International Market Entry Modes for SMEs

This assignment delves into the diverse range of market entry modes available to Small and Medium Enterprises (SMEs) when venturing into international markets. It examines various strategies, such as exporting, licensing, franchising, joint ventures, and foreign direct investment, highlighting their advantages and disadvantages in different contexts. The analysis draws on relevant academic literature and case studies to illustrate the complexities of choosing the most appropriate entry mode for SMEs based on factors like market conditions, resources, and strategic objectives.

Running head: ECONOMICS AND INTERNATIONAL BUSINESS LAW
Economics and International Business Law
Name of the Student
Name of the University
Author Note

1ECONOMICS AND INTERNATIONAL BUSINESS LAWS
Introduction
The report is prepared to explain the various pros and cons to the Managing director of
ABC Incorporated about the legal aspects of commercial strategic planning.ABC Incorporated is
a company based in United Kingdom and which wants to expand its operation in the Far East. In
order to expand their business operation, it is important to initially analyze the legal, the social
and economic factors which are related to the expansion of their business. Thus this report will
serve as legal aspects and give information which will help the Managing director to take various
decisions related to business expansion (Amici et al. 2013).
Report to the Managing Director
To: Managing Director of ABC Incorporated
From: Cecelia Spittle, Chartered Secretary
Re: Legal Aspects of Commercial Strategic Planning and Business Expansion of ABC Inc
Date: October 29, 2017
Background
ABC Incorporated is a company which is based in United Kingdom; it has plans to
expand its operation in the region of Far East. There are many ways by which the Company can
enter into a strategic alliance which includes agency, distributor and the joint venture and many
other methods which help in the business expansion (Beamish 2013.).
Discussion

2ECONOMICS AND INTERNATIONAL BUSINESS LAWS
1. The company ABC Inc is engaged in the business expansion. The company is planning to
enter the market of China, Indonesia and Malaysia. They are planning to trade in the
business related to mineral oil.
The several considerations which are to be taken while taking decision on the various modes of
strategic alliance are as follows:
Joint Venture: A joint venture is usually formed for the purpose of completing a single
goal for business project. The agreement helps in the power to obligate each other and each may
be liable for the actions on the project. In order to set up a joint venture upon the agreement
between the parties, it is important to know the durability of the joint venture. Many issues
related to the capital structure, the control and the continuation and the durability is taken into
consideration. There are many advantages of entering into a joint venture (De Visscher 2016).
There are two types of joint venture agreement that can be entered firstly the equity joint venture
and secondly the contractual joint venture.
In case of equity joint venture, a separate company is created by which two parties enter
into a agreement. Both the parties contribute in the capital of the legal entity; thereby the parties
become the owner of equity share. Both the parties entering into the agreement share in the profit
and also in matters such as the management, operation and duration. Thus the parties to the
agreement have a right in the legal entity (Grünig and Morschett 2017).
In case of contractual agreement the advantage is that there is no need to form separate
legal entity. In this type of agreement both the parties enter into agreement where the project is
for a shorter duration, this type of joint venture agreement serve as an advantage where the laws

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of the Country do not give permission for ownership of a company (Hennart, Sheng and Pimenta
2015).
The control in this type of option is much higher. There are many legal methods to be
followed while entering into a joint venture agreement, thus the clause such as the licensing
agreement, knowhow agreement, franchise agreement and the technical agreement should also
be covered as annexure while drafting a joint venture agreement.
The advantages of joint venture are as follows:
 In case of joint venture the partners are able to learn from each other and this helps in the
achievement in the proprietary goals through the venture (Hollensen and Ulrich 2014).
 In case of joint venture both the partners are able to utilize from each other and they can
take maximum advantage thereby helping in maximizing the competitive goals.
 This helps in the development of shared resources and thereby helps in the protection of
the resources and helps in the development of the Company (Lindsay, Rod and Ashill
2017).
The disadvantages are as follows:
 One of the disadvantages of joint venture is the cross cultural issues that the parties face
due to expansion of their business globally. In case of joint venture there is a constant
pressure from both the parties to cooperate with each other and to compete in the global
market (Hong 2017).
 In case of joint venture there is sometimes a conflict in case of a new investment
 There is sometimes mistrust in between the parties over their proprietary knowledge
 In case of joint venture there is lack of the support if the parent company.

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Agency: This is the initial stage when the company wants to expands their business globally.
This is a procedure of International marketing. Agents are appointed by the Company on behalf
of the organization and they market the goods in that particular Country. In this case they are not
considered as the owners of the goods and the products (Mowla et al. 2014). They only represent
the organization and sell the products on behalf of the organization, for which they get
commission. It is a cheaper mode of entry than the joint venture agreement. A joint venture is a
larger form of business expansion than the agency form of market entry. The control over the
agent is much less in the agency contract.
Distributor: This is also a type of option for market entry where the distributor has the
ownership of the goods and the products which they are selling on behalf of the Company. The
distributor of the product has an advantage that they can gain a market incentive on the products
and thereby earn profit by selling the products on behalf of the Company (Rashid 2016).
The advantages of distributorship are as follows:
 They have a control over the global market and choice of products for the company
 They have a good hold over the target market therefore it helps the company to sell
through them since they have good contacts with the buyers.
 They are able to protect the brand value, trademark or the goodwill of the intangible
property
 This helps in the increase of the sales of the company whose products are sold through
distributor (Zhang et al. 2016).
The disadvantages are as follows:
 It involves a high cost and thus it is posed to high risk

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 The option of distributorship imposes higher investment cost, time and also the resources
since it involves organizational changes.
 It requires a longer span of time since distributorship needs to have a good hold over the
particular target market and this takes a longer time to be form a good contact with the
buyers (Reid et al. 2015).
2. Negotiation of Joint Venture agreement
a) Important terms of Joint Venture Agreement to protect the interest of the organization
 The agreement shall provide for the type of share capital and the mode of payment for
acquiring of shares
 The clear definition of all the technical terms shall be mentioned in the agreement
 In case of joint venture agreement the mode for declaration and distribution of dividend
shall also be specified
 The area for the marketing of the products
 There is sometimes restriction in the ownership ratio and the agreement for technical
knowhow (Šarapovas, Huettinger and Ričkus 2016).
 To specify that the products shall be manufactured on the exclusive as well as non
exclusive basis
 The terms and clauses related to the technical knowhow and the documents related to the
specification of the products
 There shall be provision for making available all the skilled workers and the engineers
which helps in the payment of the expenses

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 The details of the project and the specification on the quality of the products shall be
manufactured and shall be also given (Schlegelmilch 2016).
 The clause on the quality control and the brand or trademark shall also be specified
 Responsibility of the partner in case of joint venture shall also be mentioned
 The rate of royalty and the mode if payment and calculation or provision for taxes and
cess shall also be mentioned
 The information on the industrial property shall be provided in the document
A clause for force majeure should also be mentioned in the agreement (Ulrich,
Hollensen and Boyd 2014).
 There shall be a clause for training and the terms and condition for the training and fees
paid
 The clause for arbitration
 The constitution of the Board of directors and the number of directors and their powers
and functions of the directors (Shi et al. 2014).
-who will run the management of the company
-pre emption of the right on the shares of the company
b) The Managing Director has entered into a Joint Venture Agreement with XYZ
Incorporation so that they can expand their mineral oil business in the Far East. The
terms and condition entered by the parties through joint venture agreement is crucial
for the promotion of the business globally by the entrepreneur (Tian 2016). The Joint
Venture is an agreement which shall be entered on by legal formalities.

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The company will be able to exploit the advantages from each other once they enter
into joint venture agreement. In case of any conflict they will be able to resort it
through the arbitration mentioned in the agreement. The relevance of the above terms
in the agreement entered by the company is that the terms or the clause helps both the
parties to negotiate the agreement and to reach at cooperation between both the
parties. The training of the employees is also important and shall also form as a term
or clause in the agreement .A company who wants to expand its business operation
and wants to move the business globally shall expand the operation through the way
of market entry option (Ulrich and Hollensen 2014).
Strategic Plan on Joint Venture Agreement
The above terms and conditions of the agreement will be helpful for the company in the
following ways:
 It will help to take the decision more rapidly and to take the opportunities from the
business operation
 It will help to take the decision much quickly
 It will help to be much flexible in taking or adapting any changes
 It will help both the companies to improve their area of expertise and to be competitive in
their field of business (Yan and Luo 2016).
 It will thereby help in removing the internal weakness of both the companies
 It will help both the companies to jump the market barriers. This will help both the
companies to compete to develop and market or export the product mineral oil (van der
Meer-Kooistra and Kamminga 2015).

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 The strategic goals converge in case of joint venture to achieve the competitive goals
Recommendation
The most common way of expansion of business globally is through the joint venture
mode which helps for the partners to exploit and take competitive advantage of each other so as
benefit from the business. The management shall take decision regarding the need and whom
they want to start a joint venture, therefore both the partners shall combine their strengths and
they will decide how the venture will be structured and be managed.
In order to legally have the permission to start a business it is important that both the
companies shall abide by the laws and regulation of both the Countries pertaining to the joint
venture. In order to further initiate the plan and negotiate the agreement, it is essential that they
draft a joint venture agreement and abide by the mentioned clause in the agreement. The terms
and conditions mentioned in the agreement are very vital throughout the running of the business.
These terms are compulsory and it is included in the employer’s strategic plan of entering into a
joint venture to expand the business operation
References
Amici, A., Fiordelisi, F., Masala, F., Ricci, O. and Sist, F., 2013. Value creation in banking
through strategic alliances and joint ventures. Journal of Banking & Finance, 37(5), pp.1386-
1396.

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Beamish, P., 2013. Multinational joint ventures in developing countries (RLE International
Business). Routledge.
De Visscher, F.M., 2016. Financing transitions: Managing capital and liquidity in the family
business. Springer.
Grünig, R. and Morschett, D., 2017. Determining the Market Entry Modes. In Developing
International Strategies (pp. 105-123). Springer Berlin Heidelberg.
Hennart, J.F., Sheng, H.H. and Pimenta, G., 2015. Local complementary inputs as drivers of
entry mode choices: The case of US investments in Brazil. International Business Review, 24(3),
pp.466-475.
Hohenthal, J., Johanson, J. and Johanson, M., 2014. Network knowledge and business-
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Hollensen, S. and Ulrich, A.M.D., 2014. The Incubator concept as an entry mode option for
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Hong, F., 2017. Chinese Companies Set Sights on Asia-Pacific Oil Assets. 中中中中, 24(1), pp.61-
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Mowla, M.M., Hoque, N., Mamun, A. and Uddin, M.R., 2014. Entry Mode Selection, Location
Choice and the Sequence of Internationalization: A Case Study on Ranbaxy Laboratories
Ltd. Asian Social Science, 10(6), p.145.

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Rashid, M.D., 2016. Corporate culture and Internationalization ‘A case study of Aon’ (Doctoral
dissertation, University of East London).
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Šarapovas, T., Huettinger, M. and Ričkus, D., 2016. THE IMPACT OF MARKET-RELATED
FACTORS ON THE CHOICE OF FOREIGN MARKET ENTRY MODE BY SERVICE
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van der Meer-Kooistra, J. and Kamminga, P.E., 2015. Joint venture dynamics: The effects of
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control. Management Accounting Research, 26, pp.23-39.

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Yan, A. and Luo, Y., 2016. International joint ventures: Theory and practice. Routledge.
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