Market Entry Strategies PDF

Principle Of Management
Market Entry Strategies
Table of Contents
Market Entry Strategies...................................................................................................................3
Direct exporting...........................................................................................................................3
Advantages..............................................................................................................................3
Disadvantages..........................................................................................................................4
Licensing......................................................................................................................................5
Advantages..............................................................................................................................5
Disadvantages..........................................................................................................................6
Joint venture.................................................................................................................................7
Advantages..............................................................................................................................7
Disadvantages..........................................................................................................................7
Franchising..................................................................................................................................8
Advantages..............................................................................................................................8
Disadvantages..........................................................................................................................8
Foreign Direct Investment...........................................................................................................9
Advantages..............................................................................................................................9
Disadvantages........................................................................................................................10
References..................................................................................................................................11
Abisoye Adekunbi Adekeye

Principle Of Management
Market Entry Strategies
Market entry strategies are essential tools utilized by a firm in engaging in foreign business. A
firm has to use at least one or a number of strategies for a successful entry into the foreign
markets. There are various market entry strategies that can be employed by firms in developing
their foreign business operations. The choice of a company’s strategy will depend on the type of
market it is seeking to enter as well as the company’s goals and objectives. For each strategy that
may be employed, it carries varying levels of risk as well as a range of advantages and
disadvantages. Among the various market entry strategies include, direct exporting, indirect
exporting, licensing, joint venture and franchising.
Direct exporting
Direct exporting is one of the market entry strategies normally utilized by most small and big
firms. It involves exporting directly to the consumer who is interested in purchasing the
company’s product. In this entry strategy, the company is in charge of conducting the market
survey, logistics of shipment, foreign distribution, as well as the collection of debts. Direct
exporting has its positive and negative implications. Direct exporting strategy could include
making regular trade visits, or exporting online or both. According to Peng (2009), direct
exporting entry strategy gives a company the maximum control over its international business
operations; however, it is costly as compared to other entry strategies.
Advantages
The main advantage with direct exporting is the greater potential profits. This is because a
company that exports directly do not have to deal with intermediaries, but exports directs to the
consumers. This allows the company to collect the maximum product price and profit margin.
The company under direct exporting entry strategy has a greater level of control over the entire
transaction process. In this strategy, the company has the opportunity to know who its consumers
are and what are their taste and preferences. Accordingly, the consumers have the opportunity to
know about the company and are able to ask any questions, or give any suggestions with regard
to the company’s products. Direct contact with consumers enables them to provide efficient and
effective feedback on the company’s product as well as the product’s performance in the foreign
market.
According to Lymbersky (2008), under the direct exporting entry strategy, the company’s
business trips are much more well-organized and effective. This is because the company meets
with its consumers directly. Another important advantage is that the company is slightly
protected for its patent, trademarks, and copyrights as no foreign company is engaging with the
company. This reduces the chances of foreign companies duplicating the company’s products.
Abisoye Adekunbi Adekeye

Principle Of Management
Finally, as the company’s foreign operations develop in the international market, it has a higher
flexibility to get better or redirect its marketing strategies and efforts.
Disadvantages
The main limitation with direct exporting entry strategy is the high cost. It requires more energy,
money, and time to be invested, which a company may not afford. There are logistical
difficulties with shipping the company’s products to a foreign nation. This may limit the
company’s international operations and subsequently reduce its profit margins. Direct exporting
market entry has a high susceptibility to trade barriers. The foreign country may initiate policies
that can limit the exportation of a company’s products. The strategy may not be suitable for
service products. Lymbersky (2008) argues that the strategy is susceptible to exchange-rate
fluctuation, which could influence the company’s profitability. The other limitation is that the
company may not be able to respond to consumer communications as efficient as a local agent or
distributor would do. Additionally, the company may not understand well the market conditions
of the foreign market as well as customer contacts as a local agent would do.
Licensing
In this entry strategy, firms enter into contracts with foreign firms called licenses. The license
permits foreign firms to lawfully manufacture and trade the firm's products. Accordingly, the
foreign firm can either, pay a regular licensing payment, purchase the license entirely, or pay a
certain fraction of their income for some period in royalties form. As argued by Peng (2009), the
strategy is usually utilized by manufacturing companies as it enables them to enter a market with
less cost and easily. However, the strategy provides the companies with minimal control over its
foreign sales and marketing. Lymbersky (2008) argues that an international licensing contract
enables foreign companies, either fully or partly to produce a proprietor’s product for a certain
period in a particular market.
Advantages
Among the main advantages for utilizing an international licensing contract for entering foreign
market include the fact that, it enables the company to receive extra revenue for technical
expertise and services. The strategy also enables the company to have access into new markets
that could not be accessed through export from the available facilities. Since the foreign firms
understand well the market conditions of their markets, they are in a good position to distribute
and market the company’s product efficiently and effectively. The strategy enables the firms to
easily and rapidly expand to foreign countries with low risk and without huge capital investment.
Accordingly, the entry strategy provides an opportunity for the company to invest in the market.
The other advantage with the strategy is that it enables the company to operate in nations where
there are barriers to investment. International licensing is advantageous, especially where there is
political instability in the foreign country. Licensing minimizes political risk because the licensee
is wholly locally owned (Tielmann 2010). Arguably, the strategy is highly attractive to
businesses which are new in international operations.
Abisoye Adekunbi Adekeye