Modes of Entry in International Business

This report explores the different modes of entry in international business, focusing on the retail industry's entry into the Asian economy. It discusses the advantages and disadvantages of various modes such as franchising, acquisition, greenfield investment, direct exporting, licensing, and joint ventures. The report highlights the importance of market entry modes and their impact on achieving business goals. It also addresses the challenges and opportunities associated with each mode.

PRINCIPLE OF
INTERNATIONAL
BUSINESS

Table of Contents
INTRODUCTION...........................................................................................................................4
Modes of Entry:...........................................................................................................................4
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
International business help countries around the globe by complex and simple value
chain. International business also help companies to grow in new market. Principle of
international business management includes globalization, trade theories, foreign direct
investment theory, company resources and corruption and taxes etc. This report will help to
explore and understand the different traditional and internation entry modes. This report explains
the retail industry and its major international entry modes which companies are using past
decades. Retail industry sells product, good and service manually to consumers. This report will
present mode of entry of retail industry in Asian economy. Mode of entry is a term in which
different industries try to expand their business internationally. This report will include different
types of entry modes such as exporting, licensing, joint venture, management and contract ,
franchising, acquisition and Green field investment etc. These entry modes help retail industry to
enter in international market and it also explains its characteristics, advantages and disadvantages
(Cantwell, 2017). Report also show that retail industry carefully evaluate their options to choose
the entry modes that best suites on their strategy and help them to achieve their goals. In the end
of the report motivation will be explain the reason of choosing different entry modes.
Modes of Entry:
This is a method which is used to expand business in international level. Mode of entry
have various modes such as franchising, licensing, foreign direct investment, acquisition, join
venture, management and contract and green field investment etc. These modes help business in
expansion. Different modes of entry is used by retail industry to expand their business globally.
Advantages disadvantages and characteristics help retail industry to set their business
internationally. In modes of entry retail industry explore the conventional international
contraction entry modes. These modes help business in entering in international market and set
their business.
Importance of market entry modes:
 Market entry strategy is very important for the business who are entering into new
markets because new markets are often complex and there are chances that businesses
can fail in new market because they don't have proper knowledge of insights and
competition.

 Selecting one market entry mode will help the business to collect the comprehensive
insights and can get the market opportunities. The company also come to know about the
industry development and competitive scenario of that unknown market.
 Modes of entry in the market will help the company to establish successfully in the new
market and can gain leading position in new markets. Market entry strategy engagement
can help the retail company to successful enter the new market (Amadeo, 2020).
 Adopting market entry modes will help the company in achieving the goals and also help
the company in the long run. There are many market entry modes like if a company do
partnership with the local company then that foreign company will get the advantage of
the experience of the local company.
 Mergers and acquisitions which is the other mode of entry will also help the company in
easy entry and can also get relaxation from the government. It is the most flexible mode
to enter the new market.
Various entry modes are as follows:
Franchising:
It is one of the important mode of entry by which the retail industry can easily enter into
the Asian economy. Under this mode the industry usually grant the authority to a group of people
who can run the business of the industry in some different country. That group of people or
single individual can be any person which means that individual may of the existing running
country or it might also be possible that the individual belongs to the same country in which
industry is thinking to run its business. This means that the industry will be treated as a
franchisor who will allow some other person or group to run the business of the industry into
some other country and that group will be treated as franchisee. It is one of the best method
which may be used by the industry to expand its business or to enter into some different
economy (Rosado-Serrano and Paul, 2018). Retail industry usually follow this model, also the
mode of operating the business in other economy will remain same like the main retailing
industry.
Advantages:
There are various advantages in adopting this mode like the business plan or the strategy
will not supposed to be changed by the retailing industry in the other country which in turn save
the time, money and energy of the industry. After expansion or entering into the Asian economy

the retail industry will continue hold the same ownership power like it has before which means
full controlling power will still remain in the hands of the main retailing industry. One more
advantage that the retailing industry can get by adopting this mode is that the cost of marketing
will still remain low which means that the marketing cost will be shared by all the franchise
equally apart from only sharing of benefits of marketing.
Disadvantages:
One of the biggest disadvantage of this mode is the requirement of huge capital
investment which means that the cost of investment for setting the franchisee is very high. This
mode may also lead to diminishing the initiative which means that the franchisee will not being
able to take initiative and implement creativity in operating the business because of the bound-at-
ion of following the same business policies and rules.
Acquisition:
It is also one of the effective mode for entering into Asian economy by the retailing
industry. Under this mode the retailing industry usually acquire or purchase the majority of
shares of the other companies or business and thus start controlling that company or business
(Xu, 2017). As per this concept the retailing industry by acquiring the 50% or more than 50% of
the shares of companies which are established in Asian countries may easily enter into the Asian
county in contrary with the expansion of the business.
Positive impacts:
There are various advantages which retail industry can get by adopting this mode which
means due to the adoption of this mode the risk of entry barrier is reduced which means that the
industry can enter into new economy with the same brand name and reputation which will
instead of affecting the business may rise the business of the industry. Also, this mode enables
the industry to explore and expand its resources along with taking the advantage of expert of
other economy. Apart from this the capital of the industry also raise at greater extent and at
broader level.
Negative impacts:
Except the above advantages the industry may also face certain difficulties in coping with
different tradition and culture of the Asian economy which may affect its business. Acquisition
may sometimes create the problem of conflict-ion among the employees as well as objectives

which may also leads to non achievement of objectives and targets by the retailing industry at an
overall stage. Sometimes the brand image instead of improving it may get damaged during
acquit-ion by the retail industry.
Greenfield investment:
It is one of the major mode by which retail industry can directly enter into the Asian
economy. It is considered as a major type of Foreign direct investment. Under Greenfield
investment industry start its operating business in other country or economy by building the new
subsidiary or business entity in other economy and by making investment in it. Under this mode
the industry itself hold the entire controlling power over its subsidiary (Amoroso and Moncada-
Paternò-Castello, 2018). Under this concept, the whole business entity is made right from the
beginning which means that the industry will make the investment right from the building the
entity till its running.
Advantages:
There are various advantages associated with Greenfield investment which may includes
creating the job opportunities in those countries or economy where this is going to be happened.
It also provides a wide range of controlling power along with dominating power to the main
industry by which it can control its subsidiary as well manage its working strategies and products
dealings. This mode also reduces the role of intermediaries because of direct involvement of the
main industry.
Disadvantage:
Apart from these advantages there are some disadvantages or adverse impact of
greenfield investment which may includes the high requirement of capital. It may also create the
problem of co-ordination for the main industry because it may become very difficult for the main
industry to establish the controlling system in the case of the presence of many subsidiaries. This
mode also increase the requirement of fixed cost for the main industry. Similarly the government
policies of the different economy related to running and operating the business may also act as a
barrier for the industry while adopting greenfield investment.
Direct exporting:
Direct exporting means exporting or transporting of the products or goods to the foreign markets.
For the Asian economy this entry mode is ideal and for the retail industry this is the fastest mode

to enter into the global markets (Broocks and Van Biesebroeck, 2017). Direct exporting is also
called as the direct sales because under this the products are directly selling by one company to
another. If a company founds that there is a lot of demand for their products in the international
market then rather having the retail presence the company can even supply their goods or
products to the importer and if the company is doing online business then there is no use of
importer.
Advantages of direct exporting:
Exporting helps in the selection of foreign representatives become easy in the global market.
Direct exporting strategy can be used by the company for testing their products in the
international market before they make any huge investment in the global market. Through this
mode company will see that what is the consumer behaviour for their products and their products
are success or failure in the market. This mode helps the company in protecting the goodwill,
trademarks or patents. For retail industry it is very ideal to enter into international waters because
it is less risky and require less capital.
Disadvantages of direct exporting:
Here company have to incur high costs for transport which can make exporting expensive or not
economical. Tariff policies can also make exporting expensive. Exporting done with the help of
local agents cannot be good thing because those agents also have the products of the rival
companies which results in divided loyalties. For offline products it is not the cost effective
strategy because everything the company need to set up. Choosing this strategy for selling offline
products is the time-consuming thing (Grünig and Morschett, 2017). Time is required in doing
market research or higher the representatives etc.
Licensing:
This strategy is useful for the company who want to enter the international market with low risk.
This method enables the other person or business to take risk on behalf of the company. In the
licensing, an agreement is made in which the foreign business will pay the royalty or commission
to other company for using their brand name, goodwill, patents, trademarks, manufacturing
process and intellectual properties etc.
Advantages of licencing:
This is the very cost effective method to enter into the global market. Licencing partner have
complete knowledge regarding the local market (Fanti and Buccella, 2017). This technique gives

good source of income. It also helps in reducing the political risk because in most of the time the
local business firm is only the licensing partner. The financial risk is also low. It gives regular
income. There is not the requirement for large staff. With the low investment it gives the
opportunity of expansion. In the Asian economy there can be found many big companies who are
offering licensing.
Disadvantages of licencing:
In the retail industry it is often happens that complete control over licensing may not get. It is
even possible that the licensees will take all the knowledge about the company and can become
the future competitor for the company. The licensee can even damage the brand image of the
licensing company if the business is done in the proper manner. There is the lack of control on
the quality of products in the global markets (Nippa and Reuer, 2019). There is also the risk of
disloyalty of the license. The licensing method gives low income as compare to other methods of
entry.
Joint ventures:
It means that creating a foreign subsidiary jointly formed by the parent company and the foreign
partner. Joint venture is the very effective mode to enter into the global markets for those
business who do not have any issue in sharing their knowledge, experience and brand.
Companies who want to expand their businesses in the international markets can do the joint
ventures with the local companies (Killing, 2017). The partners in the joint ventures shares both
the profits and losses of the business and along with that they also share investments, rewards,
costs etc. this is also suitable for those companies where the government does not allow ant
foreign ownership in the country. Retailers often opt joint ventures to enter into the Asian
markets like India.
Advantages of Joint ventures:
Under joint ventures both of the partners can use their expertise while doing the business in
terms of growing and expanding the business. Here also in the joint ventures the political risks
are very low because the local partner is present here. The partner firm can share each other
technology, assets, knowledge, intellectual properties etc which help both the company to beat
their competitors easily as both have different experience of doing the business. These
companies get the synergy benefits.
Disadvantages of Joint ventures:

By doing licensing when the company enters the joint ventures there is a risk of giving the
technology. The other company can also misuse that technology. Under the joint venture the
company do not have overall control on the subsidiaries which is needed in the case of location
of economies. Lack of control over the subsidiary which is needed to get protection against the
global attacks. Its registration procedure is also complex (Schellenberg, Harker and Jafari, 2018).
Shared ownership can also arise or give birth to conflicts which can cause delay in achieving the
goals and objectives. It can also cause the cultural clashes with the company which can cause
differences in the organization. If there is any dispute then it is very lengthy ton dissolve the joint
venture with the complex legal process.
Turnkey projects-
This types of project are constructed so that retail industry can sold to any selected buyer
as for completed products. This is mainly used for build up order, when constructor build up any
products which makes buyer to buy or when the production is incomplete than also they sold out
them meanwhile buyer tries to complete that products. A turnkey project seems to be work in a
way that foreign retailers companies to export their goods along with that technology of their
country helps them for more developing while buying and selling their products (Mittal,2018).
Industry companies which are being specialized with their complex production in technologies
they basically used turnkey project for make their major entry strategies.
This term can be also used for advertising in sales or developing business. These projects
mean where goods are required on immediate needs and basically used for supply or sale their
goods and services. In retailing industry they can easily develop their business while giving some
products and services to their countries. In selling their products and services easily they can earn
more profits furthermore industry could be benefits with having such exporting.
Advantage that it make retail industry for more possible in developing their plants and try to earn
profits especially in foreign countries through which they can be done direct investment
opportunities. This is being with limited expertise and lack of specific area in entering. In
entering with some other new market retail industry simply construct them more with innovation
along with creation for satisfying their customers.
Disadvantage in turnkey projects that might be included company risks of revealing and takeover
their plants in country. While entering in new market along with turnkey project that retail
company has no long term interest (Pegan, Vianelli and de Luca,2020). Which can be easily

become their disadvantage if main country where they have exported in main market with
process.
Management contract-
Under this management contract one retailed companies generally provides some another
companies with some managerial expertise for specific period. This maybe done in exchange for
lump sum payment mode. Suppose, is some sectors there are commonly usedof management
contract in which they can make proper use of services and goods, enhance companies can easily
make them more developed markets. While in developing more in markets they can easily earn
huge profits.
Management contract can help more companies to entry into new markets or other
expertise can be also their in which they need to make goods and services provided to customer
for earning high. It might be sometime take risk while in learning foreign territory. Risk can be
included it may be hard to develop and grow their brand equity either awareness regarding any
product in which they are selling and buying in case of some management contracts. Before
considering both industry they must be getting good understanding of risks and rewards how to
make maximize their succession criteria (Chen, Nie and Yang,2017). Advantage that it can be
more useful in earning and making products reputation with company. In various different
countries they have developed stores in which they can easily do export and helps in customer
satisfaction. This contracting gone according to their expertise managerial skills as they have
some experience of being used to contracted with other counties, while entering some new
market they need to followed by various rules and regulation where companies set up their
products and services for well-being in attraction of customers.
Wholly owned subsidiary-
WOS is basically types of company in which they have common stock that owned by
another company. When in this they have low cost or risk that might be not possible for
completion in entry modes with some other companies. There are no minority in stakeholder and
sometime may not be direct inputs in management operations. A wholly owned subsidiary in
different country that can in form of parent company. It might be most owns by senior
management, products and clients through which they can make their economy more developed
while being for parent company in some while developed countries. Having this subsidiary it

helpful in developing parent company for maintaining their operations in diversifying their
geographic areas.
Although parent company have their operational plus strategies control owns that its
wholly subsidiary (Del Giudice and et.al., 2017). While hiring their staff they have less
complicated taking over company which needed to developed in having leadership skills that can
be important in establishing any parent company. Using financial systems while creating same
data they can reduce over their marketing programs which reduce both companies costs.
Economic either be most helps them in setting down their business in some other companies in
which they can easily earn huge profits. However, in establishing wholly owned subsidiary it
would be results in paying too much of assets as also sometime in same business. Developing
relationship with others vendors and clients they can take much time as they need to maintain
proper relationship with them so that they cause no difficulties in associates their culture.
Parent company also sometime assumes some risk and that risk may be increase when
their local differ is must be important from the laws in parent companies with some other
countries, and they need to being developed more (Mas-Ruiz, Ruiz-Conde and Calderón-
Martínez,2018). In developing them from which could be help different retailing company that
need to be more associates.
Piggybacking-
This entry modes allow to entry in cost with having their strategy in which two or more
companies needs to represent their own contemporary and builds their more strategies in market.
Piggybacking must be offers when any business wants to enter their companies for more
developing in e-commerce market and that should handle over foreign firms. In these strategies
they can easily earn more money and brand image through which it could be help them in
developing their business at international market. While entering any business they should make
sure that in which business they are entering that must have some relevant website through
which they are processing business (Rosenbaum, Madsen and Johanning, 2019). In marketing
firm various companies can be developed online using piggybacking methods to reach out their
targeted audience in creating sometime different platforms and boarders.
At time of entering they should be known about their market in which they are required
to establish their business and e-commerce business while they run smoothly. Retailing industry

must be essential required to create their own website so that they can easily attract their
customer towards their products and services.
Key motivations behind the choice of entry mode:
The biggest motivation behind to enter into the foreign market is to explore the new markets as
the new market will bring new opportunities and which can be grabbed by the company. If the
retail industry want to grow or expand their business then also they can go for the options like
exporting or licensing or joint ventures etc. example through exporting company will get the
chance to explore and expand their business at the international level. This also facilitates market
development under that the products are same but the market is completely unknown. This will
help the company in increasing their profits and revenue. The market reach of the company also
increases if they enter the foreign market (Surdu, Mellahi and Glaister, 2018). For increasing
their sales also company do joint ventures. It helps in increasing the innovative capacity of the
company and also gives the long term security to the firm. It will give advantage to the company
like if they are not able to make profits from one market then from other market they can get
profits because the purchasing power of the consumers of both the market is different. Easily
reaching towards the economies of scale. More the production by the company will help the
company in lowering the cost of per unit of the product. Companies will also get knowledge
about the international markets in short company will learn a lot. This will help the company in
improving their performance which will lead to the financial stability of the company.
Sometimes companies want to take tougher competition because they are already a monopoly
firm in their native company so they try new markets by taking new challenges. If the company
have innovative products and they are expecting that the innovation can give good profits at the
international level then also they go for exporting. To attract new talents company trade
globally. They can get expertise or expert person from different country which will help the
company in further expansion and growth.
CONCLUSION
This report show that international business help different industry to expand their business
globally. This report explain how retail industry expand their business using different types of
entry modes for Asian economy. It also explained various types of entry modes such as
exporting, join ventures, licensing, management and contract, Green field investment,

franchising, and acquisition. This report showed the advantages and disadvantages of every entry
modes and it also shows the characteristics of different modes. In this report also explain that
how retail industry choose different entry modes for expansion. This report helped to understand
basic concept of entry modes and different international activities and also help retail industry to
select best entry mode to expand their business internationally. Report explained that advantages
of entry modes are dependent on organization characteristics. It also evaluates report and in the
end it explained motivation for the choosing different entry modes. This report concludes that
retail industry to expand their business for Asian economy use various international entry
modes which help retail industry to set their business in international market. This report
explored that how global industry has been affected by different modes of entry.

REFERENCES
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60.
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Online
Amadeo, K., 2020. The Retail Industry and Its Impact on the Economy. [Online]. Available
through <https://www.thebalance.com/what-is-retailing-why-it-s-important-to-the-
economy-3305718>
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