Entry Modes in International Marketing

 INTERNATIONAL MARKETING

Section 1-D

Entry Modes in International Marketing

1.       Franchising – a continuing relationship in which the franchisor provides a licensed privilege to the franchisee to do business and offers assistance in organizing, training, merchandising, marketing and managing in return for a consideration.

It is also a form of business which the owner (franchisor) obtains distribution through affiliated dealers (franchisee).

Advantages of Franchising:

a.       Possibly easier to finance.

b.      Access to quality training and ongoing support.

c.       Established concept with reduce risk of failure.

d.      Access to extensive advertising

e.      Access to lower costs and possibly centralized buying.

f.        Few start-up problems.

g.       Use of well known trademark/trade name.

Disadvantages of Franchising:

a.       Onerous reporting requirements.

b.      Costs of supplies/materials may be more expensive.

c.       Possible exaggeration of advantages by the franchiser.

d.      Franchiser may saturate your territory.

e.      Cost of franchise and other fees may reduce profit.

f.        Inflexibility due to restrictions by the franchiser.

g.       Termination policies of franchiser may allow little security.

2.       Licensing – This entails only a part of a whole franchising aspect. A licensee may only get the patent, trademark, or manufacturing know how. The licensee has to pay royalties due the parent company.

Advantages of Licensing:

a.       Require little capital.

b.      The quickest and easiest way to enter a foreign market.

c.       Enables the firm to gain knowledge of and access the local market.

d.      Provides a means of entry when import restrictions forbid any other ways or when a company is sensitive to foreign ownership.

e.      Offer saving on tariff, transport and local production costs.

Disadvantages of Licensing:

a.       The licensor may establish his/her own company.

b.      Provides little returns

c.       Problem of control on license may arise.

3.       Manufacturing – by this mode locals can assume:

a.      Assembly Plant – the firm produces domestically all or most of the components of a product or a finished product itself.

b.      Contract Manufacturing – the product is manufactured for the foreign market by a local firm under contract with the international company. ‘International Subcontracting’ ex. EPZ (Export Processing Zones) – a designated area with minimum tax requirements.

c.       Joint Venture – the firm has enough equity positions to have a voice in management, but not enough to completely dominate or control the venture.

d.      Wholly Owned Plant – a 100% local ownership of an international firm.

4.       Management Contracts – supply management know how to a foreign company that is willing to the capital. Ex. Encoding jobs, abstractors, illustrators, cartoonists, etc.

5.       Exporting – the marketing of goods and services produced in one country to another country.

                                 (For details see Modes of Venturing into the Export Business (Section 2-B)