Market Entry Methods
After assessing the environment in your selected country, how do you decide which are the best countries to enter? Paliwood (1993) suggests that before you enter an overseas market there are six factors that need to be considered: Speed – How quickly do you wish to enter your selected market? Costs- What is the cost of entering that market? Flexibility – How easy is it to enter/leave your chosen market? Risk Factor – What is the political risk of entering the market? What are the competitive risk?
How competitive is the market? Payback period – When do you wish to obtain a return from entering the market? Are there pressures to break even and return a profit within a certain period? Long- term objectives- What does the organization wish to achieve in the long term by operating in the foreign market? Will they establish a presence in that market and then move onto others? Trading overseas There are a number ways an organization can start to sell their products in international markets. 1. Direct export.
The organization produces their product in their home market and then sells them to customers overseas. 2. Indirect export The organizations sells their product to a third party who then sells it on within the foreign market. 3. Licensing Another less risky market entry method is licensing. Here the Licensor will grant an organization in the foreign market a license to produce the product, use the brand name etc in return that they will receive a royalty payment. 4. Franchising Franchising is another form of licensing.
Here the organization puts together a package of the ‘successful’ ingredients that made them a success in their home market and then franchise this package to oversea investors. The Franchise holder may help out by providing training and marketing the services or product. McDonalds is a popular example of a Franchising option for expanding in international markets. 5. Contracting Another of form on market entry in an overseas market which involves the exchange of ideas is contracting.
The manufacturer of the product will contract out the production of the product to another organisation to produce the product on their behalf. Clearly contracting out saves the organisation exporting to the foreign market. 6. Manufacturing abroad The ultimate decision to sell abroad is the decision to establish a manufacturing plant in the host country. The government of the host country may give the organisation some form of tax advantage because they wish to attract inward investment to help create employment for their economy. . Joint Venture To share the risk of market entry into a foreign market, two organisations may come together to form a company to operate in the host country.
The two companies may share knowledge and expertise to assist them in the development of company, of course profits will have to be shared out also. All businesses need to set objectives for themselves or for the products or services they are launching. What does your company, product or service hope to achieve? Setting objectives are important. it focuses the company on specific aims over a period of time and can motivate staff to meet the objectives set. A simple acronym used to set objectives is called SMART objectives.