Exporting? Franchising? Joint Venture or Wholly Owned Subsidiary? Which international market entry method is right for your business?

If your business is considering entering a new international market, then your choice of market entry strategy is of crucial strategic importance as this will affect your entire marketing and business planning process.

There are a number of ways to enter a foreign market.  Broadly speaking, they consist of:

Exporting

Exporting is the easiest, most cost effective and most commonly used method of entering a new international market.  Some businesses do not actively plan to become exporters, they may simply start accepting orders from overseas customers.  However, many businesses are planned exporters who wish to expand their international presence.  Exporting has many advantages in that it requires less investment and allows your business to ‘try out’ exporting on a small scale as a handy way of developing and testing your international plans and strategies without great commitment.  Exporting also allows you to concentrate your production in a single location, allowing for better economies of scale and quality control measures.  Contact ISS to find out if exporting is the right market entry method for your business.

Franchising / Licensing

Franchising is a form of licensing. As a franchisor or licensor, your business effectively gives the licensee of franchisee permission to:

  • Produce a patented product or patented production process.
  • Use your manufacturing know-how.
  • Receive your technical and marketing advice and know-how.
  • Rights to use your trademark, brand etc.

Franchising and Licensing have many advantages as both are simple and quick to implement and offer the advantage of minimal business costs as well as access to some markets which may otherwise have been closed due to government policies etc.  The most obvious drawback of Franchising and Licensing is that revenues are likely to be significantly lower than other market entry methods, as well as a possible lack of control over production and marketing.  Contact ISS to find out if Franchising or Licensing are the right market entry methods for your business.

Joint Ventures

A joint venture is an arrangement between two or more (often competing) companies to join forces for the purposes of investment with each having a share in both the financial running and management of the business.

Joint ventures are usually an alternative to building a wholly owned manufacturing operation and offer benefits such as:

  • Capital outlay is shared.
  • Reduced risk i.e. less government intervention if an alliance is formed with an indigenous business.
  • Closer control over production, marketing and other business operations.
  • Better local market intelligence provided by indigenous joint venture partner.

The major disadvantage of joint ventures is that conflicts of interest may occur between the different parties i.e. on issues such as profit shares, amounts invested, management of the business and marketing strategy.  As with any type of partnership, there are ways to minimise the risk of conflict by careful selection of partners and the formulation of jointly beneficial contracts.

Contact ISS to find out if a Joint Venture could be the right market entry method for your business.

Wholly Owned

Setting up a wholly owned operation in a new international market offers less of the ‘quick’ advantages of other market entry modes as it involves setting up a presence from scratch.

It takes some time and effort to build a new market presence, especially in mature markets and where your business may have little knowledge of the local market.  However, it does offer more in the way of control and management of the business.

Contact ISS to find out if a Wholly Owned operation could be the right market entry method for your business.

When selecting the right market entry mode for your business, there are many factors that need to be taken into consideration including:

What are you marketing objectives? Examine the volumes you wish to sell, timescales and coverage of key market segments.  For example, if volumes are expected to be low initially, then setting up your own manufacturing facility would not be appropriate.

What resources do you have available in the business? Does your business possess sufficient resources to support the level of planned international business activity?

Suitability of a market entry strategy.  Businesses may have to use different market entry methods for different countries i.e. some countries will only allow a restricted level of imports but may welcome the business in building manufacturing facilities to provide jobs and limit the outflow of foreign exchange.  Additionally, some market entry methods are questionable on a practical basis i.e. a possible lack of suitable distributors or agents to sell and service the product.

To summarise, selection of market entry mode is of strategic importance and therefore it is vital to make an informed assessment before embarking upon any international business dealings.

ISS is a leading international business consultancy and research firm providing a comprehensive range of international business strategy support services. The company has experience in a wide range of industries including but not limited to; Government & Public Sector, Digital, Telecommunications, Energy, Healthcare, Financial and Professional Services, Retail & Consumer, Food & Beverage, Hospitality & Leisure, Engineering & Construction, Manufacturing and Environment. Contact ISS to find out more.