Foreign Market Entry Strategies: Licensing and Analysis

This report provides a comprehensive analysis of foreign market entry strategies, with a particular emphasis on licensing as a method for entering overseas markets. The report uses a case study of "Foreign Investment Ltd" to illustrate the application of licensing, critically evaluating its advantages, disadvantages, and the situations where it is most effective. It also includes a comparison of licensing with other market entry strategies, assessing their suitability. The report further explores the influence of a country's culture and geography on market entry strategies and the importance of adapting marketing efforts accordingly. It highlights the need for considering alternative market entry methods and addresses non-tariff barriers in both developing and industrialized countries. Finally, the report examines the product life cycle concept in the context of licensing for market entry, offering a structured approach to academic analysis of various market entry strategies.

RUNNING HEAD: MARKET ENTRY
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MARKET ENTRY
STUDENT’S NAME
STUDENT’S COLLEGE

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TABLE OF CONTENTS
ABSTRACT………………………………………………………………………………….. 3
INTRODUCTION……………………………………………………………………………..4
QUESTION - 1..........................................................................................................................4
QUESTION - 2………………………………………………………………………………...7
QUESTION - 3..........................................................................................................................9
QUESTION - 4……………………………………………………………………………….11
QUESTION - 5……………………………………………………………………………….13
CONCLUSION………………………………………………………………………………15
REFERENCES.........................................................................................................................17

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ABSTRACT
This report illustrates the various aspects of foreign market entry strategy with special
focus on licensing as a market entry strategy. The report has considered a company “Foreign
Investment Ltd” for the analysis of licensing as a method to enter overseas market. The
article critically evaluates the numerous elements involved in using licensing as the market
entry methodology with regard to the situations where this type of strategy is most successful
while also evaluating the advantages or advantages associated with this strategy. A
comparison of licensing and other forms of market entry strategy has also been undertaken
which reveals the suitability of this process with respect to the alternatives that are available.
The report then moves on to discuss the influence of culture and geography of the country on
the strategy adopted by the entering country. Marketing effort in the new country which take
into concern such influences while formulating the strategy. Then the report reflects on the
notion that a single market entry methodology is not ideal for any product or services and
there must always be kept alternative option while doing business. The article tries to throw
some light on the issues relating to the non-tariff barriers in developing and industrialised
countries while it comes to doing business or entering a new market. At last the report
undertakes an examination of the product life cycle concept through the lens of licensing
format for market entry in a new geography. It is justified to mention here that this report
valuates the licensing format of market entry through several angles and tries to develop a
structured approach for similar academic analysis concerned with the various market entry
strategies.

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INTRODUCTION:
Businesses have evolved in the 21st century with the advent of globalization and
increased use of technology to innovate and usher in new business models. Organization are
looking to take advantage of technology which has brought the entire world at the click of a
mouse. The entire world population has now become the potential customer base for any
organization and they are looking to tap into such potential markets by venturing into new
geographies and offering innovative product or services. In order to enter into new markets
there are certain formats or marketing strategies that needs to be evaluated based on the
culture, business environment and consumer preferences prevailing in the country of concern.
The popular market entry strategies include direct expiring, contract manufacturing, joint
ventures, licensing, franchising, wholly owned subsidiaries, strategic alliances, etc. All these
market entry strategies have some advantages and disadvantages which needs to be critically
examined before moving on with the decision. This report makes an attempt to examine the
various aspects of a market entry strategy with regard to licensing format as the preferred
methodology and applies the analysis on a company named “Foreign Investment Ltd.”. The
company is involved in facilitating foreign properties mostly in Middle East like Dubai and
Pakistan to investors in UK and Europe. The following evaluation tries to fit the overseas
market entry approach of this company through various theoretical frameworks and licensing
as business format. (Van Horn, 2010).
Q-1) Licensing is a common method of entering services markets abroad. Critically
discuss and appraise the situations in which Licensing might be used as a market entry
strategy and the advantages and disadvantages of licensing when compared to other
forms of market entry strategy.

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Ans: Licensing is a popular market entry strategy wherein a company gives the authority to
another organization to operate its products or services through renting or leasing. Licensing
is mostly done with respect to intangible assets like brand, logo, trademark, graphic design,
slogan or a combination of several such intellectual property rights. This intellectual property
right is then used along with the product which is being sold by the licensee (Taylor Sims,
2007). This is basically a marketing tool or strategy wherein the licensor is able to extend its
brand or enter into new markets where there is huge potential for sale of their products but
may be not suitable for direct exporting or establishing a wholly owned subsidiary due to the
trade barriers and other regulations. Licensing is particularly useful when there is a need for
product innovation keeping in mind the local sentiments and customization is the call of the
day. Companies in new markets with large market shares can be roped in through licensing
and the knowledge they have about the local market can be leveraged consequently.
Licensing does not require a company to make any upfront investment in capacity expansion
or establishment of new business operations which is cost effective. Keeping in mind this
advantage and the huge upfront investment requirement in properties business Foreign
Investment Ltd. can opt for licensing as a method for new market entry. Licensing can be
done for both marketing and production depending on the requirement of the company. The
factors which need to be considered while opting for a licensing format as the preferred
market entry strategy include the technological competency vis-à-vis managerial
competency. In case an organization has some technology as its core competency then it
should not go for licensing wherein wholly owned subsidiary or direct exporting is a better
option (SeokBeom, 2009). But if the expertise is based on managerial efficiency then
licensing is the best format for market entry since the technical know-how can be acquired by
the licensee easily. Apart from these there are several other regulatory issues which might
also hinder the use of other market entry formats and make licensing the most attractive

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among them. Licensing is pretty common among the food and beverage industry like Coca
Cola, Nestle, etc. wherein they license products like candy bar and aerated drinks. Licensing
has brought great success to companies like John Deere and Harley Davidson wherein they
have been able to leverage on the dealer network to increase penetration of their products.
One of the most interesting examples for licensing includes the cartoon characters created by
Disney. They create characters like Mickey Mouse or Princess and then license them for the
production of gifts, novelties, fashion and accessories. They are also involved in producing
content gaming, TV animation, etc. They have also been able to earn huge profits through the
establishment of theme parks at US and Paris (Ostler, 2014). Foreign investment can also use
licensing to its use through the following advantages and disadvantages:
Advantages:
 The most important advantage of licensing is that there are no upfront investments for
the parent company be it in the manufacturing capacity or other marketing
campaigns. The initial upfront investment is one of the greatest barriers which hinder
the entry of an organization in new geographies which is mitigated through this
format of market entry
 Licensing is the most rapid way to gain entry into any market. Business is all about
identifying opportunities, target the potential customers and staying ahead of
competition. This requires rapid and brisk decision making along with action which
can be provided by the licensing mode of market entry
 Certain countries impose trade barriers in order to boost their domestic production or
manufacturing. Such regulatory barriers to entry into market can be overcome with
the help of licensing

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 The risk involved in such strategy is minimal since the company does not require to
invest huge financial or other resource and in case the venture failures or requires
some improvement the parent company has the time for introspection
Disadvantages:
 The biggest disadvantage of the licensing format is the lack of control over the
production or other processes which add value to the product or services. As the brand
name is associated with the product or service it is extremely crucial that the licensee
maintains the benchmark level of customer satisfaction
 An extension of the first disadvantage would be the difficulty in monitoring the
quality of the product or service. As the process is completely happening in a premise
outside the reach of the parent company it becomes difficult for them to maintain total
quality management
 There is always the risk of generating a competitor through licensing. If the parent
company shares the core competency of their operations with the licensee then there
is every chance that the licensee would try to backward integrate and start its own
operations
 Market development is also limited since there is no scope for the parent company to
directly interact with their customers and understand their preferences or choices. This
hinders the evolution of company through innovative products and solutions. The
company is not able to keep track of the changing trends in the market which might
led to the demise of the company as can be seen with Nokia
Q-2) Critically explain to your client company that geography and history are two of
the environments of foreign marketing that should be understood and that must be
included in foreign marketing plans to a degree commensurate with their influence on

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marketing effort. Use examples to illustrate the key points of your discussion. Answer
with reference to business format Licensing operations.
Ans: Culture of any country or region is something which is acquired through years of
experiential learning. People are born with a clean slate and slowly but steadily they try to
understand and imitate the culture or norms of the society in which he or she lives. For
instance, a new born child does not understand the ways of his community but he starts
closely observing whatever happens around him to master the norms of his society. Language
acts as the primary source of knowledge transfer from the learned members of the community
to the new member of the society. All these discussions reinforce the fact that there is a need
to learn about the culture of a place in order to blend with the people of that place (Niemans,
2013).
Foreign investment Ltd. needs to understand these concepts in order to be successful
in a foreign country with completely different set of cultures and perceptions. The geography
of a country, its topography and climatic conditions have significant effect on the preferences
and taste of the population of a country. They also mould the economic conditions as well as
the marketing system which needs to be understood for the successful launch of any product.
Marketing is all about understanding the needs of the prospective consumers and thereby
provide a solution to them. Foreign investment ltd. should look at the entire world as its
marketplace and therefore he has to be adept in the geographical conditions of the new
country to enter so that he successfully performs a need gap analysis and after that presents
the value proposition of his product to its customer. For example, a company selling
machineries in tropical region has to understand that certain special protective measures need
to be incorporated in the design so that it can withstand the hot and humid conditions of the
country. Geographic diversity also has significant influence on the economic profile that
exists in a country. For example countries with hostile climatic conditions provide less

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opportunities for economic development whereas those strategically located with abundance
of natural resources are some of the richest countries in the world which pose significant
growth opportunities for a company. All these factors need to be considered while evaluating
the marketing profile of foreign market and therefore enter with a licensing format
(Mukherjee, 2012).
Historical knowledge about the country and people in which a company wants to
venture into is particularly essential for a Foreign investment since it helps to understand the
attitudes and perceptions of people towards certain products or attributes. Attitude towards
the role of government and business among the people of a country are shaped through
historical evidence which needs to be understood by the marketing department of Foreign
Investment and accordingly choose the market entry strategy. Attitude towards foreign
corporation, sources of management authority, relationship among the manager and their
subordinates, etc. all these organizational and perception related issues shape the success of
any company in a foreign market. So these need to be factored in while choosing the market
entry strategy among the alternatives like direct exporting, contract manufacturing or
licensing. There are certain prejudices and fears among the people of a country through
historical practice which sometimes creates barrier towards the successful operations of a
company in a new market.
Licensing is particularly useful when the geography of any country is quite unique
and different from the home country where Foreign investment operates. There is a need for
customization and localization in the entire value chain of the operations which might prompt
licensing as the best format for market entry. Apart from that the historical attitude and
perceptions which are hostile towards the operation of foreign corporations wherein they are
viewed as exploitative and oppressing then the use of licensing format wherein the managers
are from local background and have greater acceptability among the subordinates are more

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successful. Keeping in mind these factors with respect to historical and geographical
background of a country which might shape the business environment in a foreign market the
market entry strategy should be decided for Foreign investment Ltd. (LaFOLLETTE, 2010).
Q-3) Critically evaluate the commonly held belief that there is no single market entry
strategy which is appropriate in all circumstances. Answer with reference to business
format Licensing operations.
Ans: This report has already highlighted the different situations in which a licensing format is
better than other modes of market entry strategy. Similarly all the other market entry
strategies are perfectly fine-tuned to serve specific circumstances with respect to the
economic and social conditions of the foreign country as well as the competency and
requirement of the parent company. As already mentioned that from the perspective of parent
company there are two major consideration which drive the decision for choosing a particular
market entry strategy. One of them being the technological competency and the other being
managerial efficiency. If technological expertise is the major competency of an organization
and the value added to the product or service is dependent on the technical skill or knowledge
then a fully owned subsidiary, direct exporting, acquisition or Greenfield project is the best
way to enter any market. Again if the expertise is mostly based on managerial efficiency or
the business functions like marketing, operations or human resources then licensing,
franchising or contract manufacturing can be the better option. With this premise licensing is
best for Foreign Investment Ltd. Strategic alliance is midway among all these options
wherein the two companies leverage on each other’s expertise and resources to gain market
share in the new geography. Apart from these considerations there are few others which drive
the choice for market entry strategy, one of them being the pressure for cost optimization. If
the parent company is going through a cash crunch and does not have the financial resource
to start a Greenfield project or acquire a suitable company then it has to resort to direct

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exporting which is the most cost efficient among all the options at least during the entry
period. If the firm has no foreign manufacturing experience and the entire production is
concentrated in the home country then also exporting seems to be the best option for market
entry since one needs to understand the culture, history and attitude of the people where the
company wants to make an entry before setting up a plant or production facility (Johansson,
2006).
Sometimes there is a need for improvement or modification of the product so that it is
successful in the foreign market. This requires knowledge of the local market and the
consumer preferences which can be provided by the licensing partner. So in such cases where
some modification or innovation is required then licensing can be considered to be the best
format for market entry. The improvement can be in any form like a product modification or
an innovation in the marketing campaign or some incentive to the employees so that the
productivity can be increased. The developed countries are saturated and businesses are
looking towards the emerging economies to drive their sales revenue and expand their market
share. However the emerging economies have their own share of uncertainties involved with
respect to stable government, regulatory regimes or intellectual property rights which are
unfavourable for the parent organization. In order to safeguard themselves from such vagaries
of the new market, the parent company can enter into strategic alliances with a partner
operating for quite some time in the new market and has considerable knowledge about how
to handle such situations. At last there may be instances wherein the firm needs to understand
the pulse of the market from the very inception but cannot share their intellectual property
rights which is their core competency like the case of pharmaceutical companies. In those
cases acquisition seems to be best option for market entry strategy (Helm, 2004).
The above discussion with respect to different scenarios prevailing in the new market
and the condition of the parent company it is justified to conclude that not a single market

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entry strategy is going to yield the best result for a company at all circumstances. There needs
to be fair amount of analysis before going on with a particular marketing strategy.
Q – 4) Critically discuss what strategic options are open to marketing firms when
attempting to deal with the problems of non-tariff barriers in developing and
economically developed and industrialised countries? Choose at least one industrialised
country and one developing country to illustrate the points made. Answer with
reference to business format Licensing operations.
Ans: Non-tariff barriers are obstacles that hinder trade between two countries and the
obstacle is something different from the traditional tariff barriers like imposition of export
duties or tax, etc. Some of the common examples of non-tariff barriers include quotas,
embargoes, sanctions, levies and other restrictions which will be elaborated in the ensuing
discussion (Hayes, 2010). As an example this report has chosen the textile and clothing
industry and the trade relationship among USA and India is the perfect example where non-
tariff barriers have been implemented over the years. Several empirical evidence and data
have proved that textile and clothing industry has faced the maximum number of non-tariff
barriers. These barriers range from labelling restrictions, certification requirements, minimum
import prices, import restrictions, additional documentation, rules of origin, labour and
environmental standards. It has been observed that the countries which mostly resort to no-
tariff barriers include EU, USA and Mexico while other are recent participants in this
phenomenon.
In the present scenario USA is the largest single market for the Indian textile and
garments. But there are several restrictions that have been implemented by the US authorities
through rules of origin and norms which violate the US labour policies. There have been
issues raised which also indicate non-compliance to the environmental rules and security
checks of the consignments. The Indian exporters face issue with respect to maintaining