Entry Modes of

International
Business

By:
Manish Saran
L2S2, Sec-D
 Globalization Is Gaining
Speed
The world economy is becoming a single, interdependent
system

Export
Domestic product sold abroad

Import
Foreign product sold
domestically
Categorizing
Economies

High Income Countries:

ØPer capita income greater than $9,386
Middle Income Countries:
ØPer capita income between $765 and
$9,386
Low Income Countries:
ØPer capita income of less than $765
Does It Make Sense to Go
International?
Is there Does the
Can the Is the firm
internati
product be foreign have or
onal
modified business can it get
demand YES YES YES
to fit a climate the
for the
foreign suited to necessa
firm’s
market? imports? ry skills
product?
NO NO NO
and
knowled
ge
NO to do
business
abroad?
YES

Stay Domestic Go International

Factors included in making foreign
market entry decisions
Ø Degree of control
Ø Level of resource commitment
Ø Degree of dissemination risk

Possibility of a foreign partner firm obtaining technology

or other know-how from the home-country firm and
exploiting it for its own commercial advantage. For
example, Japanese companies quickly assimilated RCA’s
color TV technology once RCA licensed it to a number of
Japanese companies.
Degree of Export
Involvement
ØDirect exporting (sell to buyers)
üSales representatives
üDistributors

ØIndirect exporting (sell to intermediaries)

üAgents
üExport management companies
üExport trading companies
Licensing
Company owning intangible property (licensor) grants
another firm (licensee) the right to use it for a
specified

Ø Finance expansion
Ø Reduce risk
Advantages Ø Reduce counterfeits
Ø Upgrade technologies

Ø Restrict licensor’s future

Disadvantages Ø Reduce global consistency
Ø Lend strategic property
Franchisin
g
Company (franchiser) supplies another (franchisee)
with
intangible property (brand aspects such as
trademarks,
Ø Low cost and low risk
Advantages Ø Rapid expansion
Ø Local knowledge

Ø Cumbersome
Disadvantages Ø Lost flexibility
Management
Contract
Company supplies another firms with managerial
expertise
for a specific period of time
Advantages
ü Few assets risked
ü Nations finance projects
ü Develops local workforce

Disadvantages
ü Personnel at risk
ü Create competitor
Turnkey Project
Company designs, constructs, and tests a
production
facility for a client

üFirms specialize in core

Advantages competency
üNations obtain infrastructure
Projects

Disadvantages üPoliticized process

üCreate competitor
Wholly Owned Subsidiary
Facility entirely owned and controlled by a single
parent
company
Advantages
ØDay-to-day control
ØCoordinate subsidiaries

Disadvantages
ØExpensive
Ø High risk
Joint Venture
Separate company created and jointly owned by two or
more independent entities to achieve a common business
objective

Advantages Disadvantag
üReduce risk level
es
üPenetrate markets
üAccess channels
ü Partner conflict
üProtect interests
Strategic
Alliance
Entities cooperate (but do not form a separate
company) to achieve strategic goals of each

Advantages
üShare project cost Disadvantages
üTap competitors’ strength üCreate competitor
üGain channel access üPartner conflict
üProtect interests
Risk, Control,
Experience
Factors Influencing Choice of Foreign
Market Entry Mode