benefit of the existing management and key personnel knowledge and skills that they can offer to the company entering the market. One of the biggest advantages is the rapid ease and time in which this type of entry mode takes place and it’s also one of the fastest modes to gain entry on a large scale entry[ CITATION Dar19 \l 1033 ]. A disadvantage of acquisitions is the possibility of cultural clashes within the

INTERNATIONAL-EXPANSION ENTRY MODES

5

organization due to the culture of the already established company culture[ CITATION Dar19 \l 1033 ]. The last most common entry mode for international expansion is Greenfield Venture. Greenfield venture is a new company that wants complete ownership over the company in the foreign market[ CITATION CFI15 \l 1033 ] An advantage of the Greenfield venture is a high level of control over operations, high control over the manufacturing and sale of products/services, high control over imaging and staffing, and bypassing of trade restrictions[ CITATION CFI15 \l 1033 ]. The disadvantages of Greenfield venture are the high risk of investment, the possibility of high market entry cost, government regulations and high fixed costs involved in establishing the region[ CITATION CFI15 \l 1033 ]. I am a teacher so I chose to use my husband’s business to indicate an entry mode that I would recommend to him for international expansion. He owns an automotive business that sells parts, repairs vehicles, sells tires, and buys and scrap metal vehicles. I would recommend for his parts section of the business that he uses exporting. I chose this mode because the business would not place incur a huge expense if it should not be successful. He could sell his parts to an importer and his portion of the business transaction would be complete. The ease of entering into this type of mode is also easy to remove his business from international expansion. For instance, if the importer will not give him the price he requests for his parts, he can just tell him no deal. That is the end of the transaction and it will not cost him anything but missed opportunities. The parts can be sold in the US and the use of the middle man is no longer a problem. In conclusion, international expansion entry mode all depends on the type of business you have, your funds, the risks you are willing and able to take, and many other factors that each

INTERNATIONAL-EXPANSION ENTRY MODES

6

company has to personally decide upon. Collectively as a company, the decision has to be made carefully and with as much research as possible before deciding on the mode of entry.

References

Carpenter, M. A., & Dungung, S. P. (2011). International Business. Madison, Wisconsin: Saylor Foundation. CFI. (2015, January). Retrieved from Greenfield Investments: https://corporatefinanceinstitute.com/resources/knowledge/strategy/greenfieldinvestment/ Mariadoss, B. J. (2019). Core Principles of International Marketing. MARIADOSS. Retrieved from https://opentext.wsu.edu/cpim/chapter/7-1-international-entry-modes/ Miley, M. (2019, April 5). Five Modes of Entry Into Foreign Markets. Retrieved January 31, 2020, from The Nest: https://budgeting.thenest.com/five-modes-entry-foreign-markets25303.html Saxena, D. (2019, April 13). Superheuristics. Retrieved from Modes of Entry into International Business : https://www.superheuristics.com/5-modes-of-entry-into-international-markets/

INTERNATIONAL-EXPANSION ENTRY MODES

7...